Monday, 1 August 2022

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

TL;DR

WHAT WE’RE TRACKING TODAY

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.

***

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WHO YOU ARE- Our Head of People is responsible for aligning HR practices with business objectives and works alongside some very smart people, including our C-level and leadership teams, to design and develop HR strategies and monitor their effectiveness. Candidates should have at least 10 years of experience in human resources, with extensive knowledge of key HR disciplines including performance and talent. We are looking for someone who isn’t afraid to challenge, innovate, experiment, and move at a fast pace — not to mention creating some very cool new things to drive people engagement and improve a high-performance culture.

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***

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*** 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.

enterprise

Live music at Somabay: 2CELLOS. World-renowned and wildly popular cellist duo, 2CELLOS, are bringing the magic of music to Somabay on the 18th of November 2022. Get ready for an unforgettable night of captivating performances and electric energy.

M&A WATCH

B investments has a month to pre-empt Adnoc’s play for half of TotalEnergies Egypt

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.

M&A WATCH

Delta Sugar denies it’s the subject of an ADQ takeover bid

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.

ECONOMY

Gov’t has ambitious FDI + export targets this year

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.

CAPITAL MARKETS

FRA could double EGX freefloat requirements to boost liquidity

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.

ECONOMY

Only 22% of companies are helping employees cope with rising inflation –Mercer

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.

enterprise

LAST NIGHT’S TALK SHOWS

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)

EGYPT IN THE NEWS

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.

ALSO ON OUR RADAR

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)

PLANET FINANCE

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EFG Hermes - https://efghermes.com/

Move over, USD. The EUR is the new funding currency of choice for EM carry traders: Investors trading emerging-market currencies with borrowed EUR have seen as much as 29% gains this year as the EUR’s fall against the greenback helps prop up some popular EM carry trades, Bloomberg reports. The EUR has fallen 10% against the USD so far this year on geopolitical tensions and fears of recession, briefly reaching parity last month for the first time in decades. The greenback, meanwhile, has been on a tear this year due to rising interest rates and increasing market instability, and according to some gauges has reached record highs. This, coupled with rising yields, has eaten into gains on USD carry trades and turned to losses on most EM currencies.

This has left the EUR looking attractive to EM traders: Though EM currencies have also been hard hit by the USD’s ascent, many are continuing to hold their own against the EUR. Eighteen of the 23 currencies tracked by Bloomberg have risen against EUR since the start of the year, making them potentially profitable carry trades.“Funding carry trades by selling EUR is becoming more common,” said one currency strategist at Wells Fargo. “The EU looks more likely to fall into recession and geopolitical developments should weigh on the currency, making EM carry trades funded by the EUR an interesting option.”

Investors expect this to last through the year’s end: “It doesn’t look good for the EUR, in the second half,” said Marek Drimal, strategist at Societe Generale. “Even if the ECB surprises with another large hike, there are still substantial risks for the EUR before we see a turnaround.”

Want more on the carry trade? Enterprise Explains has you covered.

Oil prices are super-charging the Saudi economy: The Saudi economy grew at its quickest pace in more than a decade in 2Q 2022, according to preliminary estimates (pdf) out yesterday. The economy grew at a 11.8% clip during the quarter on the back of heightened oil prices, which caused growth in the oil economy to surge 23.1% y-o-y. Non-oil GDP expanded at just 5.4%.

Libya could help to calm oil prices: Libya’s crude output has rebounded to 1.2 mn barrels per day, more than three months after protesters shuttered much of the country’s oil industry, according to Bloomberg.

ALSO FROM PLANET FINANCE-

  • No more growth for UK business this summer: The British private sector isn’t expecting to see any growth over the next three months, according to a Confederation of British Industry (CBI) survey, as business brace themselves for the Bank of England (BoE) to on Thursday announce what could be its largest rate hike since 1995. (Reuters)
  • More poor data out of China: Chinese manufacturing activity unexpectedly contracted in July as the country’s zero-covid policy continues to weigh on its economy. (Reuters)
  • Facebook is trying to recalibrate expectations: Meta chief exec Mark Zuckerberg reportedly acknowledged to employees his company’s pandemic-era forecasts on growth were too optimistic and failed to account for a potential downturn. The company posted its first-ever quarterly decline in revenues in 2Q 2022 and issued a gloomy forecast for the rest of the year. (Reuters)

Up

EGX30

9,467

+1.0% (YTD: -20.8%)

Up

USD (CBE)

