Beltone adopts plan to expand investment banking, asset management in Arab markets: Chairman

Daily News Egypt
22 Min Read

By Mohamed Ahmed

Beltone Financial Holding has adopted a comprehensive expansion plan in terms of current financial activities, in parallel with adding new activities.

Chairman of Beltone, Alaa Saba, revealed in an interview with Daily News Egypt the main features of the company’s expansion plan in investment banking abroad.

This is set to occur after the bank won the first consulting process between external parties in a banking sector acquisition deal, in addition to the expansion of asset management in Dubai after registering the documents of Beltone indicators fund, XT-Misr.

This move coincides with the company’s preparation to export funds management services through establishing a new company in partnership with local institutions and branches of foreign companies.

What are the most prominent features of Beltone’s current strategy until 2016?

Beltone adopts two parallel schemes: the first is related to expansion plans in the domestic market in various sectors, especially investment banking, which awaits a real boom in light of the growth of such activities in Egypt. The market has witnessed significant operations in terms of propositions or merger and acquisition operations, which created good opportunities to attract foreign investments.

There are also new financing activities that Beltone is studying adding to keep up with the development of the financial services sector, to take advantage of the high demand for financing resources in the domestic market in favour of institutions and individuals. For the foreign market, there is a major shift in Beltone’s strategy, as it implements for the first time an acquisition deal between external parties away from the Egyptian market, in conjunction with the company’s willingness to provide asset management services in the Arab markets and to launch funds activity there.

Can you elaborate on the operations assigned to the investment banking team in the company?

Beltone is working on seven large deals in both domestic and foreign markets during the fourth quarter (Q4) of 2015 until Q1 of 2016. They include working as a financial advisor at a foreign financial services company aiming to enter the field of financial services in Egypt, through seizing a local company. This is as it prefers to develop an existing entity rather than establishing a new one, as it may take a longer time to gather a team and form an operations portfolio.

Additionally, Beltone is now arranging an acquisition deal in the same sector for the benefit of a direct investment company, in parallel with working as a financial advisor for a financial services company that is looking for a buyer to acquire it. This reflects the activity witnessed in the financial services market.

At the same time, Beltone assumes responsibility for managing two acquisition processes in the consumption sector: the first is to increase the capital of a consumer company in terms of its negotiations to acquire another local company. The other deal is related to an Egyptian consumer company in which shareholders aim to sell their shares, and Beltone has already begun receiving purchase offers from foreign investors.

Beltone is also examining one of the information technology companies that another IT company targets to acquire. The new development of the investment banking strategy in the company is assuming the responsibility of managing an acquisition deal by an Arab bank of another bank outside the Egyptian market for the first time, in a move that will open new horizons for Beltone in the region.

What about the proposals to be implemented by Beltone?

The company awaits new proposals, but we cannot unveil them until the signing of contracts, especially as the companies may change their mind after offering proposals. This occurred with one of the customers who had commissioned Beltone to arrange a public offering of shares, before he received an offer from a direct investment company and completed the acquisition process of the company’s share through a private proposition.

There have been four proposals announced by the company: they are Beltone Capital, Al-Ismailia for Real Estate Investment, Giza Systems, and Advanced Energy Systems (Ades). What are the latest developments in these propositions?

Ades, targeting collecting $150m through public offerings, did well in the stock market enrolment procedures in preparation for the offering during the next six months. Following the completion of its registration procedures, Beltone Capital is currently waiting for the end of the summer season, as the boards of world institutions rarely convene during this time because of vacation trips, to begin its promotion campaign in the European, US and Gulf markets.

Al-Ismailia for Real Estate Investment decided to postpone the offering of its shares on the stock market, due to the radical developments in the activity of the company, which would raise its assessment. The government’s eradicating of illegal occupancies in the Downtown area has enabled the company to get permits for the renovation and restoration of buildings it owns in the region, especially as it coincides with the renovation of other buildings in the region. This fundamental change that has been seen in the region led to more offers received by Al-Ismailia, asking to rent its buildings, which will improve the revenues flow, as there is a possibility of renting an entire building to a single tenant who may use it for opening administrative offices and shops.

In general, the offering will aim to add EGP 400m to increase the capital from EGP 375m to EGP 775m. For Giza systems, I prefer to allow Beltone Capital to speak about it, as it owns 60% of it, although the company’s offering procedures are not related to the times of offering Beltone Capital’s shares.

