A SUPPLEMENT TO EUROMONEY/APRIL 1999: EGYPT
The rebirth of Egyptian securities
The eight years since the start of the Mubarak government’s economic structural adjustment programme have been patchy for Egypt’s capital markets. Although the Cairo stock exchange has a venerable past – it was founded in 1903 – it has struggled to re-establish itself after the end of president Nasser’s Arab socialist experiment. Stock market levels were hit first by the Asian and then by the Russian crisis (although Egypt has survived better than many other emerging markets), and have languished at pre-1997 prices. So far the domestic bond market has been non-existent as Egyptian corporates waited for the government to issue internationally and set a benchmark for borrowing. Plans for a $300 million Eurobond deal were shelved by the government at the end of 1997 because of the inflated cost of emerging-market borrowing caused by Asian contagion. The deal then failed to materialize in 1998.
But this year looks considerably more promising for the Egyptian capital markets. Investors will be heartened by the macroeconomic health of the country: growth has been around 5% each year since the mid-1990s and is expected to increase to almost 6% in 2000; inflation is below 4%; and the budget deficit is around 1% of GDP. There have also been some key reforms in the markets. The stock exchange has undergone thorough restructuring overseen by a new chairman, Sameh El Torgoman, and there are the beginnings of a sustained recovery in equity prices. The government reaffirmed its commitment to modernizing the economy, and has pledged to privatize 62 state companies before June, including electricity utilities and telecoms companies. By 2000, 80% of the economy could be privately owned.
While it has yet to enter the international debt markets, the government has established an effective pattern of domestic borrowing. Its bond deals since the second half of 1998 have set attractive benchmarks for other Egyptian issuers and been oversubscribed by investors. In February the treasury launched a E£2 billion ($580 million) 10-year domestic bond deal as part of the restructuring of Egypt’s E£150 billion domestic debt towards longer maturities. The 9.5% coupon surprised the market by being half a percentage point lower than the yield on January’s seven-year treasury bonds, signaling that interest rates may come down.
The deal was intended to be a catalyst for the growth of a secondary bond market (at the end of January there were only 19 corporate bonds listed on the stock exchange, and minimal trading). Corporates will be able to borrow at cheaper rates than they had expected, and greater issuance will increase the liquidity of the nascent market. “It is very important that the infrastructure of the fixed-income bond market is built,” says Torgoman. “We need to build a liquid secondary market.” Although some felt that the yield on the 10-year government bond was too low, the pricing of the deal was readily accepted by investors, and has triggered off a wave of corporate debt issuance.
In mid-February Orascom Construction Industries (OCI) launched a E£280 million seven-year domestic bond deal, with an 11% coupon, to refinance its short-term bank debt. This was complemented in March by an equity offering worth E£395 million “The nature of our work and investments warrants longer-term financing,” says Nassef Sawiris, son of the Orascom Group’s founder Onsi Sawiris and chief executive officer of Orascom Construction Industries. “Our deal was made possible after the government issued its seven-year bond and established a proper benchmark.” Sawiris does not feel tempted to issue in the more liquid US or European debt markets. “Any responsible issuer in Egypt should borrow predominantly in Egyptian pounds to achieve matching between revenue streams and their debt,” he says. “We are a local investor and believe that we should learn the lesson of what happened in south-east Asia – too much borrowing in foreign currencies.”
Other recent issues have come from Arab Land Bank and another Egyptian construction company, Lakkah. The first wave of corporate bond issuers have tended to be the larger family-owned companies and some foreign corporate giants with businesses in the region, for example the German pharmaceuticals company Hoechst which launched an Egyptian bond deal in 1996.
“The growth of the bond market will be the focus this year,” says Haythem Soliman, at Intercapital Securities. “There has been minimal liquidity in the past, but now it is growing.” He predicts that investors will prefer bonds to equity in the risk-conscious wake of the emerging markets crises. As a reflection of Intercapital’s bullishness about the Egyptian bond market, the firm has set up a bond-trading desk with dedicated debt salespeople. “The market is not yet big enough to fully invest in, but the seeds of investment are there,” says Soliman.
