The US$35bn Ras El-Hekma Deal: A Boon For These Listed Firms?

Egypt's infrastructure and financial firms are likely to be big winners from the development, offering stock investors compelling long-term ROI.

The Ras el-Hekma development Photo credit: Egypt’s Ministry of Housing

The news last month that Egypt had signed a US$35bn deal with the United Arab Emirates on the Ras El-Hekma real estate development, lifted Egypt’s equity markets. The project, which entails total investments of US$150bn, was hailed as “a macro turnaround” by CI Capital, a financial services firm based in Sheikh Zayed City.

Over the last few years, Egypt’s economy has faltered under the pressure of significant macroeconomic headwinds. The country’s tourism sector suffered during the Covid pandemic. As one of the world’s largest wheat importers, the Russian invasion of Ukraine sent its inflation soaring. And in late 2023, the Israel-Hamas war destabilised regional trade. In January 2024, it was reported that revenue from the Suez Canal trade route fell 40% compared to the same period the year before.

Wild currency swings, spiralling inflation, and difficulty with repaying its debts, led Egypt to seek help from the International Monetary Fund. In December 2022, the IMF approved a US$3bn support package. It is hoped an additional US$8bn will be agreed upon soon. A programme of privatisation is also underway to shore up government finances with several state-owned enterprises being lined up for sale.

The Ras El-Hekma deal with the UAE would be remarkable under any circumstances but given Egypt’s troubled recent history, the timing and scale of the agreement is significant.

In a note to investors, analysts at CI Capital said, “The project entails total investments of US$150bn and an upfront payment of US$35bn. The upfront payment will be made in two tranches, the first is US$15bn, paid in one week [of the announcement], including US$10bn liquidity injection and US$5bn conversion of deposits at the Central Bank of Egypt (CBE). The second is US$20bn, paid within two months, including US$14bn liquidity injection and US$6bn conversion of deposit at the CBE. Egypt will receive 35% of project profits.”

The Egyptian government, in collaboration with UN-Habitat, plans “to achieve a qualitative transformation in the spatial planning of new resilient cities in Egypt.” This shift will go “beyond attracting investors, tourists and residents, and seeks to achieve a new level of sustainable environmental-based development principles, which will be a catalyst for the development in the North Coast region throughout the year.”

Spanning over 170 km2, Ras El-Hekma will comprise mainly of tourism amenities, a free zone, and an investment zone combining, among other things, residential, commercial, and recreational spaces with seamless connectivity domestically and internationally. Work is expected to commence in early 2025.

Egypt's infrastructure and financial firms are likely to be big winners from the Ras El-Hekma development, offering stock investors compelling long-term returns on investment. Below, we highlight five companies that are worth watching in light of recent developments:

• Three of the five companies focus on core infrastructure 

• They're all in the top 30 of Egypt’s largest listed firms

• They've all seen their share prices rise over the last 12 months

• All have market caps over US$600mn 

1. E-finance for Digital and Financial Investments (EFIH:EGX)

eFinance Investment Group is a holding company that owns and operates in the fields of finance, digital payments, business process outsourcing (BPO), and point of sale (POS) systems. Founded in 2005, it owns a diversified portfolio of subsidiaries and investments offering customers an array of digital services.

Top shareholders in eFinance Investment Group include the Saudi Egyptian Investment Company (25.0%), National Investment Bank (21.8%), Banque Misr (6.7%), National Bank of Egypt (6.7%), Egyptian Banks Company (6.7%), and the Egyptian Company for Investment Projects (6.7%).

2. EFG Holding SAE (HRHO:EGX)

EFG Holding is one of Egypt’s largest financial firms. The group operates across commercial banking, investment banking, stock brokerage, asset management, private equity, insurance, factoring & leasing, financial technology, e-payments, and more.

EFG Corp-Solutions, one of its subsidiaries, provides businesses with financial leasing, funding for assets they would like to own in the long-run. In 3Q23, corporate clients accounted for 49% of “on-books outstanding portfolios” while SMEs accounted for 21%. Real estate clients account for half of EFG Corp-Solutions’ portfolio distribution.

Top shareholders in EFG Holding Group include DF EFG3 Limited, Natixis SA (12.26%), Rimco EGT Investment LLC (9.40%), Bank of New York Mellon (8.04%), Social Insurance Fund for Governmental Sector Workers (5.62%), EFG Hermes ESOP Program (5.21%). 

3. Elsewedy Electric Company (SWDY:EGX)

Elsewedy Electric Company is an Egyptian engineering household name. Founded in 1938 by the Elsewedy family and still majority-owned by them, the firm is an all-in-one integrated Engineering, Procurement & Construction (EPC) service, enabling it to deliver complex turnkey projects.

Top shareholders in Elsewedy Electric Company include Sadek El Sewedy (25.18%), Ahmed El Sewedy (25.16%), Mohammed El Sewedy (17.76%), Mazi Asset Management (0.2027%), Investec Asset Management (0.1890%), Amundi (0.1744%), Silk Invest (0.1126%), and Azimut Capital Management (0.949%).

4. Talaat Moustafa Holding Group (TMGH:EGX)

Talaat Moustafa Group Holding is a real estate developer. The company builds hotels, touristic and residential projects in Egypt. Its portfolio includes the Nile Plaza in Cairo, San Stefano in Alexandria, and the Four Seasons in Sharm El-Sheikh. The company has a number of subsidiaries — Arab Company for Projects and Urban Development, Alexandria Real Estate Investment Company, San Stefano Real Estate Investment Company and Alexandria Company for Urban Projects.

Top shareholders in Talaat Moustafa Holding Group include TMG for Real Estate & Tourism Investment Company (43.16%), Alexandria Construction Company (8.034%), Rimco EGT Investment LLC (6.729%), and EFG-Hermes UAE Ltd (1.983%).

5. Telecom Egypt Company (ETEL:EGX)

State-owned Telecom Egypt has been in existence for over 160 years. It offers the Egyptian telecom market fixed and mobile voice and data services as well as advanced technology, infrastructure solutions, and the widest network of submarine cables. The company also owns a 45% stake in Vodafone Egypt.

Top shareholders in Telecom Egypt include the Egyptian government (80%), AllianceBernstein Ltd (0.1266%), EFG-Hermes Asset Management SAE (0.1245%), Azimut Capital Management SGR SpA (0.1050%), Sanlam Investment Management (Pty) Ltd (0.1025%), State Street Global Advisors Ltd (0.0854%), and Franklin Templeton Investments (ME) Ltd (0.0798%).

Join us for more investment conversations at the AFSIC 2024 conference taking place from 7-9 October in London.

Disclaimer: Capital at risk.


© Capital Markets Africa, 2024

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