AM — CBE announces exemptions from FX withdrawal limit

Good morning, good people: We’re continuing our 2022 rewind today, looking back at the year in M&A, investment and capital markets.

PSA: You’re reading the penultimate EnterpriseAM issue of 2022. We’re giving ourselves a well-earned three-day weekend to take us into the New Year, meaning that Wednesday will be the final time we appear in your inboxes this year.

It’s official: There are exceptions for FX withdrawal limits. The Central Bank of Egypt yesterday confirmed (pdf) reports that people withdrawing FX overseas for medical or educational purposes will be exempt from withdrawal limits. The central bank introduced the withdrawal limit last Thursday as part of efforts to address a growing shortage of foreign currency in Egypt and crack down on the parallel market. The limits were prompted, it said, by a spike in the number of people in Egypt using bank cards to withdraw FX overseas

Just how much has been leaving the country? The bank said that it recorded up to USD 55 mn in withdrawals in a single day, almost five fold the average withdrawals recorded this time last year. Banque Misr has seen customers withdraw USD 10 mn a day using bank cards this month, up from USD 600k usually, according to bank chief Mohamed Eletreby, who described the withdrawals as “abuse of the state’s hard currency assets,” during an interview on Kelma Akhira last night (watch, runtime: 20:01).

QUAKE WATCH- A magnitude 5 earthquake took place in the Gulf of Suez in the early hours of the morning, according to the National Seismological Network. Tremors were felt as far away as Cairo, Beni Suef and Sohag but no casualties or damage to buildings have been reported, Al Masry Al Youm reported.

HAPPENING THIS WEEK-

Israel’s far-right government could be sworn in Thursday: Israeli PM-elect Benjamin Netanyahu will push to swear in his new coalition government on Thursday, the Times of Israel reported yesterday. The Likud leader last week reached an agreement to form a coalition with several far-right nationalist and religious parties, putting the country on the verge of the most extreme government in its history.

THE BIG STORY ABROAD-

As virus cases surge, China is pushing ahead unwinding zero-covid rules: China is scrapping its quarantine requirement for travelers starting 8 January as it continues to end its strict virus curbs. Arrivals to China have been forced to undergo a mandatory quarantine since March 2020, which initially lasted three weeks but has since been reduced to the current five days. The announcement comes despite Chinese hospitals now operating at full capacity as the unwinding of restrictions causes the virus to sweep through the country. (Reuters | Bloomberg | BBC | WSJ | FT)

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Good news for car ins. policyholders: Ins. companies will now only be able to write off a vehicle when the repair bill exceeds 50% of the cost of the policy, under new regulations introduced by the Financial Regulatory Authority to protect policyholders. Also under the new rules:

• Insurers are required to use a third party to estimate the car’s market value in case of a disagreement with the policyholder.
• When a policyholder switches providers, the insurer is obliged to share the value of losses with the new company.

CIRCLE YOUR CALENDAR-

Companies have T-minus four days to register with the Egyptian Tax Authority’s e-invoicing system after the Finance Ministry earlier this month gave companies an additional two weeks. Only 150k companies had signed up to the new system as of the end of November, well below a sought goal of 1 mn companies to register under the system.

REMEMBER- This deadline no longer applies to the self-employed: The Finance Ministry pushed the deadline for self-employed professionals — including doctors, pharmacists and lawyers — to 30 April 2023 after widespread opposition to the system.

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

*** It’s Going Green day — your weekly briefing of all things green in Egypt: Enterprise’s green economy vertical focuses each Tuesday on the business of renewable energy and sustainable practices in Egypt, everything from solar and wind energy through to water, waste management, sustainable building practices and how you can make your business greener, whatever the sector.

In today’s issue: The green economy in 2022: COP27 was the news event of the year. In Part I of our Year in Review on the green economy, we took a look at how the impacts of climate change caused problems for livestock and bee farmers last year, as well as the fishing and tourism industries that depend on our Red Sea coral reef ecosystems. This week, we recap the single most important climate event of 2022: the COP27 UN climate summit held in Sharm El Sheikh in November.

