INTERVIEW: Enmaa's Alaa Rady says crisis took away 'bubble effects'

Alex Dziadosz
10 Min Read

CAIRO: Situated on the seventh floor of a Corniche-side building in Agouza, there is little to distinguish Enmaa Financial Service s office from the apartments next door – apart from a tiny plastic sign above the doorbell.

The wealth consultancy describes itself as a boutique firm, and with just under a dozen staff, it s easy to see why. Despite its size, however, the company has taken on some large work since it was founded in 2007, including advising a headline-snatching $180 million sale of an Orascom company to an Abu Dhabi sovereign wealth fund earlier this year.

Alaa Rady, the company s managing director, sat with Daily News Egypt to talk about his firm s ambitions, its history and the unexpected comfort of being a small company at a time when the behemoths of private equity are tumbling.

Daily News Egypt: What sort of projects has Enmaa worked on?

Alaa Rady: Since we ve started, we ve finished several strategy consulting projects with the American University in Cairo and with several private equity funds in Egypt, and in Saudi Arabia as well with the civil authority for aviation. We re mostly advising them [the Saudi authority] on corporatization projects – how to take some of their current assets or companies and repackage them or corporatize them in a way that they would become separate cost centers, and then help them find public private partnerships to eventually take them over, either through an asset sale or a BOOT [Build, Own, Operate, Transfer] lease contract over a long period.

We ve finished two projects with GACA, the General Authority of Civil Aviation. We are now starting the third project with them. For investment banking, so far, we ve finished three transactions, most notable of which is the sale of a company called OrasInvest. It s in telecom services and infrastructure. It was a $180 million transaction that we sold on behalf of Orascom to ADIC, Abu Dhabi Investment Corporation, a part of ADIA [Abu Dhabi Investment Authority], the largest sovereign wealth fund in the world.

We started in 2007 with a smaller office and three or four people. Now we re developing, so we re around 10 to 12 people, recruiting as we go, opening an office in Saudi Arabia, focusing more and more on Algeria. Those are our three focus markets: Egypt, Algeria and Saudi Arabia.

Where do you recruit?

It depends on the level. For fresh graduates, for example, either through AUC [the American University in Cairo] . or word-of-mouth. Actually, it s funny, from Facebook as well.

We are 10 people, so if we re looking for analysts I can call other investment banks and recruit there. It s a small market so we have very good relationships with all the investment banks. They are all very helpful to us, even passing us a lot of business. In the beginning, we were focusing on medium-sized transactions and none of them were covering that, so we used to get referral business from Beltone, from EFG, from Citadel, from HC, honestly all of them, as well as from consulting companies.

What kind of transaction would, say, EFG pass on, that you might pick up?

Most of them [investment banks] don t take transactions less than LE 300 million, which is $50 to 60 million. Medium starts maybe from $10 million. From $10 to 50 million, that would be medium. Smaller than $10 million is definitely small.

Have you seen a fall in the demand for acquisitions since the financial crisis began?

Cash is still there looking for serious opportunities. Yes, a lot of transactions were hit by the crisis. But in my opinion, the crisis took away a lot of bubble effects. Prices that were not really based on fundamentals and people just wanted to high because of the very high multiples. It took away a lot of that and now people really look at fundamentals when they buy companies or real estate or whatever, which makes our job easier.

Where were the big bubbles in this region, and what sectors are going to be hit hardest?

Real estate was obviously hit in places like Dubai. We haven t yet seen much of a hit in Egypt, but it s going to come, because there s no demand. People are still holding to their prices as long as they can hold back from selling. But once they have to sell, they will have to sell at demand prices.

So, for example, demand totally disappeared in places like Sixth of October and Kattameya and so forth. I m trying to sell real estate personally in both places, and there is zero demand. Zero, as in not one client going to ERA or Coldwell looking for a piece of real estate to buy. I m talking about the past three months.

As long as it s still going down, people are not sure that it s the bottom, they re still afraid to invest, and are still in the wait-and-see moment.

So if some money is still moving, have you noticed a shift in who is buying and who is selling?

Who s selling? Obviously people who are in need of cash. And people who are in need of cash are the people who were highly leveraged, don t have access to bank loans or bank financing. Sectors that need consolidation, people who are worried about the impact of the crisis on their sector, for example in the media sector, the mortgage sector – as we re seeing in Saudi – and banks.

Buyers? People who were more conservative. So those who were preserving cash and now do have cash when most of the rest of the market is out of cash. For example, we still have a lot of healthy Saudi clients. Saudi was more conservative by nature. Specific companies who were conservative in their decisions and were preserving cash are looking for acquisitions as well now.

Governments are investing as well, it s clear. Either in infrastructure or sometimes in acquisitions and so forth. Some of the decisions of the government are for national reasons. And some of them are they have excess cash now and they want to keep the economy moving.

Have any government decisions recently affected you?

Of course. Already in Algeria – though you can t blame everything on the crisis – Algeria recently made a decision to not allow any foreign investors to own more than 51 percent in companies. A decision like that will prevent a lot of foreign investors from investing in Algeria, because they will not have control over their investment. And it was very surprising the Gulf countries have been moving away from this for the past 10 years. It s definitely anti-FDI.

They haven t yet said if it s going to be applicable on previous purchases, but at least going forward. Some very large Egyptian investors, for example, had already invested millions of dollars in Algeria but had not yet established the legal entity. Last minute decision, they stopped, because they didn t want to go in Egypt 51, Algeria 49.

Are there any reforms or regulations you d like to see in Egypt?

At some point I think you should have some sort of sovereign wealth fund in Egypt – and there are discussions, by the way, about an Egyptian sovereign wealth fund – it helps stabilize the economy. A sovereign wealth fund, by definition, is government money and they use in different investments not only to make superior returns, but also to protect the national interest. So they would invest in countries to have mutual relationships and support those countries. It would invest in the local market. For example, if people are pulling out of the stock market very quickly, they could come in to stabilize it.

So they help stabilize the market a little bit and help decrease the impact of speculation in trading in general. So I think that could be one of the things that might be needed at this point.

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