AM — Egypt is going to ration electricity in a bit to sell more natural gas for greenbacks

Good morning, everyone, and welcome to a very busy news day at home and abroad.

THE BIG STORY HERE AT HOME on this fine Wednesday morning: We’re going to be rationing electricity for hotels, sports facilities and malls (among other venues) as Cabinet looks to make more natural gas available for export.

This isn’t a return to the rolling blackouts of 2013 and 2014. Those were thanks to the twin effects of (a) decades of under-investment in generation capacity and (b) a shortage of natural gas. Today, we effectively have more total generation capacity than we can use (when you factor in all sources) and plenty of natural gas, thanks to a major expansion of infrastructure and natural gas exploration in the Sisi administration.

So what’s going on now? We want the FX. Much as we love solar and wind, natural gas-fired power plants are a huge component of what our fellow nerds call our “energy mix.” Fallout from Russia’s war in Ukraine has turbo-charged pressure on the EGP at the same time as it has driven energy prices up faster globally than was the case before the conflict broke out. Cabinet wants to export more gas to net more USD as our reserves come under pressure. We have chapter and verse on this and more in this morning’s news well, below.

AND SPEAKING OF ELECTRICITY- Residential electricity bills will rise on 1 January, 2023, cabinet spokesperson Nader Saad said on Ala Mas’ouleety last night (watch, runtime: 39:43). Prices were set to rise by as much as 21% on 1 July, but the hikes were postponed to ease the weight of inflation on the public. The price hikes come as part of the government’s plan (pdf) to fully lift electricity subsidies by the middle of the decade.

WHAT’S HAPPENING TODAY-

Inflation data lands today: State statistics agency Capmas and the Central Bank of Egypt will publish July’s inflation data today. Consumer price growth unexpectedly slowed for the first time in seven months in June after reaching three-year highs the month prior.

Could we be in for a nice surprise? While analysts expected it to accelerate again this quarter, we’re holding out hope that the recent cooling of global food and energy prices could start to have an impact on local prices. Oil has traded below USD 100 for most of this month while global food prices have fallen in each of the past four months.

Egypt isn’t the only country publishing its latest inflation reading today: All eyes will be on the US today when the Bureau of Labor Statistics publishes July figures — a release that could have a huge say over the future direction of US monetary policy. Market watchers will be hoping for some sign that inflation is beginning to ease from its current 40-year high, giving the Federal Reserve more space to dial back its aggressive rate-hiking cycle. Most estimates see monthly inflation falling back significantly. Expect a strong market reaction whatever happens.

ALSO TODAY- Will Pachin allow Sipes’ takeover bid to move ahead? The board of EGX-listed Pachin will reportedly meet today to discuss the non-binding offer from Universal Building Materials and Chemicals (Sipes) to acquire between 60% and 100% of the state-owned paint manufacturer.

SOUND SMART- This is the second company to bid for Pachin in the past month. Pachin received an offer from Saybad Industrial Investment last month, which it rejected, saying that it undervalued the company.

Could Saybad raise its bid? That’s according to Al Mal, which reported yesterday that the company is considering upping its original EGP 16-16.50 per share bid, citing sources it says have knowledge of the matter. Saybad is still in the hunt despite the rejection of its initial bid and has asked Pachin’s board for the green light to start due diligence. Any offer would need to improve upon Sipes’ bid, which values Pachin at EGP 17.50-18.00 a share.

AND- A ship carrying 63k tons of Ukrainian wheat will soon set sail to Egypt, Al Mal quotes Supply Minister Ali El Moselhy as saying at a press conference yesterday. The ship was one of many stranded in the country’s ports since Moscow’s invasion that is now finally able to leave due to the Turkey- and UN-brokered grain pact between the two countries that allowed Kyiv to resume wheat exports via the Black Sea.

There should be more coming our way: Egypt and Ukraine are working to replace 240k-tons worth of contracts it canceled last month after they remained stuck in the country for months due to Russia’s blockade of the country’s ports. Egypt is one of the export destinations for Ukrainian grain agreed upon as part of the grain pact, El Moselhy said.

