EFG Hermes looks to tap into fast-growing Sub-Saharan Africa

Above, the main offices of EFG Hermes in Cairo. Dana Smillie for The National

EFG Hermes, Egypt’s biggest listed investment bank, is considering an entry into Sub-Saharan Africa to tap demand for private equity and corporate advisory services, the chief executive said.

Growth in Sub-Saharan Africa is forecast to reach 5.75 per cent this year, compared with 5.1 per cent in 2014 because of infrastructure investment, a buoyant services sector and strong agricultural production, according to the IMF.

“One territory that might be on our radar screens going forward is Sub-Saharan Africa but again that is not something that is immediate,” said Karim Awad, the chief executive.

“It is largely an untapped market and there is growing regional as well as international interest in the countries over there.

“There are untapped economies in need of private equity and foreign direct investment, and we think these are good growth markets going forward.”

In 2013 EFG Hermes advised the Dubai-based conglomerate Al Futtaim Group in its first investment in the region.

Al Futtaim took full control of the Nairobi-listed car retailer CMC Holdings for US$86 million. It was also the bank’s first deal in Sub-Saharan Africa.

Arabian Gulf investors are increasing their stakes in Sub-Saharan Africa – one of the world’s fastest-growing regions with rich resources and growing per capita income.

Qatar National Bank, the country’s largest, bought a 23.5 per cent stake in Togo-based Ecobank Transnational. The sovereign wealth fund International Corporation of Dubai bought a 1.4 per cent stake in Nigeria’s Dangote Cement for $300m.

EFG Hermes, which has corporate advisory, brokerage, private equity and research services, is seeking to raise its market share in the Gulf region, particularly in Saudi Arabia, the UAE and Kuwait, said Mr Awad.

The firm is trying to diversify its revenue as much as possible, with almost 70 per cent of revenue coming from non-Egypt operations. It is looking to grow its investment banking business in the Gulf, which accounts for just over 50 per cent from the segment, he said.

“There are a number of ongoing changes taking place in the GCC from the opening up of the Saudi market to foreign investors to a new company law that is coming into effect in the UAE,” said Mr Awad. “All those changes will help grow our business in the GCC going forward.”

The firm is bullish about Egypt, where it plans to start a leasing business, pending approval from the relevant authorities. Opportunities in Egypt are rising with the improvement in the country’s economic outlook.

The IMF, which in October projected growth of 3.5 per cent for the 2014-15 financial year in Egypt, increased its forecast in January by 0.3 of a percentage point because of a strong rebound in the third quarter of last year.

Egypt’s economy grew 2.2 per cent in the 2013-14 financial year.

Lower oil prices could help Egypt, where the government has cut energy subsidies, improved its tax regime, and devalued the Egyptian pound to help attract foreign investments and improve the country’s finances.

Such optimism could result in $1.75 billion worth of initial public offerings taking place this year in Egypt, versus the single $109.4 million flotation of Arabian Cement last year.

EFG Hermes has a “pretty healthy pipeline” of IPO deals in Egypt, but Mr Awad declined to give the number of transactions, or their value.

He expects a slower IPO pipeline in the UAE in the first half of this year, but he also expects a strong flow of mergers and acquisitions in the coming year, both in Egypt and the UAE.

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