Yet another bidder vying for Pachin: Eagle Chemicals wants to acquire 100% of Paint and Chemical Industries (Pachin) for EGP 29.5 a share, the highest offer Pachin has received yet, according to an EGX disclosure (pdf) filed by the Financial Regulatory Authority yesterday. The bid is a 1.7% premium to the UAE’s National Paints Holdings’ takeover bid, valuing the company at EGP 708 mn.

What’s next? Eagle Chemicals will now conduct due diligence on the company, the statement said. Pachin is set to respond to NPH’s offer in January, as we reported earlier.

Two bidders are out of the race: Universal Building Materials and Chemicals (Sipes) and Saybad Industrial Investment have both withdrawn takeover bids after Pachin rejected them for undervaluing the firm.

REMEMBER- The play for Pachin comes amid the government’s privatization push, which should see it reduce its involvement in or exit certain industries to make way for the private sector. Pachin is currently approximately 54% owned by state-owned companies and banks.

Advisors: Al Ahly Pharos is providing financial advice to Pachin while Shalakany Law Office is counsel.

2022 might have coincided with a downturn in global M&A — but the same can’t be said for Egypt: Globally, 2022 hasn’t been a great year for M&A. After reaching a record high of USD 5.8 tn in 2021, the value of global transactions has fallen this year as rising interest rates and market turbulence restricted funding and hit corporate valuations. Dealogic data reported by Reuters last week put the total figure for 2022 at USD 3.66 tn, down 37% from 2021.

The same can’t be said for Egypt, where Gulf sovereign wealth funds — triggered by the economic crisis — led a buying spree that has further consolidated the GCC’s key role in the Egyptian economy.

According to the Enterprise M&A Tracker:

• M&A volumes more than doubled in 2022: The number of completed transactions in Egypt rose to 66 in 2022, up from 31 the previous year.
• Most of the money flowed in: The vast majority of M&A transactions were inbound, with only a handful of Egyptian companies making deals overseas.
• Foreign inbound M&A was dominated by the Gulf: Companies and institutions in Saudi Arabia and the UAE were involved in 40 transactions between them in 2022 while Kuwait and Qatar were involved in a few.
• The most popular sector was: Banking + financial services, followed by manufacturing and energy. According to our records, 16 M&As were completed in the banking sector in 2022, nine in manufacturing and four in energy, two of which were in renewables.

The Biggest M&A Transaction of the Year award goes to…: Vodacom’s acquisition of Vodafone Group’s 55% stake in Vodafone Egypt was easily the biggest transaction in the Egyptian market in 2022, coming in at almost EUR 2.4 bn (c. USD 2.5 bn / EGP 47 bn). The companies recently completed the deal, with the British firm confirming earlier this month that it had transferred the shares to its South African subsidiary.

First Abu Dhabi Bank (FAB) tried to pull off what would have been the most significant acquisition in Egypt’s financial services sector in years: In February, the Emirati lender offered to purchase a majority stake in EFG Hermes in a transaction that at the time valued it at around EGP 18.5 bn (c. USD 1.2 bn), only to drop the bid two months later after the global markets were upended by Russia’s invasion of Ukraine.

2022 was the year of the Gulf sovereign wealth fund: The economic crisis allowed Gulf wealth funds, particularly those in the UAE and Saudi Arabia, to significantly increase their clout in the Egyptian economy while helping to shore up the country’s dwindling supply of foreign currency. In addition to depositing USD 10 bn at the central bank, Abu Dhabi’s ADQ and Saudi Arabia’s Public Investment Fund (PIF) have spent some USD 3.1 bn to acquire significant minority stakes in some of the EGX’s strongest companies from the government.

Together, the two funds now own almost half of two of Egypt’s biggest fertilizer companies: ADQ and the PIF now own 41.5% of Abu Qir Fertilizers and 45% of Misr Fertilizers Production Company (Mopco).

The financial sector was also one of their biggest targets: ADQ became the single-biggest shareholder of the country’s largest private-sector bank CIB and its leading fintech firm Fawry. The fund bought a 17.2% stake in CIB for USD 911.5 mn and 11.8% of Fawry for almost USD 55 mn. Meanwhile, the PIF took a 25% stake in e-Finance, the government’s venture into the fintech sector, and is reportedly currently in talks with the central bank to fully acquire United Bank.