Buy 18.90

Sell 19.01

Up

USD at CIB

Buy 18.93

Sell 18.99

None

Interest rates CBE

11.25% deposit

12.25% lending

Up

Tadawul

12,199

+0.4% (YTD: +8.1%)

Up

ADX

9,663

+1.0% (YTD: +13.8%)

Up

DFM

3,338

+1.1% (YTD: +4.4%)

Up

S&P 500

4,130

+1.4% (YTD: -13.3%)

Up

FTSE 100

7,423

+1.1% (YTD: +0.5%)

Up

Euro Stoxx 50

3,708

+1.5% (YTD: -13.7%)

Up

Brent crude

USD 103.97

+2.1%

Up

Natural gas (Nymex)

USD 8.23

+1.2%

Up

Gold

USD 1,781.80

+0.7%

Down

BTC

USD 23,593

-1.4% (YTD: -48.5%)

THE CLOSING BELL-

The EGX30 rose 1.0% at yesterday’s close on turnover of EGP 649.29 mn (20.3% below the 90-day average). Local investors were net buyers. The index is down 20.77% YTD.

In the green: Heliopolis Housing (+3.4%), EFG Hermes (+3.3%) and Ibnsina Pharma (+2.5%).

In the red: Rameda (-2.8%), GB Auto (-2.1%) and ADIB Egypt (-1.8%).

blackboard

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. We are now on the cusp of Egypt’s first-ever future flow securitization issuance, after EGX-listed private sector education outfit CIRA became the first company to receive approval from the FRA to take a EGP 2 bn future flow securitized bond program to market, putting the spotlight on the possibilities this debt instrument could offer for the education sector.

What is future flow securitization? The newly-introduced financing tool involves creating bonds with a promise to create assets in the future. Future income — whether from club memberships, phone bills, utility payments, tuition fees or rents, all of which can typically be predicted and are more or less consistent flows — is packaged into securities and offered to investors in order to raise capital. This gives public- and private-sector companies such as utilities providers, healthcare companies, telecom players, and education outfits a new way to access liquidity. We have a handy explainer on the tool breaking down exactly how it works.

Why does it work for the education sector? “The education sector is known for its very defensive cashflows,” CIRA CEO Mohamed El Kalla tells Enterprise. “The minimum a client stays with us is four years, which is the university tenure, and it can go up to 12 years for K12,” he said. “No one will stop sending their students to schools,” said Zulficar and Partners founding partner and head of capital markets Anwar Zeidan. The firm — led by Zeidan and another one of Zulficar’s founding partners, Ashraf Ihab — provided legal counsel to CIRA and helped the company prepare its first EGP 800 mn issuance. “That’s why, in my view, education is the most suitable sector for this tool,” he adds.

For education players, cashflow > physical assets. The strengths of an education management company lie not in its physical assets, but in the fact that schools are operating and bringing in consistent cashflows in the form of tuition fees, El Kalla said. “The issue with other types of loans and bonds is that they rely on physical assets for collateral, and in education players’ case, an empty physical asset means nothing compared with its stable cashflow,” he said.

That means debtors will be looking at cashflow instead of asset value: “Companies have to build a solid case for the business’ expected performance over the next ten years, specifically on the revenue angle,” El Kalla explained. The regulator then does due diligence on the company’s debt history and current debt levels, he added. “You’re basically building a case around the bankability of your cashflow, rather than the value of your assets,” El Kalla said.

The absence of asset valuation makes the debt-raising process more straightforward: “This tool takes away the legwork of obtaining guarantees and asset valuations before every issuance you take to the market,” El Kalla said. “During such difficult times for markets, even agreeing on asset valuations is very complicated,” he added, noting that cashflows, on the other hand, are a much more transparent and “non-debatable” form of collateral to work with.

Access to liquidity also helps eliminate risk: “Any debt has its own risks,” El Kalla said. “The usefulness of this tool is that when your guarantee is your top line, you have access to cash coming in rather than standing on stagnant, physical assets,” he explained.

That makes it very appealing to investors: “Our program is already getting a strong appetite from investors,” El Kalla said. “There’s direct access to [liquidity] for debtors,” he added, which makes it a relatively safe investment. The fact that future flow securities receive investment-grade ratings from ratings agencies also helps attract a wider class of investors.

The tool comes at a crucial time for education players: “Equity markets are currently in a very bad place, so the only viable capital raising method at the moment is debt,” Zeidan said. Education shares have not been spared the volatility of the markets since the beginning of the year, as we’ve reported previously. Private schools have also been struggling with meeting additional CAPEX costs on the back of rising inflation.

