AM — Saudi wealth fund buys stakes in EGX companies for USD 1.3 bn

Good morning and Happy Thursday, ladies and gents. We have a packed, M&A-heavy issue for you to close out the week, so let’s jump into it.

WHAT’S HAPPENING TODAY-

Expect to hear more about the Madbouly government’s plans to ration electricity today: The cabinet will announce the full details of the measures it will implement to restrict public electricity consumption following its meeting today. Under plans announced by Prime Minister Moustafa Madbouly on Tuesday, the government will try to reduce the amount of natural gas used by the country’s power stations and instead export it abroad to bring in more hard currency. It hopes to export around 15% of that gas, which the PM said yesterday would bring in USD 450 mn a month in revenues.

ICYMI- From the few details available, here’s what we can expect: Ministers will likely announce plans to reduce lighting in public spaces, ration electricity usage in government buildings, hotels and sports venues, and limit the use of ACs in malls from next week.

Daylight-saving time could also make a comeback as soon as next year, cabinet spokesperson Nader Saad said on Tuesday (watch, runtime: 6:50).

The Madbouly government’s public consultations on its state ownership policy continue today, with experts and think tanks weighing in. Every Sunday, Tuesday, and Thursday see workshops on how privatization plans will affect specific industries. You can find more details on the schedule of the meetings here.

NEXT WEEK + BEYOND-

Ghazl El Mahalla IPO: The retail portion of Ghazl El Mahalla’s mini-IPO will wrap this coming Sunday, 14 August.

MNHD shareholders have the final word on SODIC takeover bid: Madinet Nasr Housing and Development will hold a general assembly meeting on Tuesday, 16 August, to decide whether to allow SODIC to conduct due diligence ahead of a potential takeover.

Interest rates: The Central Bank of Egypt will meet to discuss interest rates next Thursday, 18 August. Look for our poll of economists on Sunday to see where they see interest rates landing next week.

National Dialogue: The board of trustees overseeing the National Dialogue will hold its next meeting on 27 August. On the agenda: Choosing the rapporteurs for all of the committees and subcommittees of the social, political and economic tracks, and preparing the agenda and topics of discussion for the dialogue.

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

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THE BIG STORY ABROAD-

Trump’s tumultuous week is still dominating the global headlines this morning: The Donald repeatedly pleaded the Fifth Amendment yesterday while giving testimony for a civil investigation by the New York attorney-general into his business dealings. While the former president has in the past mocked people for using the constitutional protection, yesterday he said he was forced into the move because of “an unfounded politically motivated Witch Hunt supported by lawyers, prosecutors and the Fake News Media.” The investigation is looking into whether the family has been using misleading financial information to inflate real estate values and obtain favorable loans and get tax breaks. This came just a few days after his Mar-a-Lago estate was raided by the FBI in what is thought to be related to a separate probe into whether he illegally removed records from the White House before leaving office last year. (AP | Reuters | NYT | Financial Times | Sky News | Politico)

MARKET WATCH-

Some better news on the US inflation front: Falling gas prices caused consumer prices in the US to cool more than expected in July, increasing optimism that inflation has now peaked. The CPI rose 8.5% y-o-y last month, down from 9.1% in June and below analysts’ expectations for 8.7% growth, data from the US Labor Department showed.

In context: Inflation remains incredibly high by historical standards and is far above the Federal Reserve’s 2% target.

So don’t expect the Fed to change tack anytime soon: One optimistic inflation reading does not a change in monetary policy make. One Fed official said last week that they need to see inflation falling in a “consistent, meaningful, and lasting way” before easing off the aggressive rate hikes. This view was reiterated by another two officials yesterday, who intimated that the latest inflation reading isn’t going to be sufficient for the Fed to change course. A growing number of analysts and economists are expecting the Fed to go ahead with its third successive 75-bps rate hike next month after a recent jobs report showed the US labor market remained tight in June.

