AM — Ezdehar enters Egyptian retail sector with Zahran Market acquisition

Good morning, everyone, and happy Wednesday. We bring you a busy issue this morning with no single theme running through it — and far more good news than bad. Not a bad way to start looking toward the weekend…

WATCH THIS SPACE- CBE Governor Hassan Abdalla will reportedly meet with senior bankers today, his first such meeting since being appointed acting chief last week. Abdalla, a veteran banker and former chief of AAIB, was tapped last Thursday to run the bank after Tarek Amer stepped down unexpectedly the day before.

The two-day regional summit in New Alamein came to an end yesterday: We’re not going to pretend we know much about what was discussed, given the lack of public messaging post-meeting. We have (a bit) more in Last Night’s Talk Shows, below.

HAPPENING TOMORROW-

The second Egypt- and UN-led regional climate roundtable takes place in Bangkok tomorrow: The one-day event will see climate negotiators from the Asia-Pacific region discuss climate finance with private- and public-sector stakeholders ahead of the COP27 summit in November. This is the second of five regional roundtables being organized by Egypt and the UN. The first took place in Ethiopia last month.

The big central bank meet at Jackson Hole starts tomorrow: Fed chairman Jerome Powell will deliver a speech on Friday and investors will be keeping a close eye for hints about how far the central bank could raise rates when it next meets in September.

WATCH THIS SPACE-

EGP WATCH- The EGP slipped another 0.1% to 19.22 against the USD yesterday, leaving it down 21.8% since the devaluation in March. The currency has edged closer to record lows against the greenback this month as speculation increases that policymakers could choose to further devalue the currency. Tarek Amer’s sudden resignation added to the uncertainty in the markets, which are currently pricing in another 22% decline over the next year.

FOOD SECURITY- Ukrainian grain exports could reach two-thirds of their pre-war levels in August: The UN-brokered safe corridor to export grain through Ukraine’s Black Sea ports could boost the country’s agricultural exports to 4 mn tons in August, up from 3 mn tons in July — though still short of the 6 mn tons it was shipping abroad before Russia’s invasion, Reuters reports, citing a Ukrainian agricultural official. The partial return of Ukrainian grain to the markets this month has helped loosen tight global commodities markets, easing inflationary pressures and assuaging some of the concern over brewing grain shortages across Africa and the Middle East. Ukraine and Russia accounted for the vast majority of grain exports to Egypt prior to Moscow’s invasion.

Our wheat stocks seem to be rising — and we’re buying direct from Russia. The state had a six-month strategic reserve of wheat on hand in June, a figure that earlier this month had risen to 7.2 months. We have reportedly added an order for 240k tons of Russian wheat this past Monday outside the usual tender system (more on that in the news well, below).

PSA #1- Only e-invoices will be accepted as proof companies have paid VAT on goods and services starting in April 2023, according to a FinMin statement out yesterday. All businesses will have joined the system by December this year, paving the way for the Tax Authority to fully phase out use of paper invoices, according to the statement.

What e-invoicing system? The government is working to digitize all B2B and B2C invoices, a move designed to give the government greater oversight over tax and reduce the size of the informal economy. The Tax Authority launched a pilot in late 2020 and has been gradually extending the system since then. All B2B and B2C invoices across the country are expected to be fully automated by December.

THE BIG STORY ABROAD-

This is exactly what Twitter didn’t want to happen as it prepares for its court showdown with Elon Musk: Twitter made headlines yesterday after its former security chief accused it of lying about its security problems and failing to protect user data. The whistleblower is the service’s former chief of security (and prominent hacker), Peiter Zatko. He filed an 84-page complaint detailing the company’s issues with privacy, digital and physical security, content moderation and bots — one of the key question marks raised by Tesla CEO Elon Musk before he tried to walk back from his USD 44 bn bid to take over the company. Twitter CEO Parag Agrawal responded to the accusations in an email to employees, saying that it is a “false narrative that is riddled with inconsistencies and inaccuracies.” The story is everywhere from Reuters and Bloomberg to the Wall Street Journal, CNN, the BBC and beyond.