Daniel Drevillon, the general manager of Banque Paribas in Cairo, agrees that Egypt is fertile ground for a bond market. “This country used to have sophisticated financial markets; it knows about banking and is not a market that only focuses on loans,” he says. Drevillon thinks that the Egyptian market will be very open to structured finance, and predicts the growth of a convertible bond market in the next decade.
Hassan Heikal, director of investment banking at EFG Hermes, is currently working on up to six potential bond deals for his clients, including one for the Arab Bank of Jordan. “Once the pricing settles down, doing bond deals will become more attractive. The culture of buying bonds through the growth of mutual funds must also be developed,” he says. There are no bond investment funds in Egypt yet, but several money market funds can, and do, buy bonds. EFG Hermes plans to set up a mixed bond and money market fund this year. “The market just needs more new issues,” says Heikal.
The Orascom and Lakkah deals illustrate how larger corporates are beginning to swap loans for bonds and look for more diversified financing. “We prefer to issue bonds for our customers rather than loans,” says Shayne Elliott, country head of Citibank in Cairo, itself one of the first companies to issue debt on the Egyptian market. “There is a natural limit to what the loan market can do for companies,” he says.
The Egyptian loan market is aggressively competitive and profit margins are being slashed as banks compete for market share and relationships with corporates. EFG Hermes has chosen to concentrate on the newer and more lucrative securities markets rather than traditional lending. “Syndicated loans are not a big part of our business,” says Heikal. “They are time-consuming and unless the deal is big and the fees are relatively high we will not touch them.” He says that bank lending is still strong in Egypt and a core business of the state banks, but thinks that a younger generation of investors is driving change in the market. “There is the development of a new breed of professionals inside Egyptian banks and insurance companies that understand the products and are willing to invest in debt and equity.”
The Egyptian equity market will aim to get back on its feet this year too. After a rapid climb in prices between December 1996 and April 1997, the stock market has been falling steadily. In the last three quarters of 1998, shares lost over 35% of their value. But there is a feeling that most of the companies are still undervalued, and there is much room for improvement in 1999. “I’m very optimistic about this year,” says Torgoman at the stock exchange. “The market started very strong, volumes increased and the index was up by 26%.”
Ossama Nassar, managing director of the Fleming Mansour brokerage house, predicts some volatility. “But I expect the market to creep upwards in the next six months,” he says. This year more capital is being allocated for investment in Egypt. US asset manager Alliance Capital has set up a Nile Fund, Fleming Investment Management has a Middle Eastern fund which will invest 24% of its money in Egypt, and National Bank of Egypt, Banque Misr and Cairo Capital have also raised sizeable funds.
The government’s privatization programme will of course be a boost to the market as sizeable chunks of state companies are floated on the stock exchange, attracting a wider pool of potential equity investors. But until privatization gains momentum, the market is being driven by IPOs from the larger, family-owned Egyptian corporates, such as Orascom and the Olympic Group. A major equity deal for Ezz Steel worth over E£200 million and jointly underwritten by EFG Hermes and CIIC is due to be launched by May.
Orascom Construction Industries’ E£395 million issue, lead-managed by EFG Hermes, was originally planned for mid-1998, but was postponed because of the unfavourable market conditions. One of the three core businesses of the Orascom Group (that also encompasses telecoms, technology and tourism), OCI is the largest private-sector construction and building materials company in Egypt with assets of E£795 million. It is also the first Egyptian company to be rated A+ by Nile Fitch IBCA. Roadshows in the US and the UK kicked off in February, and the deal closed in mid-March. “We decided to institutionalize the group and change it from being a closed family business,” says OCI’s Sawiris. “As the company grew in size it became the right thing to do to raise capital through equity.” Twenty percent of the company was floated, leaving the Sawiris family with a stake of 80%.
