FRA suspends Beltone Investment Banking for six months: With barely 30 minutes left in Thursday’s trading session, the Financial Regulatory Authority (FRA) suspended Beltone Financial’s investment banking arm, banning it from carrying out any market activities for a six-month period.

Regulator gave no reason for the suspension, which had immediate effect: The order, which gave no explanation for the suspension, instructed the EGX and Misr Central Clearing, Depository and Registry (MCDR) to “take all required procedures to implement the order.” The FRA also instructed Beltone’s brokerage arm to take on more insurance against potential client claims: The firm has one month to raise its insurance cover to EGP 50 mn and must maintain it at that level for a year. You can read a copy of the order here (pdf).

Beltone is cooperating with investigators, we’re told, but senior execs don’t know why the firm’s IB unit has been suspended: The firm said in an overnight statement (pdf) that it found the decisions “surprising” and noted that it had “yet to be informed of … reasons for their issuance.” Beltone, owned by Naguib Sawiris’ Orascom Investment Holding (OIH) is seeking an explanation and said it will “pursue the appropriate legal actions to safeguard its interests and those of its shareholders and clients.” The firm said the same thing to Reuters on Thursday.

Beltone’s brokerage arm is still trading: “The company also affirms that Beltone Securities Brokerage continues to conduct normal business operations, and that all of the group’s companies continue to operate in line with the aforementioned FRA decisions,” Beltone’s statement said.

Rumors are flying fast and furious on this one, and some of it really is the province of the Tin Foil Hat Brigade. We’re going to instead suggest we all start with some basic questions everyone should be asking this morning:

QUESTION #1: Is this related to the Sarwa IPO? Beltone ran last month’s IPO of consumer and structured finance firm Sarwa Capital, shares of which fell 11% in their EGX debut despite an institutional offering more than 10x oversubscribed and a retail component that was even more in demand. The FRA announced after the start of trading that a committee would look into the IPO. Some in the local press are drawing a connection between that probe and the suspension on Thursday of the IB unit.

QUESTION #2: Or was it triggered by a bid by Beltone’s parent company for c. 30% of Sarwa? The FRA ordered the suspension only one day after Beltone parent company OIH announced that it is looking to acquire a non-controlling stake of at least 25% in Sarwa Capital. OIH CEO Tamer El Mahdi told Bloomberg that “the company fundamentals are very strong, and we have no concerns in terms of the stock’s performance since the IPO.”

QUESTION #3: Did the regulator suspend Beltone because of Sarwa’s aftermarket share performance? It’s unlikely, we think: That would be exceptionally bad news for the market in general, to say nothing for companies heading to IPO in 2019 and the investment bankers advising them. It’s inconceivable that, absent fraud, a company or a bookrunner would be punished because a share flops after the start of trading.

To wit: It’s not unheard of for a company’s shares to fair poorly at IPO. Consider ADT Securities (down 12% in New York on their first day of trading this January in an IPO run by Morgan Stanley) or Facebook (down nearly 50% from its IPO price in the first three months of trading). ADT shares are still underwater, while Facebook are up nearly 300% since their 2012 debut.

Keep in mind: Sarwa went to market as the EM Zombie Apocalypse was biting Egypt particularly hard. The EGX30 tumbled nearly 26% between when Sarwa and Beltone first started pre-marking activities back in May and when the shares made their EGX debut on 15 October. The benchmark tumbled 11% during the IPO roadshow and then 6% between the announcement that Sarwa shares had been priced at EGP 7.36 (pdf) and the first day of trading.

Also: Gulf investors pulled back from Egypt on the same day as Sarwa’s EGX debut as investors had to meet margin calls following the cratering of the Tadawul in Saudi Arabia. The next day, even more oxygen left the market as investors piled into MNHD shares following the announcement that SODIC was seeking 51% of the real estate developer. The graph at the end of this story brings it to life.

(Is how an IPO is priced a mystery to you? Check out Investopedia, which runs you through the bookbuilding process used in most major global markets, including Egypt. It’s how Beltone priced Sarwa, and it’s the market standard used by others including EFG Hermes and CI Capital. In short: Investment bankers guide on a price range. Then, during a roadshow in which they get to grill company management, qualified institutional investors place orders for a certain number shares at their desired price. The investment bankers then decide, with the company, the price at which shares will make their trading debut — and which investors get how many shares. Retail investors are then offered the shares at the same price.)