THE ROAD TO COP27: Prime Minister Moustafa Madbouly has chosen a panel to oversee smart and green projects nationwide as part of an initiative that aims to connect national projects with financing institutions ahead of COP27, according to a statement. Mahmoud Mohieldin, the UN’s Climate Change High Level Champion, will serve as jury chairman for the initiative, leading a group of jurors who will choose three projects from six categories to be showcased during COP27. Categories include mega projects, medium projects, small local projects (like those related to the Decent Life initiative), projects submitted by startups, development projects related to women, climate change and sustainability, and social not-for-profit participations. The selected projects will be announced in October.

THE BIG STORY ABROAD-

WTF did Elon just do and why? Elon Musk just liquidated 7.92 mn Tesla shares worth some USD 6.88 bn despite saying as recently as late April that he had no plans to further sell down his stake in the iconic EV maker. Musk remains Tesla’s largest single shareholder with a 15% stake in the company. Bloomberg, CNBC and the Wall Street Journal have the story, which was still developing as we hit “send” on this morning’ issue. The Journal notes that Musk could be on the hook for more than USD 33 bn in equity financing if a judge forces him to consummate his purchase of Twitter.

The FBI raid on The Donald’s Florida residence is still front-page news everywhere: The US Justice Department and the FBI have yet to explain why a team of agents raided Mar-a-Lago on Monday — and are facing loud attacks from many Republicans, who are framing it as a politically-motivated operation. Meanwhile, Trump is milking the story for political capital — and capital of the real kind, asking for political donations ahead of his anticipated bid for the presidency in 2024. (AP | Reuters | NYT | Washington Post | Bloomberg | FT | WSJ)

The global business press has its eyes on Coinbase’s latest earnings (pdf): The crypto exchange posted a record USD 1.1 bn loss in 2Q 2022 as the crypto market crashed. The company’s revenues fell 63% to 808 mn, missing analysts’ estimates. Coinbase shares fell 6% on the news. (Wall Street Journal | Bloomberg | New York Times | CNBC | Reuters)

We’ll find out Kenya’s next president sometime between now and next Tuesday: Mns of voters went to the polls yesterday to decide who will succeed Uhuru Kenyatta as the country’s next president. The results are now starting to trickle in and with just over 1 mn votes counted Kenyatta-backed opposition leader Raila Odinga is marginally ahead by just a few thousand votes. You can check out the results as they come in here.

Biden’s landmark semiconductor bill is now the law of the land: US President Joe Biden on Tuesday signed a USD 280 bn bipartisan bill to boost domestic high-tech manufacturing and strengthen its semiconductor industry, with some USD 52 bn earmarked for the chip sector, the Associated Press reports. The bill comes as part of the country’s push to rival China’s competitive semiconductor industry.

ALSO- One of the greatest to ever pick up a tennis racquet announces her retirement: Twenty-three-time Grand Slam champ Serena Williams has announced her plans to retire from tennis after this year’s US Open. Widely regarded as one of the greatest athletes of all time, Williams has spent much of her 27-year career at the top of the women’s game, and won her first Grand Slam at the 1999 US Open when she was just 17 years old. “I’m here to tell you that I’m evolving away from tennis, toward other things that are important to me,” Williams said in an exclusive interview with Vogue. The story was everywhere in the foreign press last night: CNN | The Guardian | BBC | Reuters.

*** 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: Six months after Russia’s war in Ukraine broke out, Egypt’s real estate developers and infrastructure players are still struggling under the weight of a high-inflation environment. Industry players are coping with higher costs of raw materials, labor, and financing, all of which they say is putting pressure on their operations. We look at the biggest issues they are currently facing and how they are navigating the challenges.

Egypt will begin cutting back on electricity consumption nationwide from next week in a bid to redirect more natural gas towards exports, thus netting additional inflows of foreign currency, Prime Minister Moustafa Madbouly said yesterday at a press conference (watch, runtime: 18:39). The government hopes to export around 15% of the gas that is currently allocated to the nation’s power stations, the PM said.

Here’s what to expect: Darker streets and public squares, electricity rationing at sports facilities and government buildings, and limits on A/Cs in malls, Madbouly said. Hotels will also be asked to rein in their consumption by reducing lighting at weddings, while sports fixtures could be rescheduled to daylight hours to cut energy use at stadiums, cabinet spokesperson Nader Saad told Ala Mas’ouleety last night (watch, runtime: 39:43).

