AM — Cement production quotes are sticking around for another year

Good morning, wonderful people. We have a particularly packed issue for you on this very beautiful morning — and the promise of another busy news day to come — so let’s jump straight in:

WHAT’S HAPPENING TODAY-

Our friends at Chimera should find out today how much of Beltone Financial they have acquired via a mandatory tender offer. Shareholders have until today to subscribe to Chimera Investment’s MTO for the financial services firm. The Abu Dhabi-based outfit has already locked in 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.

It’s PMI day: We’ll get an idea of how the private sector fared in July when S&P Global releases its latest purchasing managers’ index (PMI) shortly after we hit “send” on this morning’s issue. The index fell to its lowest level in two years in June as surging inflation hit demand and output. We’ll also be getting PMI figures for Saudi Arabia and the UAE at the same time as Egypt’s figures drop. You can find them all here once they’re released.

OPEC+ is meeting today: Will it raise production? The most we’re going to get is a small increase in supply — and even that may be a long shot, according to what sources have told the business press. Most of the sources that talked to Reuters dismissed an output hike as unlikely while delegates speaking to the Wall Street Journal say the choice is between freezing production at current levels or a small increase. The meeting comes amid pressure from the US on oil producers to push down on prices which have remained above USD 100 a barrel since Russia invaded Ukraine in February.

How much more capacity is there? Saudi Arabia appears to have heeded the Biden administration’s demands for more crude, and last month pumped the most since April 2020 after raising output by 180k barrels a day, according to Bloomberg. All in all, OPEC added another 270k barrels a day to global supply during the month, with the UAE and Kuwait also raising output to offset shortfalls in other countries such as Nigeria, Iran and Angola.

It’s the second day of the Egypt- and UN-led regional climate roundtable in Addis Ababa, Ethiopia: The event — the first of five regional roundtables being held around the world ahead of COP27 in November — brings together African climate negotiators and global officials to discuss climate finance for three days in the Ethiopian capital. COP27 President Sameh Shoukry, Mark Carney (UN climate envoy and co-chair of the Glasgow Financial Alliance for Net Zero) and UN Deputy Secretary-General Amina Mohamed are among those in attendance.

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

THIS WEEK-

Egypt is set to sign an MoU later this week with a Chinese home appliances manufacturing company to build an industrial zone in Egypt with “huge investments,” according to a cabinet statement out yesterday. No further details were disclosed.

Erdogan + Putin to talk Ukraine grain pact on Friday: Russian President Vladimir Putin will meet his Turkish counterpart, Recep Tayyip Erdogan, on Friday to discuss the agreement the two countries signed with Ukraine to resume grain exports from the war torn country via the Black Sea, Putin’s spokesman, Dmitry Peskov, told reporters, Bloomberg reports. The meeting, which will take place in the Black Sea resort city of Sochi, will see the two leaders “synchronize watches on the subject of the effectiveness of this mechanism for exporting grain from Ukrainian ports,” Peskov said.

SPEAKING OF THE WHEAT PACT- The first vessel to carry grain out of Ukraine since Russia’s invasion has arrived safely in Turkey, Turkey’s Defense Ministry said yesterday. The ship, carrying 26k tons of grain, had left the port of Odesa on Monday morning. A delegation from the Joint Coordination Centre (JCC) in Istanbul is expected to inspect the ship today, the ministry said.

Another vessel could be heading out of Ukrainian ports today: “We hope that there will be some more outbound movement tomorrow,” UN spokesman Stephane Dujarric told reporters in New York, according to Reuters. About 27 ships are currently loaded at the three Ukrainian ports and ready to go, Dujarric said. Turkey expects one grain ship to leave Ukraine every day as long as the agreement between Ukraine and Russia holds up, a senior official told the newswire.

Remember: Ukrainian exports are still in a “trial period,” with a limit of three ships a day traversing the new safe-passage corridors established as part of the country’s pact with Russia and Turkey. Officials hope that exports could rise to as much as 3 mn tons a month in the next four to six weeks if all goes well.

