Wednesday, 21 September 2022

AM — Central bank eases FX rules for imports

TL;DR

WHAT WE’RE TRACKING TODAY

Good morning, ladies and gents. Today’s issue brings a double helping of good news for importers, promising news for Egypt’s ambitions to become a regional hub for green energy, and some not-great news for the Tawasol-LimeVest consortium’s bid for Alex Medical.

WHAT’S HAPPENING TODAY-

Intellectual property strategy launch: Egypt will launch its intellectual property strategy today. World Intellectual Property Organization (WIPO) Director-General Daren Tang will make an appearance at a ceremony being put on to launch the program.

It’s the second day of the general debate at the UN General Assembly: Among today’s speakers are US President Joe Biden, Libyan President Mohamed Menfi, and Iranian President Ebrahim Raisi, according to the schedule. President Abdel Fattah El Sisi will deliver an address at the event though it remains unclear when.

The UN chief opened proceedings yesterday with a cheery speech: In his opening address, UN Secretary-General Antonio Guterres warned of “colossal global dysfunction” created by climate change, the conflict in Ukraine and rising economic crises in the developing world. “Our world is in peril — and paralyzed,” he said. French President Emmanuel Macron and Germany Chancellor Olaf Scholz both made the invasion of Ukraine the centers of their address yesterday, both decrying what they termed Russian “imperialism.”

The Federal Reserve begins the second and final day of its policy meeting today amid rising economic uncertainty and market volatility surrounding the pace at which it’s raising interest rates. The central bank is widely expected to announce a third successive 75-bps hike when the meeting wraps tomorrow on the back of last week’s disappointing inflation data. An increase of this magnitude would take the Fed Funds Rate to its highest level since March 2008.

Markets are nervous ahead of the decision: Asian markets are in the red across the board this morning and it’s looking to be a similar story in Europe and the US later today. US stocks fell back during yesterday’s trading session, US treasury yields hit 15-year highs, and the USD rose to near-record highs.

HAPPENING TOMORROW-

The Central Bank of Egypt will meet to discuss interest rates, and the signs are pointing towards a third hike of 2022. Six of seven analysts and economists surveyed in our regular poll expect the Monetary Policy Committee to raise rates during its meeting tomorrow as inflation rises and the EGP continues to weaken. HC Securities also added its voice to the chorus, saying earlier this week it sees the central bank raising rates by 100 bps at this meeting and another 100 bps in the November meeting due to Egypt’s deteriorating external position and expectations for inflation to accelerate in the coming months.

THE BIG STORY ABROAD-

Things are moving quickly in Ukraine amid fears that Russia could escalate the conflict: There is speculation that Moscow could be about to order a general mobilization after the country’s parliament toughened punishments for crimes committed during military mobilization and combat operations. Russian-occupied territories in Ukraine have also announced plans to hold referendums on whether to formally join Russia, a week after Russian forces were sent into retreat in Kharkiv province. Nato condemned the planned referendums, describing them as “a further escalation” of the war. (Reuters | New York Times | FT)

PSA- The last call for coastal governorates to join the e-invoicing system: Companies across Alexandria, Beheira and Marsa Matrouh can now sign up to the eighth and final phase of the rollout of the government’s electronic invoicing platform, the Tax Authority said yesterday.

Up next: The second part of the final phase will target companies in Sharkia, Gharbia, Kafr El Sheikh, Menoufia and Damietta and will kick off on October 15.

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.

Attention iSheep: Apps and in-app purchases will be pricier starting next month: Apple is raising prices of apps and in-app purchases through the App Store in the eurozone and nine other countries, including here in Egypt, as soon as 5 October, the company said in a blog post to developers. The tech giant did not specify the level of the increases.

Behind the move: Apple may be looking to protect its margins against currencies weakening against the USD, Bloomberg writes.

CIRCLE YOUR CALENDAR-

Our friends at HSBC are hosting an energy transition webinar series next Tuesday-Thursday, 27-29 September. The series will look at the “latest climate analysis in relation to the global energy market and transition to net zero” in six different sessions covering energy security, what is required to ensure the success of COP27, financing and investment needs for the energy transition, and the scaling up of renewables in the region, among other topics. You can register for the series here.

WANT MORE on the region’s energy transition? Catch this op-ed in EnterpriseAM by HSBC’s Group Head, Center of Sustainable Finance and Head of Climate Change Middle East, North Africa and Turkey, Zoe Knight on to the capital that’s needed to help drive that shift.

A Spanish business delegation will be in town next Tuesday and Wednesday (27-28 September) for the Egypt-Spain Multilateral Partnership Forum, organized by the Spanish Institute for Export and Investment, according to a press release (pdf). The two-day conference will include seminars and panel discussions on trade and investment in transport, energy, and water with Egyptian ministers and representatives from government bodies, alongside officials from international financing institutions and Spanish Secretary of State for Trade Xiana Méndez Bértolo. The agenda for the conference is available here (pdf).

GITEX Global is being held at the Dubai International Convention and Exhibition Center from 10-14 October. The event, which is running under the theme “enter the next digital universe,” will bring together players in Big Tech to discuss AI, cybersecurity, blockchain, the metaverse, and more.