The largest IPO so far from the Egyptian private sector, the Orascom deal is the first Egyptian equity offering to attract investors from global funds, rather than from regional or emerging-market dedicated funds. EFG Hermes reports that it was four times over-subscribed. A third of the buyers were institutions from Egypt, 20% of investors came from the Gulf and the remaining 50% from Europe and the US. “This deal has proved that the markets are awaiting big, well-structured deals from companies with active trading on the stock exchange and substantial levels of liquidity,” says Sawiris.
The success of the deal has strengthened Orascom’s links with the capital markets. These date back to the flotation two years ago of Orascom Projects & Touristic Development and Orascom Hotel Holdings, the tourism and real estate arms of the group. At least one more equity and debt offering from the group is on the cards this year.
“The equity market is performing in an acceptable range, but it still has some way to go to match developed-world stock exchanges,” says Soliman at Intercapital. He estimates that during January there was between E£90 million and E£100 million trading a day. “This is very good for an emerging market,” Soliman says.
Torgoman at the stock exchange recognizes that there is some way to go before the Egyptian securities markets establish themselves. “We have to work hard to live up to the expectations of the investors,” he says. “But the fundamentals of the economy are strong and the equity market is considered cheap. The problems of short-term debt don’t exist in Egypt. The government has adopted a very successful economic reform programme and this has helped the market to survive the problems of the emerging markets.”
The management of the stock exchange is not leaving the recovery of the Egyptian markets to chance. Since 1997 wide-reaching organizational changes have been brought in to enable the exchange to compete on an international scale and to service the emerging class of Egyptian entrepreneurs. Torgoman explains that the current initiatives stem from the revival of the capital markets in the early 1990s. “The private sector started to play a significant role in the economy and it was necessary to revive the capital markets for the private sector to raise funds from investors,” he says. The government felt that the stock exchange should be as independent as possible and that it would be a stronger institution if the exchanges in Alexandria and Cairo were combined.
A presidential decree in 1997 created a centralized Cairo and Alexandria exchange, with one chairman and a single board of governors. “For the first time the stock exchange became isolated from the interference of other governmental entities,” says Torgoman. “The liberalized exchange is an institution free from any constraints against reform; it can be run as if it is a private entity.” The chairman is appointed by the government but the board is elected and represents different sectors within the financial community.
Torgoman, educated at Harvard and Stanford and from a legal background, was appointed chairman in December 1998. He had previously been the deputy to former chairman Sherif Rafaat, who has returned to his work as a partner with Concord International Investments. Torgoman had been asked to fill the post twice before, but at the time he had work commitments in the US. After he returned to Egypt he became a senior adviser in Mubarak’s government, monitoring the capital markets, and then vice-chairman at the stock exchange. “During this time we [he and Rafaat] worked together on the plans for the modernization of the stock exchange. Any reform had to be approved by both of us and passed by the board. I took over when Rafaat left, to provide stability and continue the plans.” He jokes that he intends to be the first chairman of the new-model exchange to survive the full three-year term.
Apart from the reform of the management structure, other changes were brought in to encourage a modern, efficient and transparent exchange. A research department has been set up which produces regular publications, including a monthly bulletin and a semi-annual guide to the 100 best-performing stocks, and a website to engender a freer flow of information. Increasing the levels of disclosure within companies is a matter of the utmost concern to the government and bankers involved in Egypt’s capital markets. Private companies have been notoriously secretive about their finances in the past, but the government has encouraged them to abide by internationally-recognized Generally Accepted Accounting Principles (GAAP) if they want to take advantage of the capital markets. In October 1998 it was decreed that all listed companies must issue audited financial statements on a quarterly basis, to improve transparency further.
