EFG-Hermes Holding SAE, Egypt’s largest investment bank, said it will sell assets and cut costs by 35 percent after an agreement to create a joint venture with Qatar’s QInvest LLC collapsed because of regulatory delays.
The deal to create the largest Arab investment bank ended yesterday after the two reached a 12-month deadline without approval from the Egyptian Financial Services Authority, the banks said in a statement. EFG said separately it will sell “non-core” assets and return most of the cash to shareholders as it seeks to boost returns and trim expenses. The stock fell 1 percent to 9.85 Egyptian pounds at 11:02 a.m. in Cairo.
“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 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.
EFG said last month it had submitted the necessary documents to the Supervisory Authority on Feb. 3 to secure its approval. The Cairo-based regulator said today it rejected the transaction because QInvest didn’t have the “necessary” experience required under Egyptian law to own EFG-Hermes assets, EFSA said in an e-mailed statement.
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 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.
EFG-Hermes shares have declined about 12 percent this year, three times the size of the drop in the benchmark EGX 30 Index.
The investment bank said it plans to sell some units and cut costs to 500 million Egyptian pounds ($72 million) in 2014 from an estimated 780 million pounds this year.
“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 4 pound a share cash dividend as part of the QInvest deal.
Karim Awad, co-head of the investment banking unit at EFG-Hermes, will now take a seat on the board of directors, according to the statement.
QInvest in October hired former Goldman Sachs Group Inc. banker Tamim Al Kawari as chief executive officer. He was previously the head of the New York-based bank’s Qatar office.
Last month the Qatari bank also 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.