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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WHO YOU ARE- Our Head of People is responsible for aligning HR practices with business objectives and works alongside some very smart people, including our C-level and leadership teams, to design and develop HR strategies and monitor their effectiveness. Candidates should have at least 10 years of experience in human resources, with extensive knowledge of key HR disciplines including performance and talent. We are looking for someone who isn’t afraid to challenge, innovate, experiment, and move at a fast pace — not to mention creating some very cool new things to drive people engagement and improve a high-performance culture.

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

In today’s issue: We look at how the biggest EGX-listed CIT infrastructure players performed during 2Q 2022 amid rising inflation, FX shortages and the EGP devaluation — and review the outlook for the sector in the second half of the year.

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The Somabay Endurance Festival, organized by The TriFactory, returns this month for the fourth time. Featuring four different races that combine swimming, cycling, and running, as well as the 1K Kids Race (ages 5-10) and the 10K Race, the Somabay Endurance Festival has got something for everyone. Taking place from 29 September though 1 October, spots are running out for Egypt’s favorite multi-sport event. To find out more and sign up, head to www.thetrifactory.com/somabay.

TRADE

Foreign-currency rules for imports are easing

Central bank eases FX rules for imports: The Central Bank of Egypt (CBE) has relaxed restrictions on the use of foreign currencies for imports in a bid to ease the buildup of goods at ports, according to a document circulating among banks seen by Enterprise.

Among the key changes:

#1- You should now be able to open letters of credit to pay for goods stuck at port: Companies will now be able to cover imports using foreign currency that they held in their domestic bank accounts as of 19 September. This will allow companies to open letters of credit (L/Cs) (and, in some cases, to use documentary collection) to pay overseas suppliers and release goods that are stuck in customs.

#2- Parent companies with Egyptian subsidiaries can use FX balances: Parent companies can use foreign-currency deposits held as of 19 September to cover import costs for subsidiaries and vice versa.

#3- You’re lucky if you export to neighboring countries: From now on, companies can use foreign-currency revenues made from exporting to neighboring countries to pay for imports, provided they meet certain reporting requirements on both shipments and transactions. The document lists Libya, Syria, Sudan, Iraq, Yemen and Palestine.

#4- You can transfer in FX and use it to cover imports: From now on, Importers can use foreign-currency transfers from overseas partners to cover imports. FX including remittances, dividends or the proceeds of capital increases may be used. Subsidiaries can use loans from parent companies on the condition that the facilities are provided for no less than 12 months and that it is documented in both companies’ financial statements.

The rationale: The move is designed to undo some of the damage done by former central bank governor Tarek Amer’s decision earlier this year to require importers to use L/Cs to pay for goods. The move prevented businesses from accessing foreign-currency deposits, resulting in a pile-up at ports and causing shortages of industrial and consumer goods.

SOUND SMART- By setting clear channels through which businesses can get FX into their account to cover imports, the measures offer a bit of relief for everyone from manufacturers to distributors — but will still make it difficult for importers to source FX from outside the banking system. After spending years snuffing out the black market, policymakers are loath to see it return.

Reaction to the policy switch has been largely positive:

The measures “mend previous decisions [on imports] by the CBE, Ahmed El Zayat, a member of the Egyptian Businessmen Association, told CNBC Arabia (watch, runtime: 5:16). “Relying on L/Cs for imports saw us facing hurdles and challenges, leading to a slowdown in shipments’ release,” he said.

Manufacturers will now have access to raw materials and components and will be able to ramp up production, Alaa Ezz, Secretary-General of Federation of Egyptian Chambers of Commerce (FEDCOC), told Kelma Akhira’s Lamis El Hadidi (watch, runtime: 2:00). The inflationary pressures caused by shortages will begin to abate, helping prices to stabilize, he said.

But more clarity is needed: Matta Beshay, a member of FEDCOC’s importers division, told Masaa DMC last night (watch, runtime: 9:46) that the central bank needs to provide more information on how importers will source foreign currency. “As importers, we want to have more clarity and want to know more about how the system would work,” he said.

TRADE

Nafeza rollout to air freight pushed to January

Importers get more time to learn how to use Nafeza: The government has postponed the rollout of the Advance Customs Information (ACI) customs system to air freight to until 1 January to give importers, customs brokers, shipping agents and overseas companies more time to get used to the system, the Finance Ministry said in a statement. Use of the ACI for air freight was due to become compulsory on 1 October but the ministry will now extend the trial period through the final quarter of the year “in appreciation of global and local conditions,” the ministry said.

There are signs that importers are reluctant to join: “We’re holding training sessions to onboard importers to the system, but no one is showing up,” Misr Technology Services’ (MTS) Khaled Nassef told us yesterday. Less than 10% of daily air freight shipments are currently being booked through Nafeza, and “we need at least 70-80% of daily shipments to go through Nafeza before the full rollout,” he said. MTS is a trade and logistics platform provider and has been responsible for the rollout of the Nafeza customs window and the design of the ACI system.

This wouldn’t be the first time: Maritime importers also took a while to adjust when the system was launched last year, with talk of technical glitches and complaints about ease of use making the rounds at the time. Last we heard, more than 80% of all importers have since onboarded to ACI. More than 31k maritime and air freight importers had joined the ACI system as of the end of May.

Refresher: The ACI is a pre-registration system that provides real-time information about incoming shipments and is a key part of the Finance Ministry’s Nafeza digital customs window, which was launched in maritime ports late last year.

