IPO WATCH- CIHC to sell only 4% of Eastern Tobacco, will keep a controlling stake: The Chemical Industries Holding Company (CIHC) is planning to sell only 4% of its stake in the Eastern Tobacco Company under the state’s IPO program and retain a controlling 51% stake, CIHC Chairman Emad El Din Mostafa said yesterday. 45% of Eastern Tobacco’s shares are already in free float, but the company was placed last week on the official lineup of 23 state-owned companies that will IPO or list additional shares on the EGX under phase one of the program. Mostafa provided no details on timeline for what will likely be an accelerated book build to pair-down CIHC’s stake. He said, however, that the CIHC would use the proceeds from the transaction to fund new investment at some of its subsidiaries.

Background: Finance Minister Amr El Garhy had said on Saturday that the government was meeting with investment banks to decide the first of the 23 state companies slated to sell stakes. He had also said last week that the government would make a decision by September or October and was planning to offer shares of as many as 4-6 companies in 2018. Enppi had largely been expected to be the first IPO the program while Banque du Caire was expected to be the first of the banks to list.

IPO WATCH- Electricity Ministry to postpone IPO of three companies operating Siemens plant until after full subsidy elimination in FY2020-21: The Electricity Ministry is reportedly pushing plans to IPO the three companies that will operate Siemens-built power plants until the state fully eliminates subsidies for electricity, an unnamed source from the ministry tells Al Mal.

Background: We had said in December that the Egyptian Electricity Holding Company (EEHC) was in the process of establishing three companies to manage the combined cycle plants in Burullus, Beni Suef and the new capital, and was planning to list all three on the EGX once the three plants were up and running before the end of 2018. The source attributed the delay in the timeline to the ministry’s inability to conduct a fair valuation and assessment of its assets while still subsidizing power.

Delayed phase-out of electricity subsidies: The Electricity Ministry had decided last month to postpone the full elimination of power subsidies to FY2020-21 from FY2019-20 but said to expect prices to go up in July across all consumption tiers.

The “Enron of Egypt” sets out to clean up its act. Arabia Investments (AIND) posted a normalized net profit after tax and minority of EGP 14.9 mn in 2017, the company said in a disclosure yesterday (pdf).

Why is AIND emphasizing normalized results? After coming in to find their auditor referred to the company as the “Enron of Egypt” and had offered a “heavily qualified opinion,” a new lead shareholder and new management team took the bullet and recognized a previously unrealized foreign exchange loss of EGP 387 mn from CDCM, its automotive business, in FY2016 and re-stated its financials for that year. The normalized figures set aside most of that as well as EGP 195.4 mn in non-cash impairments the company has booked for FY2017. Its statutory financials show a net loss after minority interest of EGP 189 mn for the year ending 31 December 2017.

What’s this “Enron” stuff about, anyway? Arabia is trying hard to clean up its act under new chairman and lead shareholder Gamal Abdel Fattah after what a new management team is positioning as years of mismanagement. That “Enron of Egypt” line? It’s a direct quote from Rania Afifi, AIND’s Chief Investment Officer, who admits that’s how the company’s auditor positions the outfit when he teaches it as a case study in business school. “When we came in, there was one negative surprise after another. Every time we looked at a new holding … let’s just say there are just five companies that matter, around which we can build a turnaround story,” she told us yesterday.

The car business is a sideshow for now. According to Afifi: “There could be value in CDCM,” which recently lost the rights to Peugeot in Egypt to the Mansour group after a decades-long run, “but there were so many negative surprises there that we fully impaired the goodwill of the business. It’s upside: If the auto division were to enter into a partnership with a new global brand, that’s upside for shareholders. We have huge legacy issues and we’re addressing each and every one of them. We are transparent and we’re going to remain open to shareholders and the market as we focus on creating value at some very healthy assets.”

So, what does AIND do? “We’re an investment holding company, and we have some very good assets in both non-bank financial services and construction and building materials,” says Afifi, a former director of investment banking at Beltone, where she had a 12-year run. Afifi (bio here in pdf) started her career at EFG Hermes on the institutional sales side of the business before moving over to investment banking. “We’re in the midst of a radical cleanup on the financial and operational sides and have found we have two very strong verticals in building materials and non-bank financial services. We’re not turning our back on automotive, but we won’t invest more capital unless it makes sense on an opportunity-cost basis.”

Who’s on board? The board (members and bios here in pdf) is led by Gamal Abdel Fattah, an Egyptian with a long track record in construction and real estate in the UAE, who began building a position in AIND in 1Q2017 and brought in a new board last May. The company is led by CEO Hazem Zifzaf, who joined in June 2017, having earlier risen through the ranks at Pepsi to handle all of Latin America for the global FMCG giant. He also served at Lafarge Holcim as a senior exec.