The markets aren’t listening: US stocks soared yesterday in the hope that the Fed would soon reverse course and ease monetary policy. The Nasdaq, which just a few weeks ago was having one of its worst years on record, is now back in a bull market after surging 2.9% yesterday. The S&P 500 hit its highest level in three months, while the greenback had its worst day since the start of the pandemic in 2020.

The story’s getting a lot of international press attention: Reuters | The Financial Times | WSJ | NYT | WaPo.

The Saudi sovereign wealth fund acquired minority stakes in four EGX-listed companies for USD 1.3 bn yesterday, the Planning Ministry said in a statement. The Saudi Egyptian Investment Company (SEIC), the newly-established Egypt investment arm of the Public Investment Fund, purchased shares in Misr Fertilizers Production Company (Mopco), Abu Qir Fertilizers, Alexandria Container and Cargo Handling, and E-Finance, according to the statement.

The breakdown: Market data yesterday showed that the SEIC bought stakes in:

• Mopco: A 25% stake was sold for EGP 7.15 bn, at an average price of EGP 123.96.
• Abu Qir: A 19.82% stake was sold for EGP 7.3 bn, at an average price of EGP 29.08.
• e-Finance: A 25% stake was sold for EGP 7.5 bn, at an average price of EGP 16.23.
• Alex Containers: A 20% stake was sold for EGP 3 bn, at an average price of EGP 10.14.

The sellers: Informed sources told Al Mal that SEIC purchased the e-Finance shares from the National Investment Bank (NIB) and the Abu Qir stake from Al Ahly Capital Holding (the investment arm of state-owned National Bank of Egypt) and the Industrial Development Authority. The Holding Company for Maritime and Land Transport sold a 20% stake in Alex Containers, while Mopco saw NIB, Gasco and others selling, they added. The Finance Ministry and Misr Life were reported to be among the selling shareholders on Tuesday.

There’s more where that came from: The investments are the first of USD 10 bn pledged by the PIF earlier this year as part of Saudi efforts to support Egypt’s external position, which has been rocked by soaring commodity prices. The fund is looking to invest in the infrastructure, real estate, healthcare, financial services, food and agriculture, manufacturing and pharma sectors, and was reported this week to be closing in on the acquisition of United Bank.

Any of this sound familiar? Ths Saudi wealth fund isn’t the first this year to make a major round of purchases in publicly-traded firms. Abu Dhabi wealth fund ADQ purchased state-owned stakes in five companies for around USD 1.8 bn in April.

The Saudis have now bought into some of the same state-owned names as ADQ, which snapped up a 20% stake in Mopco, 21.5% of Abu Qir, and 32% of Alex Containers. ADQ also bought shares in CIB (17.5%) and Fawry (11.8%).

Shares were mixed over the news: Alex Containers rose 7.2% to EGP 10.1, while Abu Qir closed in green at 1.4% to EGP 24.2. Both e-Finance and Mopco ended in red, down 3.6% to EGP 15.5 and 0.4% to EGP 106, respectively.

What they said: The “transaction comes under the state’s plan to expand the ownership base and promote foreign direct investment,” Planning Minister Hala El Said said in the ministry statement. “It reflects foreign investors’ confidence in the Egyptian economy as one of the most promising strategic markets,” she said. “The acquisitions are in line with SEIC’s objective to invest in promising sectors,” the PIF-owned company said in a press release.

Privatization plans: All of this is part of the government's plans to attract USD 10 bn of investments a year over the next four years as it looks to open up more of the economy to the private sector.

Advisors: Our friends at EFG Hermes executed the transaction on the EGX for SEIC while Pharos Holding executed the transaction on behalf of the state-affiliated sellers, Al Mal reports citing anonymous sources. Matouk Bassiouny & Hennawy was legal advisor to the SEIC, while Baker McKenzie was advisor to the state entities, Al Mal reported.

There’s more to come from the KSA and its neighbors: Several Saudi companies in June 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 here. Gulf state neighbors have pledged more than USD 22 bn in total to support the economy amid the fallout from the crisis in Ukraine.

The news is getting attention in the global press: Bloomberg | Reuters.