Full details coming Thursday: Cabinet is planning to announce a basket of measures to restrict public electricity consumption following a cabinet meeting tomorrow. The measures will come into play next week.

It’s all about foreign currency: “We have been taking clear and calculated steps towards increasing Egypt's FX reserves and reducing our import bill, and now we're looking at how we can better utilize the natural resources available to us in order for them to bring in more FX,” Madbouly said yesterday.

And here’s why: External pressures triggered by the war in Ukraine and rising interest rates in developed markets have squeezed foreign-currency liquidity in the banking system and caused the country’s FX reserves to fall 20% since March. Surging commodity prices have added bns of USD to the country’s import bill and volatility in the financial markets has seen USD 20 bn in portfolio flows exit the country this year, putting pressure on the EGP which has slipped almost 22% since March.

Natural gas is a good earner — especially with a once-in-a-lifetime energy crisis brewing across the Med: Egyptian LNG is in increasingly high demand in Europe as the continent frantically tries to find replacements for Russian natural gas, which before the war provided around 40% of its gas consumption. European leaders are particularly concerned about looking in additional supply contracts ahead of winter, when demand for natural gas spikes. Egypt signed a landmark agreement with the EU and Israel earlier this year to increase exports to Europe, and while it remains unknown how the three partners plan to raise capacity or who will finance the necessary infrastructure, Egypt has been in talks with foreign investors about providing capital for new LNG terminals and pipelines.

Steps have already been taken in this direction: Since October, a number of power stations have transitioned from using natural gas to mazut, giving the government a greater surplus to export and bringing in USD 100-150 mn a month, Madbouly said.

If the target isn’t reached? The government could move to further restrict electricity use Saad said, adding that the measures could be reconsidered if stressors caused by the Ukraine conflict begin to wane.

The news got attention internationally: Bloomberg.

IN THE BACKGROUND- How much would the EGP have to devalue to be priced “right” against the greenback? The news of electricity rationing came on the same day Bloomberg was out with a piece asking how much further the EGP will have to fall to narrow the country’s funding gap. Estimates range from 5% (Citi) to 10% (Deutsche Bank + Goldman Sachs), while Bloomberg’s emerging-markets economist, Ziad Daoud, writes that we might need to see the EGP changing hands at 24.60 to the USD (a 23% depreciation from current levels). Daoud had previously outlined his login in this thread on Twitter.

REMEMBER- Conventional wisdom has it that the IMF is unlikely to agree to give us fresh assistance unless we agree to maintain a flexible exchange rate policy. The two sides have been in talks over a new program since March but are yet to agree terms. Though the Fund last month called on the government to take “decisive” steps towards fiscal and structural reforms, President Abdel Fattah El Sisi has publicly appealed for less stringent conditions

Another Gulf wealth fund wants a piece of Mopco: Saudi Arabia’s sovereign wealth fund will acquire a stake in the state-owned Misr Fertilizers Production Company (Mopco) through the EGX, a source at the bourse confirmed to Enterprise. The Public Investment Fund (PIF) will purchase 25% of the company through its new Egypt investment arm, the Saudi Egyptian Investment Company (SEIC), at a 25% premium to its current share price, Bloomberg Asharq reported yesterday, citing a senior government official. This would value the company at around EGP 3.82 bn, based on its EGP 104.89 closing price on Monday, according to our math. Our source declined to disclose the PIF’s offer price or the number of shares it will acquire.

Market reax: Mopco shares rose 1.0% to EGP 105.93 during trading yesterday.

Who’s selling? State-owned entities will exit or sell down their stakes in Mopco as follows, according to Asharq:

• The National Investment Bank will exit its entire 12.81% stake.
• The Finance Ministry will sell its entire 6.0% stake.
• Egyptian Natural Gas Company (Gasco) will exit its entire 5.72% stake.
• Misr Life Ins. Company will sell a 0.47% stake, leaving it with 0.52%.

PIF will become the second Gulf sovereign wealth fund to own shares in Mopco after Abu Dhabi wealth fund ADQ purchased a 20% stake for USD 266.6 mn in April. The fund bought the shares at an average price of USD 5.82 per share.

