AM — It’s official: Gov’t is on board with a flexible exchange rate, Madbouly promises tax breaks for “high value” industries

Hello, wonderful people.

Although we have tons of business news for you this morning, the government is still driving THE BIG STORY HERE AT HOME. Planning Minister Hala El Said became the first member of cabinet to publicly confirm the government backs exchange-rate flexibility, a key condition for both an IMF facility (whatever its size) and to get us through the current FX crunch. Separately, Prime Minister Moustafa Madbouly said his government will offer new tax breaks for high value industries — and added that the state isn’t about to pull back from big infrastructure projects, saying they’ll only cost more to execute further down the line.

^^ We have all of this and more in this morning’s news well and Last Night’s Talk Shows, both below.

*** You have just two days to tell us how you’re feeling about your business and the wider economy. We’ll have the results for mid-month — just in time to give you a sense of what everyone else is thinking heading into budget season. Make your voice heard in our Fall Reader Survey. It won’t take more than a few minutes to complete.

WHAT’S HAPPENING TODAY-

US climate envoy John Kerry will be in town for the Egypt-International Cooperation Forum (Egypt-ICF), which runs today through Friday at Almasa Convention Center in the new administrative capital. The three-day event will bring together global policymakers, ministers, development partners and other participants ahead of COP27 to discuss climate action and green transition, food security, and others with a focus on Africa. Check the full agenda here (pdf).

Also in town to talk turkey: Odile Renaud-Basso, head of the European Bank for Reconstruction and Development (EBRD), who will meet with President Abdel Fattah El Sisi, Finance Minister Mohamed Maait and International Cooperation Minister Rania Al Mashat. Look for climate finance to be at the top of the agenda for the meetings alongside the practicalities of COP27.

Speaking of climate: A two-day symposium on water solutions, wraps today in Alexandria. The event is being organized by AUC and our friends at USAID, and Alexandria University. You can check out the agenda here (pdf).

The four-day Gate travel expo 2022 kicks off today at El Qubba Palace.

The US Federal Reserve will open its so-called Beige Book today, giving us insight into how the world’s most important central bank is feeling about current economic conditions. Expect everyone and their mothers to be reading the tea leaves for what it means for interest rates when the Fed meets later this month.

Your high-end smokes are getting expensive: Philip Morris brands Marlboro, Merit and L&M will cost EGP 1.00-3.00 more per pack starting today, according to a document seen by Enterprise. Packs of Merit will now sell for EGP 52.00, while all Marlboro will cost EGP 48.00. Packs of L&M will rise to EGP 35.00.

The hikes come a few days after Eastern Company raised prices of key brands by up to EGP 2.00 per pack, citing rising raw material prices and the weakening EGP.

Apple will unveil its new iPhone, a new watch and probably new AirPods Pro at an event tonight. You can watch it on Apple’s website or stream it on Youtube today at 7pm CLT.

KUDOS- AUC instructor Noor Naga is a finalist for Canada’s most prestigious literary award. Naga made the Giller Prize long-list for If an Egyptian Cannot Speak English (Amazon). Set in the wake of the Arab Spring, the novel “traces the relationship between two people — a wealthy Egyptian American woman and an unemployed man from the village of Shobrakheit — who meet in a cafe in Cairo,” writes Canada’s CBC.

THE BIG STORY ABROAD- It’s a mixed bag in the global front pages this morning:

#1- Europe is scrambling to avoid its “energy-industry Lehman Brothers” moment ahead of a possible USD 2 tn increase in energy bills. The EU is pushing for caps on wholesale gas prices and national windfall taxes, Italy is set to start rationing gas, and reports suggest that new UK PM Liz Truss is reading a GBP 130 bn bailout for households and businesses.

#2- The coronation of Truss as the UK’s new prime minister is getting coverage from: Reuters | AP | FT.

#3- In the US: The Washington Post reports that among the classified documents the FBI seized from Trump’s Florida estate was information on the nuclear capabilities of foreign powers. Topping the front page of the New York Times: California’s electricity grid is coming under pressure from soaring temperatures, leading officials to warn of blackouts if people don’t turn down their ACs.

ROAD TO COP27-

Our friend Dr. Mahmoud Mohieldin will join the good folks at AmCham for a luncheon next Monday, 12 September, from 1-4pm CLT. Dr. Mahmoud will by speaking in his capacity as UN climate change high-level champion for Egypt. The special luncheon meeting at the Nile Ritz Carlton is open to AmCham members and their guests.