In related news, AIND’s CDCM is seeking a EUR 150 mn compensation from Peugeot-Citroen for terminating its representation contract, Youm7 reports. AIND had announced in November that it had formally started legal proceedings against the French car maker after an unexpected end to their 41-year-old partnership. Peugeot-Citroen chose a consortium of Mansour Group and Dubai-based Scope Investment to be its licensed distributor of Peugeot vehicles in Egypt. CDCM is said to now be looking to replace Peugeot with a Chinese brand and could be kicking tires at Bisu Auto or GAC Motors, according to the domestic press.

Kayan Egypt could begin assembling SEAT cars locally by 2020, CEO Karim El Naggar tells Al Mal. The company has recently reached an agreement with the Spanish automaker and is in “serious negotiations” to see SEAT models assembled by Bavarian Auto, Arab American Vehicles Co., and Egyptian German Automotives, El Naggar said adding that he expects local assembly to drive SEAT car prices down by 25-30%. El Naggar had said last year that the decision to assemble SEAT locally depends entirely on the issuance of the Automotive Directive. The bill — which will offer incentives to encourage the local auto industry to move further up the value chain into manufacturing — has had European car makers, including Renault and Volkswagen, shopping for potential industrial opportunities in Egypt at the same time as they pressure their lobbyists to have the Egyptian government kill the bill. Kayan has, meanwhile, won distribution rights for SEAT in Libya and Sudan.

M&A WATCH- Elaj Group continues healthcare acquisition spree: Saudi Arabia’s Elaj Group has acquired a majority stake in Cairo Clinic Children’s Hospital in transaction worth EGP 9 mn, sources close to the matter tell Al Mal. The EGP 60 mn hospital remains stalled in the construction stage after running into financing challenges, the sources suggest. Under the agreement, Elaj will provide the majority of the financing for the hospital and will issue tenders to complete the construction and finishing. The facility is slated to open at the beginning of next year. The Saudi group has already acquired Alexandria International Hospital and Ibn Sina Specialized Hospital and picked up stakes including 74% of clinical laboratory group Cairo Labs and a 15% stake in the International Eye Hospital.

Palm Hills Development (PHD) denies claims by Al Shorouk this week that the developer offered to acquire Qatari Diar’s Egyptian investments, the company said in a statement carried by Al Mal. A news story on Sunday said that PHD Chairman Yassin Mansour had made an offer for Diar’s New Cairo City Gate development, which has been the subject of an ongoing legal dispute with the New and Urban Communities Authority (NUCA). The sources also claimed that businessman Naguib Sawiris had made Diar a EGP 35 bn offer to acquire all of its local assets and that a state-owned company had also expressed interest.

UK MPs are calling on the May gov’t to end its ban on flights into Sharm (again): UK MPs have reportedly gotten fed up with their government maintaining its flight ban on Sharm El Sheikh airport, with 35 MPs signing an ‘early day motion’ calling for a new parliamentary debate on why the UK is one of the last countries in Europe to lift travel restrictions to Sharm. “The ban on UK flights to Sharm El Sheikh has long outlived its usefulness,” Labour MP Stephen Timms, the chairman of the All Party Parliamentary Group on Egypt, told DIVE Magazine. “Security at the airport has been greatly improved. Other countries have lifted their bans; we should do so too. Leaving the ban in place causes great inconvenience to many in the UK and serious problems for the Egyptian economy,” he added. The move is the latest in a series of bids by other UK MPs to convince the government that Egypt has sufficiently increased security measures at its airports. Timms had pushed the issue last year, while MP Sir Gerald Howarth recommended the lifting of the ban after the traveling to the resort three times. You know who was listening? The Germans, who lifted their ban shortly afterwards.

The Finance Ministry is planning to issue EUR 1-1.5 bn in eurobonds on the Luxembourg stock exchange in three-weeks’ time, sources close to the matter said. The eurobonds will have tenures of seven, 12, 15, and 30 years, they added. Officials are mulling whether to take the offering north of EUR 2 bn and will make a final decision based on feedback from the first roadshow. The government had tapped BNP Paribas, Deutsche Bank, Standard Chartered, and Intesa Sanpaolo to manage the issuance. Zaki Hashem & Partners and Linklater are legal advisors to the investment banks, while Al Tamimi & Co. and Dechert were chosen as legal advisors to the government for the transaction, which will be Egypt’s first-ever EUR-denominated bond sale. The sale comes after the government concluded a USD 4 bn eurobond offering in February.