QUESTION #4: Was the order book for Sarwa inflated? We’re told by a source close to the transaction that defaults on orders were within the “normal range” and the “magnitude was small in view of the size of the offering.” The source also claimed that “70% of the demand and coverage came from institutional and foreign investors.” Allocation of shares is at the sole discretion of the investment bankers and the company, and at allocation over 80% of shares “went to institutional and foreign investors,” our source says. “25% of the book was local institutions and 55% from foreign investors from the US, Europe, South Africa and the GCC.”

QUESTION #5: Did IPO money go missing? That’s one of the wilder rumors we’ve heard, and it really isn’t possible: Egypt’s delivery-versus-payment (DVP) mechanism effectively leaves no room for an investment bank to keep cash raised in an IPO and not hand over shares.

QUESTION #6: Will the regulator make clear this morning (or this week) why it suspended Beltone? It should, for the good of the market as a whole.

QUESTION #7: Will OIH push on with its offer for a big chunk of Sarwa, or will it pull back amid the uncertainty? If they’re not withdrawing the offer, the next step is to file paperwork.

QUESTION #8: How will the market react to all of this? The news hit on Thursday with only 30 minutes or so left in the trading session.

Terrorists kill seven, wound nine Coptics Christians in Minya attack: Terrorists opened fire on buses carrying Coptic Christians making their way to the monastery of St. Samuel the Confessor in Minya on Friday, killing seven on board one bus, according to the Coptic Orthodox Church. The church said that two other buses were also targeted, resulting in the injury of at least 19, but Interior Ministry sources maintained that the attack was contained to one bus and that only seven were injured. Six of the seven victims were members of the Shehata family, including 15-year-old Beshoy Shehata and his younger relative Maria Shehata. The shooting took place close to the area where similar attacks claimed 29 lives in May 2017.

President Abdel Fattah El Sisi offered his condolences and vowed in a tweet on Friday to step up Egypt’s fight against terrorism. Al Azhar also issued a statement condemning the attacks.

Daesh claimed responsibility through their Amaq propaganda outlet, according to the Guardian. The group said the attacks were revenge for Egypt’s imprisonment of “our chaste sisters,” apparently referring to the detention of former Ikhwan deputy leader Khairat El Shater’s daughter, Aida, and six other women one day earlier. If their claims are verified, this would mean the return of the group targeting Christians after a near-year-long stint of major attacks on Copts, says the New York Times.

The story gained significant traction in the foreign press over the weekend, with the BBC citing past accusations by Copts that Egyptian authorities are making “only token gestures to protect them,” and following up a day later to document the victims’ funeral service. The incident is “the most serious attack on a minority in more than a year,” Reuters noted, while the Associated Press said the attack is “likely to cast a dark shadow on one of el-Sissi’s showpieces — the World Youth Forum.” The National called Friday’s attack an “abomination” and Singapore’s Straits Times noted how radical extremism continues to be a problem despite authorities’ obvious efforts against terrorism. The Washington Post, The Independent, France 24, and several others also followed the story.

EBRD sees Egypt economy improving on Zohr, rising FDI, strengthening exports, improved competitiveness: The European Bank for Reconstruction and Development (EBRD) is projecting that Egypt’s GDP growth will reach 5.5% in FY2018-19, up from 5.3% in FY2017-18, according to the November 2018 update to its Regional Economic Prospects Report (pdf). Growth is expected to be driven by a number of factors. “These include the continued boost in confidence, recovery in tourism, increase in foreign direct investment, improved competitiveness, continued strengthening of exports, the start of natural gas production from the Zohr field, the implementation of business environment reforms and prudent macroeconomic policies,” the report says. The EBRD notes that net exports and investment were the main drivers of growth since the economic reforms began in FY2016-17, benefitting from gains in competitiveness and confidence. It also notes the recent early signs of recovery in the non-oil private sector, as indicated by a rise in the PMI.

Egypt appears to be among the strongest performers in the southern and eastern Mediterranean region, helping drive up GDP growth there to 4.4% in 2018, up from 3.8% in 2017.

Best year for tourism regionally since 2010: Currency devaluations in Egypt and Tunisia saw the region post its best year in tourism since 2010, according to the report.

Regional losers: The EBRD’s forecasts for growth in Jordan and Lebanon have been revised down from earlier predictions in May after the roll out of reforms in those two countries were held up because of social unrest and political instability. “In both Jordan and Lebanon, the projected growth in 2018 remains below the growth rate of the population, implying a decline in real per capita incomes,” the report said. Morocco’s GDP growth is expected to slow in FY2018 to 3%.

