EFG-Hermes Holding SAE (HRHO.CA), Egypt’s largest investment bank, said it will sell assets and cut costs after an agreement to create the largest Arab investment bank with Qatar’s QInvest LLC collapsed because of regulatory delays.
The Cairo and Doha-based banks said late yesterday the planned joint venture ended after they reached a 12-month deadline without approval from the Egyptian Financial Services Authority. EFG will sell “non-core” assets and return most of the cash to shareholders as it seeks to cut costs by 35 percent.
“It will be hard for QInvest to build an investment banking platform that the EFG deal could have offered,” Jaap Meijer, Dubai-based director of equity research at Arqaam Capital, said yesterday in a telephone interview. “EFG will now try to protect its bottom line, while QInvest will probably focus on its key strength, which is commercial banking.”
QInvest, a unit of Qatar Islamic Bank, and EFG-Hermes planned to create a bank with operations in the Middle East, Africa and Turkey, as well as southern and southeastern Asia. The joint venture plan included EFG Hermes’ main investment banking, asset management and brokerage businesses, and excluded its private equity and Credit Libanais SAL units.
Regulatory Approvals
EFG-Hermes said last month it had submitted the necessary documents to the Supervisory Authority on Feb. 3 to secure its approval. The Cairo-based regulator hasn’t given reasons for not backing the deal and Chairman Ashraf El-Sharkawy didn’t respond to a call seeking comment yesterday. The two sides had received approval from countries including Saudi Arabia, the United Arab Emirates, Qatar, and Jordan.
Egypt has experienced an unstable transition to democracy after the 2011 uprising that toppled President Hosni Mubarak. EFG-Hermes’ co-CEOs, Yasser Al Mallawany and Hassan Heikal, are defendants alongside former Mubarak’s two sons, Alaa and Gamal, and five others on charges of illicit gains related to the 2007 sale of El Watany Bank of Egypt. The trial began in July 2012. EFG’ investor-relations manager, Hanzada Nessim, said in March there was “no relation” between the trial and the delays.
The Egyptian stock market was closed for a holiday yesterday. EFG-Hermes shares fell 1 percent to 9.95 pounds at the close in Cairo, bringing their retreat this year to 9.6 percent, twice the drop in the benchmark EGX 30 Index.
EFG-Hermes plans to sell “non-core” assets as it seeks to cut costs to 500 million Egyptian pounds ($72 million) in 2014 from an estimated 780 million pounds in 2013.
Shed Assets
“We aim to shed those assets over the coming period and return most of the cash generated from those sales to our shareholders, all while preserving a well-capitalized balance sheet,” as part of plans to focus on shareholder returns, it said. The investment bank had planned to pay stockowners a four- pound cash dividend a share as part of the QInvest deal.
QInvest last month named Michael Katounas as head of investment banking. Katounas was previously with Credit Suisse Group AG. QInvest also in March hired Nasser Mahmoud, who previously worked with QNB Capital and Barclays Capital, for its investment banking team.