THE BIG STORY ABROAD-

Will Pelosi’s visit to Taipei provoke another Taiwan Straits Crisis? That’s the question being raised across the global media this morning after the US House Speaker flew to the disputed island yesterday in defiance of Beijing, which had threatened to respond militarily to the provocation. Beijing’s initial reaction to her landing was limited to banning imports from Taiwanese food brands. But the People’s Liberation Army is now preparing to hold live-fire naval drills in waters surrounding the island, significantly raising tensions between the two countries and increasing the likelihood of a military confrontation. (AP | Reuters | Politico | Bloomberg | FT | WSJ | NYT | Washington Post)

MARKET WATCH-

Fed officials are trying to ward off complacency in the financial markets as the idea that the central bank is about to slow the pace of interest rate hikes takes hold. Bond yields fell and stocks surged last week after Chairman Jerome Powell said that the central bank will likely reduce the size of its rate hikes going forward, a reaction policymakers have tried to reverse this week by making clear that large increases are still on the table for future meetings. The Fed has raised rates by 150 bps since June in what is the most rapid tightening of policy since the 1990s. Officials this week warned the market that the central bank is “nowhere near” done tackling inflation and that it will need to see “very compelling evidence” that inflation is coming down before reversing course. Bloomberg and the Wall Street Journal have more.

Did the markets get the message? The response to the hawkish comments saw the USD surge 1%, yields spike, equities slip and gold futures fall.

Take all predictions with a pinch of salt: A lot can happen between now and the Fed’s next meeting, which won’t take place until late September. All it takes is a single inflation print to alter the direction of policy (the June meeting is a great case in point).

CIRCLE YOUR CALENDAR-

We’re on the lookout for a number of key macro figures this week and next:

• 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.

The Central Bank of Egypt will meet to discuss interest rates on Thursday, 18 August.

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

*** It’s Hardhat day — your weekly briefing of all things infrastructure in Egypt: Enterprise’s industry vertical focuses each Wednesday on infrastructure, covering everything from energy, water, transportation, and urban development, as well as social infrastructure such as health and education.

In today’s issue: We take a look at the government’s Provincial Capitals Development Project, Darah, which has been designed by the government’s Urban Development Fund to generate more housing and improve the quality of services and infrastructure in often forgotten capital cities in governorates outside of Cairo. With a price tag of some EGP 120 bn in its first phase, the project is slated to bring about a certain kind of urban renewal we’ve seen take form in various places around Cairo in recent years, to more governorates around the country.

Cement production quotas are sticking around for another year: The Egyptian Competition Authority (ECA) has heeded cement companies’ calls to leave cement production curbs in place for another year — but will allow output to rise as demand picks up, Ahmed Shireen Korayem, head of the cement division at the building materials chamber of the Federation of Egyptian Industries (FEI), told Enterprise.

Production has been capped for a year to fight the oversupply crisis: Cement production curbs were introduced in July 2021 to reduce a chronic supply glut that threatened the survival of a number of industry players. Companies have been required to cut production by at least 10.69% for the past 12 months, a measure designed to remove some of the excess supply and support prices. The cap came into effect mid-July last year and was originally intended to last for one year.

Prices have rebounded as a result: As of May, prices had risen almost 50% since the caps were introduced, according to Housing Ministry data.

The curbs will now be eased: The competition watchdog has revised upwards its demand estimates and will look to allow supply to rise by about 8% over the next 12 months, Korayem said, while declining to disclose exact figures.

INDUSTRY REAX-

A healthy surplus? Speaking to Enterprise yesterday, Lafarge Egypt CEO Jimmy Khan called it a “positive and practical” decision that should produce a slight surplus to prevent shortages. The company estimates that the decision will increase supply to 55 mn tons this year, slightly more than its 50 mn-ton demand forecast. “This surplus… will ensure that there is no shortage in cement supplies to all consuming sectors, especially national projects,” he said.

