Egypt’s perceived transparency in government policymaking has “notably” declined over the past year, the EBRD said in its annual Transition Report. Egypt’s governance transition score declined to 4.7 from 4.8 in the 2017-18 report.

But, but, but:  The Egyptian economy has also become more competitive, greener, more inclusive, more resilient and more integrated in the past year. We got marked down on the governance score because a risk here of inadequate compliance with AML and CFT frameworks designed to clamp down on money laundering and terrorist financing. Morocco, Tunisia, Serbia, Hungary also got lower scores on this front.

Egypt fared well in terms of financial and energy resilience, the report says. “Banks have weathered the aftermath of the currency depreciation seen at the end of 2016,” and Egypt’s foreign currency shortage has “largely been resolved.” An improved legal framework for the energy sector, particularly when it comes to deregulating the gas industry, has also contributed to Egypt’s score improvement. The report also gave a hat tip to Egypt’s efforts to lift electricity subsidies, “which are being pushed through against an inflationary backdrop, although there remains uncertainty as to when cost reflectivity and market pricing will be achieved.”

Egypt needs to create around 750k new jobs each year to absorb all new entrants to the labor market, but Egypt is among several countries with a mismatch between the skills of recent graduates and the demands of the job market.

Our macroeconomic performance has improved as growth continued to accelerate for the fifth consecutive quarter, real interest rates turned positive in January for the first time in two years as inflation decelerated, and fiscal and external positions have improved, the bank says in its country profile. These improvements come on the back of “major” structural reforms and the enactment of key pieces of legislation, including the bankruptcy, natural gas, railway, and companies acts.

Moving forward with the state privatization program is among the “key priorities” for Egypt in 2019, the EBRD says. “There is a need to prioritise the sale of well-performing, bankable and profitable companies, to rebuild confidence and attract international investors, even from unconventional destinations.” The bank also stresses the importance of remaining committed to the economic reform program — coupled with the enactment of further legislation “needed to strengthen the [macroeconomic and business climate] recovery, including land registration reform” — and keeping our debt levels in check.

You can read the full report here (pdf) or check out the country profile on Egypt here (pdf).

M&A WATCH- Thailand’s Indorama acquires 74% of Medco Plast in EGP 843 mn transaction: Thailand’s Indorama Ventures bought 74% of Egypt Medco Plast for Packing and Packaging Systems for EGP 843 mn, it said in a statement.

What does Medco do? Medco makes some 70k metric tons of polymer PET preform containers each year on 11 production lines. It sells to “all the multinational soft drink and water manufacturers operating in Egypt” and estimates it has a 25% market share. “Medco's strong presence in the domestic market and a longstanding customer relationship with all beverage majors operating in Egypt will enable the company to support growing local customers' demand and provide a platform for further growth in the Middle East and African regions,” said IVL CEO Aloke Lohia.

Who’s selling? The selling shareholders include Middle East Glass Manufacturing (MEG) and the Samaha family. MEG will hold 16% share once the transaction is executed, while the Samahas will retain a 10% stake. MEG had signed a non-binding agreementto divest 74% of its shareholding in the company last year.

Advisors: HC Securities and Investment acted as the sole financial advisor to MEG and the Samaha family (its fifth M&A with MEG, it said in a statement). Matouk Bassiouny was counsel to MEG and Shehata Law Firm was counsel to the Samaha family. Baker & McKenzie was legal counsel to Indorama Ventures.

M&A WATCH- Medhat Khalil said to seek up to EGP 800 mn in bank finance for Raya take-private bid: Raya Holding for Financial Investments founder Medhat Khalil is in talks with several banks over a potential EGP 700-800 mn facility to finance his bid to take to take Raya private, Khalil said yesterday, according to Amwal Al Ghad. Khalil had previously estimated he would need EGP 500 mn to acquire the outstanding 58% of Raya, noting that he would be forced to acquire the remaining stake at a premium. He had also said earlier this month that he is considering bringing together a group of investors for the take-private bid.

Background: The Financial Regulatory Authority (FRA) had ordered that Khalil launch an MTO or sell off shares in Raya after declaring he triggered the MTO requirement with an effective stake of more than 33%. Khalil says he and his family members control 32% of shares, but the FRA is counting the 10% stake owned separately by his brother-in-law as a related party, bringing the Khalil group’s total stake to 42%. Khalil has appealed the date and price set by the FRA for the MTO, he said earlier this month.