The state will still own 40% of the company, split between Chemical Industries Holding Company (30.8%), EGAS (7.6%), Misr Ins. (1.2%), and Misr Life (0.5%). Other stakeholders would retain c.15.0%.

The stake sale is set to go through as soon as it gets all the usual regulatory sign-offs, our source said. Asharq reported that could mean the transaction goes through as soon as today, citing a senior government official.

This is the PIF’s first transaction through SEIC which was set up last week to manage its investments in Egypt. The fund earlier this year pledged to invest USD 10 bn in Egypt as part of a USD 15 bn Saudi financing package to support Egypt’s external position, which has been rocked by soaring commodity prices and USD 20 bn of capital outflows. The fund was reported this week to be closing in on the acquisition of United Bank, and is also looking into potential investments in the infrastructure, real estate, healthcare, financial services, food and agriculture, manufacturing and pharma sectors.

The Gulf splurge doesn’t stop with the PIF: In June, a number of Saudi companies signed agreements that will see them invest USD 7.7 bn in Egypt, with the KSA at the time saying it intends to “lead” USD 30 bn in investments in Egypt, without giving any further details. Gulf state neighbors have pledged more than USD 22 bn to support the economy.

Kuwaiti insurer wants AIG Egypt: A unit of Kuwait’s largest ins. group has submitted a takeover bid for AIG Egypt, the Financial Regulatory Authority (FRA) said in a disclosure (pdf) to the EGX yesterday. Gig-Egypt, a subsidiary of Gulf Ins. Group (Gig), wants to acquire between 75% and 100% of the company at EGP 164.15 per share, valuing AIG Egypt at some EGP 197 mn by our math. Gig-Egypt would finance the acquisition without the aid of its parent company, Gig-Egypt Managing Director Alaa Elzoheiry told Enterprise.

What’s next: Gig-Egypt is awaiting permission to move forward from the Financial Regulatory Authority (FRA), which is studying the offer, Elzoheiry said.

About the firms: The Kuwait-listed parent firm owns 99% of its Egyptian subsidiary, with the remainder held by Suez Canal Bank and Egyptian businesspeople. Gig has been operating in the Egyptian market since 1994 and offers both consumer and commercial ins. services. AIG Egypt is the local subsidiary of US ins. giant AIG, which is present in around 80 countries. Its Egyptian arm only offers property and travel covers. AIG entered Egypt back in late 2000; the company cut back its product portfolio here in 2017 and has been open to a potential exit since.

Advisors: Gig-Egypt has appointed Baker McKenzie as its advisor, Deloitte as its financial auditor and Prime Securities as its broker, Elzoheiry told us.

EFG Hermes’ leasing and factoring arm has signed an EGP 750 mn sale and leaseback agreement with real estate developer Marakez to refinance the Mall of Arabia in Sixth of October, EFG Hermes announced in a statement (pdf). The two-tranche transaction is part of a wider EGP 2.25 bn financing package arranged by the company.

A very EFG affair: EFG’s investment banking division was the sole financial advisor and arranger on the issuance. EFG Hermes’ Corp-Solutions was the leasing partner, and the Arab Investment Bank (aiBank), which EFG acquired late last year, was the lender.

“This transaction is a testament to our ability to seamlessly cross-sell products across EFG Hermes, with this transaction seeing the first-time participation of both EFG Hermes Corp-Solutions and aiBANK alongside the Investment Banking division, cementing our positioning as a one-stop-shop for our clients’ ever-evolving financing needs” said Maged El Ayouti, managing director and deputy head of investment banking at EFG.

EFG Corp-Solutions is growing its commercial property portfolio: This is the latest in a string of sale and leaseback agreements for EFG Hermes Corp-Solutions, which is looking to make further inroads in the real estate sector. The firm signed an EGP 600 mn agreement with LMD in March, a EGP 750 mn transaction with MNHD in December, and a EGP 750 mn agreement with Misr Italia in October.

Madinet Nasr Housing and Development’s (MNHD) revenues more than doubled in 2Q 2022 due to a rise in deliveries, it said in its earnings release (pdf) yesterday. The real estate company reported EGP 972.3 mn in revenues for the quarter, up from EGP 441.4 mn in the same period last year after deliveries more than tripled y-o-y. Despite the strong revenue growth, the company reported a 1% decline in net income to EGP 116.7 mn.

