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Tuesday, 01 December 2020

AIB into private hands

Sherine Abdel-Razek reports on the planned purchase of majority stakes in the state-owned Arab Investment Bank

Sherine Abdel-Razek , Tuesday 30 Jun 2020
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The Central Bank of Egypt (CBE) has given the green light to the Sovereign Fund of Egypt (SFE) and leading local investment bank EFG Hermes to start examining the financial situation of the state-owned Arab Investment Bank (AIB) as a first step towards their acquiring majority stakes in it.  

After the completion of due diligence, a comprehensive appraisal of a business undertaken by a prospective buyer and especially to establish its assets and liabilities and evaluate its commercial potential, the two buyers will together acquire 76 per cent of AIB. The acquisition will see EFG Hermes take a 51 per cent stake and the SFE up to 25 per cent, according to a joint press release.

AIB is both a commercial and an investment bank, and it offers both traditional and Sharia-compliant services. The bank was established in 1974 and is currently 91.4 per cent owned by the state National Investment Bank.

The remaining 8.6 per cent is held by the Federation of Arab States, created by former Libyan leader Muammar Gaddafi in the early 1970s to bring together Libya, Egypt, and Syria in a unified Arab state. Although approved by referendum in each country on 1 September 1971, the three countries disagreed on the specific terms of any such merger.

The acquisition of AIB will take place through both capital increase and equity purchasing. According to the latest figures, AIB’s assets at the end of 2017 came in at LE23.85 billion, with paid-up capital of LE1 billion. It reported net profits of LE154.1 million in 2017, recording a 26 per cent increase on the previous year.

The National Investment Bank, AIB’s parent company, earlier this year said it would ask the SFE to help it market some of the companies in its portfolio, a plan later shelved due to the Covid-19 crisis. The NIB holds stakes in state-owned companies including Abu Qir Fertilisers, Sidi Kerir Petrochemicals, and e-Finance.

These companies are frontrunners in the government’s privatisation plans. Another important player from the banking sector, Banque du Caire, has been slated for privatisation through an initial public offering (IPO) since 2017, but this has been postponed several times due to the emerging markets crisis and the coronavirus pandemic.

The government has also announced plans to sell stakes in the United Bank of Egypt and the Arab African International Bank.

The banking sector saw several privatisations in the 1990s and early 2000s, the largest of which was the sale of 80 per cent of the Bank of Alexandria to Italy’s Intesa Sanpaolo for $1.6 billion in 2006.

“I am a strong believer in the Egyptian banking sector, which continues to present strong growth opportunities for investors with great potential to compete and expand regionally and into Africa. I look forward to the successful completion of this transaction in the coming few months,” SFE CEO Ayman Suleiman said in a statement.

The SFE was established in 2018 to attract private investments to improve the value and performance of public assets. It chooses public assets and co-develops them with local and foreign investors and financial partners in order to maximise their value, increase the private sector’s role in the economy, and generate employment opportunities for Egypt’s youth, according to a statement.

“The partnership with EFG Hermes comes as part of the SFE’s strategy to cooperate with the Egyptian private sector to invest in promising sectors and in particular financial services and fintech,” a statement said.

The SFE previously offered investors a 70 per cent stake in three Siemens-built combined-cycle power plants and various military subsidiaries in Egypt. Ten unspecified military-owned companies are also being studied by the SFE, with plans to offer them for co-investment.

EFG Hermes was established in Egypt in the mid-1980s, and it has grown since then to become a leading financial services corporation with access to emerging and frontier markets. It provides investment banking, asset management, securities brokerage, research, and private equity services to the region.

The AIB deal is not the first time EFG has acquired a stake in a commercial bank, as it previously held 28 per cent in the Lebanese Audi Bank, but sold this in 2010 after it failed to increase its holdings. In the same year, it brought a 63 per cent stake in Credit Libanais, but it has sold most of this stake due to the current political and economic situation in Lebanon.   

“The move [to acquire a stake in AIB] is an important step in a strategy that we started several years ago and that aims to transform EFG Hermes from a pure-play investment bank into a universal bank,” CEO Karim Awad said.

The completion of the acquisition will be subject to a number of factors, including the completion of satisfactory due diligence, agreement between the parties on different contractual agreements, and obtaining final approval from the Central Bank of Egypt.

*A version of this article appears in print in the 2 July, 2020 edition of Al-Ahram Weekly

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