Rising CAPEX costs could push more education players to use this tool: “Increased inflation has definitely been putting pressure on both OPEX and CAPEX costs,” Omar El Bakry, BalancED Education’s group business development director, told us.” Higher land and building costs specifically have severely increased CAPEX costs for new green field projects, making it essential to explore all possible financing options.” BalancED could look towards future flow securities to help fund new projects’ CAPEX costs, El Bakry said. But the company is “still seeking more clarity on details such as market appetite, process, and pricing compared to more traditional debt tools,” he added. CIRA is also using the funds to finance CAPEX costs associated with its growth plans in the next three years, including expanding its university and K-12 offering, El Kalla said previously.

And for some, interest rates will be a major deciding factor: “We would consider future flow securitization if we were actively pursuing debt financing and if future flow securitization enabled us to obtain debt financing at reasonable rates,” Tammam Abu Shakra, advisor to the chairman of Esol Education, told us.

Securitized bonds generally have lower interest rates than non-securitized bonds, making future flow securities a cheaper alternative to expensive bank loans. El Kalla pegs future flow securities’ interest rates “at the lower margins” of interest rates of sukuk and securitized bond issuances.


Your top education stories for the week:

CALENDAR

OUR CALENDAR APPEARS in two sections:

  • Events with specific dates or months are right here up top
  • Events happening in a quarter or other range of time with no specific date / month appear at the bottom of the calendar.

AUGUST

Late July-14 August: 2Q2022 earnings season.

August: Work to extend the capacity of the Egypt-Sudan electricity interconnection to 600 MW to be completed.

August: Sharm El Sheikh will host the African Sumo Championship.

2-4 August (Tuesday-Thursday): First regional climate roundtable, Addis Ababa, Ethiopia.

3 August (Wednesday): Deadline for Beltone shareholders to respond to Chimera MTO.

3 August (Wednesday): National Dialogue board of trustees meets to discuss economic agenda.

3 August (Wednesday): OPEC+ meeting.

14 August (Sunday): Conference of Egyptian entities abroad.

14 August (Sunday): Retail portion of Ghazl El Mahalla IPO ends.

16 August (Tuesday): MNHD’s general assembly meeting to decide whether to allow SODIC to go ahead with due diligence on its takeover bid.

18 August (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

25 August (Thursday): Second regional climate roundtable, Bangkok, Thailand.

25-27 August (Thursday-Saturday): Jackson Hole Economic Symposium.

31 August (Wednesday): Late tax payment deadline.

SEPTEMBER

September: Naval Power, Egypt’s first naval defense expo

September: Central Bank of Egypt’s Innovation and Financial Technology Center to launch incubator for 25 fintech startups.

September: Egyptian-German Joint Economic Committee.

September: A delegation from Germany’s Aldi will visit Egypt to look at potential investments.

September: Government to launch an international promotional campaign for Egyptian tourism.

1-2 September (Thursday-Friday): Third regional climate roundtable, Santiago, Chile.

6-9 September (Tuesday-Friday): Gate Travel Expo 2022, El Kobba Palace, Cairo.

7-9 September (Wednesday-Friday): African Finance Ministers to meet in Cairo to coordinate an African-led position during COP27.

8 September (Thursday): European Central Bank monetary policy meeting.

11-13 September (Tuesday-Thursday): Environment and Development Forum (EDF), InterContinental City Stars, Cairo.

15 September (Thursday): Fourth regional climate roundtable, Beirut, Lebanon.

18 September (Sunday): Deadline for brokerage firms, asset managers and financial advisors to register with the Egyptian Securities Federation.

20 September (Tuesday): Fifth regional climate roundtable, Geneva, Switzerland.

20-21 September (Tuesday-Wednesday): Federal Reserve interest rate meeting.

22 September (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

26–27 September (Monday-Tuesday): The Africa Women Innovation and Entrepreneurship Forum (AWIEF) at the Cairo Marriott Hotel.

OCTOBER

October: Air Sphinx, EgyptAir’s low-cost subsidiary to commence operations.

October: Fuel pricing committee meets to decide quarterly fuel prices.

1 October (Saturday): Use of Nafeza becomes compulsory for air freight.

1 October (Saturday): 2022- 2023 academic year begins for public universities.

6 October (Thursday): Armed Forces Day, national holiday.

8 October (Saturday): Prophet Muhammad’s birthday, national holiday.

10-16 October (Monday-Sunday): World Bank and IMF annual meetings chaired by CBE Governor Tarek Amer, Washington, DC.