A considerable amount of the bureaucracy of the exchange has been streamlined. New issuing procedures mean that as long as companies can produce adequate financial documentation they will only have to wait days rather than months to execute an IPO or merger. New human resources and training measures have also been taken to raise standards of efficiency and professionalism among the exchange’s employees.
There has also been a focus on IT capabilities, including the purchase of the EFA electronic trading system from Canada, which was installed in February. This system has been adopted by 26 other stock exchanges around the world. Clearing and settlement systems have also been revamped and integrated. “It is a first class trading system, and we have observed it working in other emerging markets. We are the first to have trading, clearing and settlement on-line together.” One of the main aims for 1999 is to get the electronic trading system up and running by the end of the year.
Although these changes augur well for the improving health of the Egyptian market, there are further reforms to be made. There are over 870 companies listed on the Cairo and Alexandria stock exchange, many state-owned, but only 120 of them are actively traded. In January the 10 most active stocks represented 62% of value traded. The majority of companies are listed primarily to take advantage of tax exemptions. “We are reviewing our listing requirements,” says Torgoman. “It is better to have fewer but better quality companies listed on the exchange. They would be more liquid, with a better standard of corporate governance.” Another aim is to start a public awareness campaign to teach the population about the capital markets; a conference about the development of the stock exchange should be held before the end of the year.
The Cairo and Alexandria stock exchange will play an important role in the privatization programme. “We are working with the government to provide the voice of the markets in the valuation process,” says Torgoman. “The government is taking realistic measures to have a successful privatization programme.” He predicts that the sell-off of the utilities will be the most popular, particularly the electricity companies, and he hopes for telecoms privatizations. “These sales will definitely bring more foreign investors to the stock exchange,” he says.
Foreign activity in Egypt looks set to increase in 1999. Already this year Lafarge of France and Titan of Greece have jointly bought Beni Suef Cement Company for E£1.3 billion, and Glaxo Wellcome of the UK executed the largest cross-border acquisition on the stock market when it paid E£387 million for Amoun Pharmaceuticals.
Crédit Agricole of France is currently negotiating the purchase of 82.5% of Misr America International Bank. As the privatization programme progresses, foreign companies are sure to be among the bidders for state enterprises. One possible difficulty is the political bad feeling that could result if control of too many key companies passes outside Egypt.
The Toshka project, to irrigate large sections of the Southern Valley desert with a canal running from Lake Nasser to the oases of the Western Desert, has huge potential for foreign investment. It aims to relieve congestion in the Nile Valley by creating new urban communities and farmable land. The considerable infrastructure work involved has already attracted foreign project finance, especially from Kuwaiti investors.
It seems that current excitement may be justified. Egypt’s success in becoming a fully-fledged part of the global financial markets will depend on the progress made in the next few years, by the government and the banking sector, towards modernization and liberalization. But they have in their favour Egypt’s economic health and relative political stability; a combination that will increasingly draw foreign investors and corporates. “Egypt has a large population, a critical mass that attracts international investors,” says Sawiris at Orascom. “The economy is at the stage of taking off rather than maturity, so it is an opportune time for foreign investors to get established here.” Elliott at Citibank is similarly enthusiastic. “If you are interested in the emerging markets and trying to find one that isn’t falling apart, Egypt looks fantastic.”
The big sell-off
The Egyptian privatization programme has so far not delivered its promises. Although the rhetoric of selling state enterprises has been used by the Mubarak administration for several years, many key economic sectors remain government dominated. Almost half of the government’s 314 original targets for privatization have been sold, but these were the smallest companies and easiest to dispose of and in many cases the state kept large stakes rather than selling the businesses as a whole.
Last year there was some confusion over the government’s intentions on privatization. There were long delays before companies were sold, and some privatizations, such as Industrial Gas, were called off altogether. The emerging-market crises had depressed prices, but the government was adamant that it would not sell companies for less than they were worth. Not surprisingly, private-sector buyers were not always forthcoming, and this valuation gap between the government and potential investors caused the programme to stall.