The Gas Exporting Countries Forum (GECF) will hold a virtual meeting next Thursday, 15 September, it said in a statement. The meeting will see all 19 members talk about climate change ahead of COP27.

PSA- Green projects looking to secure investor funding have until 18 September to apply for the Planning Ministry’s Smart Green Governorates, which will map green projects nationwide, giving them a platform to raise investments at COP27, according to a ministry statement. The ministry has so far received over 2k applications. An executive committee that includes Egypt climate czar Mahmoud Mohieldin will whittle the applicants down to a final list of 18 projects to be presented for funding at the November climate summit. You can apply to make the cut here.

CIRCLE YOUR CALENDAR-

Consoleya and Cairo Angels will host a business meet-up on Monday, 12 September focusing on Nigeria’s tech ecosystem and how it compares with Egypt’s startup scene. Tarek Shahin (CI Capital’s chief investment officer), Biola Alabi Media CEO Biola Alabi, and Ibrahim Sagna (Afreximbank’s global head of advisory and capital markets) and take part in a panel discussion moderated by Aly El Shalakany, CEO of the Cairo Angels Syndicate Fund.

Our monthly list of data points to keep your eye on over the next few days and weeks:

• Foreign reserves figures for August should be out during the first week of the month.
• Inflation figures: Inflation data for August from Capmas will land on Saturday, 10 September. Expect the Central Bank of Egypt to follow up on Sunday, 11 September with its inflation report.
• Interest rates: The Central Bank of Egypt’s Monetary Policy Committee meets on Thursday, 22 September to review interest rates.

We’re expecting some sort of announcement from the government on how it plans to proceed with its privatization program, according to media comments Finance Minister Mohamed Maait gave last week. This came on the same day as Prime Minister Moustafa Madbouy met with the heads of the EGX and the Financial Regulatory Authority to discuss plans to sell stakes in state-owned enterprises on the bourse.

Support measures coming for local commercial ships? Transport Minister Kamel El Wazir will hold a meeting this week with the maritime transport sector and private shipping companies to discuss ways to boost the commercial fleet, Al Mal reports, citing an unnamed source.

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 part of its consultations on its state ownership policy document, the government held discussions late last month with electricity and gas utilities players to hear their thoughts. The broad sentiment is that the private sector wants more by way of incentives and public-private partnerships to reel in their investments, our sources tell us.

“We as a government do agree that a flexible exchange rate is definitely good for the economy,” Planning Minister Hala El Said told Bloomberg yesterday in a televised interview (watch, runtime: 6:40). El Said also had news on the state privatization program, saying that the Sovereign Fund of Egypt has set up a pre-IPO arm to bring strategic investors onboard ahead of plans to list state-owned firms.

El Said’s remarks will make the folks at the IMF happy: With talks now said to be in the final stages, the IMF has said a more flexible exchange rate is a key condition for agreeing to a new assistance package, while concrete steps towards selling stakes in state assets will likely also play a role.

The gov’t is keeping the communication lines open on strategy: El Said also used the interview to highlight strong recent growth figures and moves to bolster FX inflows by upping exports and attracting foreign direct investment (FDI). She also highlighted the importance of continued strong remittance flows.

Everyone in cabinet is singing from the same hymnal: El Said hit many of the same points that Finance Minister Mohamed Maait covered last week in his media blitz on the Sisi administration’s plans to see us through the current bottleneck.

A MORE FLEXIBLE EGP-

El Said is the first government official to make a public statement saying cabinet supports allowing the EGP to move more freely against the greenback. Her remarks come after weeks of speculation that new central bank governor Hassan Abdalla will allow the currency to depreciate further against the USD to help secure an assistance package from the IMF, attract foreign capital, and break an import logjam.

The key question now: Will the float be sudden or gradual? With more EGX flexibility now seeming all but inevitable, market watchers are asking whether the pound will slide against the greenback at a slow pace or whether we're in for a 2016-style shock devaluation. Either way, most market watchers are forecasting a double-digit depreciation by the end of the year, with BNP Paribas forecasting the currency to settle at EGP 23-24 to the USD. One USD is currently changing hands at USD 19.29, with the pound having slipped more than 20% since the devaluation in March.