** Want more on Nafeza and ACI? We explain everything here.

M&A WATCH

Alex Medical board gives thumbs down to Tawasol-LimeVest’s offer

Alex Medical’s board takes issue with Tawasol-LimeVest’s offer: The Alexandria Medical Services board has shared its opinion on the Tawasol Holdings-LimeVest consortium’s bid to acquire up to 74% of the company — and it’s not too positive, with the board saying the offer doesn’t represent the value of the company and lacks concrete plans for the future, it said in a disclosure (pdf) to the EGX yesterday. This comes in the middle of the subscription period for the consortium’s mandatory tender offer (MTO), which offered to purchase shares at EGP 47.67 apiece, valuing the company at around EGP 742.3 mn.

Valuation is wide of the mark: The board said the offer doesn’t reflect the average share price of the company for the six months preceding the launch of the MTO.

Tawasol-LimeVest ups its price again, but still no dice: The board’s stance on the valuation came despite Tawasol-LimeVest upping its offer again yesterday ahead of the meeting. The consortium is now offering to pay EGP 49.00 per share, the Financial Regulatory Authority (FRA) said (pdf) yesterday, a move that came a day after Yas Holding’s improved EGP 48.62 offer.

Alex Medical isn’t convinced by Tawasol-LimeVest’s vision: The bid also contains no firm plans for what the consortium would do with the company post-acquisition and gives contradicting information regarding employees’ job security and labor rights, Alex Medical’s board said.

How will this impact their bid? A mandatory tender offer launched by Tawasol and LimeVest is ongoing until 27 September. It is unknown how many shareholders have agreed to sell their shares to the consortium. The big one is Abu Dhabi Commercial Bank which owns a 51.5% stake in the company, but given its board representation it might not be looking good for the consortium’s bid. ADCB had last year reportedly been looking to sell its majority stake, which it acquired from NMC Healthcare’s disgraced founder, BR Shetty.

What about the competing Yas bid? The Emirati firm’s offer is pending healthcare-sector specific approvals and a go ahead from the FRA.

For those of you just joining us: The Tawasol-LimeVest consortium has been in the running to acquire Alex Medical since last year. The outfit had originally offered EGP 47.67 a share to purchase up to 74% of the company, a bid it renewed last month. Tawasol already owns 26% of Alex Medical, meaning the acquisition could give the consortium 100% ownership.

Could we see others jump back into the fray? Yas and the Tawasol-LimeVest consortium had both put in offers for Alex Medical in June last year, amid a bidding war for the healthcare provider that at its peak saw eight companies and consortiums signal their interest before it fizzled out without a sale.

Advisors: Prime Holding are the brokers on the Tawasol-LimeVest offer and Zaki Hashem and Partners are acting as the consortium’s counsel. Al Ahly Pharos is reportedly Yas’ financial advisor on the transaction, according to sources quoted by Hapi Journal at the time the offer was launched.

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DEBT WATCH

Contact Financial closes EGP 2 bn sukuk issuance

Contact Financial Holding has closed an EGP 2 bn sukuk issuance, after getting the greenlight from the Financial Regulatory Authority (FRA) yesterday, Contact Financial Holding CEO Said Zater told Amwal El Ghad. The sharia-compliant mudaraba sukuk has a seven-year tenor and the proceeds will be used to finance car purchases for clients of its subsidiary, Contact Credit, the regulator said in a statement (pdf).

Who’s buying in: Baraka Bank, and Arab Investment Bank, Zater said.

Advisors: The issuance was co-underwritten by Misr Capital and Al Ahly Pharos. Sarwa Promotion and Underwriting, a subsidiary of Contact, was the lead arranger. Alieldean Weshahi & Partners acted as the legal advisor, and Financial Capital Services — formerly Baker Tilly Wahid Abdel Ghaffar & Co — was appointed as an independent financial advisor.

It’s been a quiet year so far for sukuk, which saw only one EGP 3.25 bn sukuk issuance from Palm Hills Developments (PHD) in March. This marks Contact Financial’s (formerly Sarwa Capital Holding) third sukuk issuance by our count, after closing the only issuance of the year in 2021 and another in 2020.

More coming? Contact Financial’s sukuk arm is preparing for three more issuances before the end of the year with a combined value of around EGP 4 bn, Zater told us when we spoke on the phone yesterday. The company also expects to issue EGP 1-1.5 bn worth of securitized bonds within a month for its consumer finance business.

ENERGY

Maersk + Egypt to finalize USD 15 bn clean fuel project at COP27

Maersk will sign the final contracts for the USD 15 bn clean fuel project at COP27 in November, Chief Group Representative Hany El Nady said in a televised interview (watch, runtime: 14:03) last night. Earlier this week Maersk CEO Soren Skou held talks with President Abdel Fattah El Sisi on the project, which will see the company work with the Egyptian government to set up a national network to produce and distribute green energy and fuel for ships.

More details: Some 200k tons of fuel will be produced during the first phase, which will be completed by 2026. The second and third phases will raise production to 1 mn tons and 3 mn tons by 2028 and 2030, respectively, El Nady told Kelma Akhira’s Lamees El Hadidi last night. Maersk has already begun feasibility studies for the project, he added.

REMEMBER- The government is aiming to position Egypt as a regional hub for green energy, with the government making moves to capitalize on investment momentum ahead of COP27. Major global companies have signed USD 18 bn worth of preliminary agreements to establish green ammonia and hydrogen projects in Ain Sokhna this year, with final agreements expected to be signed at the global climate summit.

