AM — Could B Investments preempt Adnoc’s bid to acquire half of TotalEnergies Egypt

Good morning, nice people, and welcome to the month of August. It feels a bit as if the volume of news is slowing (as is traditionalf or the first two weeks of August), but we nonetheless have a meaty issue for you this morning with plenty of FX, M&A, capital markets and investment news.

EGP WATCH- The EGP has broken the 19.00 barrier against the greenback for the first time since December 2016, when the currency hit an all-time low after the Central Bank of Egypt allowed the currency to move freely against the USD. The currency settled at 19.0084 against the USD during trading yesterday, leaving it down more than 20% since March when the central bank devalued the currency.

Also yesterday: Remittances from Egyptians working abroad declined 8% y-o-y in May to USD 2.4 bn. Flows were down 23% from USD 3.1 bn in April, according to Central Bank of Egypt figures (pdf).

FROM THE RUMOR MILL-

#1- Is EFG planning to IPO valU? Rumor has it that our friends at EFG Hermes are cooking up an IPO on the EGX for its consumer finance subsidiary, valU, within the next two years. That’s according to Al Shorouk, which published a piece Saturday citing an “informed source” as saying that the offering will likely go ahead during 2023 and that EFG has already started preparing.

#2- Has cabinet just finalized the automotive strategy? That’s what Al Mal is reporting, citing a source at the Trade and Industry Ministry. The strategy — which has been on the government’s to-do list since 2016 — should go up for debate at the House next October. We’re looking into this and will bring you more as soon as we have it.

HAPPENING TODAY-

The first wheat shipment could leave Ukraine today, Turkey’s presidential spokesperson said yesterday. “If all (details) are completed by [Monday], it seems like there is a high possibility that the first ship will leave the port [Monday] … We will see ships leaving the ports the next day at the latest,” Ibrahim Kalin told a Turkish broadcaster yesterday. This would be the first grain shipment to leave one of Ukraine’s Black Sea ports since Russia invaded the country on 24 February, and comes less than two weeks after the UN and Turkey brokered a landmark pact between Kyiv and Moscow to allow Ukraine to resume wheat exports via sea. (Reuters | Bloomberg)

How much is ready to go? Sixteen ships carrying 580k tons of grain are currently docked in the country’s Black Sea ports, according to Reuters.

Ukraine is leading the international front pages this morning:

• Donetsk region is being evacuated: Ukrainian President Volodymyr Zelenskiy has ordered the evacuation of civilians in Donetsk region as Russian troops close in around the remaining population centers in the Donbas.
• Russian strikes kill Ukrainian wheat tycoon: Oleksiy Vadatursky, one of Ukraine’s richest people and owner of the grain exporter Nibulon, died in Russian airstrikes in the southern city of Mykolaiv yesterday.
• Europe is easing off its energy sanctions on Moscow: The EU will delay plans to ban ships carrying Russian crude from the Lloyd’s of London ins. market in an effort to prevent the global energy market from destabilizing further. It has also backtracked on one of its sanctions against Russian oil, and will now allow European companies to pay Russian state-owned entities, such as Rosneft, for the purpose of transporting oil to countries outside the bloc under “strictly necessary” circumstances.

Read more: Reuters | AP | NYT | Bloomberg | FT | WSJ | BBC.

HAPPENING THIS WEEK-

We’ll find out how much of Beltone Financial will be acquired by Chimera this week: Shareholders have until Wednesday, 3 August, to subscribe to Chimera Investment’s mandatory tender offer for the financial services firm. The Abu Dhabi-based investment firm has already acquired a 56% stake in Beltone after Orascom Financial last week agreed to sell its shares. Chimera is offering to pay EGP 1.485 per share for up to 90% of Beltone, valuing it at around EGP 690 mn.

PMI out on Wednesday: We’ll get an idea of how the private sector fared in July when S&P Global releases its latest purchasing managers’ index (PMI) on Wednesday. The index fell to its lowest level in two years in June as surging inflation hit demand and output.

The National Dialogue board will talk about the economy this week: The board of trustees overseeing preparations for the National Dialogue will meet Wednesday to discuss the economic agenda.

LATER THIS MONTH-

• Foreign reserves figures for July will likely be released at the end of this week or the beginning of the next;
• Inflation data for July will land on Wednesday, 10 August.
• Interest rates: The Central Bank of Egypt will meet to discuss interest rates on 18 August.