Egypt to cap foreign borrowing at USD 14.3 bn in the next fiscal year? The government is aiming to limit foreign borrowing to USD 14.326 bn in its next 2019-2020 fiscal year, according to a government document seen by Reuters on Thursday. Egypt expects total foreign debt to reach USD 102.863 bn and aims to repay USD 10.326 bn to foreign lenders in the FY2019-20, according to the documents. An unconfirmed report last week suggested the Madbouly government had set a foreign borrowing cap of USD 16.733 bn for the current 2018-19 fiscal year and expects total foreign debt to reach USD 98.863 bn. The government will have to borrow USD 10.51 bn this fiscal year to meet external debt payments. The projections, which come as the Madbouly Cabinet begins working on next fiscal year’s budget, comes as the government prepares to issue foreign currency-denominated bonds later in the year or early next year and announce the details of its debt control strategy.

M&A WATCH- Medhat Khalil considers forming consortium for EGP 500 mn take-private bid on Raya: Raya founder Medhat Khalil is putting together a group of investors to take Raya Holding for Financial Investments private via a mandatory tender offer (MTO) to acquire 100% of the company, Khalil told Al Mal in an interview on Thursday. Khalil estimates that he would need EGP 500 mn buy the outstanding 58% of Raya, noting that he would be forced to acquire at a premium.

Caught by surprise: Khalil confirmed reports that the Financial Regulatory Authority (FRA) had ordered that Khalil launch an MTO or sell off shares, saying that the order caught him by surprise. Khalil and family members control 32% of shares, less than the 33% required to trigger an MTO, he said. But the FRA decided to count the 10% stake owned separately by his brother-in-law as a related party, bringing the Khalil group’s total stake at 42%.

What’s next: Khalil said It was unlikely that he will sell any of his shares. This leaves him between the hammer of having to execute the MTO before the FRA’s deadline of 27 November, and the anvil of paying fines of up to EGP 1 mn, he said. He is currently studying legal options to address the MTO. He is also consulting with a number of investment banks, including EFG Hermes, to see what is the best way to go, he added.

INVESTMENT WATCH- ACWA, Hassan Allam sign PPA for USD 2.3 bn power plant: The Egyptian Electricity Transmission Company has signed a key power purchase agreement (PPA) with Saudi Arabia utility developer ACWA Power and Hassan Allam Holding for a 2.3 GW, USD 2.3 bn power plant, ACWA said in a Thursday statement. The Luxor plant, which will run under a build-own-operate (BOO) framework, is expected to come online in 2022 and operate at full capacity by 2023, ACWA said. It will help meet the growing demand for electricity in southern governorates.

The PPA comes after talks on the 2.3 GW plant had previously stalled after it was pushed to the ministry’s 2022-2027 five-year plan from the 2017-2022 plan due to a current generation surplus. “Signing the PPA today represents a significant step in the development of the project, more importantly it demonstrates the commitment of the Egyptian government to encourage the participation of the private investors in infrastructure projects,” ACWA CEO Paddy Padmanathan said. Reutersand The National also took note.

IPO WATCH- Misr Insurance, Misr Life Insurance IPOs postponed pending restructuring: The IPOs of state-owned Misr Insurance and Misr Life Insurance as part of the state privatization program have been postponed until the two companies undergo restructuring, Public Enterprises Minister Hisham Tawfik said. The timeline for the listings (and their initial valuations) are contingent on their restructuring, which includes focusing on the companies’ sales and marketing performance, as well as developing their tech systems. Misr Life Insurance Chairman Ahmed Abdel Aziz had said in July that the company was working on completing a valuation study and hiring advisers in time to offer 15-30% of the company’s shares in 1Q2019.

INVESTMENT WATCH- EKH releases additional info on EGP 3 bn wood investment: Egypt Kuwait Holding (EKH) issued a clarification on Thursday on itsrecently announced plans to invest in wood production. The company is investing EGP 2 bn in a compressed wood plant in Beni Suef, which will be built over two phases, according to a bourse statement by EKH (pdf). 50% of the plant would be self-financed, while the other half would be funded through loans, the note read. EKH is planning to invest EGP 1 bn to grow feedstock for the plant and is seeking land on which to grow trees. Local press reports citing statements attributed to Chairman Moataz El Alfy at a press conference implied that the project was either moved from Beni Suef to Minya, or that a separate facility was being developed, prompting the company to issue Thursday’s statements.

Potatogate: Egypt competition watchdog raids Agriculture Export Council: Officials from the Egyptian Competition Authority (ECA) and the police raided the offices of the Agriculture Export Council on allegations of “monopolizing agriculture exports and involvement in raising the price of potatoes,” according to a statement on Thursday by the ECA (pdf). The ECA did not reveal the details of the investigation or the raid, except to say that it was prompted by complaints from farmers that a group of exporters that are members of the council had engaged in anti-competitive behaviour. The statement did not explain how these members were involved in the recent spike in the price of potatoes currently causing hysteria in the nation.