Also everywhere in the business press: The passing of famed b’naire hedge fund manager Julian Robertson at age 90 due to heart complications. The American investor was known for his years at the helm of Tiger Management, which was ranked among the world’s top hedge funds before it closed in 2000. He is also remembered by his legacy “Tiger Cubs” — a string of prominent hedge fund managers who had earlier worked under his leadership. (Reuters | Financial Times | CNN | Bloomberg | CNBC)

Are Facebook developers building the Metaverse on Windows 95? USD 10 bn spent and all it took was a selfie for some to start writing off Mark Zuckerberg’s Metaverse pivot. The consensus among the tech Twitterati: Metaverse graphics make the 20-year-old Second Life look cutting edge. Cue memes.

THE LONG VIEW-

Is the era of low inflation well and truly behind us? Big-time bond investors think high inflation is here to stay no matter what central banks do as globalization goes into reverse, Bloomberg writes. Rising interest rates around the world will help put a ceiling over soaring inflation rates but widening geopolitical fault lines, weakening global supply chains and rising wages will put the good old days of 2% inflation out of reach, they tell the business newswire. “The last 20 years of the great moderation — that’s fully behind us now,” said an economist at Pimco, one of the world’s biggest bond traders.

This means that the Fed could be raising rates for longer than the markets expect: “The view in the market that central banks will be in a position to cut rates in a number of countries will be challenged in due course,” said Ivailo Vesselinov, chief strategist at Emso Asset Management.

CIRCLE YOUR CALENDAR-

B Investments has just under a week to respond to Adnoc’s bid for TotalEnergies Egypt: Private equity outfit B Investments has until next Monday, 29 August, to decide whether or not it wants to preempt Adnoc Distribution’s bid to acquire 50% of TotalEnergies Egypt. Adnoc agreed last month to buy the stake in a USD 203 mn transaction, which would see it acquire the entirety of B Investments’ c.15.4% stake in the fuel distributor and a 34.6% stake from Total Energies Marketing Afrique.

PSA #2– Climate tech entrepreneurs have one month to apply to the global ClimaTech Run competition: Tech startups that address climate and environmental issues have until 22 September to apply for the competition, which offers startups a top award of USD 100k and the chance to present their product at COP27, according to a cabinet statement. The competition is hosted by USAID-backed Business Egypt and backed by the international cooperation, environment and communication ministries.

PSA #3– Your deadline to catch a 65% break off late payment fines for your taxes is coming up on 31 August. The waiver applies to late payment fees for customs tariffs, income, real estate, and sales taxes, VAT, and stamp duties among others. The remaining 35% of your due payments will need to be paid before next March.

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: As Egypt looks to capitalize on and regulate a burgeoning yacht tourism industry in the country, the Madbouly government greenlit the regulations managing yacht activity in domestic ports earlier this month. These regulations, coupled with a digitization push and our already-favorable geographic positioning, could help bring in a steady source of FX income by positioning Egypt as a global yacht tourism destination.

It’s another relatively busy morning for M&A news, which remains one of the “big themes” of 2022 as private equity outfit Ezdehar moves into retail and big oil player Petronas looks to potentially offload its upstream assets in Egypt.

UP FIRST- Private equity outfit Ezdehar Management has acquired a controlling 60% stake in retail supermarket chain Zahran Market through its Mid-Cap Fund II (EMF II), it said in a statement (pdf) yesterday. The acquisition, which has yet to close, will see Ezdehar support the supermarket chain’s expansion plans and develop its “management and systems,” Ezdehar’s managing director, Amir Mishriky, said.

Ezdehar didn’t disclose the value of the transaction, but has previous said the fund was looking to write tickets in the USD 5-30 mn range. The fund, which reached a USD 168 mn first close in February, targets companies in growth sectors such as consumer and retail, business services, education, healthcare, pharma, F&B and manufacturing. It plans to purchase majority and minority stakes in 6-8 small to mid-cap companies.

What they bought: 35-year-old Zahran Market grew out of Alexandria and now has 16 branches in seven governorates. CEO Karim Zahran has opened eight new stores in the Delta region since 2016 and has “ambitious” plans to expand across Egypt, the statement said.

LPs in the fund are a who’s who of DFIs: The European Bank for Reconstruction and Development, the European Investment Bank, the International Finance Corporation, British International Investment, FMO, the Belgian Investment Company for Developing Countries and the Egyptian-American Enterprise Fund have all made commitments to the fund.