PSA- Kids have another few days to apply to STEM schools for the coming school year: The Education Ministry will continue to accept applications to STEM schools via its website until Wednesday, 3 August, after receiving many requests from students who were not able to register in time, it announced in a statement yesterday.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

COP27 WATCH-

You know global climate goals are under threat when the German Green party starts firing up the coal plants: It’s backtracking like this that Foreign Minister and COP27 President Sameh Shoukry tells Bloomberg that Egypt wants to prevent. The country’s central focus for the summit — being held in Sharm El Sheikh in November — is to ensure there is “no backsliding or backtracking on commitments and pledges” made at previous gatherings, he says. “We hope that COP27 will first confirm the political commitment to climate change and the agreed transition at the highest level.”

CBE, BoE to talk climate finance in run-up to COP27: The Bank of England (BoE) is sharing its experience of managing climate risks in the world of finance in a three-day workshop with the Central Bank of Egypt (CBE), according to a statement (pdf). The workshop will also cover the work of the Network for Greening the Financial System, a network of central banks — CBE included — and financial regulators that aims to mobilize green finance and manage climate risks in the banking sector.

ICYMI-

Missed this week’s Inside Industry? In our weekly vertical exploring all things industry and manufacturing, we looked at what pharma players want to see from the state’s privatization program to give the sector a boost.

MARKET WATCH-

Wall Street is taking bullish positions on the greenback, as the Federal Reserve’s fastest tightening cycle in years and rising fears of recession cause investors to pile into the currency. The USD has been on a tear this year, reaching a record high according to some measures and prompting bullish positions to hit their highest level in seven years, according to a survey of fund managers picked up by Bloomberg.

Should we be preparing for a “doom loop”? As demand for the USD grows stronger, it is hitting economies worldwide that rely on the currency for imports and are desperate to keep foreign investors in their markets. This creates a cycle of interest rate hikes that has knock-on effects on investment and fuel inflation. “There is simply no alternative to the USD no matter where you look and it’s pummeling everything else as a result — economies, other currencies, corporate earnings,” a senior banking executive tells Bloomberg.

In Asia, the strengthening USD is posing a bigger problem than inflation: “We’re not particularly worried about inflation driving policy, but exchange rate weakness, USD liquidity drying up, those things [are] a bigger issue, [and issues such as] the balance of payments angle,” Taimur Baig, managing director at DBS Bank, told CNBC.

*** It’s Blackboard day: We have our weekly look at the business of education in Egypt, from pre-K through the highest reaches of higher ed. Blackboard appears every Monday in Enterprise in the place of our traditional industry news roundups.

In today’s issue: Why future flow securitization could be the debt instrument of choice for education players moving forward: Last year, the Financial Regulatory Authority (FRA) approved amendments to the Capital Markets Act that would allow service providers to raise capital by selling securitized bonds to investors after pooling together so-called “future flows” — promising to pay back using money they can reasonably expect to make at a future date. Months later, EGX-listed private sector education outfit CIRA became the first company to get approval to take a future flow program to market, putting the spotlight on the possibilities this debt instrument could offer for the education sector. We spoke with industry stakeholders to learn why this debt instrument is suitable for private-sector education providers and what it will take for more players to consider it.

Could B Investments pre-empt Adnoc’s bid for TotalEnergies Egypt? Private equity outfit B Investments is “evaluating all options” after Adnoc Distribution agreed to buy 50% of TotalEnergies Egypt last week, B Investments IR head Omar El Labban told Enterprise.

B Investments is the only minority shareholder in TotalEnergies Egypt: Under the agreement, Adnoc would acquire the entirety of its c. 15.4% stake in the fuel distributor, B Investments said in a disclosure to the EGX (pdf) yesterday. Total Energies Marketing Afrique (TEMA), which holds the 84.6% majority stake, would sell 34.6% to Adnoc, handing the two companies 50-50 ownership.

B Investments has the right of first refusal, allowing it to pre-empt Adnoc’s bid and buy the 34.6% stake that TEMA plans to sell to the Emirati firm. Alternatively, B Investments can allow the transaction with Adnoc to go ahead and exit TotalEnergies entirely.

B Investments’ board has until 29 August to decide how to respond to Adnoc’s bid. The board “should meet soon” to make a decision on the offer, El Labban said. “We’re in a good position to evaluate all our options and determine which option is best suitable for us.”

ICYMI- Adnoc subsidiary Adnoc Distribution last week agreed to acquire 50% of TotalEnergies Egypt for up to USD 203 mn, which the company said would be the largest acquisition in its history. It is pending regulatory approval and should be completed in 1Q 2023.

