Fundamental Thoughts
Welcome back from a long weekend that was worth taking following the major actions seen in the market just as we were putting our feet back into the water for the New Year. After only four trading sessions into 2023, EGX 30 is up 9.6% ytd, crossing the 16,000 mark for the first time since early 2018 (almost five years ago!), while EGX 70 EWI is up 4.3% ytd, albeit still shy of the 3,000 mark. As we alluded to last Thursday, the picture is totally different when converting such performance back into USD terms which rose simultaneously by 9.7% ytd to EGP27.12 (the mid-point between the buy and sell prices posted on the Central Bank of Egypt’s website), which also means the EGP weakened 8.8% ytd. So, the EGX 30 USD index was basically flat ytd, which might explain why foreign investors have been net sellers since the start of the year. On the other hand, having been net buyers in the first three days of the year, Egyptian institutions ended Thursday as net sellers along with Egyptian individuals who have been net sellers every day since the start of the year. Alternatively, Arab investors were overall net buyers with institutional buying. The good thing is the resurgence of trading liquidity in the market, with a daily average of c.EGP2.5bn ytd after hitting a high of EGP3.1bn last Thursday alone.
For this week, we think investors will look out for Egypt’s December 2022 headline inflation reading (scheduled to be released tomorrow morning), for which we pencil in a 19% y/y jump in CPI, up from 18.7% in November 2022.
— Amr Hussein Elalfy, MBA, CFA | Head of Research
Today’s Top News & Analysis
NBE and Banque Misr let importers access USD, borrow USD705mn, and collect EGP119bn
Egypt's medical and pharmaceutical exports reach USD883mn
Egypt expects growth in its natural gas production capabilities
GASC launches an international fresh wheat tender
Mild winter in Europe causes natural gas prices to slump
Crude oil prices slipped 8% for the week
Egypt's Eurobond yields decline on higher demand, and USD/EGP NDFs follows
CIB to increase its paid-in capital by EGP165mn
NIB fully exits its stake in ADIB Egypt
EIPICO's EGP814mn paid-in capital increase cleared by the FRA
Arab Cotton reports wider preliminary losses in Q1 2022/23
MACRO
NBE and Banque Misr let importers access USD, borrow USD705mn, and collect EGP119bn
National Bank of Egypt (NBE) and Banque Misr, the two largest state-owned banks, are reportedly starting to enable importers to access USD gradually. This comes after the EGP dropped 6.4% last Wednesday, marking the first time in a while that banks release some USD liquidity.
On a different note, both banks borrowed a total of USD705mn to cover the foreign currency demand gap, according to unofficial sources. Banque Misr borrowed USD300mn for 7 years from African Development Bank, and NBE borrowed USD405mn for 3 years from various GCC and international banks, including Mashreq Bank, Doha Bank, Emirates NBD, First Abu Dhabi Bank, Standard Chartered, and Japan’s Sumitomo Mitsui Banking Corporation.
Meanwhile, both banks reportedly accepted EGP119bn in their recently-introduced high-yield 25% p.a., including EGP80bn at NBE and EGP39bn at Banque Misr. Of those funds, 50% came from the redemption of previous CDs, and 50% were transferred from other banks, cash deposits, and FX conversion. (Asharq Business, Alarabiya, ON)
Egypt's medical and pharmaceutical exports reach USD883mn
Medical and pharmaceutical exports grew to USD883mn in 11M 2022 (+45% y/y), mainly driven by growth in cosmetics recording USD558mn (+108% y/y). (Mubasher)
Egypt expects growth in its natural gas production capabilities
In an interview with Al-Sharq TV program “Taqa +”, Vice President of the Egyptian Natural Gas Holding Company (EGAS) discussed Egypt’s future expectations of natural gas production, with the following key highlights:
· The Ministry of Petroleum & Mineral Resources plans to drill 16 new wells in FY23 and 45 new wells in FY24-FY26.
· These new wells have been found, thanks to the 45 agreements the ministry signed for gas exploration in the Mediterranean.