Is this the best way to solve oversupply? “It would be more appropriate for the ECA to direct companies towards exporting their surplus production, given the competitive price of the Egyptian product in foreign markets and the government’s support for freight transporting cement to African countries at a reduced cost of 80%,” Ahmed El Zeini, head of the building materials division at the Chamber of Commerce, told Enterprise.

Cement makers insist the move is good for everyone: “The approval for renewing the quota will allow the market to behave in a dynamic way governed by demand and supply and allow businesses to run in a healthy context,” Cemex Egypt and UAE CEO Carlos Emilio Gonzalez told Enterprise. Korayem agrees, telling us that increasing output in line with demand will help keep prices in check for consumers and stabilize the market.

NUCA wants to break its securitization record: The New Urban Communities Authority (NUCA) is seeking regulatory approval for a record-breaking EGP 20 bn securitized bond issuance, the Financial Regulatory Authority (FRA) said in a statement (pdf) yesterday.

WATCH THIS SPACE- The statement is light on information about the prospective issuance. Sources we spoke to at the Housing Ministry and the FRA yesterday said that details are pending regulatory approval.

But we have an idea about when the sale could go ahead: The authority hopes to take the issuance to market by late August or early September, Imane Raouf, partner at Dreny & Partners Law Firm, told Enterprise. Dreny & Partners legal counsel to NUCA on the issuance.

NUCA currently holds the record for the largest securitized issuance in Egypt for a EGP 10 bn issuance closed in 2020. The proceeds were earmarked to finance development of new urban areas including the new administrative capital and New Alamein.

There’s no word on who may have appetite for the issuance, but two years ago the authority placed its EGP 10 bn issuance with EBRD as well as QNB, Attijariwafa and Suez Canal Bank.

BY OUR COUNT- This issuance would take Egypt’s securitization volume in 2022 to almost EGP 37 bn. Companies have sold around EGP 16.6 bn of securitized bonds so far this year, according to data tracked by Enterprise. This exceeds the EGP 15.8 bn taken to market during the whole of 2021.

Advisors: CIB will act as the financial advisor for the issuance, while Dreny and Partners is legal counsel. KPMG Hazem Hassan will serve as auditor.

One of the world’s largest glass companies could be coming to Egypt: Mexican glass manufacturer Vitro plans to expand to Egypt and invest USD 400 mn to build two factories, GAFI head Mohamed Abdel Wahab said at a meeting with Prime Minister Moustafa Madbouly yesterday, according to a cabinet statement. The factories would produce flat glass and glass containers — most of which would be exported abroad — and create 1.5k jobs, the statement said.

Vitro is one of the largest glass manufacturers in the world, though doesn’t yet have a presence in Africa. The company is present across North America, several countries in South America and Europe, and in China.

ALSO FROM THE MEETING-

More on potential Qatari investments: A group of Qatari investors is looking to invest in a number of projects in Egypt, Abdel Wahab said, without disclosing how much they plan to invest. They include a 25k-feddan project to grow grains, a livestock farm with capacity for 50k animals, a hospital, and a mall.

Qatar said in March it would invest USD 5 bn in Egypt to help shore up the economy. Qatari officials have so far discussed investing USD 2-3 bn in Egypt’s real estate sector and equity stakes in companies with the Madbouly government.

The government has been stepping up its efforts to attract fresh FDI into the country: Egypt has been pushing to lure investments into the country from across the world, but particularly from allies in the GCC, who pledged over USD 22 bn in support of our finances.

Banque Misr is entering Kenya: Banque Misr is set to open a representative office in Kenya after receiving regulatory approval from the Central Bank of Kenya, according to a statement (pdf) from the central bank yesterday. The move will play a “catalytic role in strengthening the long-standing trade relationship between Egypt and Kenya,” the central bank said.

It’s not allowed to do actual banking, though: Representative offices are not allowed to provide banking services and can only act as marketing and liaison offices for their parent banks.