ECA also investigates Damietta transport companies: The ECA had also brought lawsuits against a number of transportation and freight companies in Damietta, accusing them of colluding to fix freight prices, the statement said.

Business associations to ECA: Miami Vice called, and it wants its script back: A number of business associations issued statements on Thursday condemning what they describe as “heavy-handed” tactics by the ECA. The Federation of Egyptian Chambers of Commerce (known by the unfortunate acronym FEDCOC) and the Egyptian Businessmen’s Association also denounced previous ECA raids on several member divisions of the Federation of Egyptian Industries, and the Federation of Egyptian Chambers of Commerce in Cairo and Alexandria. The statements said the competition watchdog’s tactics were hurting the investment climate and discouraging exporters. The EBA described the move as “irresponsible,” Youm7 reports.

LEGISLATION WATCH- Mineral Resources Act will focus on “value-added” minerals: The amendments to the Mineral Resources Act reflects a desire by the government to focus on resources that can be refined, used for industry or move up the value chain, Oil Minister Tarek El Molla said on Thursday. Speaking at a workshop on the amendments, El Molla reiterated that part of the objectives of the mining sector reforms was to make the industry attractive to both domestic and foreign players, according to AMAY, which noted little of what said about the fine print of the law. El Molla had said last month that the amendments to the act would be presented to the House of Representatives in three months.

Why the private sector loves the new reforms: Previous reports indicate that the reforms will see Egypt scrap the current oil-and-gas-style production sharing agreement and move to a tax, rent and royalty model — and eliminate the requirement of a 50:50 JV with EMRA. The bill is also expected to allow exploration companies to acquire exploration ground without first obtaining exploration licenses. The amendments have received the overwhelming support of the industry, with top execs at Aton Resources, Thani Stratex Resources and Resolute Egypt signing an exclusive op-ed for Enterprise praising the reforms.

LEGISLATION WATCH- Insurance Act to require insurance on electronic banking transactions: The Insurance Act, which is currently under review by the Financial Regulatory Authority (FRA) board, is expected to introduce compulsory insurance on internet banking to protect banks against cyber attacks, FRA boss Mohamed Omran said. The legislation, which would make FRA the primary regulatory for the insurance sector, is also expected to introduce compulsory insurance for SMEs and make insurance cover mandatory for public gatherings and venues. FRA plans to send the first draft of the proposed legislation to the Public Enterprises Ministry, the Insurance Federation of Egypt, and the Egyptian Healthcare Management Society before mid-month.

CABINET WATCH- Cabinet discusses IMF review, staff-level agreement to disburse fifth tranche: The Madbouly Cabinet discussed during its weekly meeting on Thursday a staff-level agreement Egypt reached with the IMF last week to disburse the fifth USD 2 bn tranche of its USD 12 bn extended fund facility, according to a Cabinet statement. The fifth tranche will bring the total payments disbursed under the facility to USD 10 bn in two years.

The ministers also ratified a 2017 decision to establish the SME Development Authority, which then-Prime Minister Sherif Ismail decided would replace the Social Fund for Development. Cabinet also discussed trade liberalization and the establishment of a Retail Syndicate.

EFG Hermes topped the EGX’s brokerage league table for October with a market share of 20.4%, according to figures released by the EGX (pdf). Beltone Financial came in second this month with a 17.2% market share, followed by CI Capital (8.1%), HC Brokerage (4.9%), and Pharos (4.2%).

EARNINGS WATCH- CI Capital reported a net profit after tax and minority interest of EGP 304.7 mn in 9M2018, up 128% y-o-y, in a statement on Thursday (pdf). Total revenues for 9M2018 were up 51% y-o-y to EGP 1.8 bn.

Oriental Weavers saw its net income fall 12% y-o-y in 3Q2018 to EGP 96 mn, the company said in its earnings release (pdf). Total revenues fell 2% y-o-y in 3Q2018 to EGP 2.6 bn.

CORRECTION- We had picked up an incorrect report from the domestic press last week claiming that Egypt’s non-oil exports rose 7% y-o-y in 9M2018 to USD 16.6 bn. Exports actually rose 11% y-o-y during the period to reach USD 18.5 bn compared to USD 16.6 bn during the same period last year, according to a Trade Ministry statement (pdf). We’ve fixed the mistake on our web edition.