Egypt has been a MENA M&A hotspot so far in 2022: Egypt recorded 65 M&A transactions worth USD 3.2 bn in the first six months of the year, making it the second-largest M&A destination in the region by value and dealcount, according to a report from EY.

2022 > 2021: This is more than triple the M&A activity seen in 1H 2021 and marks Egypt’s emergence as a “major investment destination,” EY said. The surge was driven mainly by “favorable government initiatives, including granting a special license to foreign investors,” it added.

Egypt has ADQ to thank: Abu Dhabi wealth fund ADQ’s USD 1.8 bn investment in several publicly-traded companies in April accounted for more than half of the capital raised in M&A transactions during the period.

Expect 2H to look a lot like 1H with the Saudi sovereign wealth fund’s announcement yesterday kicking off a USD 10 bn investment spree.

Across the region: The MENA region saw USD 42.6 bn worth of M&A transactions during the six-month period, EY said. Dealcount rose 12% y-o-y to 359, as surging oil prices offset the market volatility that caused a fall in dealmaking in other parts of the world.

Number one in the region: The UAE accounted for a third of the region’s M&A activity during 1H, recording 105 transactions worth USD 14.2 bn.

Rounding out the top five: Saudi Arabia (USD 2.8 bn), Morocco (USD 1.8 bn) and Oman (USD 700 mn).

The biggest sectors targeted in M&A transactions for the region in the first half of the year were transportation, consumer products, telecommunications, real estate and power and utilities.

Inflation resumed its upward trend in July, reaching a fresh three-year high on the back of higher food and fuel prices, according to official figures from state statistics agency Capmas (pdf). Consumer prices in urban areas rose 13.6% y-o-y in July, up from 13.2% in June when prices unexpectedly cooled after months of rising inflation triggered by the war in Ukraine and the devaluation of the EGP. Urban inflation increased 1.3% month-on-month, after declining 0.1% m-o-m in June.

Food + fuel were the culprits: Food and beverage prices — the biggest component of the basket used to measure inflation — rose again in July after falling back the month before. Prices rose 22.4% y-o-y and were up 0.5% from June after falling almost 2% m-o-m in June. The decision to raise fuel prices last month also fanned further inflation, pushing transport costs up 17% y-o-y and more than 10% from June. Housing, electricity, water and fuel costs also rose 5.2% y–o-y and 0.1% m-o-m.

Core inflation hit a 4.5-year high: Core inflation, which strips out volatile items such as food and fuel, climbed 15.6% on an annual basis in July, up from 14.6% in May, according to central bank data (pdf). This is its highest level since December 2017.

Inflation came in higher than some analysts’ expectations: The median average forecast in a Reuters poll of 14 economists was for inflation to rise 13.2%.

Other analysts expected worse: Al Ahly Pharos had forecast inflation to clock in at 15%, and said that weaker-than-expected food and fuel price growth was behind the softer figures in a note yesterday.

The good news: Supply-side factors fueling inflation around the world have eased in recent weeks. Global food prices have fallen for four consecutive months and were helped last month with the breakthrough agreement between Ukraine and Russia to resume Ukrainian grain exports via the Black Sea. Oil prices have also fallen significantly and are now at pre-Ukraine war lows and edging towards USD 90 a barrel.

But we may not have reached the peak: “Inflationary pressures continue to build as a result of cumulative pressures on the local currency, which is expected to weaken further,” economist Mona Bedair told Enterprise. She also expects fuel prices to rise again later this year and said that continued uncertainties over global energy prices, supply chains and shipping costs will continue to present risks going forward. CI Capital also expects inflation to continue to rise on the back of the train and metro fare hikes being introduced this month and the continued impact of higher fuel costs. Beltone Financial expects inflation to peak at 16.5% this month and average 15.5% in 3Q, macro director Alia Mamdouh wrote in a note yesterday.

EGP + energy are set to be the drivers looking forward: Headline inflation will accelerate over the coming months as the EGP is expected to further weaken, “and fuel prices are likely to be hiked further to reflect high global energy prices,” James Swanston, MENA economist at Capital Economics, wrote in a note. Capital Economics is now anticipating inflation to peak at c. 18% in 4Q 2022.