ADVISORS: Compass Capital was sell-side advisor to Zahran Market (making this the firm’s fifth advisory transaction in less than two years), while Matouk Bassiouny & Hennawy provided legal counsel. PwC provided financial advice to Ezdehar and Adsero–Raji Soliman & Associates was legal counsel.

CORRECTION- This story was amended on August 24, 2022 to correct Ezdehar Managing Director Amir Mishriky’s name. The original version of the story misspelled Mishriky’s first name as Amr. 

IS PETRONAS SHOPPING ITS UPSTREAM ASSETS IN EGYPT?

Petronas could sell its Egyptian upstream assets as it looks to offload part of its African portfolio: Malaysian oil firm Petroliam Nasional Berhad (Petronas) is inviting bids for its upstream assets in Africa — including its local concessions — in a transaction that could be worth up to USD 3 bn, Bloomberg reports, citing sources it says has knowledge of the matter.

The details: The Malaysian state oil company has hired an advisor to gauge interest in its African upstream assets in Egypt, Chad, Gabon, Gambia, Senegal, and South Sudan. The assets could be sold in pieces and may interest other multinational energy firms or financial investors, the sources reportedly said. Petronas is also reportedly also considering sales of its downstream holdings across the continent.

The local assets that could be up for grabs: The company with its partner Shell owns Mediterranean upstream assets including the West Delta Deep Marine (WDDM) project and the Al Fanar and North Sidi Gaber gas concessions. On the downstream side, Petronas holds a 35.5% stake in the company that owns the Idku LNG plant, among other projects. The firm has reportedly been considering an exit from all its Egyptian assets since as early as March, according to a recent report by oil and gas newsletter MEES.

Remittances hit a record high for the second year running in FY 2021-2022, rising 1.6% y-o-y to USD 31.9 bn, according to central bank figures (pdf) released yesterday. Inflows rose 2.5% y-o-y to a record USD 8.3 bn in the final quarter of the fiscal year (April-June) amid soaring oil prices.

Driving the inflows: Remittance inflows surged more than 40% m-o-m and 13% y-o-y to USD 3.3 bn in March, the same month that oil prices spiked following Russia’s invasion of Ukraine and state-owned banks launched high-interest savings certificates in the aftermath of the EGP devaluation.

#1- Oil prices: Almost all of Egypt’s remittances are sent by workers in the oil-rich Gulf and as such tend to be sensitive to fluctuations in global oil prices. GCC economies have been awash with oil revenues this year on the back of western sanctions on Russian oil, which have pushed the price of Brent above USD 100 a barrel for much of the past six months.

#2- High-interest CDs could have played a part: The National Bank of Egypt (NBE) and Banque Misr launched their one-year, 18% certificates of deposit (CDs) in the third week of March, the day after the central bank devalued the EGP by 16%. Over the next 10 weeks, savers poured c. EGP 750 bn into the savings certificates, with more than a third of this coming during the third week of March alone. High-interest CDs have been supportive of remittance inflows in the past, such as during the covid-19 pandemic in 2020 and following the EGP float in 2016.

Remittances are a key source of hard currency for Egypt, and have grown more important this year as the spike in commodities prices, market volatility and rising interest rates have left the country hard up for foreign currency.

Inflows have grown robustly in recent years despite the pandemic and subsequent global economic challenges. Remittances reached a record high of USD 31.4 bn in FY 2020-2021, making Egypt the fifth-largest recipient of remittances in the world.

Can the trend continue? Remittance growth in 2021 came on the back of higher oil prices, remittance returns from expatriates in the Gulf, and healthy economic activity in Europe and the US, according to the World Bank. With most developed economies staring down the barrel of a recession and commodities prices beginning to cool, some of those drivers may be dissipating.

The World Bank is optimistic: The lender expects inflows to grow at a faster pace in 2022, rising by 8% compared to 6.4% in 2021, according to its latest forecast in May. It says flows will pick up due to an “altruistic response” by emigrants to difficulties being faced at home, while economic growth abroad should continue to be supportive of remittances despite the expected slowdown.