*** Where do you see the FX rate settling? Tell us in our Fall 2022 Reader Poll, which closes tomorrow.

OUR NEW PRE-IPO FUND-

SMART POLICY- The gov’t has set up a fund to place stakes in state-owned companies with strategic investors ahead of IPOs: The Sovereign Fund of Egypt (SFE), which El Said chairs, earlier this week set up a pre-IPO fund to offer stakes in state-owned companies to “strategic investors and different sovereign wealth funds” ahead of listing them on the bourse, El Said said. The government would then look to list the firms “when the market is ready,” El Said said.

Which companies are up for grabs? The new fund would look to acquire stakes in state-owned assets including those under the Public Enterprises Ministry, port and transport firms, and companies operating in the New Administrative Capital, a government source told Enterprise.

We knew this was coming: SFE head Ayman Soliman in June said private stake sales would be the way forward for the state privatization program as volatile market conditions persist on the back of the war in Ukraine and volatility in global capital markets. Government officials have been keen to stress that the privatization program remains a priority even as IPOs are pushed back.

IMF TALKS-

Does BoA know something we don’t? Analysts at Bank of America are still predicting the government to arrange a massive USD 15 bn, three-year facility with the IMF, Bloomberg reports, despite the insistence of senior officials here that any loan package will be much more limited. In a fresh report, the bank says “a large and ambitious IMF program is needed,” adding that a larger loan would require a flexible exchange rate. Finance Minister Mohamed Maait said that USD 15 bn was “too high” and “totally inaccurate” after Goldman Sachs predicted the same figure back in July. BNP Paribas is expecting a USD 3-5 bn package.

BDO has valued Domty at EGP 6.90 per share — 38% higher than the price that the Expedition Investments-led consortium is offering shareholders in its ongoing mandatory tender offer, the cheesemaker said in an EGX disclosure (pdf) yesterday.

REFRESHER- Shareholders have until 14 September to sell their holdings to the consortium, which is offering to pay EGP 5.00 a share to acquire up to 34% of the EGX-listed company (c. 96.2 mn shares). Domty’s board is yet to publicly respond to the offer or give a recommendation to the company’s shareholders. It commissioned BDO last month to conduct a fair value study (pdf), one day before the MTO started.

That fair value study is now out: BDO published the report (pdf) yesterday after it was reviewed by the Financial Regulatory Authority (FRA).

What happens now? It’s unclear whether the board will now respond to the offer or make a recommendation to the shareholders. As of last Thursday, the consortium was almost halfway to its target, with shareholders agreeing to sell 40.5 mn shares.

REMEMBER- Domty’s majority shareholders are among the investors bidding for the shares: The Damati family — which founded Domty and already control 56% of the company — are part of the consortium and also own minority stakes in Expedition. Expedition, a special purpose vehicle domiciled in Mauritius, is controlled by investors in Egypt and the Gulf. Success in the MTO would hand the consortium control of 90% of the company’s shares.

Advisors: EFG Hermes is quarterbacking the transaction and Matouk Bassiouny & Hennawy is acting as counsel to Expedition.

IDH wants to table a new offer for Islamabad Diagnostic Center amid economic woes in Pakistan: IDH is looking to renegotiate terms of its bid to acquire a major stake in one of Pakistan's largest diagnostics providers due to economic and political turbulence in the country, a company official told us yesterday.

IDH wants IDC: The LSE- and EGX-listed consumer healthcare firm in December signed a share purchase agreement that would have seen it acquire 50% of the Islamabad Diagnostic Centre (IDC) at a cost of USD 72.35 mn. The seller was UAE-based Evercare Group, a healthcare platform managed by global private equity firm TPG and backed by its Rise Fund, which owns 100% of the Pakistani outfit through a special purpose vehicle. The transaction would have given IDH more than 80 labs across Pakistan.

The long-stop date for the acquisition had already expired: IDH told Evercare in late August that it was terminating the SPA after conditions precedent weren’t met; the deadline for execution of the transaction had already been extended by three months, IDH said in disclosures to the EGX (pdf) and the London Stock Exchange yesterday.

IDH is still interested: The company is in ongoing talks with Evercare and is ready to sign a new share purchase agreement, it said in the filings. “We’re not pulling the plug, we’re renegotiating the terms in light of the recent developments in Pakistan,” IR chief Nancy Fahmy told us yesterday, adding that IDH is still “very interested” in the company.

A lot has changed in Pakistan in the past nine months: The removal of former prime minister Imran Khan has provoked a political crisis, economic headwinds have forced it to turn to the IMF to avert debt default, and devastating floods have left a third of the country underwater.