“You can’t float a government company without good management at the same rate as a private firm,” says Hassan Heikal at EFG Hermes. Investors in a floated company would often be stuck with the management from the state-owned days, as the government has kept controlling stakes. Buyers have been willing to pay higher prices in strategic sales only where they can easily bring in new management, such as the sale of Beni Suef Cement to Lafarge and Titan.
The government now realizes that it has to deliver real reform of the public sector in 1999. The next stage of privatization will tackle large cornerstones of the state-owned economy – electricity utilities, telecom companies, financial services, ports, maritime and inland transport. A total of 62 companies have been earmarked for privatization before June.
But although the government’s self-imposed deadline is less than three months away, few deals have been completed. The minister for public enterprise, Atef Ebid, has appointed a group of almost 50 banks as advisers to the government, and they are currently evaluating the hundreds of offers. A 20% stake in Telecom Egypt is due to hit the market by the end of April.
In the much awaited rationalization of the financial sector, the government has promised to sell one state-owned bank (rumoured to be Bank of Alexandria) before the end of the year, and an insurance company sale is also planned. The government has announced that the television stations, the Suez Canal, the Egyptian General Petroleum Corporation and some flour and pharmaceuticals companies will never be privatized.
“There is scepticism from the markets that meaningful privatizations, that is, majority stakes in utilities, will happen,” says Shayne Elliott, country head at Citibank in Cairo. “Investors want to wait and see, but they are very excited.”
Others are more optimistic. “Last year the government would publish schedules but not keep to them,” says Haythem Soliman at Intercapital Securities. “But they have learnt their lesson and will try to keep their deadlines.” It is essential that they make significant progress this year if the government hopes to rebuild its credibility and win back the confidence of foreign investors.
“The climate is very favourable for the government to move on schedule or even ahead of schedule, there are no obstacles,” says Nassef Sawiris, chief executive officer of Orascom Construction Industries. He thinks the population is becoming more receptive to the idea of privatization: “They are starting to reap the fruits of healthier competition in terms of pricing and better services. Private sector employers have also proved that they can create a healthier work environment.”
Banks feel the breeze of competition
Egypt’s banking system is dominated by four big state-owned banks. Even though the state’s monopoly on banking ended 25 years ago, regulation has long made it hard for private banks to compete. But slowly, the banking sector is opening up further and foreign players are being given greater scope to operate. That may mean difficult times ahead for the big public-sector institutions
Egypt’s banking industry, for years cosseted by the state, has been gradually opening up to foreign involvement since the 1970s. The pace of change looks set to increase
The Egyptian banking sector still bears the stamp of President Nasser’s nationalization of the financial sector almost four decades ago. It is dominated by four big state-owned commercial banks, National Bank of Egypt, Banque Misr, Banque du Caire and Bank of Alexandria, which between them have 55% of total bank assets, 65% of deposits and over 800 branches.
Their main competitor from the private sector is Commercial International Bank (CIB), established in 1975 as a joint venture between National Bank and Chase Manhattan and then floated on the Cairo Stock Exchange with great success in 1993. National Bank retains a 19.6% share in CIB and the two banks share the same chairman, Abdul Aziz Mahmoud.
Although deposits are concentrated in the biggest banks, the country is nonetheless overbanked. There are 85 commercial and investment banks operating in Egypt, several with less than 1% market share. There is much potential for consolidation among these smaller banks over the next few years. “Consolidation is one of the key approaches for boosting the competitiveness of the Egyptian banks, they are too small and scattered,” says Inas el Hagrassy, manager of the research division at National Bank of Egypt. Daniel Drevillon, general manager of Banque Paribas in Cairo agrees. “There are a lot of banks and the banking industry will have to restructure as in all other markets,” he says. “People are actively thinking about ways to create banks with critical size.”
