Renaissance Capital sees Egypt as an attractive market and is looking at various opportunities arising from the current growth of the country’s economy and its customer base, according to Ahmed Badr, Chief Executive Officer of Renaissance Capital MENA.
Badr told Daily News Egypt that Renaissance Capital is currently working on seven deals in Egypt, including M&As and offerings in the Egyptian Exchange, covering several sectors including healthcare, real estate, and food industries, with an average of USD100m per deal.
Renaissance Capital was established in 1995, and saw the acquisition of 100% of its shares in November 2012 by Onexim Group, a major Russian private investment fund.
What are the most prominent features of RenCap’s strategy in 2016?
Renaissance Capital is an international investment bank specializing in frontier and emerging markets in the countries of Sub-Saharan Africa, Russia, the Middle East, Asia and North Africa. It has nine offices in a number of cities like London, New York and Dubai and countries like Nigeria, Kenya and South Amfrica. It aims to help investors trade and invest in the world’s high-opportunity regions.
The bank is specializing in offering advisory services to mergers and acquisitions, private and public deals, and issuance of debt instruments like bonds. It also offers brokerage services in financial securities, in addition to covering frontier and emerging stocks from the research point of view.
We believe the MENA region, which I manage from our office in Dubai, is one of the most important emerging markets in terms of growth opportunities in sectors like services, financial and consumer.
Renaissance Capital execute buying and selling orders on behalf of investors worth USD3.6bn in 2015 through local brokerage firms in MENA.
In this region, we pay the most attention to Egypt and Saudi Arabia despite the Egyptian Exchange becoming a fairly small market with an average trading of EGP 500m per day, compared to EGP 2bn in previous periods.
In comparison, the Saudi Stock Exchange (Tadawul) is considered the largest in the region with a daily trading volume amounting to USD1.7bn.
How does the Egyptian Exchange maintain its appeal for Renaissance Capital, among the region’s most important markets for foreign investors, despite the downturn and the loss of 75% of trading volume over the past year?
The Egyptian market still has growth elements and diversity in the listed companies. This gives room to investors to compare between stocks that fit their plans and investment strategy.
Renaissance Capital looks at the Egyptian Exchange with a lot of interest; in fact the company was ranked the third among top international institutions trading in the Egyptian bourse.
Egypt has good growth prospects. According to the International Monetary Fund Egypt is classified as one of the fastest growing African economies, set to grow at an annual rate of 3.3%.
On average what’s the size of daily operations that RenCap performs for its clients in the Egyptian market?
As explained earlier, the size of trading on the Egyptian Exchange has become small. If the company’s customers carried out operations worth USD 5m a day, that would be a good thing.
There are some negative factors; if Egypt is able to overcome them, there will be a real opportunity to increase foreign investment flows to the stock exchange. Obstacles facing foreign investors include the transfer of money abroad in foreign currency, due to dwindling foreign reserves in the country. Investors faced this issue before CBE set up a mechanism that allows international investors to access foreign currency, but that is only applicable to investors who injected capital since March 2013, when the mechanism was launched.
Another factor is the price difference of up to 20% in the dollar exchange rate in the parallel market and banks. Some investors are wary of starting new investments as they may decline if the CBE decided to reduce the exchange rate again.
Do you expect that CBE will make a new decision to devalue the Egyptian pound?
I think the decision to devalue the Egyptian pound is inevitable, but its positive impact in attracting investors and improving the country’s ability to build foreign investment reserves depends on economic reforms. These reforms would include improving the investment scene through the provision of guarantees for the execution of contracts, stimulating exports and developing a plan to revive tourism activity and improving Suez Canal revenue.
Considering the obstacles facing foreign investors, where does the Egyptian Exchange stand among other MENA exchanges in terms of its ability to attract international investors?
Ranking varies depending on the objectives of institutional investors. If they are targeting investments in global markets, Egypt’s share will be limited, but it will dramatically increase if the target is emerging markets. For those institutions interested in the Middle East, Egypt would rank second after Saudi Arabia and the Gulf region.
On average, the Egyptian Exchange accounts to 20% of the foreign institutional investments in MENA.
As Egypt is one of your key ME markets, can this be translated into setting up your own operations in Egypt to execute brokerage operations and provide investment banking services?
We see Egypt as an attractive market and are now looking at various opportunities arising from the current growth of the country’s economy. Setting up our own presence on the ground in Egypt is something we have recently been considering but there are no imminent plans.
The customer base of Renaissance Capital in Egypt has started to expand and requires a strong direct presence on the ground. For example, last month we executed the sale of 4% of the share of El Mansour & El Maghraby Investment and Development Company in Crédit Agricole bank to a group of foreign investors in Europe, United Sates, and Africa with a total value of EGP 257m.
Did Renaissance Capital take real steps in establishing an investment bank?
We are studying the available options now but no decision has been taken in this regard. Hopefully we will have a clear picture by the end of this year.
But do you think it’s the right time to set up an investment bank here while Beltone, led by the major shareholder Naguib Sawiris, is working on establishing an international investment bank focusing on emerging markets, i.e. your key area?
In my views, Egypt is witnessing changes in the investment banks scene and in the financial services sector in general. Renaissance Capital has 20 years of experience in emerging markets, including Africa. The company is behind four out of the last five IPOs in Kenya and Nigeria. Moreover, the team includes professional analysts and traders who worked in Egypt for a long time and we are glad to continue our success story in a market as vibrant and dynamic as Egypt.
Are there any new deals Renaissance Capital is working in the Egyptian market?
The company is currently working on seven M&A deals and public offerings in the Egyptian Exchange, across difference sectors including healthcare, real estate and food industries. The average value of each deal is around USD100m. The public offerings managed by Renaissance Capital are expected to be implemented a year from now.
Citadel Capital was intending to issue international bonds, and had commissioned Renaissance Capital to manage its public offering. However, they axed this move given the unfavorable economic conditions. There’s some speculations suggesting that this IPO is coming back again, is there any update?
We were mandated by Citadel Capital over a year ago to manage the issuance of their USD 120m international bonds, but the market conditions were not appropriate at the time. However, this issue is now under discussion.
