Qatar play for EFG Hermes stokes backlash in Egypt

Qatar play for EFG Hermes stokes backlash in Egypt

The Gulf emirate's play for key assets of the region's preeminent investment bank has prompted a rival consortium, notably backed by billionaire Naguib Sawiris, to declare an interest in buying it outright. The Qatari deal was approved last week by shareholders, but in the current volatile situation anything can happen.

June 6, 2012 7:12 by Reuters

Qatar’s move on EFG Hermes is provoking a backlash. The Gulf emirate’s play for key assets of the region’s preeminent investment bank has prompted a rival consortium, notably backed by billionaire Naguib Sawiris, to declare an interest in buying it outright. The Qatari deal was approved last week by shareholders, but in the current volatile situation anything can happen.

The possible bidding war highlights the rising Egyptian concerns over the country’s financial relations with Qatar. The rival Planet consortium promises to “prevent the breakup of a flagship Egyptian multinational” and is counting on regulatory intervention.

EFG shareholders support the deal that will give state-backed QInvest control of 60 percent of the firm’s investment banking business, with an option to buy the rest. That prevents EFG opening its books to Planet, which wants to see them before launching a formal bid. So far its mooted offer, at a 23 percent premium to the last closing price, still undervalues the bank.

Unless the regulator disagrees with the valuation of the QInvest deal, or minority shareholders challenge it, lawyers say there is no legal basis to stop the EFG tie-up with Qatar. Yet in Egypt’s fast changing political environment, and considering this would be the country’s first hostile takeover, people close to the bank concede anything could happen.

Planet’s pledges to keep EFG whole, and Egyptian, play into wider fears over Qatar’s influence in post-Mubarak Egypt. EFG’s co-chief executives were known to be close to the former regime, and they face accusations of illegal share dealing. Qatar, on the other hand, has noticeable ties to the Muslim Brotherhood, which dominates parliament and has a strong chance of taking the presidency.

The stakes for Egypt are high. Qatar has provided $500 million of budgetary aid to Cairo. It says it is prepared to invest up to $10 billion into all types of projects, including a stake in a new $9 billion port near the strategic Suez Canal. This has prompted rival presidential candidate Ahmed Shafiq, a former Mubarak prime minister, to pledge to “defend the Suez Canal, which others want to give to foreigners”. Either way, Egypt badly needs investment.

EFG’s deal with Qatar looked like a deliberate political re-alignment of the bank in the absence of other options. There might still be another, Egyptian, way out.

CONTEXT NEWS

- Egyptian billionaire Naguib Sawiris doesn’t plan to withdraw his support of an attempted buy-out of investment bank EFG Hermes, the head of the bid’s consortium said on June 6.

- An EFG source told Reuters earlier that Sawiris would step aside because EFG shareholders had backed an alternative tie-up with Qatar’s QInvest.

- EFG shareholders approved the QInvest deal on June 3. A deal was agreed on May 4. Talks between the two sides over an alliance were first announced in March.

- Last week, before EFG shareholders voted, Planet announced interest in launching a bid for the whole at a price of EGP13.50 per share pending access to the bank’s books. Planet says it will offer EFG shareholders a cash exit or opportunity to roll over their existing shares into the new entity.

- The Planet consortium is led by veteran local businessmen including Ahmed El Houssieny a former board member of Egyptian private equity firm Citadel Capital, Mahmoud Abdel Latif, the former chairman of Bank of Alexandria, and Mona Yassine, the first chairperson of the Egyptian Competition Authority.

- The financial backers of Planet include Egypt’s Sawiris and top Gulf investors from the UAE and Bahrain.

- The QInvest tie-up would give the sovereign backed firm 60 percent of EFG’s main investment banking operation with the option to buy out the rest over a period between one and three years.

- Reuters: Buy-out group says Sawiris still backs EFG bid

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(Editing by Pierre Briançon and David Evans)