| Kippreport.com

A NIFTY EXIT: Qatar brokers and Egypt's EFG Hermes

May 7, 2012 6:45 by kippreport

Qatar has brokered a nifty exit for investors in Egypt’s EFG Hermes. State-backed QInvest has agreed a deal that will allow the Gulf entity to cherry-pick key assets of one of the Middle East’s largest investment banks. The joint venture looks like an elegant way to salvage value from a bank tainted in the aftermath of Egypt’s revolution.

In return for control of the business units, QInvest will inject $250 million into the joint venture upfront and has an option to buy the rest after one year for an additional minimum payment of $165 million.

Qatar isn’t buying EFG’s majority shareholding in commercial bank Credit Libanais. Nor will it take EFG’sprivate equity arm, a stable revenue generator partly owned by Gamal Mubarak, the son of Egypt’s former president.

Although it is hard to pin down the exact value of the deal, it looks like QInvest will get a bargain. Banque Audi reckons that if EFG’s non-operational investments are marked to market, and if the commercial bank is valued at a 25 percent discount to its 2010 acquisition price, EFG’s investment bank would be trading at 3.5 times forecast 2012 earnings – a chunky discount to global investment banks and asset managers trading at 10-to-15 times.

The tie-up will turn Qatar’s fledging investment bank into the top one in the region by footprint and brand. QInvest’s deep pockets remove the need for a commercial bank to help fund operations. And if the value of the joint venture assets increase with a broader recovery in Egyptian markets, QInvest will have to pay a fair market value to buy the rest, subject to an undisclosed cap.

Whatever the fine print, EFG’s dividend starved shareholders – including debt-burdened Dubai Holding, currently owning 18 percent of the bank – will find it hard to resist the chance to cut their losses.

Timeline:

- Egypt’s EFG Hermes said on May 4 it had agreed a joint venture to create a region-wide investment bank with Qatar’s QInvest.

- Under the terms of the deal, EFG will inject its core businesses into a joint venture controlled 60 percent by QInvest and 40 percent owned by EFG Hermes.

- The transaction includes EFG’s brokerage, research, asset management, investment banking and infrastructure businesses.

- EFG’s private equity business and the firm’s majority stake in Credit Libanais will be excluded from the joint venture.

- QInvest will inject $250 million into joint venture and will have the right to buy the remaining 40 percent between 12 and 36 months after the close of the transaction for whichever is higher; $165 million or a fair market valuation subject to an undisclosed cap.

- EFG shareholders will receive a one-off dividend of 4 Egyptian pounds per share following the close of the deal, expected in the third quarter of 2012. The deal requires approval of EFG shareholders and regulators.

- The joint venture will have co-chief executives Karim Awad, head of EFG Investment Banking, and Kashif Siddiqui, head of EFG Asset Management.

- State-backed Qatar Islamic Bank is the single largest shareholder in QInvest.