What does this mean for interest rates? Al Ahly Pharos and Beltone expect the central bank to leave rates on hold when it meets next Thursday. The easing of global supply-side pressures, the government’s surging interest bill, and the continued bearish sentiment among foreign investors towards emerging markets are all reasons why policymakers will choose to keep rates at their current levels, Al Ahly Pharos economist Esraa Ahmed wrote yesterday.

On the other hand, Capital Economics expects the CBE to act preemptively against further rises in inflation and hike rates next week. “We have penciled in a total of 150 bps of hikes, taking the overnight deposit rate to 12.75%, by the end of this year,” Swanston said. Economist Hany Genena expects the CBE to raise interest rates next Thursday in anticipation of another large rate hike by the US Federal Reserve in September, he tells Salet El Tahrir (watch, runtime: 10:50). The Fed has embarked on its most aggressive tightening cycle in decades this year, putting further pressure on Egypt’s borrowing costs.

The CBE has hiked rates by 300 bps since March under efforts to tame inflation and curb outflows. The Monetary Policy Committee kept rates unchanged in its latest meeting in June. The central bank is currently targeting 7% (±2%) inflation by the end of 2022, but has said it will “temporarily tolerate” the elevated annual headline inflation rate relative to its target until 2023.

Egypt’s inflation story is getting attention internationally: Bloomberg | Reuters.

The Mogamma’s face-lift could be finished in 2024: The consortium of investors redeveloping the Mogamma into a hotel will finish construction by the end of 2024, Bloomberg Asharq reported Tuesday. This came from Randall Langer, chairman of MENA-focused US investment firm Global Ventures, who together with Oxford Capital and the UAE’s Al Otaiba Investment in December won the EGP 3.5 bn contract to revamp the administrative building in downtown Cairo.

Introducing the Cairo House Hotel: The Mogamma will be transformed into a new 450-room, five-star hotel. It will have more than 85k sqm of meeting and events spaces, several entertainment venues and restaurants, and feature the capital’s largest rooftop venue. The consortium signed the contract to redevelop the Mogamma with the Sovereign Fund of Egypt (SFE) and the Planning Ministry in December. The investors will manage the redevelopment of the complex and operate it once it is complete.

It’s costing more than originally planned: The development is now expected to cost around USD 240 mn, Langer told Asharq. The consortium will directly finance about 35% of the project, while the remaining 65% will be raised from banks, he added. The consortium is currently in talks with several local banks and is planning to announce the results of the negotiations within a month, he said, declining to identify the potential lenders.

Contractors have been hired: The consortium has contracted the Middle East-focused Consolidated Contractors Company (CCC) as its general contractor, managing director of CCC’s North Africa division, Mohamed Tarek, told CNBC Arabia (watch, runtime: 2:50). RMC Engineering and project management firm Chrome are also onboard.

We could see more activity from CCC in Egypt: The project comes as part of Lebanon-based CCC’s plans to expand in Egypt, Tarek told CNBC Arabia. The company’s current portfolio in Egypt is valued at USD 2 bn.

Cairo-born mass transport app Swvl has agreed to sell new shares to an institutional investor, giving it an important cash infusion as it restructures costs in a bid to stem widening losses. The company hopes to raise USD 20 mn with the sale of c.12.1 mn shares, which will be bought by the investor for USD 1.65 apiece at a private placement expected to close on Friday, it said in a statement (pdf) yesterday.

That’s not all: Under the agreement, the investor has the ability to purchase another c.18.2 mn shares over the next five years at the same price. If these “warrants” are exercised, Swvl will receive a further USD 30 mn in investment.

SOUND SMART- Simply put, warrants give investors the right to purchase shares at a certain price at a specific time in the future. All warrants have expiration dates: if the investor exercises the right within the time frame, they immediately purchase the stock at the agreed price, but waiting until after the expiration date will see the warrant expire.

