The Sovereign Fund of Egypt (SFE) and EFG Hermes Holding SAE sealed agreements to acquire 76 percent of the capital of the Arab Investment Bank (AIB), the Ministry of Planning and Economic Development announced on Thursday.

The deal received the Egyptian cabinet’s approval on Wednesday, and is awaiting the final approval of the Central Bank of Egypt (CBE).

The parties are expected to initiate working on the fulfilment of the conditions precedent immediately, with the transaction anticipated to close in the third quarter of 2021.

The acquisition includes a capital increase that will raise the paid-in capital of the AIB to EGP 5 billion, making it compliant with the regulatory requirements of the Egyptian Banking Law.

In accordance with the terms of the agreement, EFG Hermes will subscribe to 423 million newly issued shares of AIB at a price per share of EGP 6.03 and a total value of EGP 2.55 billion.

Meanwhile, the SFE will subscribe to 207 million newly issued shares of the AIB at the same price per share, for a total value of EGP 1.25 billion.

Following the capital increase, EFG Hermes will become the largest shareholder of AIB with a stake of 51 percent, while TSFE will become the second-largest shareholder with 25 percent.

Moreover, the National Investment Bank (NIB), which is the majority shareholder of the AIB, will hold the remaining 24 percent after purchasing stakes held by minority shareholders –prior to the execution of the capital increase.

Minister of Planning and Economic Development and Chairperson of the SFE Hala El-Said stated that completing the AIB partnership transaction underscores the SFE’s pivotal role in unlocking and maximising the value of state-owned assets.

“This transaction complements Egypt’s Vision 2030’s third objective of achieving knowledge-based economic growth and digital transformation; increasing the resilience and competitiveness of the economy; increasing employment rates; improving the business environment; and realising financial inclusion,” El-Said said.

The minister also said that engaging in similar transactions showcases the intrinsic integration between the visions and objectives of different state bodies, with the SFE anchoring and arranging a private-sector partnership to restructure and generate returns on a state-owned asset.

“By retaining a stake in AIB, the NIB is slated to benefit from the promising returns AIB will generate following the ambitious restructuring plan drawn up in partnership with the private sector. AIB’s financial indicators will witness a substantial improvement, as will its competitiveness in the market. It will be better poised to comply with the Central Bank of Egypt’s regulatory requirements, drawing on the technical expertise available in the SFE and EFG Hermes, AIB’s new partners,” according to El-Said.

She noted that the transaction’s success is a result of the cooperation protocols the SFE signed with different state bodies including the NIB, tapping its large portfolio, adding that it reflects the close collaboration between different state bodies, in coordination with the cabinet, working towards attracting private investments to government projects.

Meanwhile, the Chairperson of EFG Hermes Holding Mona Zulficar said that "the signing of this landmark transaction has helped create a partnership between the SFE and EFG Hermes, as we work together to unlock the potential of the AIB and help it play an increasingly active role in the Egyptian government’s efforts for financial inclusion and digital transformation in the coming years.

“I am also hopeful that it will set the mould for future cooperation between the Egyptian private sector and the SFE,” she added.

SFE CEO Ayman Soliman said that the deal aims to capture compelling growth opportunities in the Egyptian banking sector.

“Driven by the strong commitment of the Egyptian government towards boosting financial inclusion and digital transformation as a driver to serve wider segments of the society, AIB is now well-positioned to become a significant catalyst of this goal. Furthermore, this partnership embodies the SFE’s mandate of attracting local and international private-sector investors to state-owned assets and maximizing returns for future generations,” said Soliman.

He added that the banking sector is a key holder in the portfolios of major sovereign funds globally, reflecting the significance of the sector in driving economic growth.

He noted that the AIB’s strategy will concentrate on serving small and medium-sized enterprises (SMEs) as a driver for inclusion, adding that the bank will be better able to serve more customers, especially after the capital increase to meet the new Banking Law requirements.

Soliman stressed that the AIB’s transaction is the first of many to come from the cooperation protocol the SFE signed with the NIB in the near future.

Karim Awad, CEO of EFG Hermes, said that the deal represents a strategic milestone for the company, transforming it into a universal banking platform that offers its clients a full spectrum of financial services.

“The acquisition of AIB sees EFG Hermes enter the commercial bank space as part of a diversification strategy that has seen the group become the leading all-inclusive universal-access financial corporation with a presence spanning frontier emerging markets. This diversification strategy has seen EFG Hermes consistently create new value for all stakeholders despite headwinds that most recently have included the Covid-19 pandemic,” Awad explained.