ADQ is being linked to everyone right now: Delta Sugar has denied knowledge of a rumored acquisition bid by Abu Dhabi wealth fund ADQ, saying in a disclosure (pdf) to the EGX yesterday that it has not received any offers. A report in the domestic press last week that ADQ is considering making an offer for the EGX-listed company, and quoted sources that claimed it was in talks with Delta’s parent company. In an interview with Amwal Al Ghad yesterday, Delta Chairman Ahmed Abu El Yazid said that the company has not held any talks with ADQ and said the report was untrue.

Obourland issued a similar statement this time last week: The EGX-listed cheesemaker last week denied links with ADQ after press reports claimed that the fund’s food and beverage subsidiary, Agthia Group, was planning to submit a non-binding offer for the company. Agthia earlier this month agreed to purchase 60% of Abu Auf parent company Auf Group for EGP 2.9 bn.

IN OTHER M&A NEWS-

ADIB exits Cairo National Company for Securities: A consortium Solid Capital and Digitize for Investment and Technology has acquired Abu Dhabi Islamic Bank’s 50.88% stake in Cairo National Company for Securities, marking its first entry in the securities sector, Mubasher reported, citing a statement from Solid Capital. Solid Capital will restructure the brokerage firm and hopes to expand its portfolio and increase its market share.

Egypt wants to attract USD 10 bn of foreign direct investment during the current fiscal year, Planning Minister Hala El Said said last week, according to a statement.

This would be a significant step up: FDI has averaged USD 7.3 bn a year over the past five years, according to our in-house calculations of balance of payments figures.

Fresh FDI has been near the top of the government’s priority list in recent weeks as it looks to attract foreign capital back to the country amid rising pressure on the balance of payments caused by the spillover effects from the war in Ukraine. Prime Minister Moustafa Madbouly and senior government officials have in recent weeks held talks with companies in the Gulf, the US and Europe in a bid to draw fresh investment. The UAE, Saudi Arabia and Qatar have already pledged to provide USD 22 bn in investment and central bank deposits this year.

Ambitious export targets: The government wants the country’s non-oil exports to hit USD 35 bn this year, El Said said. This is 75% higher than the USD 20.1 bn exported in FY 2020-2021. Egypt’s non-oil exports totalled USD 12.8 bn in the first half of FY 2021-2022, according to the most recent figures.

FDI + exports > hot money: Both El Said and Finance Minister Mohamed Maait have in past weeks signaled that the government will try and dial back its reliance on portfolio inflows and focus on attracting sustainable FDIs.

The government wants to attract USD 40 bn in new investment over the next four years by selling state-owned assets to local and international investors. This comes under the government’s in-progress revamp of its privatization strategy, which it says will more than double the private sector’s role in the economy over the next three years.

FRA could double EGX freefloat requirements: The Financial Regulatory Authority (FRA) is studying the possibility of increasing the minimum freefloat requirement for EGX-listed companies to 10% of their total shares, up from a current 5%, FRA Chairman Mohamed Omran told CNBC Arabia yesterday. The FRA chief says the move would increase liquidity and trading volumes on the bourse, with Omran saying yesterday that some 72% of the shares owned by institutional investors on EGX are not traded, according to Al Mal. His statements come as the FRA holds public hearings this week on its 2022-2026 strategy.

But market stability + the state’s privatization push come first: Attracting fresh listings to the bourse and helping push forward the state’s plan to boost private participation in state-owned entities are the FRA’s priorities, Omran was reported as saying by Bloomberg Asharq. He added that upping freefloat requirements would only be considered once the markets are stable and have recovered from current volatility.

REMEMBER- The government is still holding out hope that it could sell stakes in as many as 10 companies before the end of the year, though the bourse is down more than 20% YTD amid global investor pullback from emerging markets, anemic volumes, rising US interest rates, redemptions from equity funds around the world, and talk of recessions in developed economies. The FRA last year moved to reduce the amount of capital that companies need to offer in freefloat in a move designed to encourage share sales on the bourse.

OTHER BITS & PIECES-

The regulator could cut fees to brokerage firms or postpone their collection by a year to help companies out until market conditions improve, Omran added, according to Al Borsa.

ESG bonds and carbon certificates on the horizon? Cabinet could issue amendments to the executive regulations of the Capital Markets Act, paving the way for the issuance of various kinds of sustainable bonds and carbon certificates, Omran said, according to Bloomberg Asharq and Hapi Journal. This comes a few days after the FRA reportedly received a request from a “local authority” to set up a fund for trading carbon credits to coincide with the COP27 summit in November.

Unnamed US investors are interested in setting up an agricultural investment fund ranging between EGP 750 mn and EGP 1 bn, Omran told Bloomberg Asharq, as the regulator looks to encourage inflows into agriculture and precious metals.

