By Mahmoud Al-Qasas
White marble and transparent glass cover the interior of EFG-Hermes Investment Bank’s facilities, extending to the office of CEO Karim Awad. The building’s décor calls forth reflections on the steadfastness of the current generation, the youth that dominate executive management in the midst of the economic and political storms Egypt and the Arab world have experienced in recent years. Most institutions have not been spared from the direct and indirect effects of these occurrences, Hermes included.
Over these troubled years, Hermes has worked to build an institution capable of growing and generating opportunities through a clear vision for a regional investment bank.
Hermes Holding will be hosting a conference on September 15-17 in London in which a variety of companies registered on the stock market are set to participate. Arab companies participating in the conference number 71, including 26 Egyptian companies and 117 international financial institutions worth $8tn.
Awad revealed in an interview with Al-Borsa that Egyptian companies that are not registered on the stock market will participate for the first time in order to discuss opportunities and opinions of global financial institutions toward the Egyptian economy. They will also discuss visions for their companies, growth and expansion opportunities through IPOs, and the extent to which global investors are interested in the market and Egyptian companies.
Awad explained that this is the first time in which non-registered companies will participate in company activities following the return of the tender market at the local and regional level. Economic and political conditions have improved with the advent of a new era of stability, and the company has held major conferences over the past four years.
Awad believes that foreign institutions’ visions toward Egypt’s economy have changed dramatically following the emergence of signs of improvement and measures taken to address problems like reducing petroleum product subsidies. Another important factor is the approval of a value-added law that, if passed, will establish a timeline for electricity prices.
What investors need now are new success stories, Awad said, as well as companies capable of supplying large investments. He pointed out that his company is currently working on six major tender projects ranging from a minimum value of $80m to $300m-400m. He expects that the first tender will be completed before the end of 2014 or the beginning of 2015 and will be awarded to a company operating in the foodstuffs sector.
He said that companies are working to cope with the requirements for registering on the Egyptian Exchange which require maintenance of 65% of shares for a period of two years, a regulation inconsistent with the desire to expand the size of the market and representing a barrier for some companies to head in the direction of an IPO.
He hopes that this rate will be amended during the first review of new registration rules, pointing to the crucial role for market development and continuous consultation with market employees and professional associations.
Awad added that over the past four years the financial market has only seen three major tenders worth $80m from Amer Group, Juhayna, and Arabian Cement last May.
The past four years have witnessed a number of high-profile market exits, including OG, Mobinil, OCI, and National Societe Generale Bank with capital exceeding $12bn.
Awad objected to obliging companies to act on treasury shares during the year either by selling or writing them off, pointing out that the Hermes Board of Directors preferred to maintain Treasury shares purchased last January by selling EFG Hermes IB LTD, owned by the company in full, in light of the opinion that retention was worth more than selling at the moment.
The company purchased 39.675 million of its own shares at a price of EGP 11 last January, representing 6% of the company’s capital which totals EGP 425m.
Awad said that the company still has three months to make the appropriate decision for acting on these shares, and the company will adhere to laws and regulations in force.
Regarding the company’s strategic plan, Awad pointed out that the board noted an increase in operational costs for 2013 in addition to a decline in company shares to EGP 6.81. This does not reflect the reality of the company nor its size, which prompted the Board to adopt a strategy based on coercing investment bank costs worth EGP 500m to continue to achieve profits in light of difficult financial market circumstances, in addition to disposing investments that were not crucial to the company.
Since Hermes’ share in SODIC was limited to one, the company sold a portion of its stake to achieve a higher return while improving the status of the market.
The company sold 14% of SODIC capital to America’s Ripplewood last March in a deal worth EGP 240m and Giza Drug Company in a deal worth EGP 60m.
He added that after the company was able to implement the first part of its strategy last March, the Board of Directors presented a plan to expand through five main axes. The first component of the plan involves non-banking financing activities for individuals and SMEs through financial services activities such as leasing or acquiring existing companies and founding new companies. These activities are expected to prompt significant growth over the coming years.
The second portion of the strategy depends on establishing a greater presence in the markets in which the company already operates, most notably Saudi Arabia, the United Arab Emirates, Jordan, Oman, and Kuwait.
Awad said the Saudi Arabian government recently issued a decision to increase rates of foreign ownership for Saudi companies last July and is expected to be implemented within 6-9 months.
The company is also considering expanding in asset management by creating three new funds in Egypt in addition to one in Saudi Arabia and others in the UAE.
Awad revealed that the company is considering expanding info East Africa and is “considering creating a presence in Africa in 2015.”
Awad said that African markets were still emerging in light of a lack of competition within the markets, and the company is studying a number of investment opportunities there. He stressed that Africa has attracted the attention of many Arab and foreign investors.
He also explained that regional economic difficulties have greatly impacted Credit Libanais operations, of which the company owns 61%. He pointed out that the political situation in Lebanon negatively impacted bank business as well as associated operations in Iraq where the bank has three branches. Credit Libanais has another branch in Senegal which is the most stable of the three countries, and the company expects good returns on profits there this year.
Regarding Credit Libanais’ classification from the perspective of Hermes, Awad said that it was an investment although not a strategic one. He said that the company is not obliged to sell the bank at this time in light of the political turmoil that will affect the evaluation in addition to the fact that it still generates revenues and dividends for the company. If offers are received, they will certainly be examined, especially in light of the company’s strategy to maximise returns for shareholders Awad concluded.