UAE bank's bid for Egypt's 'national champion' EFG may be too low

Gulf Island Fabrication

28/02/2022 11:50

By Yousef Saba and Patrick Werr
    DUBAI, Feb 28 (Reuters) - The United Arab Emirates' biggest
lender may have to raise its bid to take a controlling stake in
Egypt's top investment bank EFG Hermes  HRHO.CA  given the
latter's outsized influence over Egypt's financial markets and
supercharged growth of its fintech businesses, industry players
say.
    FAB  FAB.AD  this month made a non-binding offer to buy at
least 51% of EFG Hermes for 19 Egyptian pounds ($1.21) per
share, which valued the Egyptian bank at nearly $1.2 billion,
but most analysts value EFG in the 25-28 pounds range, as much
as 47% above the current offer.  urn:newsml:reuters.com:*:nL1N2UK0IN
    EFG controls roughly a third of traded volumes on Egypt's
stock exchange. Its size almost guarantees it a leading role on
top deals in the country, including a planned pipeline of
initial public offerings in state or military-owned companies.
    Besides being by far the biggest investment bank, EFG also
has unrivalled scale in Egypt's non-banking financial services
(NBFS) sector, as Egypt's 100 million people are estimated to be
among the world's least banked.
    "The opportunity for Egypt is significant," said Basil
Moftah, general partner at Global Ventures, which is pouring
money into fintech. 
    Last year, total NBFS balances in Egypt surged 50.2% to
152.2 billion pounds ($9.72 billion), official data showed, as a
young, increasingly tech-savvy population embraces options in
digital finance while a slew of entrants vie for a slice of the
market.
    "You are just scratching the surface. There are still a lot
of people who don't have the products," Moftah said.
    Global Ventures has put over $30 million into Egypt and
could invest between $100 million and $150 million in the
country's fintech space over the next three to four years, he
said.
    The Dubai-based investor has invested in Egyptian fintech
firms such as Paymob and Sympl, which competes against EFG's
valU, the country's leading buy-now pay-later firm. 
    "If you IPO valU after one or two years, given the crazy
valuations of fintech companies, that alone could be worth more
than the whole company itself," said Karim Helal, an Egyptian
investment banker and former CEO of smaller EFG competitor CI
Capital.
    HSBC sees fair value for EFG at 27.9 pounds per share.
    FAB declined to comment beyond its statement on Feb. 9 in
which it said the non-binding offer represents an attractive
liquidity event and a compelling value proposition for EFG's
shareholders. EFG declined to comment on the bid beyond what is
in its stock exchange disclosures.
    EFG has appointed Goldman Sachs to advise on FAB's offer and
will allow FAB to conduct due diligence. After completion and
regulatory approvals, a mandatory tender offer will be made.
    
    'NATIONAL CHAMPION'
    FAB already owns banking licenses in Egypt - its own
subsidiary and the Egyptian unit of Lebanon's Bank Audi, which
it acquired last year. 
    Others have previously targeted stakes in EFG and failed. In
2014, Egypt's Beltone Financial and billionaire Naguib Sawiris
bid for 20% of EFG, offering 16 pounds a share, or $2.24 at the
time, which EFG said undervalued it by 30%. QInvest, backed by
the Qatari government, tried in 2013 to create a joint venture
with EFG Hermes, in which it would then own 60%.
    Egypt's regulator cited QInvest's lack of experience as the
main reason for refusing to approve the joint venture deal.
    "EFG has built a fantastic organisation. Not just in Egypt,
but very strong in the Gulf," investment banker Helal said.
    "They were on the Aramco IPO. That is a very big deal. They
were up there with the big boys ... the Rothschilds and the
Goldmans," he said, referring to the 2019 listing of oil giant
Saudi Aramco  2222.SE , the world's biggest flotation, which
raised $29.4 billion.
    Under Egyptian rules, a party seeking to buy more than a
third of a listed company must make a mandatory tender offer for
all remaining shares, lawyers say.
    With its history deeply linked to the maturing of Egypt's
financial markets, many in the industry including Helal see EFG
Hermes as a home-grown "national champion".
    "To see that acquired by anybody - I don't mean FAB or with
due respect to Abu Dhabi and everything, I don't care who it is,
by any non-Egyptian entity, as an Egyptian it kind of makes me a
bit sad," Helal said.
    

 (Reporting by Yousef Saba in Dubai and Patrick Werr in Cairo;
Additional reporting by Saeed Azhar in Dubai; Editing by Susan
Fenton)
 ((Yousef.Saba@thomsonreuters.com; +971562166204; https://twitter.com/YousefSaba))