The most noticeable aspect is that among these four propositions, Beltone owns shares in three of them, which increases its chances to gain these propositions. So where is Beltone regarding the propositions witnessed in the stock market in FY 2014/2015?

There are propositions being arranged by Beltone, but we cannot unveil them. There is also a critical aspect that should be noted which is, in spite of the Egyptian stock market’s need for new propositions, it currently does not provide a favourable environment for the success of propositions. This is due to the exit of a number of institutions from the market, which increased individual investors’ share of trading volumes. Perhaps the individuals’ domination over the market in the shadows of the institutions’ exit largely explains the lack of success of some of the propositions the market witnessed in 2015, not to mention the acute reaction experienced by the stock market following the outbreak of international crises, such as Greece or the decline in the Chinese yuan.

It is also unimaginable that the market would go up for only one session after the announcement of the largest gas field in Egypt, which will change the entire development of the economy, then on the next day we find that the market withdraws for no reason. The government must discuss with the stock exchange how to attract institutions again.

Minister of Supply Khaled Hanafy announced the assignment of the Food Industries Holding Company (FIHC) file to Beltone. What are the latest developments in this file?

We are conducting consultations with the ministry and FIHC about the ways of offering, in order to increase the latter’s capital and restructure the company in the context of preparations of the file’s offering. We are well aware that this offering will take a lot of time, and we are known to be patient.

What are the offered models to restructure the 48 subsidiary companies in several areas, including sugar, oil, paper, rice mills, food marketing and package manufacturing?

The offered models are varied, but there is a main unified goal, which is utilising all unused assets, and putting forth a specific plan to reform the structure of companies facing operational or financial problems. Partnership fields between subsidiaries will be one of the scenarios for utilising unused assets. There is also the possibility of the FIHC injecting direct liquidity into troubled companies’ financial structures, and companies that have assets that are not utilised.

Wouldn’t it have been better to offer subsidiary companies, or even merge those operating in one sector, and sell their shares, instead of offering the FIHC, which includes poor-performance companies that may affect the attractiveness of the offering?

I’ve stressed that the company’s offering requires patience, and we are ready for this. But in the end, I imagine that the results would be better than the case where a group of companies merge together, because then we will have to enter into a long tunnel of procedures. Also, offering a large entity that includes a portfolio of diversified companies in terms of activities and operational and financial performance brings a package of benefits, most prominently not limiting offering to successful governmental companies and holding the government alone responsible for the development tasks for troubled companies or those of poor performance. Offering the companies’ portfolio all at once means that the FIHC can direct the liquidity it obtains from the offering of companies to restructuring or utilising assets.

What is more important before the offering is for the FIHC to announce a clear plan for development works, as well as making prior decisions regarding subsidiaries that may receive liquidity. This step will decrease the concerns about the company’s evaluation dropping, or the size of demand on the evaluation, due to a deficiency in the utilisation of assets. The other feature is represented in the two phases of offering and trading together on the stock. The larger the traded shares and the offered company are, the more room there will be for access to the various categories of investors, regardless of the size of the enterprise or individual portfolio. For example, if there were shares offered for billions, this means that the institution that invests EGP 100m can buy and sell shares with flexibility. The same goes for individuals who invest EGP 10,000. This wide base of diverse investors will not be achieved if the size of the offering or the company is limited.

What are the latest developments in the logistics centre for storage and trading of grain in Damietta?

It is better that the government discusses this file. There are Emirati, Saudi and Indian investors interested in investing in the project.

Beltone recently expanded in offering governmental projects. Do you fear that the governmental bureaucracy and confusion that accompanies the implementation of projects will negatively impact Beltone’s name in the market?

Beltone has made its name in Egypt, not in foreign markets, therefore, the institution’s success and the country’s economic performance can’t be separated, especially as when the market recovers, the company will benefit, like other institutions.

Also, the more risks there are, the more privileges there will be when these projects succeed. It must be stressed that building strong relationships in governmental projects creates confidence in the advice we offer to develop economic performance.

Is there cooperation with the government in the development of the Suez Canal Axis project?

There are calls within government agencies regarding the proposed mechanisms to offer the main Suez Canal projects, but negotiations did not reach the assigning of any projects to the company as a financial consultant.

What are the features of Beltone’s plan for the assets management sector?

