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Wednesday, 13 November 2019

Our exclusive talk with Ayman Soliman, CEO of THARAA — Egypt’s new sovereign wealth fund

Our exclusive talk with Ayman Soliman, CEO of THARAA — Egypt’s new sovereign wealth fund: Egypt’s sovereign wealth fund could see its authorized capital increased to EGP 1 tn from a current EGP 200 bn. “We expect to increase our licensed capital within three years to EGP 1 tn or less … it all depends on the investors’ response and investment appetite,” newly appointed CEO Ayman Soliman told the press yesterday (see, for example, Reuters). His statements confirm those by Planning Minister Hala El Said last week, and back President Abdel Fattah El Sisi’s statements that the fund could see its capital raised into the several tn EGP range. “The sectors we will work in include industry, traditional and renewable energy, tourism,” Soliman added.

Soliman also revealed that the name of the fund will be THARAA (Arabic for wealth) at a press roundtable. He went on to state that Egypt has plenty of state assets and projects that would be of interest to investors, according to Al Mal.

We had an exclusive chat with Soliman that dove deeper into the weeds, looking at the fund’s strategy, how it will operate, its primary pitch to investors and how it will operate in a challenging global macro climate? Edited excerpts from our discussion:

The goal: In a nutshell, THARAA hopes to attract and steer investment toward sectors that the state sees as vital to the economy, Soliman tells us. The fund, through its investments and its subsequent sub-funds, aims to sustainably generate income and create value. The long-term ambition is significant: Soliman aims to see more Egyptian multinationals grow out of the investments that THARAA makes, saying their success will help raise Egypt’s regional and global economic clout.

The strategy: THARAA will operate through three types of partnerships. The first will see it partner with private-sector investors in specific industries. The second will see it partner with other sovereign wealth funds, while the third will see it partner with the private sector on specific projects through PPP, JVs and other sub-funds, Soliman said. The fund’s strategy will see it follow a private equity-style model of investing, he added, so we can expect a flurry of M&A coming from the fund. The model will see THARAA offer stakes of variable sizes in companies and projects across industries, suggesting that the fund does not plan to hold majority stakes in all of its projects.

The fund’s focus industries include: Food, pharma, industry, infrastructure and energy, among others. Down the road, it will also explore the agrifoods business. Soliman says there has been significant interest from regional and global investors, particularly in Egyptian power plants, pharma, and agrifoods. Soliman had revealed on Monday that as many as six international investors have expressed interest in the Siemens-combined cycle power plants transaction.

The fund has no intention whatsoever in crowding out the private sector, Soliman assured us. “We do not plan to get involved in any project where investors are already involved and locked in on,” adding that “We will create opportunities exclusive to the fund, or opportunities that would benefit from the fund’s involvement.”

THARAA is currently focused on institutional investors, with plans to draw in retail investors at a later stage.

IPOs and other exits are on the fund’s long-term agenda, he added.

The fund will also take a long-term approach to its portfolio investments, creating its own sustainable yield curve within four years of operation, Soliman said.

Timeline: Currently, the fund’s focus is on creating partnerships for specific projects and sectors, he said. We’ve seen that with the announcement that THARAA is looking to acquire a sizeable stake in the Siemens / Orascom Construction / Elsewedy Electric power plants, with an eye towards closing the transaction next year.

Where is the opportunity for investors? “What distinguishes THARAA from other funds is that it will provide access and exclusive opportunities to investors that would not be available to them otherwise,” Soliman said. It will open up important and niche sectors that have often remained closed and make them accessible to the private sector, he added, giving as an example the management of historic sites and monuments, to which the private sector may have access through the fund. It is also authorized to invest in infrastructure projects through PPP and other frameworks, including the newly introduced transfer-own-operate (TOO) framework.

Why launch THARAA now? “We see that now we have an 18-month window before traditionally strong emerging markets, which have seen a downturn this year, start picking back up again,” said Soliman. Broadly speaking, Egypt is among the most attractive emerging market economies today, said Soliman: It has strong fundamentals as well as the demographics, consumer market and needed to drive growth. Egypt also offers above-average yields, drawing in portfolio investors, he said.

Launching THARAA amid a challenging global macro climate: Soliman sees opportunity in launching THARAA in a challenging global macro climate for a variety of reasons. He sees Egypt’s solid investment case as hooking investors who exited emerging markets this year. He also notes that Egypt managed to bring in hot-money portfolio investors in the worst of times thanks to high yields. THARAA can leverage this to draw them into more long-term instruments, says Soliman, who sees this as possibly providing a catalyst to re-energize capital markets here and spur the rise of things such as the corporate bond market in Egypt. Furthermore, big emerging markets are expanding economically outside their borders, such as China’s Belt and Road initiative. Egypt is strategically placed to take advantage of this, he added.

Ensuring THARAA doesn’t become 1MDB: How can we ensure the fund will be managed with transparency and good governance? “First, through the quality of our partners and partnerships,” said Soliman. By virtue of bringing in foreign and well-established partners, the fund is obliged to operate on the strictest standards of transparency, he said. Furthermore, the process of taking projects and companies to market is, by design and requirement, transparent. THARAA is also a member of the International Forum of Sovereign Wealth Funds, which promotes adherence to corporate governance and transparency requirements.

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