Market reacts: EGX-listed shares remained unchanged at EGP 16.50, while LSE-listed shares fell some 2.2% to USD 0.80.

Eni wants more on the LNG front: Italian energy giant Eni wants to develop LNG projects in the region, including in Egypt, under a plan to invest around EUR 4.5 bn in upstream activities every year until 2025, Reuters reported a senior company official as saying yesterday. “We are fully committed to invest EUR 4.5 bn per annum in the upstream to bring on line new gas supplies,” Cristian Signoretto said at the Gastech conference in Milan, adding that developing LNG projects in Egypt, Algeria, Qatar and Congo is in the company’s plans.

We saw this coming: Eni’s CEO Claudio Descalzi discussed with President Abdel Fattah El Sisi last week “leveraging existing LNG plants” to boost exports to Europe and raise gas production. Eni is already a key natural gas partner, producing around 60% of the country’s gas. The company signed in April an agreement with EGAS to “maximize” Egyptian LNG exports to Europe and boost Eni’s gas production at home. The agreement came a month after the Italian firm pledged to bring more than 14 trn cubic feet of additional gas to the global market and mitigate Europe’s energy crisis by “leveraging established alliances with producing countries,” including Egypt.

REMEMBER- Eni holds a 50% stake in the Damietta LNG plant, which has an annual production capacity of 5.2 mn tons. The plant was reopened last year following an eight-year hiatus, helping Egypt to achieve record export volumes in 2021. Egypt’s ambitions to become a regional energy hub have been advanced by Europe’s attempts to wean itself off Russian fossil fuels, with Cairo signing a nine-year agreement in June with Israel to increase gas exports to the EU through Egypt’s LNG facilities.

Eni isn’t the only one: Gas reserves in the East Mediterranean are the “obvious place” to help Europe kick its dependency on Russian gas, Chevron's vice president for midstream, Colin Parfitt, told S&P Global on the sidelines of the conference. “Taking Israeli gas through LNG plants that are already built to get your gas to market seems sensible,” he said, suggesting that floating LNG units could also be part of the solution. Chevron has a large footprint in the region after its 2020 acquisition of Noble Energy, which operates Israel’s Leviathan and Tamar gas fields, and is developing Cyprus’ Aphrodite field.

Chevron is also working with Egypt: EGAS signed an MoU with the American company in July to work on developing infrastructure to transport gas from offshore fields to Egypt and increase exports. Oil Minister Tarek El Molla discussed LNG plans with the company’s CEO, Mike Wirth, at the conference yesterday, according to a ministry statement, without disclosing details.

MORE DETAILS ON GLOBELEQ’S PROPOSED GREEN HYDROGEN PLANT-

The green hydrogen plant proposed by Africa-focused independent power producer Globeleq will be one of the largest facilities of its kind when it reaches its first phase of operations, according to new details on the project reported by Asian finance and ESG outlet The Asset. The publication says that the pilot phase will use a 100 MW electrolyser, equalling the size of the Scatec-Orascom Construction-Fertiglobe plant which was said to be the world’s largest green hydrogen plant when it was announced last year. When fully operational, the plant will feature 3.6 GW of electrolyzers powered by 9 GW of solar and wind power generation, the publication says.

Background: Globeleq signed an MoU late last month to establish the plant, which the Suez Canal Economic Zone said would produce 2 mn tons of green hydrogen once fully operational, with 55k tons produced during the trial phase. The plant is set to come online in 2026.

Capricorn’s entry to Egypt hasn’t quite gone to plan: Capricorn Energy has lowered its full-year production forecasts in Egypt due to “logistics and commissioning delays,” the London-listed oil and gas company said in its latest earnings release (pdf). Issues bringing two rigs online mean that the company now expects to produce 33k-36k barrels of oil equivalent per day this year, down from its previous 37k-43k boe/d estimate.

The company’s also going to be spending less than planned: Capricorn expects to spend USD 100-105 mn on its Egypt exploration and production operations this year, down from its initial USD 120-135 mn forecast at the start of the year.

Capricorn is a relative newcomer to Egypt: Formerly known as Cairn, Capricorn entered Egypt for the first time in 2021 when it teamed up with local firm Cheiron to acquire Shell’s Western Desert assets.

