Established in 1984, the Egyptian investment bank manages more than $1 billion in assets and was, in a similar vein to Audi, one of the first Arab issuers of GDRs, when it issued $50 million in 1998. The company is listed on the Cairo Stock Exchange with a market capitalization of around $1 billion. The Egyptian company’s share was already renowned for being the best performer on Egypt’s benchmark CASE 30 index in 2005 and the announcement of the 20% stake purchase in Audi-Saradar made EFG Hermes’ shares climb by 9.2% to LE166 ($29).
Share issue
In order to purchase the 20% stake in Audi-Saradar, EFG Hermes had increased its own capital by issuing 16 million shares at the fair value of the stock, pushing the capital within the limit of the current authorized capital of LE700 million. The capital of the company will be further increased to LE3.2 billion through a two stage offering. The first part of the issue will be a private sale at fair value where the pre-emptive rights of the current shareholders will be waived, while the second tranche will offer investors 194.1 million shares each at a par value of LE5 on a rights basis to the existing shareholders after the close of the first tranche of the issue.
The deal with Audi-Saradar follows a mandate obtained by EFG Hermes from Solidere, the Lebanese real estate giant, to manage the liquidity of its shares in the secondary market. EFG is not only engaged in investment banking activities, but is also involved in securities brokerage, asset management, and private equity. The Egyptian firm became well-known amongst international investors and financiers circles during the 1990s when it got heavily involved in Egypt’s massive privatization program. In recent months and coinciding with the resumption of the privatization program in Egypt, EFG Hermes obtained several mandates from the Egyptian government to sell government assets. The share price of the company was further boosted in January 2006 as news came in that it had obtained a license from the Dubai International Financial Centre to operate as an asset manager and there were clear intentions to become a member of the DIFX (Dubai International Financial Exchange) in the future.
Ready for business
With Audi-Saradar making clear its own intentions to have a significant presence in the Egyptian market, through the acquisition of a major Egyptian bank (the names of Egyptian American Bank and Cairo Far East Bank have been mentioned), the link up with EFG Hermes would make sense. Indeed, by sitting on the board of the Lebanese bank, EFG Hermes would be able to become a solid long-term financial advisor to Audi-Saradar within Egypt, as well as allow it to enter the Egyptian market through the main gate. It would be a win-win situation for both parties, as Audi-
Saradar would be associated with Egypt’s most powerful domestic finance house before it even enters the market, while EFG Hermes would become a significant shareholder in one of Lebanon’s largest banks. Such an investment in Audi-
Saradar could also be regarded as highly judicial given the forthcoming privatization program in Lebanon.
The sale of a 20% stake in Audi-Saradar to EFG Hermes constitutes the most high profile regional cross-border acquisition of recent years. What was hoped for in the early 1990s, at a time when Rafik Hariri was prime minister, is now taking place. The fact that it has taken more than ten years reflects two main issues: one is the deep political quagmire in which Lebanon was deeply embedded, the other was the lack of significant investment activity that characterized the Arab region during the pre-
September 11, 2001 period. The attacks on the US and the withdrawal of Syrian troops from Lebanon in 2005 were the major triggers for such investment banking deals to take place. The high oil prices that followed Iraq’s invasion in 2003 were also a major factor that accentuated Arab wealth and appetite for regional investments.
It is hoped that the Audi-Hermes deal is just the first of similar transactions, which are likely to take place in the next decade. Such a transaction should constitute a message to the international financial community that the Arab region has awakened and is at last ready for business.
