Egypt’s banks, fertiliser producers, oil services companies, and food industries are all sectors that Emirati heavyweight investors are showing interest in at present.
While last week witnessed the First Abu Dhabi Bank (FAB) withdrawing its offer to buy Egyptian investment bank EFG-Hermes, it did see the execution of five deals with a total value of $1.8 billion through which the Abu Dhabi Developmental Holding Company (ADQ), a sovereign wealth fund, bought stakes in Egyptian companies.
The FAB withdrew its offer to buy a majority stake in EFG-Hermes citing “global market uncertainty”.
The Emirati lender had offered in February to buy a minimum 51 per cent stake in the investment bank for LE19 a share, valuing it at LE18 billion. Many observers believe the offer was low, however, even before the outbreak of the war in Ukraine affected prices together with the Egyptian currency devaluation.
EFG has an outsized influence over Egypt’s financial markets and has seen supercharged growth of its fintech businesses in addition to a strong presence in the Gulf markets. It was one of the advisers in the initial public offering (IPO) of the Dubai Electricity and Water Authority for $6.1 billion, the largest in the region since the IPO of Saudi Aramco.
Market observers point out that the withdrawal is not final, and there is a high possibility that the Emirati lender will return with a higher offer later in the year.
Meanwhile, unidentified sources close to the matter told Reuters that the process had also dragged on because the deal required approval from different regulatory bodies. The sources added that the Emirati bank had “not even started due diligence”.
Shares were trading at an average of LE17 in mid-February following an upward trend since then and gaining 23 per cent. They reached LE19.3 per share just before the announcement of the withdrawal, pushing the share price down to LE15 on Monday closing.
According to Prime Securities, a brokerage, following the execution of ADQ’s acquisition of sizable minority stakes in five listed companies in Egypt, the market was looking forward to revisiting the EFG-Hermes bid in view of a weaker pound.
“The market was expecting FAB to up its bid to around LE22 per share,” it said. However, with the possibility of a takeover diminishing, Prime has lowered its target price for shares to LE14.8.
It stressed that the investment bank’s different platforms, whether in investment banking, non-banking financial services, or recently-added commercial banking, are all on solid ground.
The failure of the deal did not overshadow other UAE-related market news. The Cairo Bourse on Tuesday witnessed the execution of deals to sell stakes in five Egyptian blue chips to ADQ.
News of the deals was released on the same day the government devalued the pound and was seen as support by the Emirates for the Egyptian economy by injecting much-needed liquidity. The economy has been struggling with the repercussions of the war in Ukraine on foreign-currency reserves, and Egypt’s foreign debt is ballooning.
The five companies subject to the UAE acquisitions are the Commercial International Bank (CIB), Abu Qir Fertilisers, MOPCO, Alexandria Containers, and Fawry.
The Stock Exchange announced on Tuesday that the deals for the five companies had amounted in total to $1.8 billion, leading to a strong market rebound. “The different deals imply a 13 per cent premium on market prices on average,” according to Prime Securities.
The sellers of the different stakes include state entities like the National Bank of Egypt, Banque Misr, the National Investment Bank, and the ministry of finance.
The deal for the CIB was the largest as it included the sale of a 17.5 per cent stake in the bank, Egypt’s largest privately-owned lender, for $911 million. The deal was executed at a price of LE49 per share, compared to a closing price of LE43 in the previous trading session.
The CIB is one of the main constituents of the stock market’s main EGX30 index, with a weighting of more than 30 per cent. It recorded LE4.24 billion in net profits in the first quarter of 2022, 48 per cent higher than its profits a year earlier.
Abu Qir Fertilisers saw a 21.5 per cent stake going to the UAE for $392 million. The company is a leading fertiliser producer in the region and is the first and largest integrated nitrogen fertiliser producer in Egypt, with a sellable capacity of 2.3 million tons per annum.
It produces a wide variety of fertiliser products, including ammonia, urea, ammonium nitrate, and NPK. It recorded a 30 per cent hike in its net income during the 2020-21 fiscal year to reach LE3.5 billion on the back of an increase in international prices.
Unlike CIB, it was on the list of companies slated for privatisation in the programme announced by the government in 2018, but the offering was postponed several times due to unsuitable market conditions.
In December 2021, it sold a 10 per cent stake for $143 million. Prior to last week’s sale, Abu Qir’s ownership structure included the National Investment Bank, the Industrial Development Authority, Al-Ahly Capital Holding, and the Chemical Industries Holding Company.
The third company seeing investment from the UAE was the Misr Fertilisers Production Company (MOPCO), previously known as Misr Oil Processing, and engaged in the production, marketing, wholesaling, and distributing of fertilisers and petrochemical products.
Shares were sold at LE107, while their closing price in the last session before the transaction was LE94.7. The company’s bottom line leaped by 92 per cent in 2021 compared to the previous year to settle at LE4.79 billion on sales of LE10.3 billion.
The Alexandria Container and Cargo Handling Company (ACCHC) is the fourth company to see its shares changing hands through the deal. It specialises in container and cargo handling in Egyptian ports though offering stevedoring and storage, security, and other maritime services in the East Mediterranean. It operates the Alexandria Container Terminal at the port of Alexandria and Al-Dekheila Terminal at the port of Al-Dekheila.
Ownership of 32 per cent of the Company was transferred to ADQ for $159 million. ACCHC is the only one of the five companies whose sale price was less than the price its shares were traded at during the last trading session.
The ACCHC shares were sold at a price 17 per cent less than in the last trading session, explaining why its shares closed in the red in the session following the execution of the deal to defy the upward trend followed by the other four companies.
Shares of the e-payment platform Fawry grabbed the highest gains among the five companies whose shares were being sold, with almost a five per cent hike on the news. The company, which sold 36 per cent of its shares through an IPO in August 2019, saw a 12.6 per cent stake grabbed by the ADQ.
Both the National Bank of Egypt and Banque Misr snatched a seven per cent stake in the 2019 IPO. It is believed that the stake sold to ADQ was bought from the two banks.
The five deals are not the first sign of ADQ’s interest in Egyptian listed companies. In 2019, it signed an agreement with the Sovereign Fund of Egypt to form a joint fund to invest in different industries.
While nothing materialised concerning the proposed new fund, in 2021 ADQ bought a majority stake in one of Egypt’s largest real-estate developers, the Sixth of October Development and Investment Company. It also acquired majority stakes in drug producer Amoun Pharma as well as in Ismailia Agricultural and Industrial Investments, the owner of food industries brand Atyab.
*A version of this article appears in print in the 21 April, 2022 edition of Al-Ahram Weekly.