Egypt’s Outlook Revised Lower by S&P

Apr 26, 2023

Today’s Top News & Analysis

S&P revises Egypt’s outlook to negative from stable; affirms B rating
Egypt increases its social protection budget to EGP529.7bn for FY24
ACWA Power secures USD123mn to fund solar energy project in Kom Ombo
Chevron to issue a tender for natural gas exploration across Egypt, Cyprus, and Israel
USD1.4bn petrochemical mega projects underway
An Egyptian Indian raw materials drug plant is in plans
ABUK 9M 2022/23: 86% annual growth in bottom line
FAIT Q1 2023: A Q4 2022 replica?
Leadership changes in Alexandria and Damietta Container Handling companies

MACRO

S&P revises Egypt’s outlook to negative from stable; affirms B rating

Standard & Poor’s Global Ratings downgraded Egypt’s outlook to negative from stable and affirmed its B/B long- and short-term ratings. The agency cited Egypt’s growing external and local debt, the slow implementation of the government’s economic reforms, persisting inflationary pressures, and FX illiquidity as drivers. The agency could lower the rating even further if FDIs are more limited than expected. Meanwhile, the rating could be revised to stable if Egypt sees an influx of FX currency through the successful sale of state-owned assets. (Al-Mal)

Egypt increases its social protection budget to EGP529.7bn for FY24

Egypt’s Minister of Finance announced that the overall social protection budget for FY24 will be raised by 48% to EGP529.7bn from EGP358.4bn in FY23. The increased budget allocation is driven by the persisting inflationary pressures that are plaguing the economy. The new budget for FY24 will see EGP127.7bn allocated to food subsidies (vs. EGP90bn in FY23), while EGP119.4bn will be allocated to fuel subsidies. (Bloomberg)

ACWA Power secures USD123mn to fund solar energy project in Kom Ombo

Saudi Arabia’s ACWA Power obtained a USD123mn financing agreement for the development of their solar energy power plant in Kom Ombo, Aswan. The project is said to begin full commercial operation in January 2024 with a capacity of 200MW. Meanwhile, ACWA Power is expected to announce the financial closure of their USD1.5bn wind power plant in Egypt with a 1.1GW capacity within the next two months. (Asharq Business)

Chevron to issue a tender for natural gas exploration across Egypt, Cyprus, and Israel

Chevron is issuing a tender to lease a drilling ship for natural gas exploration to work across Egypt, Cyprus, and Israel, in 2024 for a year with an option to extend. (Reuters)

USD1.4bn petrochemical mega projects underway

The Ministry of Petroleum & Mineral Recourses announced that a number of new petrochemical projects are currently being implemented within the national petrochemical framework with total investments amounting to USD1.4bn.

The details of the projects are as follows:

· The Wood Technology Co.:

o Located in Edku, Beheira.

o Aims to produce 205,000 cubic meters annually of medium-density fiberboards (MDF) from rice straw.

o Owned by the Egyptian Petrochemicals Holding Co. (ECHEM), the Egyptian General Petroleum Corporation (EGPC), Petrojet, and Sidi Kerir Petrochemicals Co. (Sidpec) [SKPC].

o An investment cost of EUR284mn.

o Completion of the initial implementation is currently underway along with the installation of equipment.

· The Egyptian Bioethanol Co.:

o Located in Damietta Port.

o Aims to produce 100,000 tons annually of bioethanol from locally produced molasses.

o 85% owned by the petroleum sector and 15% between Delta Sugar [SUGR], Nobaria Sugar and Refining Co., and Daqahlia Sugar & Refining Co.

o An investment cost of USD112mn.

o Engineering designs are completed and currently awaiting general contractor selection.

· The Suez Methanol Derivatives Co.:

o Aims to produce 21,000 tons annually of 85% concentrated urea formaldehyde, 66,000 tons annually of urea-formaldehyde resins, and 53,000 tons annually of sulfonated naphthalene-formaldehyde, with the possibility of adding up to 42,000 tons annually of specialized urea-formaldehyde resins.

o The project will utilize methanol from Methanex Egypt, urea from MOPCO [MFPC], and caustic soda from the Egyptian Petrochemicals Co. (EPC) in their production.

o 46% owned by ECHEM, 45% owned by local banks and businesses, and 9% through an IPO.

o An investment cost of USD120mn.

· The Egyptian Soda Ash Co.:

o Aims to produce 600,000 tons annually of soda ash, its derivatives, and by-products.

o Ownership includes the Holding Co. for Chemical Industries and ECHEM, as well as, 45% owned by Soda Chemical Industries representing the private sector.

o An investment cost of USD650mn.

o Feasibility studies have concluded and currently awaiting general contractor selection.

· The Alamein Co. for Silicon Products:

o Located in East Qantara.

o The first phase aims to produce 45,000 tons annually of metallic silicon from 130,000 tons of ultra-pure quartz ore.

o The second phase aims will focus on the production of silicones and polysilicon.

o 40% owned by ECHEM and the Egyptian Mineral Resources Authority.

o An investment cost of USD172mn for the first phase.

o Feasibility studies have concluded and currently the implementation of the first phase is being accelerated. (Al-Borsa)

An Egyptian Indian raw materials drug plant is in plans

Reportedly, the Egyptian government is in talks with an unnamed Egyptian private drugs company and Indian companies to establish a raw materials plant for drugs. The plant will be worth USD80mn and is aimed to meet local demand besides boosting the Egyptian exports. (Enterprise)

Corporate

ABUK 9M 2022/23: 86% annual growth in bottom line

Abu Qir Fertilizers [ABUK] published preliminary 9M 2022/23 results, where net earnings surged to EGP12.9bn vs. EGP6.9bn a year earlier. Strong bottom line growth could be attributed to a 44% y/y growth in top line to EGP17.3bn as well as strong FX gains. We note that GPM recorded 62.5% vs. 66.2% a year earlier. Reason for the strong y/y top-line growth could be attributed to higher average urea selling prices, increased efficiency, and a weaker EGP. (Company disclosure)

FAIT Q1 2023: A Q4 2022 replica?

Faisal Islamic Bank of Egypt’s [FAIT] preliminary standalone results for Q1 2023 showed that net income increased by 81% y/y, yet declined 2% q/q, to EGP2.1bn. Meanwhile, net interest income increased 24% q/q to EGP1.4bn (+14% y/y), reflecting higher interest rates. This means the growth in FAIT’s bottom line is attributable to non-interest income, most likely to FX gains in specific like we saw in Q4 2022 in view of the EGP depreciation. The bank’s annualized ROE declined in Q1 2023 to 38%, down from 43% in Q4 2022. FAIT is now traded at an annualized P/E of 2x and a P/BV of 0.7x. (Bank disclosure)

Leadership changes in Alexandria and Damietta Container Handling companies

According to sources, Egypt’s Ministry of Transportation appointed Admiral Alaa Ibrahim as the managing director for Alexandria Container Handling Co. [ALCN] instead of Admiral Yasser Heikal. Moreover, the ministry also appointed Admiral Dr. Mohammed Rafik Galal as the new managing director for Damietta Container Handling Co. [DCCC]. (Al-Mal)