Only a fifth of Egyptian firms have provided financial support to employees to help them cope with rising inflation, according to a poll (pdf) from HR consulting firm Mercer. The survey of more than 200 local and international companies operating in Egypt finds that 22% have either raised salaries or offered temporary allowances in response to the economic uncertainty caused by the declining currency.

It hasn’t been a great year for the currency: External pressures have caused the EGP to fall more than 20% against the greenback since March. The currency yesterday broke the 19.00 handle for the first time since December 2016. This has helped turbocharge inflation — already facing sharp upward pressure from soaring global energy and food prices, before and then as a result of Russia’s war in Ukraine — to accelerate and hit three-year highs this year.

But almost half of companies aren’t sure how to act: Around 46% of respondents told the survey that they plan to provide some sort of support to their staff but haven’t taken a final decision. Around 15% said they were planning to compensate employees but haven’t yet done so.

How employers are helping employees: About 13% of companies have hiked salaries by an average 12.8% to offset the rising cost of living. Some 4% are providing temporary allowances, 2% paid out a single lump sum, and 3% are providing other forms of compensation.

Inflation is hurting the private sector: Activity in Egypt’s non-oil private sector recorded its worst performance in two years in June, contracting at a faster pace as client demand dropped on supply-side pressures, rising inflation and the devaluation. The S&P Global purchasing managers’ index fell to 45.2 from 47.0 in May, the lowest reading since June 2020 and marking the 19th consecutive month of contraction.

Leading the conversation on the airwaves last night: President Abdel Fattah El Sisi directed the Armed Forces Engineering Authority to renovate the Nasser Medical Institute in Cairo, according to a cabinet statement. The revamp, which will expand the institute’s capacity and develop its infrastructure, got coverage from Al Hayah Al Youm (watch, runtime: 2:24), Masaa DMC (watch, runtime: 1:04), and Sada El Balad (watch, runtime: 3:08).

Also on the airwaves last night:

• ECA cracks down on egg cartel over alleged price-fixing: The Egyptian Competition Authority (ECA) has referred four egg distributors to prosecution over allegedly monopolistic practices that led to an “unprecedented” surge in prices, ECA head Mahmoud Momtaz said on Saturday. The traders are accused by the regulator of forming a cartel to fix egg prices and could be fined EGP 500 mn each. The ECA has not publicly named the four companies. (Ala Mas’ouleety | watch, runtime: 9:34)
• The IMF’s updated World Economic Outlook continued to get attention in the wake of its release last Wednesday. Al Hayah Al Youm picked up a cabinet statement emphasizing that Egypt will be the fourth-fastest-growing economy next year in a basket of 30 countries assessed by the Fund. (Al Hayah Al Youm | watch, runtime: 16:08).
• A new antiviral covid med is on the market: Masaa DMC gave an inside look into the local factories manufacturing the antiviral covid-19 drug Molnupiravir, which became available in pharmacies last week. (Masaa DMC | watch, runtime: 22:15).
• Egypt will add 1 mn feddans of cultivated area for wheat during the next season, saving us about USD 1 bn from the wheat import budget. (Ala Mas’ouleety | watch, runtime: 6:40)
• More on the National Dialogue: Al Hayah Al Youm continued to cover the weekend’s meetings by the board of trustees preparing for the forthcoming National Dialogue, during which they highlighted the issues of housing and overpopulation as two crucial topics of discussion for the social agenda. (Al Hayah Al Youm | watch, runtime: 4:14)

There’s not a lot happening in the international press this morning as far as Egypt is concerned: The National takes a look at funding slowdown in Egypt’s startup scene while UK newspaper Metro picks up the discovery of a new “sun temple” in Abusir, north of Saqqara.

Jordan has agreed to reconsider imposing import restrictions on Egyptian exporters following a meeting between Egyptian and Jordanian officials, an official at the Trade Ministry told us yesterday. Jordan said last week that it would move to impose pre-clearance fees for Egyptian imports and require the use of letters of credit (L/Cs) in response to fees charged by Egypt’s new digital customs system and the new requirement for Egyptian importers to use L/Cs. A joint working group will be formed to facilitate procedures and deal with any future challenges, a Trade Ministry statement said, without providing further details.

Other things we’re keeping an eye on this morning:

• The New Urban Communities Authority will put plots of land that it failed to sell previously back up for auction. Buyers need to be able to stump up at least 35% of the land’s value in hard currency, though investors who pay more than this will be prioritized. (Al Mal)
• Axa Egypt and Egypt Post’s investment arm, Post for Investment, want to set up a micro ins. company. (Al Borsa)