ENERGY

Egypt can’t get enough of that sweet Russian crude

Incoming shipments of Russian fuel to Egypt have risen sharply in the past months as Moscow looks to alternative markets in the Middle East and Asia in light of Western sanctions, Bloomberg reports.

How sharply? Last month 51 shipments of oil were sent from Russia to Egypt, up from just one in August 2021.

El Hamra has been one destination: Bloomberg reported in August that Russia was shipping oil to the El Hamra oil terminal on the North Coast, which is able to store 1.5 mn barrels of crude. Around the same time Oil Ministry announced a large-scale expansion of the terminal that would more than triple storage capacity to 5.3 mn barrels.

It’s not just us: Shipments heading to the UAE rose more than 400% y-o-y in August, China-bound ships more than doubled. Saudi Arabia and Malaysia took 32 and 48 cargoes respectively during the month after receiving none in August 2021.

Flows could rise in the coming months, as pressure mounts for Moscow to find new buyers ahead of the EU’s ban on Russian crude, which will come into effect in December, Bloomberg says.

STARTUP WATCH

ECC paid USD 5 mn for majority stake in Source Beauty

UPDATE- ECC reveals the price tag on its newly acquired stake in Source Beauty: Egyptian Company for Cosmetics (ECC) invested USD 5 mn to acquire a majority stake through capital increase in local online beauty store Source Beauty, according to a joint press release (pdf) yesterday. The two companies first announced the acquisition earlier this week but didn’t specify the size of the transaction. Source Beauty founder and CEO Lydia Schoonderbeek declined to mention how much of the company was sold to ECC when we asked yesterday.

Where will the funding go? “We’re going to grow our talent, build on our authenticity, increase our tech footprint, and grow our product offering to help us further engage with the younger generation,” Source Beauty founder and CEO Lydia Schoonderbeek told us yesterday.

The local market remains its primary focus: The startup has no geographical expansion plans in the short-term and is putting all its effort into growing in the Arab world’s most populous consumer market, Schoonderbeek said.

About the company: Launched in 2018, Source Beauty is an online beauty marketplace offering products from more than 85 local and international brands, and has 60k users. ECC — which counts Lorax Capital Partners among its minority shareholders — manufactures beauty and personal care products and owns haircare and skincare company Bobana and cosmeceuticals player Infinity Clinic Pharma. The acquisition will see Schoonderbeek serve as ECC’s chief creative officer, alongside her role as CEO of Source Beauty.

ADVISORS- Al Tamimi and HVK Stevens acted as local and international counsel to ECC while Van Campen Liem advised Source Beauty.

MOVES

Grand Imam appoints first female adviser: Al Azhar Grand Imam Ahmed El Tayyeb has appointed Nahla Al Saeedy as his adviser on expatriate affairs, making her the first woman to hold such a role, Al Saeedy said in a statement. Al Saeedy will keep her role as the head of Al Azhar’s center for international students and the dean of the Islamic studies faculty for expats.

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LAST NIGHT’S TALK SHOWS

Surprising no one, the CBE’s leaked new rules for facilitating FX for imports dominated the airwaves yesterday, with the nation’s talking heads trying to gauge how far the new measures would clear an imports backlog crippling the country since spring. Kelma Akhira’s El Hadidi (watch, runtime: 8:44), Salet El Tahir (watch, runtime: 4:43), Yahduth Fi Masr (watch, runtime: 2:46), Al Hadath Al Youm (watch, runtime: 6:56) and Masaa DMC (watch, runtime: 9:46) all had coverage. We have the details in this morning’s news well, above.

The release of another 28 pre-trial detainees following a presidential pardon got a mention from Al Hayah Al Youm (watch, runtime: 5:56) and Al Hadath Al Youm (watch, runtime: 7:47).

EGYPT IN THE NEWS

It’s a mixed bag in the international press this morning, with no single story dominating the conversation. Here are some of the stories getting attention:

  • Egypt’s economic problems are taking their toll: The impact on Egyptian citizens of the economic crisis caused by the war in Ukraine and the pandemic is getting attention. (New York Times)
  • ‘Lion of Diplomacy:’ Sameh Shoukry gets a glowing profile detailing his role on the international stage. (The Africa Report)
  • The Tourism and Antiquities Ministry has reopened the site of Christian relic the tree of the Virgin Mary in Cairo following months of renovation. (Reuters | The National)
  • A Spanish charity has rescued 372 people at sea, most of them Egyptians, who were trying to cross the Mediterranean to Europe in unsafe smugglers’ boats. (AP)

ALSO ON OUR RADAR

The Transport Ministry yesterday sent out the tender document for the Tenth of Ramadan dry port to the four qualifying consortiums, it said in a statement. MSC, Elsewedy Electric-CGM CMA-CEVA Logistics, Orascom Construction-Abu Dhabi Ports, and Bollore Logistics-Meridiam are all competing for the contract to build the 250-feddan dry dock.

EGX-listed MB Engineering's EV charging subsidiary Sha7en has received a license to operate EV charging stations, it said in a disclosure, (pdf) to the EGX yesterday.

More Egypt-Qatar talks: Industry and Trade Minister Ahmed Samir held talks with the chairman of the Qatar Chamber of Commerce over increasing bilateral trade and investments, the ministry said yesterday.

