Cabinet approves Egypt's Sovereign Fund, EFG deal for 76%acquisition of Arab Investment Bank

Transaction will be capital increase that will raise Bank's paid-in capital to EGP 5bn

The Sovereign Fund of Egypt (TSFE) and EFG Hermes Holding have signed an agreement to acquire 76% of the Arab Investment Bank (AIB). The acquisition bid was approved by the Egyptian cabinet, on Wednesday, but still requires the green light from regulatory bodies, including the Central Bank of Egypt (CBE).
The transaction will be structured as a capital increase that will increase the paid-in capital of the AIB to EGP 5bn, making it compliant with the regulatory requirements of the EgyptianBanking Law.
Under the terms of the agreement, EFG Hermes will subscribe to 423 million newly issued shares of the AIB at a price per share of EGP 6.03 and a total value of EGP 2.55bn. At the same time, TSFE will subscribe to 207 million newly issued shares of the Bank at the same price per share, for a total value of EGP 1.25bn.
Following the execution of the capital increase, EFG Hermes will become the largest shareholder of AIB with a stake of 51%, while TSFE will become the second-largest shareholder with 25%. Thestate-owned National Investment Bank (NIB), which is currently the majority shareholder of the Bank, will hold the remaining 24% after purchasing stakes currently held by minority shareholders (prior to the execution of the capital increase).
Commenting on the transaction, Hala El-Said, the Minister of Planning and Economic Development and Chairperson of TSFE, said, "Completing the AIB partnership transaction underscores TSFE's pivotal role in unlocking and maximizing the value of state-owned assets. This transaction complements Egypt Vision 2030's third objective of achieving knowledge-based economic growth and digital transformation; increasing the resilience and competitiveness of the economy; increasing employment rates; improving the business environment; and realising financial inclusion."
She added that engaging in similar transactions showcases the intrinsic integration between the visions and objectives of different state bodies, with TSFE anchoring and arranging a private-sector partnership to restructure and generate returns on a state-owned asset. By retaining a stake in AIB, the NIB is slated to benefit from the promising returns AIB will generate following the ambitious restructuring plan drawn up in partnership with the private sector.
"AIB's financial indicators will witness a substantial improvement, as will its competitiveness within the market. It will be better poised to comply with the CBE's regulatory requirements, drawing on the technical expertise available in TSFE and EFG Hermes," the minister pointed out.
"The transaction's success is a result of the cooperation protocols TSFE signed with different state bodies including the NIB, benefitting from its large portfolio. It reflects the close collaboration between different state bodies, in coordination with the Cabinet, working towards attracting private investments to government projects," El-Said concluded.
Chairperson of EFG Hermes Mona Zulficar said, "The signing of this landmark transaction has helped create a partnership between TSFE and EFG Hermes, the leading financial services corporation in frontier emerging markets, as we work together to unlock the potential of the Bank and help it play an increasingly active role in the Egyptian Government's drive for financial inclusion and digital transformation in the coming years. I am also hopeful that it will set the mould for future cooperation between the Egyptian private sector and TSFE."
Commenting on the transaction, CEO of TSFE Ayman Solimansaid, "The partnership with EFG Hermes in AIB aims to capture compelling growth opportunities in the Egyptian banking sector. Driven by the strong commitment of the Egyptian Government towards boosting financial inclusion and digital transformation as a driver to serve wider segments of the society, AIB is now well-positioned to become a significant catalyst of this goal. Furthermore, this partnership embodies TSFE's mandate of attracting local and international private-sector investors to state-owned assets and maximizing returns for future generations."
Soliman added, "The banking sector is a key holding in the portfolios of major sovereign funds globally, reflecting the significance of the sector in driving economic growth. AIB's strategy will focus on serving small and medium enterprises as a driver for inclusion. By upgrading its technological infrastructure, the bank will be better able to serve more customers, especially after the capital increase to meet the new Banking Law requirements."
He also added that AIB's transaction is the first of many to come from the cooperation protocol TSFE signed with the NIB in the near future.
Moreover, CEO of EFG Hermes Karim Awad said, "We are thrilled to be partnering with TSFE on one of their first investments. The acquisition of a controlling stake in AIB represents a strategic milestone for the company, transforming usinto a universal banking platform that offers its clients a full spectrum of financial services. As a company, we continue to be extremely bullish about what the future holds for Egypt and are proud to be committing a multi-billion pound investment in our home market in a vital sector that holds significant potential for future growth."
Awad added, "The acquisition of AIB sees EFG Hermes enter the commercial bank space as part of a diversification strategy that has seen the group become the leading all-inclusive universal-access financial corporation with a presence spanning frontier emerging markets. This diversification strategy has seen EFG Hermes consistently create new value for all stakeholders despite headwinds that most recently have included the COVID-19 pandemic."
The parties will begin working on the fulfilment of the conditions precedent immediately, with the transaction expected to close in the third quarter of 2021.