Swvl needs the cash: The Nasdaq-listed company has embarked on dramatic cost-cutting measures this year to try and stay on track to its goal of becoming cashflow-positive in 2023. The firm has warned that losses will almost double this year, and has slashed its headcount by a third, cut executive pay and eliminated a number of unprofitable routes to support its finances.

Market reax: Swvl’s shares fell 16.4% yesterday to close at a near-record low of USD 1.53. The company’s shares have fallen 84.7% since it debuted on the Nasdaq in April via a SPAC merger.

Saybad ups its offer for Pachin: Saybad Industrial Investment has increased its offer for Paint and Chemical Industries (Pachin) to EGP 16.50-18.75 per share, it said in an EGX disclosure (pdf). The new offer would value the EGX-listed company at up to EGP 450 mn, according to our calculations. The upper end of the price range is 14% higher than its initial EGP 16-16.50 offer, which was rejected by Pachin for being too low.

The bidding war is now in full swing: The top end of Saybad’s revised offer comes in above the maximum bid that Universal Building Materials and Chemicals (Sipes) put in for Pachin earlier this week. Sipes is offering to purchase at least 60% of the state-owned company for between EGP 17.50-EGP 18.50 per share.

Market reax: Pachin’s shares jumped 1.65% on the news to close at EGP 17.22 yesterday.

Part of the government’s privatization plans: The bids come as the state looks to reduce its involvement in or exit certain industries to make way for the private sector. Pachin is currently approximately 54% owned by state-owned companies and banks.

ADVISORS- Catalyst Partners is acting as Pachin's financial advisor. Adsero–Raji Soliman & Associates is the firm’s legal advisor.

IN OTHER M&A NEWS-

Oriental Weavers is exiting the Chinese market after its board agreed to accept an offer to sell its Chinese unit to an unnamed buyer, it said in an EGX disclosure (pdf). The company has been considering the offer since last year, weighing its options between selling or liquidating its Chinese subsidiary.

Marketing startup Convertedin has closed a USD 3 mn seed round, it said in a press release picked up by Zawya. The round was led by Saudi tech investor Merak Capital with participation from 500 Global and MSAS.

Marketing for e-commerce: Founded in 2019 by Mohamed Fergany (LinkedIn), Mohamed Atef (LinkedIn) and Mustafa Raslan (LinkedIn), Convertedin operates a marketing platform targeted at e-commerce companies. The company says its data-driven services help businesses double their return on ad spend and cut customer acquisition costs by 40%. It is working with local and multinational companies in the Middle East, Africa and South America, and has offices in Saudi Arabia and Brazil in addition to its Egyptian HQ.

What’s next: The company will use the funding for hiring and platform development, according to the statement. It also wants to expand across MENA and Latin America.

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IN OTHER STARTUP NEWS- Social commerce startup Sharwa raised USD 2 mn in a pre-seed funding round co-led by Nuwa Capital and Hambro Perks’ Oryx Fund, with participation from several strategic angel investors, according to a press release picked up by Wamda.

Sharwa gets you cheaper household goods: Founded earlier this year by Aladdin Shalaby (LinkedIn), Hassan Elshourbagi (LinkedIn) and Mohamed Hanafy (LinkedIn), Sharwa is an e-commerce platform that allows customers to club together and purchase household items at wholesale prices. The startup was launched as an answer to spiraling inflation in Egypt, according to Sharwa’s website. The platform — which currently has “tens of thousands” of customers — is operating in Cairo and “nearby areas,” according to the press release.

Where the money’s going: The funds will be used to expand the team and develop the online platform. The company also has ambitions to launch nationwide across Egypt and process hundreds of thousands of orders in the next 12 months.

Global Banking and Finance Review names best Egyptian banks + NBFIs of the year: The Global Banking and Finance Review has released its 2022 list of top-ranked Egyptian banks and non-banking financial institutions. Check out the full list here.