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

  • A consortium of Saudi Egyptian Developers and the UAE’s Al Shafar General Contracting (ASGC) is among the companies bidding to redevelop the former National Democratic Party headquarters. (Hapi Journal)
  • Elsewedy Electric subsidiary Rowad Modern Engineering was awarded an EGP 418 mn contract to construct three biological products factories for EIPICO in Tenth of Ramadan City. (Statement, pdf)
  • Bahraini telecom carrier Infonas has landed in Egypt and is reportedly looking to sign cooperation agreements with three local IT and communications companies. (Al Mal)
  • Payments platform PayTabs has expanded its social commerce platform Paymes to Saudi Arabia and the UAE. The platform was launched here in May after Paymes merged with PayTabs (Statement)
  • Egyptian Modern Education Systems could establish a private university in the new capital. The company recently moved from the small-cap Nilex index to the EGX. (Statement, pdf)

PLANET FINANCE

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EFG Hermes - https://efghermes.com/

The ‘SPAC King’ has lost his crown: Chamath Palihapitiya, one of the key figures who fueled the 2020 SPAC mania, is winding down two of his blank-check firms after failing to find targets, and will return more than USD 1.5 bn to investors. Most of the companies taken public by Palihapitiya, the self-anointed Warren Buffett of this generation, have seen their share prices plunge this year amid tightening financial conditions. (Statement)

Shocker: Aramco CEO wants more investment in fossil fuels: The CEO of Saudi Aramco has pinned the blame on the current global energy crisis on underinvestment in fossil fuels, saying in a speech yesterday that if investment doesn’t rise spare capacity could be destroyed once demand rebounds, according to Bloomberg. “When the global economy recovers, we can expect demand to rebound further, eliminating the little spare oil production capacity out there,” Nasser said. “By the time the world wakes up to these blind spots, it may be too late to change course. I am seriously concerned.” An increase in investment this year is “too little, too late” and won’t make up for what happened after 2014 when investment fell from USD 700 bn to USD 300 bn last year, he said.

Nasdaq makes a crypto push: The second largest US stock exchange has launched a digital assets unit to lure institutional investors into digital currency, a company exec reportedly told Bloomberg. The tech-heavy index will offer custody services for BTC and ETH, competing against crypto trading firms including Coinbase, Anchorage Digital and BitGo and could launch a crypto exchange depending on the regulatory and competitiveness landscape.

But Enterprise, isn’t crypto going through a bleak midwinter? The Nasdaq is optimistic about institutional interest despite the recent crypto crunch, which has seen BTC plunge 58.9% so far this year to trade around USD 18.9. “We believe this next wave of the revolution is going to be driven by mass institutional adoption,” Ira Auerbach, the index’s new digital currency head, tells the business newswire.

Also worth noting:

  • IPO Watch: Chinese EV maker Leapmotor is looking to raise up to HKD 8.1 bn (USD 1.0 bn) in what would be Hong Kong’s largest IPO this year. Leapmotor will set a per-share price of between HKD 48-62, with trading set to begin on 29 September. (Release, pdf)
  • TotalEnergies wants more of Qatar’s huge LNG project: The French energy giant will add to its 25% stake in the project as European countries go in search of new energy suppliers to replace Russian fossil fuels. (Bloomberg)

Up

EGX30

10,011

+1.6% (YTD: -16.2%)

Up

USD (CBE)

Buy 19.38

Sell 19.49

Up

USD at CIB

Buy 19.41

Sell 19.47

None

Interest rates CBE

11.25% deposit

12.25% lending

Up

Tadawul

11,504

+0.5% (YTD: +2.0%)

Up

ADX

10,135

+0.4% (YTD: +19.4%)

Up

DFM

3,498

+0.7% (YTD: +9.5%)

Down

S&P 500

3,856

-1.1% (YTD: -19.1%)

Down

FTSE 100

7,193

-0.6% (YTD: -2.6%)

Down

Euro Stoxx 50

3,467

-0.9% (YTD: -19.3%)

Down

Brent crude

USD 90.90

-1.20%

Down

Natural gas (Nymex)

USD 7.72

-0.5%

Down

Gold

USD 1,671.10

-0.4%

Down

BTC

USD 18,909

-3.2% (YTD: -58.9%)

THE CLOSING BELL-

The EGX30 rose 1.6% at yesterday’s close on turnover of EGP 1.04 bn (8.6% above the 90-day average). Regional investors were net sellers. The index is down 16.2% YTD.

In the green: Fawry (+6.2%), Elsewedy Electric (+5.1%) and Madinet Nasr Housing (+4.5%).

In the red: Eastern Company (-1.3%), Ibnsina Pharma (-1.2%) and Alexandria Containers (-0.8%).

DIPLOMACY

Foreign Minister Sameh Shoukry met with US Secretary of State Anthony Blinken on the sidelines of the UN General Assembly in New York yesterday. Shoukry and Blinken discussed US support for Egypt to weather the economic challenges triggered by the war in Ukraine, according to a US embassy readout. They also touched on the Grand Ethiopian Renaissance Dam (GERD) dispute and COP27 preparations, according to a cabinet statement. Shoukry has been making the rounds in New York, meeting with the Foreign Ministers of France, Norway, Malta, India, Cyprus and the Netherlands, and the US envoy to Yemen.

Egypt’s Ambassador to Russia Nazih El Nagary submitted his credentials to Russian President Vladimir Putin yesterday, RT Arabic reported.

