Since June 2014, the Abraaj Group, the largest private equity group in the MENA region, has bought majority stakes in two leading Egyptian hospitals, Cleopatra and the Cairo Medical Centre (CMC), and in a leading private education group. It was very close to acquiring local confectionary Bisco Misr in December, and it already owns 37 per cent of the country's largest medical labs, Al-Borg and Al-Mokhtabar. It formerly held stakes in Egypt's largest investment bank, EFG Hermes, and in the Egyptian Fertilisers Company, making profitable exits from both. For the Abraaj Group, which manages $7.5 billion worth of assets, Egypt is one of the most attractive countries for investment in the North Africa Region, according to Ahmed Badreldin in an interview with the Weekly. Given the size of the economy, the large population, the strong and growing demand and a growing middle class, Egypt offers tremendous investment opportunities,” he said. Egypt's investment laws and regulations are more Anglo-Saxon than those in other regional countries, he added, meaning simpler regulation and overall greater ease of doing business, as well as low barriers to free trade, making the country more appealing to investors. “Abraaj tries to invest between $150 million and $200 million every year in the country,” he said. News of the two-month takeover battle between Abraaj Group and US food producer Kellogg to acquire the local confectionary maker Bisco Misr made headlines in December. The Group withdrew from the Bisco Misr bid because the offers exceeded our maximum valuation. But if we find another similar business, we would be interested, as the food industry is appealing in the country and forms a strong element of our investment strategy which is to invest in consumer-facing businesses,” Badreldin said. Kellogg acquired Bisco Misr by offering LE89.86 per share, valuing the company at LE1.03 billion. Abraaj opted out of the bidding after it increased its offer by 22 per cent, from an initial bid of LE73.91 a share in November. Tapping the food industries sector is in line with the Group's investment strategy in Egypt over the last four years, which is to target resilient noncyclical sectors like healthcare and education. In June 2014, the Group bought a majority stake in Cairo Investment and Real Estate Development (CIRA), which manages the largest K-12 private schools group in Egypt, with over 17 owned and operated schools under the well-known Future Schools brand. It also owns Badr University. However, it was the company's acquisitions in the healthcare sector that raised controversy because of fears that it might one day monopolise the Egyptian healthcare sector. In 2008 the Group acquired Al-Borg Laboratories, Egypt's largest medical diagnostics laboratory. It then turned into a regional player by acquiring five companies: three other labs in Egypt and leading diagnostics lab firms in Jordan and Sudan. By 2012, the Group had merged Al-Borg with its main competitor, Al-Mokhtabar Medical Laboratories, to create Integrated Diagnostics Holdings (IDH), which currently has the largest share of the local market.year, IDH conducted 19.4 million tests and served almost six million patients through its network of 262 branches. This was followed by buying majority stakes in both Cleopatra and CMC hospitals in June and July. “The fears [of monopoly] are unjustified. The two hospitals have a total of 300 beds out of the 100,000 beds available across Egypt. As for the two labs,the Group has a minority stake of 37 per cent in IDH, the company that owns them.” Said Badreldin Moreover, Abraaj says it is planning to sell its stake in IDH through an initial public offering (IPO) on the Cairo and London Stock Exchanges. While there is demand in the two sectors in Egypt, they need further investment in quality as well as in systems and technology in order to grow, Badreldin said. “We are negotiating a programme with the nursing school at Badr University, owned by CIRA, where we will send nurses and doctors from the hospitals we have invested in to get more training.” One of Abraaj's policies is to re-invest all its profits back into the businesses, with the aim of growing into national champions within four or five years. Abraaj has expertise in the hospital sector through its investment in Acibadem, a leading healthcare group in Turkey. According to a press release from the Group, during its four-year investment in Acibadem, the business grew from six to 14 hospitals, increased bed capacity from 750 to over 1,850, and created approximately 5,000 jobs. Abraaj also has investments in the hospital sector in South Asia, Southeast Asia and Sub-Saharan Africa. Taxation is one of Abraaj's key concerns in the Egyptian market, especially in regard to capital gains and dividends withholding taxes. In July 2014, Egypt imposed a 10 per cent tax on capital gains and stock dividends. The tax applies to dividends and capital gains made from trading stocks on the Egyptian stock market, as well as in unlisted companies. “While imposing capital gains taxes on short-term ‘flipper' investors who stay in the country for a maximum of three to six months is understandable, this is not the case with long-term investors who commit to investing in capital expenditure and job creation,” Badreldin said. He added that a number of countries have abolished capital gains taxes for long-term investors, which has helped to attract capital from the investment community. While dividend withholding tax is common worldwide, Badreldin has concerns. “The point here is certainty: one day there is a zero tax and the next day you have a 10 per cent tax. The key question here is whether it is going to stabilise there or get worse for investors.” Another worry for Abraaj is the devaluation of the Egyptian pound. “This directly impacted the valuations of the assets we have invested in, although we generally factor in an element of devaluation in exit scenarios,” he said. The Central Bank of Egypt (CBE) allowed the pound to slide by almost 6.3 per cent in the three weeks to early February. The exchange rate reached a 22-month low of LE7.982 per dollar on the black market, compared to LE7.6 in the official regulated interbank market. The moves were unexpected, as the monetary authorities had kept a tight grip on the currency for years. The pound's official rate stabilised at LE7.15 to the dollar seven months after Abdel-Fattah Al-Sisi was sworn in as president in June 2014. It was trading at LE7.63 per dollar on Sunday, according to Central Bank figures. “Investors need either a stable currency or, as some countries do, a controlled devaluation every year of three to four per cent, so that we know what to expect every year,” Badreldin said. Senior executives from the Abraaj Group will be attending the Sharm El-Sheikh Conference. “We see this as an important opportunity for the investment community to reaffirm its commitment to the country and for the country to showcase itself as a committed investment destination to investors,” Badreldin said.