Five Egyptian fintech companies have been featured on Forbes’ top 25 fintech companies for 2022:

• Financial services provider Aman: Founded in 2015 by Mohamed Wahby (LinkedIn) and Hazem Moghazi (LinkedIn), the company is Raya Holding’s non-banking financial services outfit.
• E-payment platform Fawry, which was founded in 2008 by Ashraf Sabry (LinkedIn). Abu Dhabi sovereign wealth fund ADQ purchased an 11.8% stake in the company in April.
• Super app MNT-Halan, which was set up in 2018 by Mounir Nakhla and Ahmed Mohsen (LinkedIn). It is the product of Netherlands-based payments company MNT entering into a share swap agreement with Egyptian fintech / delivery / ride-hailing company Halan.
• E-payment platform Paymob, which was founded in 2015 by Islam Shawky, Alain El Hajj (LinkedIn) and Mostafa Menessy (LinkedIn). The company is responsible for Egypt’s largest funding round so far this year, raising USD 50 mn in a series B round in May.
• BNPL platform valU: The EFG Hermes consumer finance subsidiary was founded in 2017 by Walid Hassouna (LinkedIn). Last we heard the company is looking to make its EGX debut sometime within the coming two years.

The government’s plan to cut back on public electricity consumption was still dominating the airwaves last night: Prime Minister Moustafa Madbouly’s meeting with the cabinet yesterday saw them discuss the measures he plans to implement to cut electricity consumption in a bid to redirect more natural gas towards exports got airtime on Masaa DMC (watch, runtime: 2:39 | 4:22) and Al Hayah Al Youm (watch, runtime: 7:26). Ala Mas’ouleety’s Ahmed Moussa was particularly aggrieved about the idea of darkening Tahrir Square at night and called on ministers to exclude hotels and the tourist industry from the measures (watch, runtime: 6:59).

Yesterday’s inflation figures also got some attention: As we noted above, economist Hany Genena phoned into Salet El Tahrir (watch, runtime: 10:50) to give his take on the figures and how the central bank will likely respond at its policy meeting next week.

Does Egypt actually have ambitions to enter the semiconductor fabrication business? Apparently so, according to former Oil Minister Osama Kamal, who told Ala Mas’ouleety that the country is working on projects in the sector (watch, runtime: 7:25). He declined to provide any details but suggested that Egypt’s plentiful supply of sand makes it a good place to produce silicon chips.

It’s another slow morning in the pages of the foreign press: AFP reports that a male student has been arrested on charges of murdering a female student after she rejected his advances. This is the second woman to be killed at an Egyptian university in two months after student Nayera Ashraf was stabbed to death on the campus of Mansoura University.

e-Aswaaq has rolled out its online ticketing platform to archeological sites: You can now buy tickets online for 29 tourist attractions in Egypt through the online portal run by e-Aswaaq, the e-commerce and tourism arm of state fintech player e-Finance, the company said in a press release (pdf). The platform allows you to purchase barcode-enabled tickets that can then be used directly through your phone at electronic gateways that the company installed at each of the sites, according to the statement.

This is ahead of schedule: The company had been looking to finish upgrading ticketing systems and complete the rollout of the portal for 30 archeological sites by the end of the year, after rolling it out at the Giza Pyramids and a number of other museums last year.

Food exports rose 2.4% y-o-y to USD 2.17 bn in 1H 2022, up from USD 2.12 bn last year, according to new figures from the Food Export Council. Arab countries were the biggest buyers, accounting for half of all exports during the period. EU countries came in second, importing USD 427 mn worth of food (20%), while the US accounted for 7% and non-Arab African countries 6%.

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

• Prime Minister Moustafa Madbouly directed each governorate and major city to establish a central park and plant trees along new roads nationwide under the plan to plant 100 mn trees. (Statement)
• EFG Hermes’ e-payments subsidiary PayTabs is partnering with Waffarha to allow users of the savings platform to make online payments through PayTabs. (Statement, pdf)
• The Health Ministry is getting a USD 11.2 mn grant from the UN Development Programme to make HIV and tuberculosis treatments more accessible and mitigate the impact of covid. (MENA)