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Banking

Middle East: EFG-Hermes and QInvest get together

QInvest to inject $250 million; Eyes expansion in Africa, Asia

Egyptian investment bank EFG-Hermes and Qatari Islamic investment bank QInvest have agreed to form a new investment banking joint venture for the Middle East and surrounding emerging markets.

It is one of the biggest foreign direct investments in Egypt since the fall of president Hosni Mubarak last year, according to a statement announcing the deal. It comes as the Qatari state and corporate sector is extending its influence in North Africa after the Arab Spring.

QInvest, partly owned by Qatar Islamic Bank, will inject $250 million into the venture for a 60% stake. EFG-Hermes, which is the much older firm, will hold 40% and will transfer into the venture its regional investment banking, asset-management and brokerage businesses.

Co-CEOs of the new firm will be Karim Awad and Kashif Siddiqui, now EFG-Hermes’ heads of investment banking and asset management, respectively. Goldman Sachs advised QInvest, while JPMorgan advised EFG-Hermes.

Shahzad Shahbaz, chief executive at QInvest
Shahzad Shahbaz, chief executive at QInvest 

"When QInvest launched in 2007, the aim was to create a regional investment bank," says Shahzad Shahbaz, chief executive at QInvest. "Building organically takes time, so we have been on the lookout for a potential acquisition to help accelerate our strategy." The new venture envisages expansion within and outside the region, including to sub-Saharan Africa, as well as to south and south-east Asia. Outside Qatar, QInvest has only a relatively small operation in Saudi Arabia and a representative office in Turkey. EFG-Hermes, by comparison, has established businesses in Saudi Arabia and UAE, as well as in Egypt and Qatar. EFG-Hermes is also present in the smaller investment banking markets of Jordan, Kuwait, Lebanon and Oman.

"What the deal offers EFG-Hermes is an added ability to source Qatari capital and clients," says Shahbaz. "The tie-up with QInvest will also give better access to other GCC clients and investors."

The venture excludes EFG-Hermes’ Lebanese commercial bank, Credit Libanais. The venture also excludes EFG-Hermes Private Equity. Even so, in a $445 million buyout of struggling Dubai jewellery firm Damas last month unrelated to the QInvest deal, EFG-Hermes Private Equity gained Qatari co-investors in the form of the indirectly state-owned conglomerate Mannai Corporation, which took 66% of Damas.

Upheaval

Before the revolution in Egypt, EFG-Hermes was one of the more resilient of the larger investment banks in the region. Dubai’s Shuaa Capital and Kuwait’s Global Investment House (GIH) fell on hard times: the former suffered losses and the latter was forced to restructure debt. Indeed, GIH said last month it would ask creditors for a further delay in repayment.

Thanks to expansion in the Gulf and dominance in its home base, EFG-Hermes arguably had a greater geographic reach too. However, political upheaval has damaged Egyptian capital markets.

The 18% stake in EFG-Hermes Private Equity held by Gamal Mubarak, son of the toppled Egyptian president, has not helped EFG-Hermes in distancing itself from the former regime. Its profit dropped 81% in 2011, and its share price fell 63%, while news emerged earlier this year that co-CEO Yasser El Mallawany was banned from leaving the country, in what the bank said was a precautionary measure.

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