· Egypt’s natural gas exports grew 140% y/y to USD8.4bn in 2022 compared to USD3.5bn in 2021, driven by higher global prices and a 14% increase in Egypt’s natural gas production to 50mn tons.
· Egypt currently operates two natural gas liquefaction plants with a combined production capacity of 2.1bn cubic feet per day (cfpd).
· If the quantities of natural gas extracted from the new wells exceed the current liquefaction capabilities then new liquefaction plants will be built. (Asharq Business)
GASC launches an international fresh wheat tender
The General Authority for Supply Commodities (GASC) launched an international tender to buy 30,000-60,000 tons of wheat on a cost and freight basis for February delivery. The purchase will be financed by a portion of USD500mn loan that the World Bank has agreed to provide. (GASC)
Mild winter in Europe causes natural gas prices to slump
Natural gas prices across Europe have continued to decline for the fourth consecutive week. Natural gas future contracts in Holland for the near term dropped by 4% to settle at EUR69.53/MWh, recording a weekly decline of 8.9% as UK future contracts continued to deteriorate as well. The warmer-than-expected winter conditions have helped ease the energy crisis that befell Europe as a result of the Russia-Ukraine war. However, winter has just begun, so it could get a lot colder and natural gas prices are still very sensitive to any supply chain shocks that may occur. (Asharq Business)
Crude oil prices slipped 8% for the week
Brent oil futures dropped by 0.2% to USD78.57/bbl, while US crude oil futures rose by 0.1% to reach USD73.77 on Friday. However, both Brent and US crude oil declined by more than 8% for the week, the biggest weekly decline in oil prices at the start of a new year since 2016. (CNBC Arabia)
Egypt's Eurobond yields decline on higher demand, and USD/EGP NDFs follows
The yield on Egypt’s Eurobonds that mature in January 2025 declined to 9.1% compared to 12.1% in June. Meanwhile, the yield of long-term bonds declined to 13.1% from 14.3%. This reflects stronger demand for the sovereign bonds. Meanwhile, the one-year USD/EGP Non-Deliverable Forward (NDF) also declined to EGP30.5-30.9 from EGP32.6-33.1 after the CBE went for a more flexible FX regime. (Al-Borsa)
CORPORATE
CIB to increase its paid-in capital by EGP165mn
Commercial International Bank - Egypt [COMI] submitted documents to increase its paid-in capital by EGP165mn to EGP30bn, at par value of EGP10, as a part of the bank's employee incentive program. (Company disclosure)
NIB fully exits its stake in ADIB Egypt
Having decreased its stake from 10% to 2.4% last month, National Investment Bank (NIB) has fully exited its stake in Abu Dhabi Islamic Bank - Egypt ADIB] by selling the remaining 9.6mn shares to ADIB’s parent bank Abu Dhabi Islamic Bank - UAE [ADX: ADIB] which in turn increased its stake to 52.607%. (Company disclosure 1, 2)
EIPICO's EGP814mn paid-in capital increase cleared by the FRA
EIPICO [PHAR] will now proceed with its EGP814mn capital increase through a rights issue, offering 14,875,575 new shares at a fair value of EGP54.72/share (a par value of EGP10/share + an issuance premium of EGP44.72/share), which is 41% higher than PHAR's last market price. Earlier in November 2022, PHAR’s BoD had agreed to increase paid-in capital by 15% to EGP1.14bn. Proceeds from the capital increase are earmarked to finance EIPICO III facility, maintaining PHAR’s capital structure and credit profile, support its working capital, and support profitability by reducing the cost of finance. (FRA)
Arab Cotton reports wider preliminary losses in Q1 2022/23
Arab Cotton Ginning Co. [ACGC] reported Q1 2022/23 net losses of EGP8.5mn compared to EGP0.4mn despite higher revenues of EGP231mn (+25% y/y). The loss was due to pressured gross profit margin to 14% (-7pp y/y). (Company disclosure)
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