It might be about to cancel its engagement with Tullow: Capricorn is looking for alternatives to the contentious plan to merge with Tullow Oil, saying in the release that it is in talks with other undisclosed parties that have shown an interest. The merger has received backlash from investors who argue that Tullow’s offer undervalues Capricorn.

But it’s not ruling anything out: Capricorn believes that a merger with Tullow can produce “significant long-term value for shareholders.”

Egypt might finally be getting hold of Ukrainian wheat it bought in December: Egypt has agreed to receive a new 63k-ton shipment of Ukrainian wheat, a move that could pave the way for the country to finally receive wheat bought prior to the Russia-Ukraine war, MENA reported, citing statements from Supply Minister Ali El Moselhy.

This is likely a replacement shipment: Two people familiar with the matter told Reuters that Egypt has been in talks with the supplier for a replacement shipment amid continued delays releasing the vessel. One source said the shipment referred to by the minister is the replacement.

What’s the hold-up? State grain buyer GASC purchased the wheat in a tender back in December, but the cargo has been trapped in Ukraine since Russia invaded the country in late February. The shipment has remained stuck even after Kyiv resumed wheat exports in July after Ukrainian authorities detained the ship on suspicion of the owner having Russian links. Ukrainian officials said last month that they are trying to expedite its release but the ship remains at port.

Tatweer Misr has secured an EGP 3.5 bn financing agreement with the National Bank of Egypt, AAIB, and Banque Misr, President and CEO Ahmed Shalaby told Hapi Journal. The agreement will help finance the company’s Il Monte Galala beachfront development in Ain Sokhna and its Bloomfields residential compound in New Cairo, our source said. Tatweer Misr has been in talks to secure the loan since November.

It was a slow night on the airwaves, with the talking heads focusing on a speech given by Prime Minister Moustafa Madbouly at Fayoum yesterday (watch, runtime: 25:43). The presser got coverage from Kelma Akhira, Masaa DMC, Al Hayah Al Youm, Ala Mas’ouleety among others. Here are the highlights:

More tax breaks for high-value manufacturing: Cabinet is considering new incentives to attract investment in advanced industries including electric-vehicle assembly, Madbouly said. Under the plans, companies investing in target industries could see their tax bill slashed by 70%. The government is also considering amending the 2017 Investment Law to extend incentives set to expire in 2023 for an additional five years, he said.

The IDA is getting its act together on licensing: Some 20k industrial licenses have been issued by the Industrial Development Authority (IDA) since the introduction of a new system over the summer to speed up the licensing process, Madbouly said. The new system sees licenses issued within no more than 20 days.

No turning back on mega-projects: The PM insisted that the government has no choice but to continue on with expensive national projects in response to calls for their suspension amid soaring inflation and rising economic headwinds. “We’re talking here about a state that is being built. If such projects are not implemented [in the current period], it will be implemented later at double the cost,” he said.

The National Dialogue still got attention on the talk shows, with Masaa DMC (watch, runtime: 10:30) and Al Hayah Al Youm (watch, runtime: 6:40) both covering Monday’s board meeting that selected several rapporteurs to the political, economic and social committees

Slow doesn’t begin to describe the amount of attention Egypt is getting internationally this morning. Not that we’re complaining.

Would-be investors in Ghazl El Mahalla have a week to cancel their orders following the club’s failed IPO, according to an EGX bulletin (pdf). The 500 retail investors who subscribed to the offering have the option to pull their money or remain on board as private shareholders until the club gives the IPO another shot. Just 18% of the 98 mn shares in the retail component were covered in a subscription period that lasted more than two months.

Ghazl El Mahalla hasn’t thrown in the towel just yet: The firm plans to wait until mid-2023 until trying again, Mohamed Maher, CEO of IPO bookrunner Prime Holdings, told us previously. “We may change our strategy next time and include a strategic investor,” he said.

Drama at the Arab League: Egyptian diplomats led by Foreign Minister Sameh Shoukry walked out of an Arab League session chaired by the foreign minister of the Tripoli-based government in Libya, state-run Ahram Online reports, citing statements by FM spokesman Ahmed Abu Zeid to MENA. Egypt backs the rival eastern administration led by Fathy Bashagha, who was appointed the country’s prime minister by the House of Representatives following failed elections last year.

ALSO IN DIPLOMACY- President Abdel Fattah El Sisi held talks with his Palestinian counterpart Mahmoud Abbas and Algerian Foreign Minister Ramtane Lamamra yesterday. Statements from Ittihadiya were light on details.