AROUND THE WORLD

Is Turkish President Recep Tayyip Erdogan planning to visit Israel? That’s what the president told leaders of US Jewish organizations at a meeting on the sidelines of the UN General Assembly in New York, according to Israeli media. A spokesperson for the Israeli president and the Israeli Foreign Ministry could not confirm the news to Bloomberg. Israel and Turkey last month agreed to bury the hatchet and restore full diplomatic relations for the first time since 2018.

Five people were allegedly killed in clashes with security forces in Tehran, amid demonstrations over the death in custody of a Kurdish woman who had been arrested by the country’s morality police, according to the Washington Post. The death of 22-year old Mahsa Amini has triggered a fresh wave of protest against the country’s highly conservative dress code laws.

hardhat

How is the current economic environment impacting financial infrastructure + telecom players? Last week, we looked at how construction companies’ earnings and stock performance have been impacted by the headwinds hitting the sector during the second quarter of the year. Inflation is on the rise, while an ongoing EGP devaluation and an FX shortage are similarly leaving their mark on telecom and financial infrastructure players — though not in entirely negative ways. While many have managed to contain — or even benefit from — the impacts of the EGP devaluation and FX movements, the challenge moving forward will be to maintain a healthy net monetary position and maintain a healthy and diversified revenue mix.

IN CONTEXT- The EGP fell 16% against the greenback as the Central Bank of Egypt (CBE) took measures to mitigate the fallout from Russia’s war with Ukraine, including an out-of-schedule rate hike and allowing the currency to slide. The EGP has now fallen about 23.8% from its value at the beginning of March, while domestic inflation continues to rise. On the global front, rising interest rates and volatility in financial markets have made share prices plummet as the EGX remains down 16.2% YTD.

Telecom players managed to contain the impacts of this challenging environment: Despite the two EGX-listed telecom players — Telecom Egypt (TE) and Raya Customer Experience (Raya CX) — reporting rising operating costs due to wage increases amid rising inflation, both companies managed to report solid revenues. TE “exceeded expectations” during the quarter, an analyst covering the telecoms sector who requested anonymity told Enterprise. The company reported a 22% y-o-y rise in revenues to EGP 10.8 bn, and a 38.2% y-o-y rise in net income after tax to EGP 2.42 bn, according to its earnings (pdf). Raya CX saw its net income fall a slight 1.4% y-o-y during the quarter to EGP 7.6 mn, while its revenues rose nearly 50% to EGP 288.6 mn, according to its financials (pdf).

Biggest impacts for telecom players are wage inflation + the devaluation: “The biggest expenses for telecom players are wages and tower expansions and maintenance, which could be hit by rising inflation,” Arqaam Capital Associate Director Noaman Khalid told us. TE’s operating costs rose 20.6% y-o-y amid wage increases during the quarter, while Raya CX also reported a 50.3% increase during the first half of year to the total costs of goods sold (COGS), with wages constituting the largest share of COGS, at 74.3% — especially as it ramps up hiring as part of expansion plans.

For Raya CX, the devaluation could be a good thing — provided they have a healthy revenue mix: “There’s demand for outsourcing, and Egypt is in a very good position because the cost base is lower,” the telecoms analyst said. “The more Raya CX can increase the contribution of USD-denominated contracts [to their revenues], the better, because it hedges them against any devaluation,” they added. Half of Raya CX’s revenues are currently in USD, and the company’s key strategy is to continue to “diversify sources of revenue in terms of currency, geography and business segment,” as a way of hedging against FX movements, according to its earnings release (pdf).

It’s a similar situation for TE, though it’s in a slightly more favorable position: “TE provides a service that’s highly in demand and underpenetrated in Egypt, and it offers it at cheaper prices than its competitors,” the source said. A third of TE’s revenues is USD-denominated, which also hedges them against currency fluctuations. But the key is its net monetary position, meaning whether it has more debt as opposed to assets in USD. Two of TE’s five business lines are completely dollarized. “If it has more debt than receivables, it could get hit with temporary FX losses but it doesn’t have a significant impact on operations,” the source said. “These losses are more than offset by its USD-denominated revenues,” they added.

Digital payments players are also seeing rising expenses: The two EGX-listed e-payments giants, e-Finance and Fawry, have both reported rising expenses for the past two quarters. e-Finance’s sales, general and administrative expenses rose 75.4% y-o-y during the first half of the year, driven up by an increase in headcount and expansions of operations and staff. The company expects these expenses to “slow over the remainder of FY2022 and to normalize in FY2023.” Fawry also mentions having rising expenses during the first half of the year due to talent acquisition and marketing activities.

But both companies are strong on the operational side: Fawry’s revenues rose 35% y-o-y to register EGP 531.29 mn, driven by a doubling in revenues from its banking services, according to the company’s earnings release (pdf). On the downside, its net income eased 35% y-o-y in 2Q 2022 to EGP 24.15 mn due to a slate of nonrecurring items, including a noncash expense of EGP 21.7 mn for its employee stock ownership plan (ESOP). Setting aside those charges, net income would have dipped 14% y-on-y to EGP 41 mn. e-Finance, on the other hand, doubled its net income y-o-y to EGP 279.3 mn in 2Q 2022, on the back of an increase in transaction-based revenues and data-hosting contracts, according to its earnings release (pdf). Revenues at the state-owned firm rose 59.3% during the quarter to record EGP 702.5 mn.

