x Abu Dhabi, UAEMonday 24 July 2017

Gulf capital hungry for Egypt banks

There are perils aplenty for prospective investors, but post-revolution Egypt is enjoying a gold rush for acquisitions of local businesses.

Protesters gather to demonstrate against President Mohammed Morsi in Tahrir Square. Regional businesses continue to feel the fallout from Egypt's political rivalries. Mahmoud Khaled / AFP
Protesters gather to demonstrate against President Mohammed Morsi in Tahrir Square. Regional businesses continue to feel the fallout from Egypt's political rivalries. Mahmoud Khaled / AFP

There are perils aplenty for prospective investors, but post-revolution Egypt is enjoying a gold rush for acquisitions of local businesses.

Dubai's Emirates NBD became the second foreign lender this month, after Qatar National Bank, to take a slice of the Egyptian banking sector.

Despite the recent buzz in the investment community, however, there are plenty of examples where businesses from the region have suffered big losses from Egypt's Arab Spring disarray.

The Egypt-focused gold miner Centamin has etched losses from a series of strikes, production problems and legal cases, following the ousting of Hosni Mubarak from the presidency. Last week, Centamin's London-listed shares tumbled after facing a dispute with customs over the export of 1.6 tonnes of gold to be sold in the international market.

The price of gold tumbled while the company endured several days of delays before getting the required approvals resulting in a loss of about US$4 million (Dh14.6m).

Shares of Centamin dropped from 52.7 pence to a low of 27.7 pence on Friday. They traded at 43.22 pence after the company offered some reassurance to the market on Monday.

"We expect both fuel supply and normal operations at [the] Sukari [mine] to resume in the coming days, once payment for the latest shipment has been received and working capital in the operation company has subsequently been replenished," Centamin said yesterday.

Closer to home, the Abu Dhabi-listed Dana Gas was forced to restructure its $1 billion convertible sukuk after facing payment delays from Egyptian authorities amid a prolonged battle over payments from Iraqi Kurdistan.

"The Egyptian government in particular made significant efforts to address the backlog of payments due to Dana Gas," the company said in a statement to the Abu Dhabi bourse last month.

Centamin and Dana Gas are good examples of the consequences from the current pitfalls in Egypt, Wadah Al Taha, the chief investment officer at Al Zarooni, an Abu Dhabi investment company, said.

"The Egyptian authorities should put economic interests above all. Right now the economy is chasing the politics.

"They are not trying to adjust their policies for the national interest of their economy, which is going from bad to worse." Emirates NBD, the UAE's biggest lender by assets, will buy France's BNP Paribas operations in Egypt for $500m, the bank confirmed yesterday.

The move follows Qatar National Bank's recent acquisition of Société Générale's Egyptian business for $2bn last week.

The recent flurry of acquisition opportunities in the banking sector are coming for the right reasons, said Kevin Flannery, the general manager of international business at Emirates NBD.

"Egypt is a key economy in the Middle East and we are excited about its prospects going forward," he said. At the same time, the "French banks are struggling at home and looking to sell some of their assets abroad".

Hopefully, he added, the fortunes of banks would improve as opportunity abounded in the financial services sector.

"Changes in investment rules, strikes, and unrest in certain areas have been rampant since the revolution," said Mr Al Taha. "For financial institutions, it's still promising. Egypt's population is very high, of which only 10 per cent have a bank account."

Emirates NBD looked at acquiring assets of BNP Paribas holdings in July, when the French lender announced it was seeking to offload its stake.

"There have been Egyptian banks available for sale over the past few years, but this was the right one for us, it was run professionally," Mr Flannery said.

Asked whether the bank was worried about political headlines, he said Emirates NBD was taking a "long-term view" on its latest investment. "We are not in there for the short term."

Analysts warn, however, that there is no reward without plenty of risk, especially when it comes to Egypt.

"The number one factor is the political environment, which has consequences on the business environment," Mr Al Taha warned.

halsayegh@thenational.ae