Many of the smaller banks were set up in the euphoria of President Anwar Sadat’s 1974 “open door” policy which started the liberalization of the economy and ended the state monopoly on banking. This also began to attract foreign institutions to Egypt. “Our market was centrally planned before, but after the open door policy we wanted to see what was going on inside foreign banks and transfer their know-how and technology to Egypt,” says Hagrassy.
The response to this was to set up several joint ventures between foreign and Egyptian banks, the first being National Société Générale Bank formed by National Bank and Société Générale of France. Others include Banque du Caire et Paris (Banque du Caire and BNP of France) and CIB (though Chase Manhattan has since sold its stake). These ventures have been highly successful, and are perceived to have made a valuable contribution to the economy.
Since the end of the state’s monopoly on banking in 1974, the four government-owned banks have not had to face much outside competition. Although privately-owned banks were being set up, the heavily regulated and bureaucratic banking environment made it hard for them to gain critical mass and steal market share from the big four. But since 1991 several banking laws have been relaxed, for instance the lifting of the restriction whereby public sector companies could only deal with public sector banks. The forces of consolidation, privatization and greater foreign involvement are now gaining momentum in Egypt and the state banks are having to re-evaluate their place in the market.
Founded in 1898, National Bank of Egypt is the oldest and largest bank in Egypt with assets of E£61 billion ($18 billion) and a 40% retail market share. National Bank was the first bank to gain an international credit rating from Moody’s and Fitch Ibca, as part of its project of reorganization and modernization. “In Egypt one of the big problems is the lack of information and transparency,” says Hagrassy at National Bank. “We wanted to be known to foreign investors, so the first step is to open our doors and ask the agencies to rate us.”
Another initiative was the use of extensive consultations from KPMG who suggested a three-pronged strategy to better diversify risk. The bank’s strategy for the next century will focus on corporate finance, retail banking and continuing to expand into investment banking. In September 1998 it acquired a 10% stake in Egypt’s leading investment bank, Commercial International Investment Company (CIIC), from CIB.
National Bank of Egypt has 325 branches, 60 of which are computerized. Unusually for a state-owned bank, NBE has been at the forefront of new banking technology in Egypt. “We are the leaders,” says Hagrassy. “We had the first joint-venture bank; we launched the first mutual fund; we are the first universal bank; we have the upper hand in financing foreign trade.”
Banque Misr, with E£50 billion ($14.7 billion) assets, was established by economist Tallat Harab in 1920 and nationalized in 1961.
The rivalry between National Bank and Banque Misr is fierce, and Misr questions National Bank’s status as Egypt’s leading bank. “Our social role in the economy as a whole is larger than that of National Bank,” says Sayed Osman, at Banque Misr. With around 420 branches, Misr does have a bigger bricks-and-mortar network. The bank is also proud of its two mutual funds, considered among the best performing in the market.
“The competition between us and National Bank and the other Egyptian banks exists at all times and at all levels,” says Osman. “Every bank wants to take the biggest share of the market.”
Competition has centred on the traditional businesses of lending and deposits, but the undeveloped Egyptian credit card market is fast becoming another arena for the fight for market share. Banque Misr was the first to launch a credit card into the Egyptian market, but National Bank followed two years later and now claims to have a 70% share of this market. They will both face further competition this year from Citibank, which is launching a credit card as part of its big push to introduce wealthy Egyptians to their “Citibanking” brand.
Because the Egyptian banking sector is already crowded, the central bank is reluctant to issue any more banking licences. This has limited the number of foreign banks setting up business in Cairo outside the joint-venture vehicles. But as the economy goes from strength to strength, the attractions of the Egyptian market are increasing and new entrants are finding others ways in. “Egypt is a good environment for a foreign bank,” says Elliott at Citibank. As the private sector expands, there is more corporate and capital markets business available for foreign banks with specialized expertise. Egypt also generates lots of high-profile international projects, for instance dams, canals and power plants, and these need financing from a wide range of foreign banks.