Pharma + retail: The PIF increased its footprint in Egypt’s pharma sector by purchasing 4.7% of EIPICO and upping its holdings of Rameda to become the company’s second-largest shareholder. It also acquired 34% of consumer electronics and household appliances retailer BTECH for an undisclosed amount while ADQ completed the purchase of Abu Auf parent Auf Group. The PIF, alongside other undisclosed funds, also made an entrance into the education sector with the acquisition of a 15% stake in CIRA Education.

A play for the Egyptian real estate sector: ADQ, alongside Emirati real estate giant Aldar Properties, acquired SODIC in late 2021. Under its new ownership, SODIC — already one of Egypt’s leading developers — has moved to expand its footprint this year. After failing in its bid to take over Madinet Nasr Housing & Development (MNHD) in the summer, the developer recently submitted an initial offer to acquire 100% of Orascom for Real Estate and is currently performing due diligence.

And Egyptian ports:

#1- Alexandria Container & Cargo Handling is now majority-owned by Gulf wealth funds after state institutions agreed to sell shares to bring in vital supplies of hard currency. ADQ acquired a third of the EGX-listed company for USD 186.1 mn in April and the Public Investment Fund followed suit four months later, buying a 20% stake for around USD 156.3 mn.

#2- One of the country’s leading private-sector shipping firms is now owned by ADQ’s ADP: Abu Dhabi Ports, majority-owned by ADQ, paid USD 140 mn to purchase a 70% stake in International Associated Cargo Carrier (IACC), an Egyptian investment firm that owns two local maritime logistics companies: shipping firm company Transmar and terminal operator Transcargo International (TCI).

It’s not just Gulf wealth funds that are hungry for Egyptian assets: Several private-sector actors from Saudi Arabia and the UAE have made significant acquisitions this year. Both the Egyptian Belgian Company — best known for its Ole-branded baked goods — and Giza Systems are now in Saudi hands. From the Emirati private sector, the Dubai-based National Paints Holdings is attempting to take over the EGX-listed Paint and Chemical Industries (Pachin), more than half of which is owned by state institutions, while investment firm Rimco bought 3% of leading snack food maker Edita. Meanwhile, the distribution arm of the UAE’s state oil company, Adnoc, launched a bid to acquire half of TotalEnergies’ Egyptian subsidiary, which is one of the biggest fuel retail operators in the country.

One non-state Emirati investment group has been particularly active in Egypt this year: Chimera Investments acquired 56% of Beltone Financial for EGP 384.8 mn (USD 20.3 mn) in July, and followed that up with the purchase of a 22% stake in MNT Investments, which is majority-owned by GB Capital. The GB Auto subsidiary also agreed this month to sell a 45% stake in GB Lease to the Abu Dhabi-based investment firm, a transaction which could close before the end of the year should GB Auto board give the sale its blessing.

Don’t forget the Qataris: One of the key factors motivating Egypt to bury the hatchet with its erstwhile regional foe has been the hunt for new foreign direct investment, and Doha has been only too happy to enter into talks to acquire stakes in Egyptian companies. Leading the discussions on the Qatari side has been the Qatar Investment Authority (QIA) — the country’s wealth fund — which has been reported to be considering spending as much as USD 2.5 bn to purchase government-held shares in a number of companies including Vodafone Egypt.

Talks with the wealth fund have dragged on for much of the year with few updates from the parties involved, though the QIA did deposit USD 1 bn at the Central Bank of Egypt as a stop-gap until agreements are finalized. This took the amount deposited at the CBE by Doha in 2022 to USD 4 bn after an initial USD 3 bn transfer in the wake of the economic crisis caused by the war in Ukraine. Qatar pledged in March to invest USD 5 bn in Egypt in response to the crisis.

It’s not just the wealth fund, though: Qatari dairy producer Baladna became Juhayna’s third-largest shareholder with a series of share purchases through the year that saw it acquire more than 10% of the company.

valU went on an M&A spree: EFG Hermes’ consumer finance arm valU began its expansion into Saudi Arabia with the announcement of a partnership with the Alhokair family. In June, the companies said that valU had agreed to purchase 35% of new Saudi NBFS player Fas Finance from Alhokair’s Fas Labs, while the three Alhokair brothers would buy a 5% stake in valU. The non-bank lender followed this up by acquiring HR and payroll platform Paynas in August and fintech Kiwe in October, as well making an investment in MENA e-commerce platform Hoods. 2023 looks like it will be more of the same for the company after it announced this month that it was setting aside USD 25 mn for fresh acquisitions and the rollout of new products.