Things are looking up for both firms: “Fawry's expenses should ease during the second half of the year,” Noha Baraka, head of the fintech sector at CI Capital, told Enterprise. “Cashless transactions are extremely underpenetrated in Egypt, so this massive growth potential can likely overcome any expected hits to consumption activity due to inflation,” she added. This can be seen through the consistent growth of transactions on both Fawry and e-Finance’s end: Fawry has handled a total of EGP 614.9 mn transactions in 1H2022, up by 9.1% y-o-y, while e-Finance has processed some EGP 443.2 mn transactions.

And the outlook for the CIT sector as a whole is positive: Like the fintech sector, which is benefiting from the government’s prioritization of financial inclusion and expansions of fintech infrastructure, the telecom sector is also underpenetrated and has significant room for growth, Khalid said. This means that both sectors are still experiencing a lot of organic growth that can help outweigh other monetary pressures and challenges, the telecoms analyst echoed.

But share performances are all over the place: Fawry’s shares are down nearly 70% so far this year, while e-Finance’s shares are down 26.5%. “The sector is not immune to the rest of the market’s performance,” Baraka said, adding that “the share price is not a reflection of either of the companies’ individual performance, but of the market’s performance as a whole.” E-finance is already taking action to support its share price and address this discrepancy, with plans to buy back 5% of its shares over the next nine months.


Your top infrastructure stories for the week:

  • Abu Dhabi Ports (ADP) completed its acquisition of a 70% stake in local shipping and logistics firm International Associated Cargo Carrier (IACC).
  • Qatar and the Transport Ministry are conducting feasibility studies for an investment in Egypt’s container terminals.
  • Eni wants to boost its LNG import capacity starting 2023 to receive more imports and plans to work with Egypt and others to boost export capacity.
  • Egypt’s gas revenues could rise more than 50% this year as we aim to generate USD 8.5-10 bn in natural gas revenues in FY 2022-2023

CALENDAR

OUR CALENDAR APPEARS in two sections:

  • Events with specific dates or months are right here up top
  • Events happening in a quarter or other range of time with no specific date / month appear at the bottom of the calendar.

SEPTEMBER

September: Central Bank of Egypt’s Innovation and Financial Technology Center to launch incubator for 50 fintech startups.

September: Egyptian-German Joint Economic Committee.

September: A delegation from Germany’s Aldi will visit Egypt to look at potential investments.

September: Government to launch an international promotional campaign for Egyptian tourism.

13-27 September (Tuesday-Tuesday): UN General Assembly, New York.

19-22 September (Monday-Thursday): EFG Hermes One on One Conference, Dubai.

20-21 September (Tuesday-Wednesday): Federal Reserve interest rate meeting.

21 September (Wednesday): The Egyptian Virtual Food Show (pdf).

22 September (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

22 September (Thursday): Deadline to submit prequalification applications for companies interested in submitting a proposal for sea water desalination projects

25-27 September (Sunday-Tuesday) A delegation of executives at Egyptian real estate companies visit Saudi Arabia to present developers with potential investments in Egypt’s real estate sector.

25-29 September (Sunday-Thursday) FRANEGYPT will hold its first virtual expo on franchises in the country.

26–27 September (Monday-Tuesday): The Africa Women Innovation and Entrepreneurship Forum (AWIEF) at the Cairo Marriott Hotel.

27-28 September (Tuesday-Wednesday): Egypt-Spain Multilateral Partnership Forum, Sofitel Gezira, Cairo, Egypt.

27-29 September (Tuesday-Thursday): Africa Renewables Investment Summit (ARIS), Cape Town, South Africa.

27-29 September (Tuesday-Thursday): HSBC Energy Transition Webinar series.

28-29 September (Wednesday-Thursday): The sixth edition of Arab Pensions and Social Ins. Conference in Sharm El Sheikh.

30 September (Friday): Winter opening hours for shops and restaurants begin.

OCTOBER

October: House of Representatives reconvenes after summer recess

October: Air Sphinx, EgyptAir’s low-cost subsidiary to commence operations.

October: Fuel pricing committee meets to decide quarterly fuel prices.

1 October (Saturday): Start of 2022-2023 public school year.

1 October (Saturday): 2022- 2023 academic year begins for public universities.

4-8 October (Tuesday-Saturday): The Chemical and Fertilizers Export Council of the Trade and Industry Ministry is organizing a trade mission to Kenya.

6 October (Thursday): Armed Forces Day, national holiday.

8 October (Saturday): Prophet Muhammad’s birthday, national holiday.

10 October (Monday): The CEO Women Conference.

10-14 October (Monday-Friday): Gitex Global, Dubai International Convention and Exhibition Centre, Dubai, UAE.

10-16 October (Monday-Sunday): World Bank and IMF annual meetings, Washington, DC.

15 October (Saturday): Cairo Metro will launch a global tender for maintenance work on the power stations and overhead catenary system of Line 1.

16-19 October (Sunday-Wednesday): Cairo Water Week 2022, Nile Ritz Carlton, Cairo.

17 October (Monday): Fifth Egypt and UN-led regional climate roundtable ahead of COP27, Geneva, Switzerland.

27 October (Thursday): European Central Bank monetary policy meeting.

27-30 October (Thursday-Sunday): Cairo ICT, Egypt International Exhibition Center, New Cairo.