Sales hit all-time high: MNHD’s gross contracted sales hit a record EGP 1.78 bn during the quarter after selling 567 units, an indicator that housing demand remains robust despite the economic headwinds hitting consumers’ pockets. Sarai accounted for 70% of all sales, while the launch of its new residential compound Taj Ville in April helped the company double its unit sales in Taj City to 205. MNHD delivered 471 units in 2Q, more than 3x the deliveries recorded in 2Q 2021 and double that of 1Q 2021.“Demand remains strong despite the headwinds, and we have been able to take full advantage of this strength through our stock of ready-to-move inventory, which further offers us a margin of flexibility in the face of an uncertain macro environment,” CEO Abdallah Sallam said.

Looking ahead: The company is preparing for new launches and seeking “new growth opportunities,” Sallam said, without disclosing further details. “We are confident that MNHD will continue to outperform even the strong results that we have already achieved, and that the company will successfully generate growth across its project portfolio,” he said.

SOUND SMART- In real estate, sales ≠ revenues. With off-plan sales dominating the industry, real estate companies book a sale when you sign a contract to buy a home. But they only record (some or all) of the value of the unit it sold you when it (a) delivers the unit to you or (b) hits a percentage completion on a total project. In most cases, then, revenues are composed of sales from past periods, while sales in a given quarter will be recognized as revenues in the future when units are completed or delivered.

The Madbouly government’s plan to cut back on electricity consumption was all the talking heads could jabber about last night, with Ala Mas’ouleety (watch, runtime: 39:43), Salet El Tahrir (watch, runtime: 3:19), Masaa DMC (watch, runtime: 11:24), Al Hayah Al Youm (watch, runtime: 5:18 | 3:40) all discussing the move. We have more details on this story in this morning’s Economy section, above.

Electricity Ministry spokesperson Ayman Hamza made the rounds to reassure the public that the decision was not driven by an electricity shortage but by a need to maximize returns on our natural gas resources and bring in more FX during a global crisis that has put pressure on our economy, he told Al Hayah Al Youm and Masaa DMC.

ALSO ON THE AIRWAVES-

Social security: The extra support for ration card holders will come into effect on 1 September, Supply Minister Ali El Moselhy said on the sidelines of a press conference yesterday, in statements aired by Ala Mas’ouleety (watch, runtime: 4:13). Each one-family ration card will see an EGP 100 increase in credit for the purchase of food staples for the coming six months, while two-family cards will see a EGP 200 increase and four-family cards will see a EGP 300 increase, costing the state EGP 5.5 bn.

Illegal construction: Building violation regs were still getting airtime last night, with Al Hayah Al Youm (watch, runtime: 8:04) speaking with Rep. Ahmed El Seginy about the amendments to the law for reconciling building violations.

There’s zero, zilch, nada happening in the foreign press this morning, as far as Egypt is concerned. Be grateful.

The Finance Ministry has not imposed a new sin tax on cigarettes, but will begin to direct the proceeds from the old sin tax imposed in 2018 to the public treasury until amendments to the Universal Healthcare Act allow for them to be directed to the Universal Health Ins. Authority. (Statement)

MEANWHILE- Banque Misr plans to apply for a banking license in Kenya within three years of opening its representative office, according to a statement (pdf). The state-owned bank also said yesterday (pdf) that it launched last month BM Acceleration Program, a six-month startup accelerator that will provide entrepreneurs technical, financial and marketing support

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

• The Public Enterprises Ministry will re-merge El Nasr Automotive and the Engineering Automotive Manufacturing Company as part of its bid to localize the EV industry. The two companies were separated more than 20 years ago. (Statement)
• The Health Ministry plans to equip some paramedic teams with electric “ambulance scooters.” (Statement)

Egypt + Qatar continue to thaw tensions: President Abdel Fattah El Sisi spoke with Qatari Emir Sheikh Tamim bin Hamad Al Thani over the phone yesterday to discuss increasing coordination on regional developments in light of the violence in Gaza over the weekend, according to an Ittihadiya statement. The two countries began cooperating on the reconstruction of Gaza last year, and reached an agreement to ship Egyptian fuel to the territory paid for by Qatar. Al Thani visited Egypt for the first time since the two countries normalized ties in 2021 in June.