This comes as Raya Holding reported yesterday a net profit of EGP 41.53 mn in 3Q2018, up 28.6% from EGP 32.28 mn in the same period last year, according to a disclosure to the EGX (pdf). Revenues were up 25.8% y-o-y to EGP 2.19 bn from EGP 1.74 bn.

FinMin, Trade Ministry deny plans to impose new 10-20% tax on car sales: Trade Ministry advisor Hossam Abdel Aziz deniedour report from Wednesday morning that the Finance and Trade ministries considering a plan that could impose a 10-20% “development fee” on all car sales. Trade Minister Amr Nassar also denied he or Finance Minister Mohamed Maait had spoken to the press about the plan, according to Al Mal. Two senior government officials had told us that the plan, still on the drawing board, would offset the development fee for locally assembled or manufactured vehicles through discounts or waivers of other fees. The sources told us that the government was eyeing finalizing the plan by 1 January, 2019 — which is when Egypt will bring import duties on European cars to zero as planned under a trade agreement.

INVESTMENT WATCH- GB Auto aims to hike capex by 10-15% next year: GB Auto is hiking its capex spending by 10-15% next year, CEO Raouf Ghabbour told Al Mal. The firm plans to invest up to EGP 500 mn next year in aftersales and other facilities, with the company set to launch five new maintenance centers in the coming period. Crucial to the decision, is Ghabbour’s prediction that interest rates are likely to come down next year, which would help spur consumer spending and drive up auto sales. Ghabbour sees passenger car sales growing 15-20% industry-wide next year as a result.

Lack of coherent policy for the sector behind current stagnation: Ghabbour sees the lack of a coherent government policy for the automotive sector as contributing to the stagnation of the sector. He noted that the continued stalling of the automotive directive — legislation that would give incentives to local assemblers to move up the value chain to manufacturing in return for tax breaks that would give them an ongoing price edge against EU, Turkish and Moroccan-made imports — has hurt local assemblers. He also reiterated that customs on EU-made cars falling to 0% next year would not make cars cheaper.

Industry standards can’t be dropped on the sector like bag of bricks: Ghabbour also noted that the government’s decision to impose some 20 new quality control standards on the auto industry in one fell swoop would prove difficult for local assemblers. The Trade and Industry Ministry’s Organization for Standardization & Quality (EOS) is planning to enforce around 400 new quality standards across several industries before the year is out.

EARNINGS WATCH- Investment company Egypt Kuwait Holding (EKH) saw its 3Q2018 revenues rise 37% y-o-y to USD 118.6 mn, the company announced yesterday (pdf). Revenue growth was driven by strong operational performance in the fertilizers and petrochemicals segment, as well as healthy growth in the energy sector. Bottom line for the quarter declined 19% y-o-y to USD 33.6 mn when factoring in the USD 18.3 mn “in non-recurring income related to capital gains on the sale of Egyptian Hydrocarbons Company. Factoring out this gain from the comparable quarter’s results, net income for Q3 2018 would record a 44% y-o-y increase.” Commenting on the results, Chairman Moataz Al Alfi said they “reflect EKH’s ability to consistently deliver year-on-year growth whether driven by on-the-ground strategic initiatives or by capitalizing on favorable economic policies [in Egypt].”

Private equity firm B Investments posted a 50% y-o-y increase in consolidated net profit of EGP 147 mn in 9M2018, according to the company’s earnings release (pdf). Revenues for the period climbed 59% y-o-y to EGP 187 mn, from EGP 118 mn during the same period last year, with the growth mainly “derived from dividend declaration and share of profits from portfolio companies, in addition to finance income.” Chairman Hazem Barakat said in a statement that the company expects its recent acquisition of a majority stake in high-end food retailer Gourmet Group to “deliver solid growth in the coming period.”

Real estate developer Talaat Moustafa Group Holdings (TMG) reported a 12.5% increase in net profit to EGP 1.25 bn in 9M2018, up from EGP 1.1 bn in the same period last year, according to an EGX disclosure (pdf). TMG’s revenues jumped to EGP 6.8 bn in 9M2018, a 21% increase y-o-y from EGP 5.6 bn.

State-owned fixed-line monopoly Telecom Egypt reported a net profit after tax of EGP 1.48 bn in 3Q2018, up 50% y-o-y from EGP 960 mn in 3Q2017, according to the company’s earnings release (pdf). Revenues for the period were up 65% y-o-y to EGP 7.23 bn from EGP 4.39 bn in 3Q2017, driven by spiraling demand for data services and the company’s recent agreement to allow Bharti to use part of its MENA and TE North cable systems was among its top revenue drivers, it notes.