Late October-14 November: 3Q2022 earnings season.

Late October: First Abu Dhabi Bank to complete full integration with Bank Audi’s Egyptian operations after merger.

NOVEMBER

1-2 November (Tuesday-Wednesday): Federal Reserve interest rate meeting.

1-2 November (Tuesday-Wednesday): Arab League annual summit, Algiers, Algeria.

3 November (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

3-5 November (Thursday-Saturday): Egypt Fashion Week.

4-6 November (Friday-Sunday): Autotech auto exhibition, Cairo International Exhibition and Convention Center.

6-18 November (Sunday-Friday): Egypt will host COP27 in Sharm El Sheikh.

7 November (Monday): The inauguration of the first line of the high-speed rail.

7-13 November (Mon-Sun): The International University Sports Federation (FISU) World University Squash Championships, New Giza.

21 November-18 December (Monday-Sunday): 2022 Fifa World Cup, Qatar.

DECEMBER

3 December (Saturday): Dior Men’s pre-fall collection show in Giza.

13-14 December (Tuesday-Wednesday): Federal Reserve interest rate meeting.

13-15 December (Tuesday-Thursday): US-Africa Leaders Summit.

15 December (Thursday): European Central Bank monetary policy meeting.

22 December (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

December: The Sixth of October dry port will begin operations.

December: Egypt to expand Sudan electricity link capacity to 300 MW.

JANUARY 2023

January: EGX-listed companies and non-bank lenders will submit ESG reports for the first time.

January: Fuel pricing committee meets to decide quarterly fuel prices.

1 January (Sunday): Use of Nafeza becomes compulsory for air freight.

1 January (Sunday): Residential electricity bills are set to rise as per the government’s six-year roadmap (pdf) to restructure electricity prices by 2025.

7 January (Saturday): Coptic Christmas.

24 January-6 February: The 54th Cairo International Book Fair, Egypt International Exhibition Center

25 January (Wednesday): 25 January revolution anniversary / Police Day.

26 January (Thursday): National holiday in observance of 25 January revolution anniversary / Police Day.

FEBRUARY 2023

11 February (Saturday): Second semester of 2022-2023 academic year begins for public universities.

13-15 February (Monday-Wednesday): The Egypt Petroleum Show (Egyps), Egypt International Exhibition Center, Cairo.

MARCH 2023

March: 4Q2022 earnings season.

23 March (Wednesday) — First day of Ramadan (TBC). Maghreb will be at 6:08pm CLT.

APRIL 2023

17 April (Monday): Sham El Nessim.

22 April (Saturday): Eid El Fitr (TBC).

25 April (Tuesday): Sinai Liberation Day.

27 April (Thursday): National holiday in observance of Sinai Liberation Day (TBC).

Late April – 15 May: 1Q2023 earnings season.

MAY 2023

1 May (Monday): Labor Day.

4 May (Thursday) National holiday in observance of Labor Day (TBC).

22-26 May (Monday-Friday): Egypt will host the African Development Bank (AfDB) annual meetings in Sharm El Sheikh.

JUNE 2023

19-21 June (Monday-Wednesday) Egypt Infrastructure and Water Expo debuts at the Egypt International Exhibition Center.

28 June-2 July (Wednesday-Sunday): Eid El Adha (TBC).

30 June (Friday): June 30 Revolution Day.

JULY 2023

18 July (Tuesday): Islamic New Year.

20 July (Thursday): National holiday in observance of Islamic New Year (TBC).

23 July (Sunday): Revolution Day.

27 July (Thursday): National holiday in observance of Revolution Day.

Late July-14 August: 2Q2023 earnings season.

SEPTEMBER 2023

26 September (Tuesday): Prophet Muhammad’s birthday (TBC).

28 September (Thursday): National holiday in observance of Prophet Muhammad’s birthday (TBC).

OCTOBER 2023

6 October (Friday): Armed Forces Day.

Late October-14 November: 3Q2023 earnings season.

EVENTS WITH NO SET DATE

2H 2022: The inauguration of the Grand Egyptian Museum.

2H 2022: IEF-IGU Ministerial Gas Forum, Egypt. Date + location TBA.

2H 2022: The government will have vaccinated 70% of the population.

3Q 2022: Ayady’s consumer financing arm, The Egyptian Company for Consumer Finance Services, to release its first financing product.

3Q 2022: Swvl to close acquisition of Urbvan Mobility.

4Q 2022: Infinity + Africa Finance Corporation to close acquisition of Lekela Power.

4Q 2022: Electricity Ministry to tender six solar projects in Aswan Governorate.

4Q2022: Raya Holding subsidiary Aman and Qalaa Holdings’ Taqa Arabia to launch their fintech company.

End of 2022: Decent Life first phase scheduled for completion.

End of 2022: e-Aswaaq’s tourism platform will complete the roll out of its ticketing and online booking portal across Egypt.

2023: Egypt will host the Asian Infrastructure Investment Bank’s Annual Meeting of the Board of Governors in 2023.

1Q 2023: Adnoc Distribution’s acquisition of 50% of TotalEnergies Egypt to close.

**Note to readers: Some national holidays may appear twice above. Since 2020, Egypt has observed most mid-week holidays on Thursdays regardless of the day on which they fall and may also move those days to Sundays. We distinguish above between the actual holiday and its observance.

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