Egypt-born adtech startup ArabyAds secured USD 30 mn in a pre-Series B round from pan-African investment platform AfricInvest, it said in a press release (pdf). The company will use the funds to develop its tech and increase its head count, according to the statement.

About ArabyAds: Founded in 2013 by Mahmoud Fathy (LinkedIn) and Mohammad Khartabil (LinkedIn), the Egypt-born company is currently headquartered in the UAE and has offices in Egypt, Tunisia and Jordan. ArabyAds offers online and in-app marketing and data insight tools in more than six countries, according to its website, and last year acquired influencer marketing agency Dmenta, which also operates in Egypt.

This is the eighth investment by AfricInvest’s Maghreb Private Equity Fund IV. The EUR 194 mn fund reached its final close in 2018 and targets North African SMEs operating in sectors including IT, healthcare, education, logistics, agribusiness, and services. It is backed by development finance institutions including the African Development Bank, the European Bank for Reconstruction and Development, and the European Investment Bank.

State grains buyer GASC has bought 240k tons of Russian wheat directly from suppliers for delivery in September, October and November, the Supply Ministry said in a statement yesterday. The authority purchased six 40k-ton cargos of grain for USD 368 a ton on a cost and freight basis (CFR) via 180-day letters of credit, traders with knowledge of the matter told Reuters.

Prices are finally taking a breather: This would make the purchase 8% cheaper than the most recent purchase at the end of July, when GASC bought 120k tons for USD 402.50 but still about 10% higher than government’s forecast, which sees prices averaging USD 330 during FY 2022-2023. Prices per ton are now averaging USD 272 in global markets, as easing grain shortages and growing fears of recession in advanced economies cause prices to fall back from record highs in mid-May.

It’s direct purchases as far as the eyes can see: Authorities are still in talks with suppliers over more direct wheat purchases, Reuters quoted sources in the know as saying. The authority was reportedly in direct talks with 14 wheat suppliers as of last month. The authority typically purchases wheat via tenders, but in May the cabinet gave the go-ahead for it to buy directly from suppliers after a series of tenders were canceled due to high prices.

Elsewedy Electric reported record revenues in 2Q 2022 thanks to price hikes and a weaker EGP, it said in its earnings release (pdf) yesterday. Revenues rose almost 50% to EGP 20.4 bn during the April-June quarter, driving a 27% increase in net income, which reached EGP 1.1 bn

Wire and cables + turnkey segments underpinning growth: Revenues from Elsewedy’s wires and cables segment grew 48% y-o-y to reach EGP 9.7 bn in 2Q after it “significantly” raised prices. The devaluation of the EGP also boosted overseas sales, it said. Turnkey project revenues rose 44% y-o-y to reach EGP 8.6 bn due to the company executing on a greater number of projects in Egypt and Tanzania. The two segments together contributed 90% of the company’s revenues.

Elsewedy is future-proofing against global market turmoil: Inventory rose almost 50% to EGP 19.5 bn during the first six months of the year, as the company continues to build up its stock of raw materials to safeguard against global supply-chain disruptions. Elsewedy more than doubled its net debts to EGP 13.1 bn over 1H, in large part due to these contingency stockpiling efforts.

The National Bank of Kuwait Egypt reported a 9% rise in net income to EGP 756.5 mn in 1H 2022, according to a disclosure (pdf) to Boursa Kuwait. The bank’s board recently approved plans to voluntarily delist its shares from the EGX.

Former US ambassador to Tunisia Daniel Rubinstein (bio) assumed his post yesterday as US Charge d’affaires in Egypt, according to the US embassy in Egypt’s website. Rubinstein replaces Nicole Shampaine (bio), who held the position since 2020. A fluent Arabic speaker, Rubenstein was the American ambassador to Tunisia from 2015 to 2019, and has served as the US’ Syria envoy, consul general in Jerusalem, and deputy chief of mission in Amman.

The Super Best Friends Summit in New Alamein was still the topic du jour on the airwaves last night, with Ala Mas’ouleety (watch, runtime: 5:30), Masaa DMC (watch, runtime: 1:57) and Al Hayah Al Youm (watch, runtime: 6:33) covering the gathering’s second and final day.

