Eastern Company is getting a new major shareholder: An Emirati investment company has agreed to purchase a 30% stake in Eastern Company in a transaction that will see it become the single-largest shareholder in the state-owned tobacco manufacturer and help revitalize the government’s privatization efforts, according to a cabinet statement yesterday evening. The firm, Global Investment Holding, will acquire the shares from the Holding Company for Chemical Industries (CIHC) for USD 625 mn in a transaction that values Eastern at more than USD 2 bn.

That’s not all: Global Investment Holding (GIH) will also provide USD 150 mn to help Eastern purchase manufacturing inputs. The statement didn’t clarify whether this was included in the USD 625 mn figure, but Hapi Journal(citing an unnamed source) is reporting that the input financing is separate from the purchase price.

This is a very welcome surprise… Eastern’s majority shareholder, CIHC, said less than two weeks ago that it would only be willing to part with 15.3% of the company under the state’s asset sale program. Under yesterday’s agreement, the state-owned company will instead see its stake reduced from 50.95% to 20.95%.

…and unexpectedly fast: It was only in June that we first heard rumors of a potential Eastern stake sale, with Al Mal publishing an unconfirmed report claiming a UAE state institution had shown interest in the company. CIHC publicly acknowledged the existence of talks for the first time late last month after fresh speculation in the press named Philip Morris’ United Tobacco and Japan Tobacco International as potential bidders.

Global Investment Holding? While the cabinet statement says the buyer is Global Investment Holding, there is a DIFC company listed in the Dubaicompanies register as Global Investments Holding(with an “s” at the end of “Investments”). The UAE’s Sheikha Lubna Al Qasimi signed the agreement on behalf of the company. Sheikha Lubna is a respected public figure in the UAE and was the first woman to hold cabinet rank in the UAE, having served in posts including as minister of economy and planning at the federal level.

Is Philip Morris International involved? Companies that appear to be units of the global tobacco giant are indirect shareholders (here and here) in Global Investments (with an “s”) Holding, together with Emirati shareholders. Philip Morris has made no statement on an Egypt transaction that we can find.

What they said: The agreement “is an affirmation of the government’s determination to succeed in expanding the ownership base and encourage direct private investment in various sectors,” the cabinet quoted Public Enterprises Minister Mahmoud Esmat as saying. Esmat, along with Prime Minister Moustafa Madbouly and Finance Minister Mohamed Maait, attended the signing ceremony yesterday.

Remember: As part of its USD 3 bn assistance program with the IMF, Egypt earlier this year rebooted its long-stalled privatization program in a bid to attract FX inflows and shore up its external position. The government is now looking to rai se USD 5 bn by the end of the current fiscal year next June by selling stakes in 35 companies, one of which is Eastern Company. Privatization is a central plank of the government’s ambition to attract USD 40 bn in private investment by 2026 and double the private sector’s role in the economy to 65%.

Momentum picked up in July: The government announced in July that it had agreed with outside investors to sell a number of state assets for USD 1.9 bn, around USD 1.6 bn of which would be paid in FX. This included the sale of seven historic hotels to a consortium led by Talaat Moustafa Group, and ADQ’s purchase of minority stakes in Egyptian Ethylene and Derivatives Company (Ethydco), Egyptian Linear Alkyl Benzene (Elab), and Egyptian Drilling Company (EDC) for USD 800 mn.

Market reax: Cabinet published its statement after the EGX closed yesterday, so we’ll know better today how the market is absorbing the news. Eastern shares have been on a tear, rising about 18% over the past two weeks, including a nearly 6% gain yesterday, as they closed at EGP 21.50.

More cigarettes to hit the market: In an EGX filing (pdf) ahead of the announcement, Eastern said it would be upping production volumes by 15% to help address a market shortage amid allegations of price gouging by some sellers. The government last month said it was working to increase raw materials shipments to Eastern to help ease the shortage and put an end to soaring prices.

The news got attention in the global financial press: Bloomberg | Reuters.

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