Let’s just say it outright: 2022 was not a great year for the EGX. Last year, we were cheering the fact that Egypt saw four IPOs — but we’re ending 2022 on a less positive note, albeit not as bad as the zero we ended 2020 with.

The two IPOs that hit the EGX in 2022: Al Khair River for Development and Investment (Nahr El Khair) got the ball rolling with our first listing of 2022 in January, followed by cosmeceutical giant Macro Group Pharma’s EGP 1.3 bn EGX debut in February.

There were others who tried to push through: Ghazl El Mahalla FC braved difficult market conditions with its planned micro-IPO, in which it was seeking to raise EGP 135 mn by selling a 67.5% stake. The club raised EGP 37 mn during the institutional component of the offering in November and retail investors put in orders for just 18% of the shares made available to the public, despite being extended twice due to weak investor interest. The planned IPO was by all means a small transaction, but could have played a significant role in encouraging other sporting clubs — including Al Ahly — to follow suit.

We started 2022 with an optimistic outlook on Egypt’s IPO pipeline, not least because of the state privatization program: At the start of the year, the government envisioned as many as 10 state-owned companies selling shares on the bourse in 2022, either via IPOs or secondary stake sales. Officials including Finance Minister Mohamed Maait and Planning Minister Hala El Said each signaled the state privatization program would be revived early in the year.

Among the offerings that were originally in the government’s pipeline: Heliopolis Housing, which was planning to pull the trigger on its secondary offering by the middle of 2022, while state fertilizer Mopco was originally in the chute to tap the EGX in 1H 2022. There were also signs the hotly-anticipated IPO of Banque du Caire could be back on after it was postponed due to the pandemic, and Misr Ins. Holding subsidiary Misr Life Ins. was eyeing a 2H 2022 window for its IPO.

There were also high hopes for military-owned companies going public: Fuel retailer Wataniya and bottled water company Safi, which have been part of the Sovereign Fund of Egypt-led program to open up military-affiliated companies for privatization since late 2020, were scheduled to go public before the end of 2022. El Said earlier signaled the two companies could IPO on the EGX after an initial stake sale to a strategic investor, while Prime Minister Moustafa Madbouly suggested in September that the companies would go through with a full-on IPO.

Things soon began to shift with Russia’s invasion of Ukraine in late February, which triggered a general risk-off sentiment and the retreat of foreign institutional investors from emerging markets. The market turmoil drove the benchmark EGX30 into a bear market, and by the mid-point of the year it had fallen to lows not seen since November 2016.

The SFE shifted its tactics in response to the new realities: The SFE said around midway through the year that it would pivot from public share sales to selling stakes to strategic investors in response to market turbulence and global economic volatility. Among the companies the SFE flagged for a private share sale was the new holding company that the government plans to create out of seven or eight state-owned hotels.

Others opted to sit on the sidelines until things got better: A handful of companies — both state-owned and from the private sector — decided to postpone their stake sale plans to next year amid market volatility. These include Abu Auf’s parent company AUF, which said in April it is pushing its planned EGX debut until 2H 2022, Aman Holding, and state-owned Banque du Caire, which decided in July to postpone the sale until market conditions improve. BdC has until 31 March 2023 to finish its IPO procedures.

Throughout the volatility, regulators tried to breathe fresh life into the markets: The Financial Regulatory Authority (FRA), now headed by former EGX boss Mohamed Farid, began introducing regulatory changes designed to boost liquidity on the bourse. Under the changes, companies can now “temporarily” list their shares on the EGX before getting regulatory approval from the FRA and have six months to meet listing requirements, including minimum quotas for the number of listed shares and shareholders. The regulatory body also scrapped proposed limits on margin trading, allowed any of the Finance Ministry’s issued securities to be listed on the EGX — paving the way for an active secondary market for debt — and signaled it could resuscitate short selling.