18-20 October (Tuesday-Thursday): Mediterranean Offshore Conference, Alexandria.

27 October (Thursday): European Central Bank monetary policy meeting.

Late October-14 November: 3Q2022 earnings season.

NOVEMBER

November: Cairo Water Week 2022.

1-2 November (Tuesday-Wednesday): Federal Reserve interest rate meeting.

3 November (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

3-5 November (Thursday-Saturday): Egypt Fashion Week.

4-6 November (Friday-Sunday): Autotech auto exhibition, Cairo International Exhibition and Convention Center.

6-18 November (Sunday-Friday): Egypt will host COP27 in Sharm El Sheikh.

7 November (Monday): The inauguration of the first line of the high-speed rail.

7-13 November (Mon-Sun): The International University Sports Federation (FISU) World University Squash Championships, New Giza.

21 November-18 December (Monday-Sunday): 2022 Fifa World Cup, Qatar.

DECEMBER

13-14 December (Tuesday-Wednesday): Federal Reserve interest rate meeting.

13-15 December (Tuesday-Thursday): US-Africa Leaders Summit.

15 December (Thursday): European Central Bank monetary policy meeting.

22 December (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

December: The Sixth of October dry port will begin operations.

JANUARY 2023

January: EGX-listed companies and non-bank lenders will submit ESG reports for the first time.

January: Fuel pricing committee meets to decide quarterly fuel prices.

7 January (Saturday): Coptic Christmas.

25 January (Wednesday): 25 January revolution anniversary / Police Day.

26 January (Thursday): National holiday in observance of 25 January revolution anniversary / Police Day.

FEBRUARY 2023

11 February (Saturday): Second semester of 2022-2023 academic year begins for public universities.

MARCH 2023

March: 4Q2022 earnings season.

23 March (Wednesday) — First day of Ramadan (TBC). Maghreb will be at 6:08pm CLT.

APRIL 2023

17 April (Monday): Sham El Nessim.

22 April (Saturday): Eid El Fitr (TBC).

25 April (Tuesday): Sinai Liberation Day.

27 April (Thursday): National holiday in observance of Sinai Liberation Day (TBC).

Late April – 15 May: 1Q2023 earnings season.

MAY 2023

1 May (Monday): Labor Day.

4 May (Thursday) National holiday in observance of Labor Day (TBC).

22-26 May (Monday-Friday): Egypt will host the African Development Bank (AfDB) annual meetings in Sharm El Sheikh.

JUNE 2023

28 June-2 July (Wednesday-Sunday): Eid El Adha (TBC).

30 June (Friday): June 30 Revolution Day.

JULY 2023

18 July (Tuesday): Islamic New Year.

20 July (Thursday): National holiday in observance of Islamic New Year (TBC).

23 July (Sunday): Revolution Day.

27 July (Thursday): National holiday in observance of Revolution Day.

Late July-14 August: 2Q2023 earnings season.

SEPTEMBER 2023

26 September (Tuesday): Prophet Muhammad’s birthday (TBC).

28 September (Thursday): National holiday in observance of Prophet Muhammad’s birthday (TBC).

OCTOBER 2023

6 October (Friday): Armed Forces Day.

Late October-14 November: 3Q2023 earnings season.

EVENTS WITH NO SET DATE

2H 2022: The inauguration of the Grand Egyptian Museum.

2H 2022: IEF-IGU Ministerial Gas Forum, Egypt. Date + location TBA.

2H 2022: The government will have vaccinated 70% of the population.

3Q 2022: Ayady’s consumer financing arm, The Egyptian Company for Consumer Finance Services, to release its first financing product.

3Q 2022: Swvl to close acquisition of Urbvan Mobility.

4Q 2022: Infinity + Africa Finance Corporation to close acquisition of Lekela Power.

End of 2022: e-Aswaaq’s tourism platform will complete the roll out of its ticketing and online booking portal across Egypt.

2023: Egypt will host the Asian Infrastructure Investment Bank’s Annual Meeting of the Board of Governors in 2023.

1Q 2023: Adnoc Distribution’s acquisition of 50% of TotalEnergies Egypt to close.

**Note to readers: Some national holidays may appear twice above. Since 2020, Egypt has observed most mid-week holidays on Thursdays regardless of the day on which they fall and may also move those days to Sundays. We distinguish above between the actual holiday and its observance.

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