Did the IFC just get into the collection agency business? We’re oversimplifying, but… The International Finance Corporation (IFC) and Omni Bridgeway, which bills itself as a specialist in resolving non-performing loans, have “jointly made available USD 100 mn to establish a new investment vehicle” that will take on non-performing loans from financial institutions across MENA. The for-profit company will be managed by Omni Bridgeway out of Dubai, according to a statement (pdf) released yesterday.

What is this, exactly? Omni Bridgeway makes money in distressed situations as a provider of litigation finance as a player in the “high value claims monetisation industry.” Now, under the IFC’s distressed assets program, it will look to acquire portfolios of NPLs from financial institutions in Egypt, Morocco, Tunisia, Pakistan, Lebanon and Greece and then make a buck by turning them around. The result is that the banks will be able to “unlock their capital and encouraging new lending” by offloading bad debt. The aim is to help banks de-risk their balance sheets as well as to “rehabilitate rehabilitate and re-integrate defaulted debtors into the formal credit markets and to create a secondary market in NPLs.”

REGULATION WATCH- FRA to complete market regs for short-selling next month: The Financial Regulatory Authority finish regulations governing short-selling next month with an eye to rolling out shorts early in 2019, deputy chairman Khaled El Nashar told Amwal Al Ghad. El Nashar said the authority plans to consult with the industry on the regs. He had previously said that short-selling regs will ensure that only brokerages with strong balance sheets will be allowed to offer shorts to their clients under a new license to be created by the regulations. The rules are expected to place limits on the number of shares a short-seller can borrow for a short position and also force borrowers to pay a cash security deposit equivalent to 50% of the securities they’re borrowing.

LEGISLATION WATCH- FRA to finalize consumer credit and insurance acts in 2019: Also coming from the FRA, the authority plans to finalize next year drafting the Consumer Credit Act and the Insurance Act, FRAboss Mohamed Omran said at a presser, according to Amwal Al Ghad. The Consumer Credit Act bill, which the FRA revealed was in the works back in September, will introduce laws governing retail financing and consumer credit. While the Insurance Act, which was supposed to have been approved and finalized in September, will make the FRA the chief regulator of and govern the entire insurance sector.

LEGISLATION WATCH- Is the CBE done preparing its revised banking act? CBE Governor Tarek Amer discussed with President Abdel Fattah El Sisi yesterday the long-planned overhaul of the Central bank and Banking Act, Ittihadiya said. A source familiar with the matter had said earlier this year that the central bank could present the legislation to the Madbouly Cabinet in 4Q2018. Once approved by cabinet, the bill would move to the House of Representatives for committee review and a vote in the general assembly.

More extensive law? The final draft of the act could be much more extensive than the first draft, which came out last year and caused a stir in the banking sector. Industry players objected at the time to term limits for bank MDs, a proposed tithe on industry profits to endow an industry development fund, and provisions that would give the central bank expanded powers over the daily affairs of banks.

The SME Development Authority expects to receive EUR 120 mn in loans and grants before year-end that will be used to develop infrastructure in five governorates and combat illegal migration in 11 others, the authority’s head of human and social development sector Medhat Massoud told Al Mal. The authority is currently in talks with the European Union, the European Investment Bank and the French Development Agency for the funding, Massoud said. The FDA loan is earmarked for developing four inner-city areas in Cairo and Giza. We previously reported that the authority is in talks with the EU and the EIB for a combined EUR 87 mn in loans and with the World Bank for a USD 200 mn loan to finance projects. Massoud said that Egypt is approaching signing a final agreement for the WB loan, which would be focused on youth- and women-led SMEs.

Illegal migration: Massoud did not get into how the European loans and grants would be used, but you can expect the argument that financing SMEs in struggling areas will create jobs and keep at home people who would otherwise illegally migrate abroad. Germany and Austria have been pushing for a pactwith North African countries, including Egypt, to help it curb the increased inflow of illegal migrants to it in exchange for economic support. The pact could see Egypt’s navy patrol the Mediterranean.

CORRECTION- Lamya Youssef is the head of the studies and design sector at the Egyptian Electricity Transmission Company (EETC), not the head of Egyptera as we had reported on Tuesday. The story has since been corrected on our website. Thank you to those who wrote to us pointing out our error.