…And tried to attract more institutions to invest in capital markets: EGX officials met with state-owned institutions in a bid to encourage state institutions to invest in capital markets to increase the amount of domestic institutional money in Egypt’s equity market. Meanwhile, the FRA’s eased listing requirements helped kick off “serious talks” with as many as six private sector companies looking to list on the bourse, EGX head Ramy El Dokany said in September.

The bright spot: The EGX has been on a tear in recent weeks, becoming one of the world’s best-performing exchanges in the wake of October’s currency devaluation and the announcement of a USD 3 bn IMF bailout package. The EGX 30 has surged 68% since its July low, and is now up 21.9% year-to-date.

ALSO- Remember SPACs? Despite being all the rage in 2020 and 2021, leading regulators here at home to set up a regulatory framework to allow SPACs, the blank-check companies never properly landed in Egypt. Last we heard in March, the paperwork for Egypt’s first SPAC had been filed and was waiting on FRA signoff. The firm had been set to list on the EGX by the end of January or early February this year.

CORPORATE DEBT-

Faced with an anemic bourse, plenty of corporates pursued other avenues for raising capital, including debt issuances.

Egypt’s securitization market has been on fire this year: Companies have sold a record EGP 45.42 bn of securitized bonds to investors (mainly banks) so far this year. That’s almost three times the volume issued in 2021, which totaled EGP 15.81 bn. The New Urban Communities Authority was behind the largest issuance of the year (and the largest ever in the Egyptian market), pulling off a EGP 20 bn sale in September to finance new developments.

2022 saw a new type of security make its Egypt debut: CIRA Education took to market Egypt’s first-ever future flow security, selling EGP 800 mn to local and regional banks. Future flow securities allow companies to securitize off-balance sheet cashflows, potentially opening up structured finance to a wider range of sectors such as utilities, telecoms and healthcare.

Other areas of the corporate debt market? Not so much. GB Auto’s Drive Finance was responsible for the lone corporate bond issuance of 2022, selling bonds worth EGP 700 mn in June. The corporate sukuk picked up a little from 2021, with Palm Hills Development and Contact Financial taking to market the year’s only two issuances worth a combined EGP 5.3 bn. Contact was the only company to sell sukuk in 2021 with a EGP 2.5 bn issuance.

So, what’s in store for 2023? The government looks like it’s getting its ducks in a row to kick off stake sales on the EGX, with Maait saying earlier this month the government could sell stakes in unnamed companies in the banking and oil sectors before March 2023. Meanwhile, Damietta Container & Cargo Handling Company and Port Said Container & Cargo Handling Company — both subsidiaries of the Holding Company for Maritime Transport — could sell 25% stakes on the EGX in 1Q 2023. The Suez Canal Authority had also previously signaled it would IPO the Canal Mooring & Lights Company on the EGX at the end of this year, but we’re going to go on a limb and assume those plans have been pushed to 2023.

2022 was a positive year for investments — especially as green hydrogen stole the show and we attracted lots of GCC interest: In a year of global economic turmoil and uncertainty here at home — with imported inflation and a currency under pressure — Egypt is ending 2022 having attracted a whole lot of investment interest. This year’s announced investments significantly outpace last year’s in terms of value, despite the number of announcements staying more or less steady y-o-y.

Our usual disclaimer: We derived the data points for this wrapup from our internal Enterprise Investment Tracker, which we use to keep tabs on announced and executed investments in Egypt. Our tracker only accounts for capital expenditure and does not include opex spending plans. The data is also not necessarily complete — there are investments out there that didn’t make it onto our radar because they weren’t announced, particularly from smaller and mid-sized companies, and companies that aren’t publicly traded.

ALSO- Our last two years of data tracked investment values in EGP. For consistency purposes, we’re tracking this year’s investments in USD. Comparative values from last year’s data are expressed in USD equivalent, based on the FX rate at the end of 2021.

In 2022, we reported on 113 announced investments worth a whopping USD 192.2 bn. The actual total value of planned investments was higher — 15 of these commitments did not specify a value.

That’s a much bigger pipeline (in terms of value) than last year, when we reported on 118 announced investments worth a combined USD 26.4 bn.

