The parlous state of the Egyptian economy has provided major investment opportunities for the patient capital of Arabian Gulf funds seeking cheap assets – as well as closer geopolitical alliances with North Africa’s most populous and resource-rich country.
Egyptian President Abdel-Fattah El Sisi has relied on the UAE for financial support with investments and deposits as the economy strains under high commodity prices, the plunging value of the Egyptian pound, and a slump in tourism, with ADQ playing a major role in his economic development policies.
In October 2022, as part of a US$3 billion loan package agreed with the IMF in October, the government agreed to reduce the size of the state in the economy with funds raised from asset sales used to ease a severe foreign currency shortage and fill a financing gap. As well as the IMF loan, Egypt has turned to Saudi Arabia, the UAE and Qatar, which have deposited around US$10 billion in the central bank. Under the IMF agreement, Egypt is seeking an additional financing of US$14 billion from bilateral partners, including through divestment of state-owned assets. However, frictions have emerged in recent months over the valuations of these assets, with Cairo pitching for a premium over market prices arguing that the assets have stronger long-term potential than the value indicated in terms of much-depreciated Egyptian pounds.
This week, Abu Dhabi sovereign wealth fund ADQ has secured an agreement to buy up major stakes in three oil, gas and petrochemicals companies from The Sovereign Fund of Egypt (TSFE) for US$800 million. The targets for investment are petrochemicals companies Ethydco (30%) and Elab (35%) and oil services company National Drilling (25%). They are among seven companies in TSFE's Pre-IPO Fund portfolio and form a crucial part of Egypt’s push to add value to upstream resources.
Ethydco – the Egyptian Ethylene and Derivatives Company – brought its complex in Alexandria onstream in 2016 with capacities of 460,000 tonnes per annum (tpa) of ethylene and 20,000tpa butadiene, feeding a polyethylene plant with 400,000tpa capacity. Elab – the Egyptian Linear Alkyl Benzene Company – has capacity to produce 100,000tpa of LAB at its plant in Alexandria, which was established in 2005 providing raw material to produce detergents. The National Drilling Company (NDC) was established in 1981 to provide oil and gas drilling services, with a fleet of 14 land drilling rigs.
Last year, ADQ subsidiary Alpha Oryx acquired government stakes in other petrochemicals producers - Abou Kir Fertilizers & Chemical Industries and Misr Fertilizers Production Company (MOPCO) – as well as Alexandria Container & Cargo Handling Company as part of a US$2 billion investment in Egypt. ADQ also snapped up stakes in Fawry for Banking & Payment Technology Services and Commercial International Bank Egypt (CIB), Egypt’s largest listed lending bank. The 18% stake in CIB represented nearly half the value of the overall investment.
Other previous ADQ’s commitments include a US$1 billion investment in the expansion of Lulu Supermarket in the Egyptian market in 2020 and the acquisition in 2021 of Egypt’s Amoun Pharmaceutical Company, which is being consolidated with other ADQ pharma assets. Also in 2021, a consortium comprising Abu Dhabi’s Aldar Properties (25% owned by Mubadala) and ADQ bought a majority stake in Egypt’s Sixth of October for Development and Investment Company (Sodic), which now has EGP36 billion (US$1.2 billion) of assets.
UAE-based Al-Dahra, in which ADQ has a 50% shareholding, is currently in talks through a subsidiary with the Egyptian military to acquire land in Toshka in southern Egypt. It reportedly involves the phased purchase or leasing of 100,000 to 210,000 hectares of land to restore desertified land and cultivate wheat and corn. The move could help reduce the country’s reliance on food imports.
Saudi Arabia’s weighty Public Investment Fund (PIF) is also seeking opportunities in its North African neighbor via the Saudi Egyptian Investment Company (SEIC), which began acquisitions with the purchase of a 34% stake in Egypt’s omnichannel retailer and consumer finance platform B.TECH, in a deal worth US$150 million. It also followed ADQ in acquiring minority stakes in four Egyptian companies listed on the Egyptian Stock Exchange (EGX) for a total of US$1.3 billion: eFinance (25%), Abu Qir Fertilizers and Chemical Industries Company (19.8%), MOPCO (25%), and Alexandria Container and Cargo Handling Company (20%). PIF is currently in advanced talks to acquire three private Egyptian companies in the healthcare, education, and real estate development sectors, according to Daily News Egypt. The deals came after the PIF’s planned acquisition of the United Bank of Egypt fell through. PIF is reportedly currently in advanced talks to buy a private Egyptian company that operates in the waste recycling sector, according to Daily News Egypt sources.
