EFG to use money for regional expansion, e-trading network
CAIRO: EFG Hermes shareholders approved on Sunday Abraaj Capital s offer to purchase 97 million shares, representing a 25 percent stake, at LE 30 per share. Upon finalization, Abraaj will hold two board seats and become the largest single shareholder in EFG.
The approval came a little over a month after EFG s board of directors approved the offer and amid protests of some minority investors they were not given a chance to participate in the capital increase. At mid-day trading Tuesday, the stock price hovered around LE 43.
Many people are quite fearful because of the low price Abraaj was able to buy their shares, says HC Brokerage Banking Analyst Hatem Alaa. I feel this shouldn t be the case. You have to remember you re selling to a strategic investor. Had this been an offer to the public, the price would have still gone down.
EFG Chairman and CEO Yasser El Mallawany says the share price was determined by the company and confirmed by an independent accountant that it represents the average share price between May 21 and July 20, 2006. In a statement, he said the $506 million (LE 2.9 billion) capital increase will be used to finance a regional e-trading network, estimated to cost $20 million (LE 115 million) and increase the company s presence in the MENA region with investments of $150 million (LE 863 million).
Alaa says he expects the rest of the money to be put toward stabilizing the company s notoriously volatile stock. In the past year, the stock has recorded a high of LE 91 and traded as low as LE 14.
Many people are losing confidence in this stock, says Alaa. Using some of the money for stabilization should help bring some of that confidence back.
Another part of the deal which should reassure current shareholders, says Alaa, is Abraaj will not be allowed to sell any of its stake until one year has passed on the completion of the deal. This should help stabilize the stock, but also assure investors of continued growth, he says.
Abraaj is a huge company, Alaa says. I don t think they would go into something like this unless they saw considerable upside potential. Either that or they are looking to diversify their activities into a new market. Either way, it should benefit the current shareholders.
Abraaj s offer, which has stirred controversy for more than two months, aroused the fears of many investors of the impact it might have on the consistently most active stock in the market on a daily basis. Arif Naqvi, Abraaj CEO and executive vice-chairman, denied his company is buying into EFG for short term gains.
This transaction is a strategic and long term investment for Abraaj Capital and it shows our confidence and commitment to the future of the Middle East, says Naqvi. EFG s footprint currently gives it access to 88 percent of the investment banking fee pot in the Middle East.
With the 25 percent acquisition, Abraaj will increase its capital to $1 billion and add to its portfolio valued at $1.5 billion in assets currently under management. The company says it expects that number to grow to $4 billion by the end of the year. Abraaj has already forwarded a $100 million guarantee to EFG in August, according to El Mallawany.
Our shareholders have endorsed the board s vote of confidence in Abraaj Capital, says El Mallawany. The management teams of EFG Hermes and Abraaj Capital will now move swiftly to plan next steps in implementing our strategy of aggressively expanding our regional presence across all business lines.