It will be doing banking in Somalia: The decision by the Kenyan central bank comes a few weeks after Somalia handed the state-owned bank a banking license, allowing it to become one of the first international banks to operate in the country.

Banque Misr’s international footprint: Banque Misr currently has branches in the UAE, France, Germany and Lebanon, and representative offices in Russia, China, Italy and Korea.

Appetite for Africa: CIB, Egypt’s largest private-sector bank, has a full bank license in Kenya and has opened a rep office in Ethiopia.

Edita announces share buybacks: Edita will buy back 5% of its shares over the next two months in a bid to support its share price, it said in a disclosure (pdf) to the bourse yesterday. The EGX-listed snackmaker said it would repurchase 36.2 mn shares, a program that would cost it almost EGP 295 mn at its current share price. Edita shares closed at EGP 8.14 yesterday.

What they said: Edita stock “is trading at a deep discount to fair value with huge upside potential,” IR director Menna Shams El Din told Enterprise. “We believe the best investment at the moment is investing in our company … We are bullish on the Egyptian snack food market, and we are focusing on regional expansion, with Morocco being the first milestone,” she added.

Edita has held up fairly well this year amid a heavy sell-off on the Egyptian stock market. The company’s share price has fallen less than 4% year-to-date, while the benchmark EGX 30 index has fallen 21%.

REMEMBER- Edita isn’t the only undervalued stock on the EGX right now. Last month the EGX 30 hit its lowest level since November 2016, triggered by a sell-off among foreign investors caused by worries over soaring global inflation, rising interest rates and a possible recession in the US.

Buybacks fuelled by rising profitability: Edita reported record revenues in 1Q 2022, helping the company deliver one of its most profitable opening quarters on record. This follows a strong 2021 for the company, which saw it post a 55% rise in net income EGP 471.9 mn. Edita is expected to report its 2Q earnings in the coming days.

Orascom Construction (OC) saw new awards rise 55% y-o-y in 2Q 2022 to hit USD 1.8 bn, the company said in a statement (pdf), bringing new awards for the first half of the year to USD 2.4 bn. The company's total consolidated backlog now sits at c. USD 6.4 bn.

High-speed rail is big for OC: The contractor in May signed a contract along with Siemens Mobility and Arab Contractors for the second phase of the planned 2k-km high-speed rail line, in which OC’s share is worth USD 1.2 bn. Some 70% (or USD 1.26 bn) of the new awards in 2Q 2022 were for local projects, while the remaining 30% were for US-based projects, according to the release.

Shareholders approve dividend payout: OC will distribute USD 27 mn worth of dividends this month after shareholders yesterday approved plans to pay out USD 0.2313 per share on 24 August, the company said in a regulatory filing (pdf) yesterday. Investors with shares in OC on the Nasdaq Dubai will receive their dividends in USD, while those with shares in the EGX will receive them in EGP.

Divergent views on the causes of the current issues facing the Egyptian auto industry were on display on Al Hayah Al Youm last night, when Mohamed Sherdy spoke to YouTuber Essam Ghanayem and head of the car traders’ federation Osama Abou El Magd about the crisis in the sector (watch, runtime: 28:48). In a sometimes heated debate, the two car connoisseurs differed on whether the sources of the problems are at home — overpricing and import restrictions — or abroad, with global inflation and supply chain issues posing problems.

Removing restrictions on imports of used cars could offer the industry some reprieve, Ghanayem suggested — a view that would be hotly contested by licensed distributors, particularly those that have invested 100s of mns in assembly facilities. Ghanayem didn’t explain how the idea would make it possible for banks to somehow find FX for importers who want to bring in used vehicles. Another short-term solution would be removing restrictions on Egyptian expats abroad to ship their cars into the country — a restriction that sends car demand surging, especially during the peak summer season when expats return home, Ghanayem said, adding that this issue could compound the current car shortage in the country.

