Targeting EFG

Sherine Abdel-Razek , Thursday 17 Feb 2022

A leading Emirati lender wants to buy EFG-Hermes, Egypt’s largest investment bank.

Targeting EFG
photo: Reuters

EFG-Hermes, the crown jewel of Egypt’s financial sector and a leading regional investment bank with a commercial bank under its management, might soon have an Emirati owner if an offer by the First Abu Dhabi Bank (FAB), the largest bank in the UAE, to buy 51 per cent of EFG-Hermes succeeds.

The offer is at LE19 per share, putting the overall value of EFG-Hermes at LE18.5 billion ($1.1 billion).

According to Egyptian Stock Market regulations, if a potential investor wants to buy more than one-third of a listed company, they have to make a mandatory offer to purchase 100 per cent of the shares at the same price. It will then be up to the other shareholders to sell or keep their holdings.

According to its website, 52 per cent of EFG is floated on the stock market, and the rest is owned by private entities including the Bank of New York Mellon and the French investment bank Natixis.

A disclosure by EFG’s board of directors on Thursday noted that it had held a meeting to discuss the offer and that it was in the process of appointing an international financial adviser and an Egyptian law firm to advise it on the potential transaction.

Finalisation would be conditional on the completion of satisfactory due diligence and the required regulatory approvals, the statement said. Radwa Al-Sweify, head of research at Al-Ahly Pharos, an investment bank, said the due diligence would take about 60 days and could extend for an additional 60.

Founded in 1984, EFG is Egypt’s largest investment bank that has activities in 13 countries, among them the UAE, Saudi Arabia, Kuwait, Jordan, Oman, and Pakistan. Its scope of business includes brokerage, asset management, investment banking, private equity, leasing, and micro-finance.

It has also tapped the commercial banking segment through its acquisition of a 40 per cent stake in Beirut-based Credit Libanais in 2010, but it sold this in 2016 as the political crisis in Syria negatively affected the Lebanese economy.

In November last year, it successfully completed the purchase of 51 per cent of the Arab International Bank from the Egyptian authorities.

The proposed purchase of EFG is not FAB’s debut in the Egyptian market, as it bought Bank Audi’s Egypt unit last year. FAB, formed in 2017 from the merger of two leading Emirati banks, is half owned by sovereign wealth fund Mubadala Investment and members of the Emirates’ ruling family.

FAB’s total assets exceeded one trillion dirhams ($272 billion) at the end of last year.

According to Bloomberg, the bank is chaired by Sheikh Tahnoon bin Zayed Al-Nahyan, a brother of the country’s national security adviser.

FAB’s offer is another show of Emirati interest in Egyptian blue chips. As 2021 was nearing its end, a consortium of Aldar Properties and sovereign wealth fund ADQ acquired 90 per cent of the Egyptian real-estate developer Sixth of October for Investment in a LE6.1 billion deal.

If the EFG purchase goes through, the acquisition would give FAB a larger stake in the Egyptian market, in addition to a foothold in several emerging markets that EFG works in, including Kenya, Nigeria, and Bangladesh.

EFG has an impressive track record in the Gulf region as it has advised on major deals such as the initial public offering (IPO) of Saudi oil giant Aramco. According to Reuters, EFG’s stock brokerage business ranked second among 28 firms this year on the Abu Dhabi Securities Exchange. FAB Securities came in ninth position.  

On the Dubai bourse, EFG was ranked first, with an almost 16 per cent market share, among 25 brokerage firms. FAB Securities ranked seventh.

“The potential transaction is in line with FAB’s long-term strategic ambitions and beneficial for both parties, providing enhanced scale, specialisation and significant revenue synergies in investment banking,” a FAB statement noted.

Some analysts believe the acquisition would increase FAB’s total assets and revenues by 1.7 per cent and 6.6 per cent, respectively.

Prime Holdings, a local investment bank, said that EFG has been a target for acquisition twice before, the first not materialising because the investor did not provide proof of funding. The second was a merger deal with Qatar’s QInvest and would have led to the region’s largest investment bank.

However, despite EFG’s approval of the offer, the deal failed to secure approval from the Egyptian Financial Regulatory Authority (FRA) a year after it was made public.

A key question now is whether the regulatory bodies, mainly in Egypt, will give the green light for the present deal to go through, since Hermes also owns a local commercial bank, the Arab Investment Bank (AIB), according to Prime.

The fact that FAB acquired Banque Audi’s Egypt-based unit also complicates the situation as “the question is whether an indirect stake in another bank would be an issue for competition in the Egyptian banking sector,” a note said.

As for the value offered for EFG, while a FAB statement noted that it represents an attractive liquidity event and a compelling value proposition for EFG shareholders, local analysts disagree.

Prime compared the present offer to Qinvest’s 10 years ago, which valued EFG’s core businesses, after excluding some major assets, at $417 million or 40 per cent of EFG’s market cap in mid-2012. If all assets had been included, EFG’s market value would have been around $1.3 billion.

FAB’s offer translates to a $1.1 billion initial valuation, 29 per cent below the US dollar-based value 10 years ago.

Meanwhile, Al-Ahly Pharos put the fair value of EFG at LE20.2 to LE23.79 per share, or 15 per cent less than what it considers to be a fair value for the company.

*A version of this article appears in print in the 17 February, 2022 edition of Al-Ahram Weekly.

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