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Sunday, 21 November 2021

EFG, SFE finalize acquisition of Arab Investment Bank

EFG Hermes is now officially a universal bank: Our friends at EFG Hermes finalized on Thursday their acquisition of a 51% stake in the Arab Investment Bank (aiBank), transforming the leading financial services corporation in frontier emerging markets into a universal bank in Egypt, EFG said in a statement (pdf). Through the acquisition, which marks “a strategic entry into the fast-growing and solid Egyptian commercial banking sector,” EFG Hermes will now assume control of aiBank in partnership with the Sovereign Fund of Egypt’s (SFE) financial services sub fund, which is acquiring a 25% stake. The state-owned National Investment Bank will retain a 24% stake of aiBank post-transaction, having previously held 91.4%.

What do we mean when we say universal bank? With the completion of the transaction, EFG Hermes’ Egyptian operations now include an investment bank, a commercial bank and a fast-growing non-bank financial services platform, “ensuring that we can provide a holistic set of financial products and services to both retail and corporate clients alike in our home market,” Group CEO Karim Awad said.

This is the first privatization in the banking sector in more than a decade, according to Reuters. The last major privatization in the sector was the sale of 80% of Bank of Alexandria to Intesa Sanpaolo back in 2006. Banque du Caire has long had plans to sell 20-30% stake to the public via IPO, but those plans were shelved thanks to covid-19. The Central Bank also got fairly far down the road to disposing of its nearly 100% stake in the United Bank of Egypt, which it had created through the merger of a number of smaller state-owned banks. EFG Hermes and New York’s Evercore had the mandate on UBE, but the sale was officially put on ice “for the duration” in September 2020 — again, thanks to covid.

M&A is the only way into the industry: The central bank has long said that it has no interest in issuing new traditional banking licenses, signalling that would-be entrants to the market will need to look at M&A. The next closely watched front will be the CBE’s policy on digital banking licenses when those come to pass.

The EGP 3.8 bn acquisition is a landmark for the government as it looks to underscore its seriousness about partnering with the private sector to unlock growth. Critical here: The support of the Sovereign Fund of Egypt, which has built a solid track record as a trusted partner for private business, and of the Central Bank of Egypt, which gave the transaction the green light. We have background on the transaction here and here.

EFG Hermes now has an addressable market of 1 bn consumers across Egypt and 12 other fast-growing frontier emerging market economies in which it is the leading FEM investment banking platform, spanning from Nigeria to Kenya, from Pakistan to Vietnam as well as offices in London and New York.

Awad and the team at EFG have been working hard on this transformation for years now. Read more in this two-part interview we did with him earlier this year (here and here) or listen to the background in our chat on Making It, our podcast on how to build a great business in Egypt (listen, runtime: 34:07 and tap the button in the player at the bottom of the page).

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Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Mashreq (tax ID: 204-898-862), the MENA region’s leading homegrown personal and digital bank; Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt; Hassan Allam Properties (tax ID:  553-096-567), one of Egypt’s most prominent and leading builders; and Saleh, Barsoum & Abdel Aziz (tax ID: 220-002-827), the leading audit, tax and accounting firm in Egypt.