One way for foreign banks trying penetrate the market is to make an acquisition. NBE is rumoured to be selling its 19% share in CIB, and foreign banks including Deutsche Bank, ABN Amro and several French banks are said to be possible buyers.
There will also be lots of foreign interest in the much anticipated privatization of one of the state-owned banks, but it might be too soon to expect the public to accept a foreign bank winning control of one of Egypt’s four biggest banks. Banks that already have business in Egypt through joint ventures, for example Société Générale, have been trying to increase their stakes and take a more dynamic role.
As more foreign entrants start to come into the market, most of the banks will have to undergo major restructuring and modernization in order to defend their position and secure long-term success. Their lending business needs to be re-examined in order to make it more profitable and less risky, and to avoid the accumulation of bad debts as in the past.
The state-owned banks also need to be recapitalized and invest in technology to automate and upgrade their operating systems. To maintain relationships with higher-value corporate customers as competition with new entrants increases, though, they will have to improve the quality of their staff and their services. “The public-sector banks have been prepared to be aggressive in pricing to keep their local business,” says Shayne Elliott, country head of Citibank in Egypt.
However, given the big Egyptian banks’ broad branch networks new entrants will find it hard to penetrate the core retail market. Banks are also beginning to embrace diversification into new areas in order to boost their growth, such as CIB’s foray into insurance.
The development that the whole sector is waiting for is an announcement from the government about bank privatization. This is likely to be a prerequisite for any significant consolidation. It is well known that the government intends to sell off one of the four main state banks, widely rumoured to be Bank of Alexandria which is small, well-run and would be relatively easy to sell. The privatization of a bank was promised in 1998, and it is looking increasingly unlikely that anything will be achieved even in 1999. This is because any state bank is going to have to be thoroughly restructured before it will fetch a price satisfactory to the government.
Some of the state banks are positive about the prospect of being sold. “We want to be privatized,” says Hagrassy at NBE. “We are not as big as international banks, and it is the only way for us to raise more capital.”
Consolidation has started to gain pace in the fractured investment banking market too. Egyptian investment bank CIIC and UK bank Robert Fleming’s Egyptian arm announced a merger at the beginning of March.
The deal has been warmly greeted by the market which is keen to see the creation of a bank to rival EFG Hermes, the dominant private investment bank. “The competition will be healthy for the market and will force firms to provide a better service to clients and investors,” says Sameh El Torgoman, chairman of the Cairo and Alexandria Stock Exchange.
CIIC’s brokerage house, InterCapital Securities (which is 29% owned by ING of the Netherlands), will be combined with Fleming Mansour securities to form one of the biggest Egyptian brokerage houses. The Mansour family is a major shareholder in both Fleming Mansour and CIIC, a factor that helped to make the combination possible.
“The merger gives us more potential to expand into other sectors of the market and be more aggressive on the retail side,” says Haythem Soliman at InterCapital Securities. Flemings will also give CIIC and Intercapital greater ability to expand outside Egypt and become a player in the wider Middle East and North African region. InterCapital’s cooperation with ING since 1997 has not been as fruitful as either side expected, and Flemings is expected to buy them out as soon as the due diligence for the merger is completed.
Ossama Nassar, managing director of Fleming Mansour, is confident that the deal will secure his company a leading position in the Egyptian securities market. “Although Fleming Mansour has made great strides this year, there was still a big gap between us and our competitors,” he says. “We wanted to create critical mass sooner rather than later.”
But Flemings CIIC Securities, as the new entity will be known, still has some way to go to catch up with its great rival. EFG Hermes conducts 15% of the business on the stock exchange and is also hoping to expand outside Egypt into countries such as Jordan, Algeria and Syria. EFG Hermes is confident it can meet the challenge to its leading position. “It has been assumed that Egyptian banks need international investment banks as partners, but we are still independent and doing very well,” says Hassan Heikal, director of investment banking at EFG Hermes. “We don’t need anyone.”