Beltone is preparing to launch a range of new investment funds with new ideas, similarly to the experience offered by the company in the field indicators funds. The EGX still has large opportunities to receive more funds that cover new fields, especially as the size of investments of the assets management sector is limited compared to the size of deposits and savings in the Egyptian market.

For example, years ago, pension investment funds appeared, where a radical shift occurred in investing money allocated for pensions. Governments or companies used insurance money throughout the duration of the employee’s work, in exchange for a certain percentage of the last salary before retirement. Now employees have the right to determine the percentage withheld, and invest it in a variety of funds, whether in cash or in shares or fixed income tools. The value of the pension is determined based on the revenues obtained throughout the investment period.

This type of fund will make a radical change in the activity of managing assets, as it offers many advantages, most prominently the employee’s ability to determine the withheld percentage. This means that in the case of the achievement of good revenues, the investment rate may increase. Also, investments move with the employee when he is moved from one job to another. The withheld insurance share is determined by the employee himself and not the employer; moreover, this allows the employee to freely choose the investment fund, taking the burden of investing insurance money and the risks involved off the governments’ shoulders.

What are the chances of reviving the Beltone-Acumen real estate fund after delaying the capital profits tax for two years?

The chances are still weak, because obstacles are not just the capital gains tax. There are a large number of obstacles in taxes and expenses that may decrease revenues from 17% or 18% to 7%, for example, which makes them lose their investment feasibility. This, in turn, leads to pushing investors towards directly buying a real estate unit, causing them to lose the advantage of the diversity in the real estate portfolio achieved by the fund in order to reduce risks.

As for small investors, they will not be able to invest mainly in real estate, unlike what investment documents could provide to them. The state needs to look to reducing its expenses mechanism, because all other investment factors are complete, whether it’s the presence of real estate projects offered in the market or a passionate interest from banks and companies to launch real estate funds. The same goes for investment managers. There is also attention from investors in the light of the leap achieved by real estate over the past few years.

Criticism was directed towards Beltone’s indicators fund, XT-Misr, at the beginning, claiming that it does not match with the indicator, and the fund’s documents decreased with the decline of the market. How do you evaluate this experience?

I’m very satisfied with the performance of the fund. Of course I wish the market could rise so the documents could rise as well, but in the end, its duty is to keep up with the market’s main indicator.

There are two factors determining the quality of the fund. The first confirms to what extent it matches the performance of the index. Now, there is a match with the movement of EGX30.

The second factor is the technical side of the market-maker. The technical system of the fund operates better, as long as market-makers enable investors to enter and exit the market freely within the specified pricing margin compared to shares of the index.

After obtaining a market-maker licence in NASDAQ Dubai, what is Beltone’s market strategy?

We now operate as a market-maker on all shares. We are moving forward in communications with NASDAQ Dubai to record Beltone’s indicators fund’s documents, XT-Misr, to expand the scope of the market-maker. After evaluating the experience, there will be room for expansion in the asset management activity in Dubai by introducing new ideas.

Why is Beltone moving to establish a new facilities management company when it has an existing company?

The company reached an agreement with local institutions, as well as other ones affiliated with foreign institutions, to contribute to the company. This is because it is in the process of ending the regulatory approvals, because the law limits Beltone’s share to 20% of the ownership structure, so that it could administrate the management of funds. The main objective of the company is to export funds management services to Arab markets, where this service can be provided from the headquarters without having to open branches abroad.

How will the company employ the proceeds of the EGP 200m capital increase?

There are three main aspects to the company’s plan. The first is financing the acquisition of the Skidmore Fund’s share of 51% from Beltone Information Technology for EGP 77.57m. This acquisition has been planned since 2012, when Beltone Financial decided to reduce its stake in brokerage activity due to the expectations of a slowdown in activity. Compass Capital, which manages Skidmore, preferred to temporarily purchase a share by increasing the capital to EGP 60m, and then sell it back to Beltone after a specific period of time.

The second aspect is supporting brokerage and asset management activities with new liquidity. The company seeks to focus on attracting a segment of individual investors in light of the control of the institutions on its customer base. This will be achieved through the development of new trading means, in addition to expanding in the market-maker activity. This coincides with the provision of money fund for the investment funds, which will be launched by the company.

The third aspect is focusing on the expansion of the non-banking financial services. The company has started communications with the Egyptian Financial Supervisory Authority for the establishment of the real estate finance company, which the committee has taken the decision to establish with a capital of EGP 50m. This comes as a first step in the path of adding other financing activities.


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