Our broken wheat policy may cost us an extra EGP 1.4 bn this year: Egypt’s General Authority for Supply Commodities (GASC), the world’s largest wheat buyer. might be paying an extra EGP 1.4 bn on wheat imports this year as a result of “cumbersome import requirements,” according to a US Department of Agriculture report (pdf). At issue are regulations imposed by the Central Administration for Plant Quarantine (CAPQ) that require wheat shipments to be sieved upon arrival at Egypt’s port at USD 3 per tonne. “Sieving is a practice done normally as part of the milling process, meaning that Egyptian authorities are mandating and charging for a process that would be carried out by processors regardless.” This practice is particularly strange considering the government had rescinded its zero-ergot policy, but the CAPQ insists on sieving wheat shipments to remove foreign material including the fungus. The sieving process also takes time, which drives up demurrage fees — the tariff charged to suppliers for vessels sitting at ports past the contracted period.

Traders are (shocker) adding these additional costs to their offers in GASC’s wheat tenders, which means the government ends up footing the bill. These increased costs are evident in the prices GASC ends up paying for shipments: Between October 2017 and February 2018, the state grain buyer paid around USD 10.26 (EGP 182.63) more per metric tonne than the global average. “This indicates that importers or traders are adding an additional risk premium to offset the high risk of doing business in the Egyptian market,” the report says.

LEGISLATION WATCH- Uber and Careem are drafting a list of their grievances with the Ride-Hailing Apps Act in the hope of winning amendments before the bill becomes law, officials from the companies said. The two objecting to a stipulation that would require them to ensure that half of their fleets are made up of white taxis. Careem experimented with using white cabs last year, but said quality of service was a challenge, Careem representative Hassan Aboul Seoud said. The companies are suggesting instead that they build and run separate apps that would exclusively employ white taxis.

Another sticking point: The requirement that the companies open user data to the government and store that data in Egypt, which the companies say would negatively impact users’ privacy.

The proposed bill would require drivers to own the cars they operate, whereas around 65% of Uber and Careem drivers use cars that are not theirs, MP Mohamed Badawi Dessouky said, according to Al Shorouk. Some are concerned that the apps will see a mass exodus of drivers if that stipulation remains unchanged.

The House of Representatives’ Transportation Committee is currently reviewing the bill and has pushed it to the top of its agenda, as we noted earlier this week. The committee expects to hear from the interior, transport, ICT, and finance ministries on the bill and will be holding hearings with representatives from ride-sharing companies themselves, according to Dessouky.

In news from the global ride-sharing industry: Uber appears to have ended its rivalry with Malaysia’s Grab earlier this week by selling it its business in South East Asia in exchange for 27.5% of Grab and a board seat. The move represents the latest shift in the global ride-hailing app space, which sees Uber retrenching after a bitter global expansion, according to the Financial Times.

EARNINGS WATCH- Arabian Cement Company’s net profit after tax dipped to EGP 215.61 mn in 2017 from EGP 245.02 mn the previous year, according to a company release (pdf). The company’s consolidated top line climbed to EGP 2.64 bn from EGP 2.35 bn in 2016.

Gov’t looks into making e-visas to Egypt available to all countries: Prime Minister Sherif Ismail discussed expanding Egypt’s e-visa system to make it more widely available during a meeting yesterday with the ICT, planning, and civil aviation ministers, according to a Cabinet statement. The government had officially launched electronic visa services for 41 countries at the end of last year.

MOVES- Former EgyptAir VP Mohamed Moneir has un-retired to chair Egyptian charter airline Air Leisure, Arabian Aerospace reports. The newly company is focused mainly on Asia, since it is “not so sensitive to the Middle East’s geopolitical problems and so did not suffer from sudden dips in tourist traffic.” The carrier operates routes to 10 Chinese cities.

Abraaj considers selling stake in fund management spin-off as regulator swirls: Dubai-based emerging markets PE giant Abraaj Group is considering the sale of a stake in its recently-spun off fund management business Abraaj Investment Management Limited (AIML), people with knowledge of the matter tell Bloomberg. Abraaj has reportedly already begun holding meetings with advisers about the sale. The move comes as the Dubai Financial Services Authority is reportedly holding talks with some of the firm’s investors over concerns of allegations of misuse of funds in the Abraaj Growth Markets Health Fund. The allegations,which first emerged back in February, have since led the firm to spin off AIML and come at the same time as a number of top executives are reportedly looking to leave the firm.

IFC, Attijariwafa sign agreement to boost African trade and investment, support small businesses: The International Finance Corporation and Morocco’s Attijariwafa Bank announced yesterday (pdf) they signed an agreement that will see them “jointly explore potential investments in both North and Sub-Saharan Africa,” focusing primarily on improving the flow of trade and investment across the continent, and providing businesses with assistance on “corporate and investment banking, project finance … and risk-sharing trade instruments.”

BRIEFLY NOTED- Alliance Law Firm defeated Zulficar & Partners in the final match of the legal community’s annual football tournament, which brought together 16 teams from 14 of the country’s top law firms. Our friends at Zulficar tell us they take pride in having knocked Zaki Hashem & Partners out of the semi-finals, taking revenge for having lost to them in last year’s final.

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