Ask a distributor and they’ll tell you the problem is simple: They can get letters of credit open for imports of spare parts and tires — but cars are another story. L/Cs for fully assembled vehicles (completely built up, or CBU units, in industry-speak) are just about impossible to obtain. Most are having more success with L/Cs for assembly kits (or completely knocked-down — CKD to insiders), albeit at much lower volumes than they want. Distributors have comparatively better access to L/Cs for spare parts and tire imports.

Why CKD and no CBU? CKD assembly lines employ thousands of people. Cars that are imported fully assembled don’t support nearly as many jobs.

Background: Car sales have been falling on a monthly basis as the automotive sector is being buffeted by a multitude of headwinds, including a lack of financing for imports, rising inflation, component shortages and the EGP devaluation in March.

President Abdel Fattah El Sisi wants the government to hurry up developing the textiles industry and focus on getting the world’s largest spinning and weaving factory in Mahalla Al Kobra up and running by next year. This came during a meeting with Prime Minister Moustafa Madbouly and Public Enterprises Minister Hisham Tawfik yesterday, which got coverage on Masaa DMC (watch, runtime: 6:25) and Al Hayah Al Youm (watch, runtime: 2:35).

The talking heads were also concerned about the possibility of a global crisis erupting between the US and China due to US House Speaker Nancy Pelosi’s visit to Taiwan, which we have more on in this morning’s What We’re Tracking Today section, above. Sada El Balad (watch, runtime: 11:38), Ala Mas’ouleety (watch, runtime: 4:42) and Masaa DMC (watch, runtime: 22:26) all covered the developing story and its potential ramifications.

It’s a mixed bag in the foreign press this morning: Imprisoned activist Alaa Abdel Fattah is the subject of a New York Times opinion piece while energy industry publication Power Technology asks whether Egypt’s blend of natural gas and renewables can provide a blueprint for other countries looking to transition to cleaner energy sources. Meanwhile, The National covers the Supreme Court’s ruling that a man who reneges on the qaema — the list of items a bride’s family buys for the marital home — will not be found by the court to have acted dishonorably.

Record Suez Canal revenues in July: Revenues at the Suez Canal reached a record high of USD 704 mn in July, Suez Canal Authority Chairman Osama Rabie said yesterday. This is 32% higher than July 2021. The strong revenues were backed by a rise in tonnage transiting the canal, which hit a record 125.1 mn tons during the month, he said.

Conditions have been kind to the canal of late: Suez Canal revenues jumped 20% to a record USD 7 bn last fiscal year thanks to a global surge in oil prices and freight rates, as well as the crisis in Ukraine making the canal more attractive than other routes.

IN REAL ESTATE- EGX-listed MNHD reports EGP 400 mn at Elect, its new development at Taj City, since sales opened on 26 July 2022. That represents c. 50% of the development’s first phase, the company said in a statement (pdf). Taj City is a 3.5 mn sqm mixed-use development in New Cairo. “More than 43% of MNHD’s land bank at Taj City was unlaunched at the close of Q1 2022, leaving significant room for profitable residential and commercial development at the strategically located project,” the company said.

OTHER THINGS we’re keeping an eye on this morning:

• Red Sea jet ski ban: The Red Sea Governorate has banned the use of jet skis on safety grounds and could impound vehicles that are used. The ban was first issued in 2010 but had enforced until now, according to a government statement. The ban comes just days after a jet ski accident near Marina on the Mediterranean coast killed one and injured two.
• Palestinian singer and composer Nai Barghouti said Monday that she was denied entry to Egypt for unknown reasons, forcing her to cancel a series of concerts in Cairo and Alexandria. (Statement)

Shoukry + John Kerry talk climate: Foreign minister and COP27 President Sameh Shoukry spoke with US Presidential Climate Envoy John Kerry over the phone yesterday about climate issues, the Foreign Ministry said. The two sides discussed last month’s Petersberg Climate Dialogue as well as Egypt’s updated nationally determined contributions (NDCs).

ALSO- Greek and Egyptian naval forces carried out joint drills in the Mediterranean yesterday, a military spokesperson said in a statement.