Participants have been tight-lipped about what was discussed: Leaders of Egypt, the UAE, Jordan, and Bahrain held talks for the second day yesterday though post-summit communication has been scant to say the least. Describing the event as a “consultative” summit,” the UAE’s state news agency WAM said only that the talks focused on “fraternal relations, various aspects of cooperation, and joint work, especially in the economic and development partnership.” Ittihadiya’s said leaders discussed “a number of regional and international issues” at the “fraternal” meeting. The Iraqi government gave a bit more away ahead of the event, saying that talks would focus on energy, investment, industrial integration and regional security — and climate change.

Only four? Iraqi Prime Minister Moustafa Al Kadhimi was supposed to stick around for the second day but had to fly home after protesters staged a sit-in in central Baghdad, a statement by the PM ‘s office on Twitter said.

The on-air and online message remained the same: The summit was a relaxed and informal gathering between a group of close allies. Photos and videos of the meet captured the smiles and jokes between the four leaders, as well as the moratorium on ties. The talking heads also emphasized the casual nature of the meeting, which saw them touring New Alamein and exchanging opinions on a terrace at the New Alamein presidential palace.

The fourth-grade curriculum makes a comeback on the airwaves, with Ala Mas’ouleety (watch, runtime: 42:43), Al Hayah Al Youm (watch, runtime: 0:33) and Masaa DMC (watch, runtime: 1:22) covering the Education Ministry’s announcement that it is working on changes to the controversial curriculum ahead of the new 2022-2023 school year. Complaints surrounding the curriculum’s difficulty were rife on social media last year, with students and parents alike claiming the workload was too heavy and was too much to complete within a year.

Will the ministry slash the curriculum in half? The changes could include the curriculum being cut back by 50%, journalist Mahmoud Abdel Rahman told Ala Mas’ouleety. The changes will be announced ahead of the new school year, which is scheduled to start on 1 October.

The move has already put newly appointed Education Minister Reda Hegazy in people’s good books — if statements from Ala Mas’ouleety’s Ahmed Moussa, who led the conversation on the issues facing students with the curriculum last year, are anything to go by. Hegazy was lauded for his prompt and proactive response to people’s concerns by several specialists in the sector who spoke with Ala Mas’ouleety’s Ahmed Moussa.

It’s a mixed bag in the foreign press this morning: The Associated Press is back looking at the Imbaba church fire and reports that a single family lost six members in the tragic incident. TimeOut is the latest foreign site to cover former antiquities minister Zahi Hawass’ campaign to get the British Museum to hand over the Rosetta Stone

Meanwhile, the Media Line asks whether Israel is the elephant in the room at the five-nation summit in New Alamein, suggesting that the country’s involvement in our energy projects could be the reason behind Bahrain and the UAE — two of the few Arab countries that recognize Israel — joining the Egypt-Jordan-Iraq “minilateral partnership.”

Anchorage Investments has shortlisted four international firms to build its USD 2 bn petrochemical complex in the Suez Canal Economic Zone (SCZone), according to a company statement (pdf). Hyundai Engineering and Construction, Samsung Engineering, Technip Energies, and Technicas Reunidas made the final round of the tender launched in mid-March for the Anchor Benitoite project. Anchorage didn’t specify when it will announce its final choice of contractor.

Arab Developers Holding (ADH) has tapped Solid Capital as a financial advisor ahead of the possible IPO of one of its subsidiaries according to a regulatory filing (pdf) earlier this week. The developer formerly known as Porto Group has been looking into a potential listing on the EGX since November, according to Amwal Al Ghad. Company representatives we reached out to for more information on the IPO plans did not respond by dispatch time this morning.

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

• Fortescue Future Industries will conduct feasibility studies on its proposed green hydrogen plant after signing an MoU with the Sovereign Fund of Egypt, the SCZone, the Egyptian Electricity Transmission Company and the New and Renewable Energy Authority. (Statement)
• USAID is providing us with USD 9 mn in fresh financing to support Egypt’s covid-19 response, and to ensure that “vaccines get to where they are needed most.” (Statement)
• The UN Development Programme (UNDP) in Egypt signed an MoU with Savola Foods to help the latter plant climate-resilient crops like millet, quinoa and sorghum. (Statement)