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Tuesday, 16 October 2018

Our sitdown with Renaissance Capital’s newly-appointed CEO for North Africa Amr Helal

** #8 Meet Renaissance Capital’s new CEO for North Africa, Amr Helal: Amr Helal (LinkedIn) has been appointed CEO for North Africa at Renaissance Capital, the company announced yesterday morning (pdf). Helal will be taking on the duties of outgoing CEO for MENA and head MENA equities — and longtime friend of Enterprise — Ahmed Badr, who is leaving the emerging and frontier markets specialist to return to Credit Suisse after a four-year run. “[Badr] was instrumental in building Renaissance Capital’s franchise in the MENA region, one of our core markets,” Renaissance Capital Co-CEO Anna Vyshlova said.

Helal will oversee the firm’s regional strategy from its Cairo office, leading the firm’s North Africa franchise and senior client coverage in the region, the company said. He comes to the firm with over 17 years of private equity and investment banking experience in the region, having held senior roles at EFG Hermes and the Abraaj Group. Most recently, Helal was head of corporate private equity at Capstone Group, which bills itself as Egypt’s first dedicated real estate private equity fund manager.

Excerpts from our conversation:

A fascinating and promising time for the region: “I am delighted to be part of Renaissance Capital’s story at such a fascinating and promising time for the region,” Helal said of his appointment. This theme of interesting times pervaded our exclusive sit down with Helal on Sunday, where we looked at everything from the outlook of the fall and winter IPO and M&A seasons against a turbulent EM backdrop to the Madbouly government’s reform program.

It’s going to be a busy IPO season this fall and winter thanks to an improved macro climate market conditions notwithstanding: Obviously, from our perspective, there is a full IPO pipeline that has been building up and expected to come to market in the fall and winter and expected to continue until the first half of 2019, market conditions notwithstanding. We haven’t seen this level of activity coming out of the Egyptian capital market for a while now. I think Egypt has become extremely attractive and investible again as the reforms addressed structural problems and not simply a band aid. The long-term outlook is promising. Inflation has been coming down and the currency has been stable despite all that is happening around us. On that, we are cautiously optimistic. Obviously, we need the global backdrop to be conducive, as there has been concerns of rising interest rates, prospect of a US-China trade war, and volatility in global equity and emerging markets. Nonetheless, we are very excited about the offerings.

M&As also to pick up in the fall and winter: Outside the general trends of the Egyptian capital markets, there has already been interest in M&As over the past couple of years. We expect this to pick up as we go forward.

Renaissance Capital is building a pipeline of mandates in Egypt: We’re focusing on where we can add value and where we have an edge as the leading dedicated EMEA and frontier markets financial services platform with on the ground presence in the markets we operate it.

Sector-wise, RenCap likes the Egyptian consumer story: With the demographics of a 100 mn population, and an improving economic outlook, we find that the consumer-space, such as food, healthcare, and retail sectors, is quite interesting. You have to be selective though. We also like the export-driven story, given the renewed cost-competitiveness of Egypt and businesses that are well positioned to benefit from the continued infrastructure spending and investment.

With the EM Zombie Apocalypse upon us, is this the right time for the state privatization program? Ultimately, market sentiment will dictate the pace and progress of the program. Having said that, the government is committed to the privatization program and it is a full pipeline. Some of the state companies are already listed, as it was a good way to kick off the program with these. The markets do, however, need to be conducive. And if they are not, everyone will need to take stock. However, market conditions are changing on a daily basis. We are all rooting for the success of the program, but if the timing is not right, I don’t think it’s the end of the world.

Despite EM selloff, Renaissance Capital is still bullish on Egypt equity and debt: From a macro perspective we are bullish on Egypt and the outlook is positive. We also like the reform-driven story. All the economic indicators have been improving but we are cautiously optimistic, as Egypt is not insulated from the global market conditions. We see that now in the pause in interest rate reduction by the central bank.

Future growth driven by capex and monetary easing: Interest rate reductions are bound to continue, which will spur capex-led borrowing and investment by corporates over the next three to five years. We’re waiting for global market conditions to moderate before we see interest rates go down and this capex-led recovery to start filtering down. There is no incentive for the CBE to have a rate cut from now until the end of the year.

In a high interest rate environment, what’s happening in Egypt is not a deleveraging story, but an investment in the future: Corporates now are seeing improvement in consumption after the economic reforms. Borrowing has been funneled towards working capital, which is normal in the current interest rate climate. But they are waiting for interest rates to go down to begin borrowing for capex.

Is interest in the carry trade fading? One needs to be careful about the carry trade. What had made it attractive was the high yields and the relative stability of the exchange rate, despite many indicators, including the real effective exchange rate, pointing to the EGP being undervalued by around 15%. The current short-term risk for the carry trade is how stable the exchange rate will be.

Gov’t debt strategy moving Egypt towards further diversification of funding sources: The government said it will put in a self-imposed debt ceiling, which makes sense. Diversifying its borrowing is a prudent strategy, particularly with the pan-Asia road show, as it will attract interest from markets that have not been necessarily well-invested in Egypt. We also like the diversification in terms of short, medium and long-term financing as ultimately, you need to match tenor with usage. Furthermore, there has to be a mix between long-term debt, and the opportunistic short-term for the lack of a better term “hot money.” Initially, the latter was targeted, but now the government is diversifying across the board, which is the right thing to do.

Is the firm still bullish on KSA in light of the negative attention it has been receiving? I cannot speak to the impact of specific incidents, but in general, one cannot ignore Saudi Arabia. It is the largest market in the GCC and it, too, is a reform-driven story. They have an ambitious Vision 2030 platform, and like Egypt, they are committed to implement it. Are there hiccups? Yes, but that can be expected when there is an ambitious reform program. It’s like a large oil tanker changing course. It needs time.

Morocco looks interesting, too: The Moroccan market is of interest to us and the economy has sound fundamentals with good growth prospects.

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