The top three industries for investment in 2022, by announced value:

• Energy at USD 151.6 bn, buoyed primarily by the USD 119 bn of green hydrogen and wind projects Egypt signed during COP27;
• Manufacturing at USD 3.7 bn, including a potential USD 2.3 bn complex to make solar panel components, courtesy of a group of unnamed Chinese firms;
• Infrastructure, with USD 2.5 bn of investment commitments announced throughout the year.

Rounding out the top five: Food and beverages (USD 471 mn) and tech (USD 440 mn).

How does that compare to 2021? Last year, the top five target industries for investments were energy (USD 11.27 bn), real estate (USD 6.36 bn), infrastructure (USD 2.43 bn), healthcare (USD 1.65 bn), and food and beverages (USD 517 mn).

The biggest y-o-y increase in investment this year by value: Energy, by a very, very wide margin. Investment commitments announced this year for energy projects ballooned by some 1,245% y-o-y.

Meanwhile, healthcare and real estate saw the biggest drops in investments compared to last year. Healthcare investments from private sector players nosedived 99% y-o-y to USD 23.9 mn in 2022. In real estate, investments fell 76% y-o-y to USD 1.5 bn. This should come as no surprise, considering inflation and cost pressures significantly hindered operations for many real estate developers as they struggled to secure building and raw materials. Some 10-20% of real estate developers have at some point halted their construction projects this year due to fiscal and logistical pressures, sources have previously told us. Some have even sold off projects before starting construction.

Other than the energy boom, the big investment trend of 2022 for Egypt was the influx of GCC interest. Out of the total planned investments announced this year, Gulf-based investors accounted for USD 55.7 bn — that’s around 23% for those of you keeping score at home. This figure includes the USD 10 bn Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, pledged to give as aid to Egypt, as well as the separate USD 10 bn Abu Dhabi’s sovereign wealth fund, ADQ, pledged to invest in industrial projects in Egypt, the UAE, and Jordan.

It was another econ-heavy night on the airwaves, this time centered on President Abdel Fattah El Sisi’s speech during a factory inauguration ceremony in Abu Rawash and his promise to help clear our backlogged ports soon.

Banks to secure FX for letters of credit to help clear import backlogs? El Sisi suggested that banks will in the next four days acquire the foreign currency required to cover letters of credit for goods stuck at ports. The president was speaking a day after the government said it was working on a plan to release the remaining goods from ports, which it valued at around USD 9.5 bn. Speaking during the ceremony yesterday, Prime Minister Moustafa Madbouly said that authorities have agreed to prioritize the release of USD 4-4.5 bn worth of commodities from ports including those required for manufacturing, reiterating cabinet spokesperson Nader Saad from a day earlier (watch, runtime: 5:51).

Remember: Authorities have pledged to scrap the requirement for businesses to use letters of credit to finance imports by the end of this month as part of its agreement with the IMF to transition to a flexible exchange rate.

Cabinet will also be publishing a weekly tally for goods released from ports, detailing the amount and types of goods it has released each week, Madbouly said. El Sisi and Madbouly’s statements got attention internationally: Bloomberg.

El Sisi’s speech was the top story on the airwaves last night, receiving coverage from Kelma Akhira (watch, runtime: 3:22), Masaa DMC (watch, runtime: 1:44), and Al Hayah Al Youm (watch, runtime: 2:23).

MEANWHILE- The heads of the two largest state-owned banks made appearances on the airwaves last night to back up the central bank’s move last week to introduce a limit on overseas FX withdrawals. Banque Misr chief Mohamed Eletreby on Kelma Akhira with Lamees El Hadidi (watch, runtime: 20:01) and National Bank of Egypt Chairman Hisham Okasha phoned in to El Hekaya to speak with Amr Adib about the dash for FX (watch, runtime: 15:35). We have more on this in this morning’s What We’re Tracking Today, above.

Don’t hold your breath over new high-interest certificates: It's unlikely that we’ll see new high-interest certificates of deposit from the NBE, Okasha told Adib. And Eletreby explained to El Hadidi how much high-interest CDs cost banks and therefore need to be studied very carefully.

Food price inflation is getting more digital ink in the foreign press: The Washington Post is out with a story about how koshary — a typically low-cost meal — is becoming increasingly expensive amid surging inflation, while the National is taking note of remarks from President Abdel Fattah El Sisi that the state has done everything in its power to cap soaring food costs as inflation hit a five-year high of 18.7% in November.