EFG shareholders approve Qatar deal but questions remain

UPDATE INCLUDES CORRECTION: Dubai Holding denies any association with the consortium Planet IB.

EFG-Hermes, the Egyptian investment bank, approved at its annual general meeting in Cairo on Saturday a deal with Qatar’s Qinvest to establish EFG-Hermes Qatar. The Qatari firm will hold 60 percent of the new entity’s capital with an investment of $250m and EFG-Hermes will retain 40 percent.

EFG shareholders also approved a strategic partnership with Qinvest that would see a transfer of ownership of EFG’s stake in a number of brokerage, research, financial services and investment firms to EFG-Hermes Qatar.

The deal is expected to close in the third quarter of the year and EFG’s board approved a dividend of LE4 per share to be disbursed after completion of the deal.

The shareholder vote comes days after a takeover offer for EFG-Hermes from a rival bidder, Planet IB, as well as criminal accusations were brought against the bank’s executives.

On May 30th, Egypt’s public prosecutor brought charges of stock market fraud against former President Mubarak’s two sons Gamal and Alaa, along with EFG Hermes’s two CEOs and 5 other businessmen. The nine are accused of illicit gains through stock manipulation and insider trading to the tune of LE2bn ($300m).The accusations relate to transactions carried out on shares of Egypt’s Watany Bank back in 2006 and 2007.

“The accused broke stock market regulations by stealthily building up a controlling stake in Watany Bank of Egypt through closed funds and then selling their shares without disclosure,” the prosecutor’s statement said. The prosecutor also said they are accused of concealing their identity through off-shore cluster companies and closed funds, deliberately withholding information from other market participants and acquiring shares at below market prices.

EFG’s co-CEOs Yasser El Mallawany and Hassan Heikal, along with 5 other businessmen, have been released on bail, according to the prosecutor, but are banned from leaving Egypt. The case has been referred to Cairo’s Appeals Court to set a trial date.

EFG-Hermes released a statement distancing itself from Mubarak and his family and denying it or any of its investment funds received special privileges from the Egyptian government. It also confirmed “the soundness of its legal position, the position of its subsidiaries involved in the acquisition of Al-Watany Bank transaction, as well as that of its two Chief Executive Officers and all its staff members,” adding that its two CEOs had no personal dealings, interests or benefits relating to trades on Al Watany Bank of Egypt and that it was taking legal action to defend its position.

In an interview with Al Arabiya TV, a lawyer for EFG Hermes, Hani Sari El Dine said “the board of directors met and expressed its confidence that EFG did not break any Egyptian laws and confirmed that the CEOs would remain in their positions at the helm.”

The tie up green-lighted Saturday between EFG-Hermes and Qinvest was thrown into doubt on May 31st when a group of MENA investors, reportedly including Egyptian businessman Naguib Sawiris, operating under the consortium Planet IB, submitted a counter bid for 100 percent of EFG, offering LE13.5 per share. Planet IB’s CEO Ahmed El Houssieny said in a statement that “the proposed acquisition keeps a flagship Egyptian multinational intact and prevents its breakup.”

A previous report indicated Dubai Holding was part of the consortium Planet IB. However, a statement by Dubai Holding confirmed it has no involvement with the Planet IB consortium. The company said in a statement: “Dubai Holding denies any association with the consortium Planet IB. Dubai Holding is not in any way part of this Group, nor has made any bids for EFG-Hermes.”

In response to EFG’s shareholders approving the Qinvest deal, Planet IB issued a statement on Saturday saying “If EFG Hermes is serious about entertaining a tender offer from Planet IB, it must immediately postpone the execution of the alternative transaction.”

The statement went on to say “Planet IB is prepared to extend a public tender offer immediately after the completion of customary due diligence. Planet IB therefore calls upon the Board of Directors of EFG Hermes Holding SAE to immediately open its books to due diligence.”



CORRECTION: sources have suggested earlier that Dubai Holding were part of the Planet IB consortium. Dubai Holding issued a statement saying it “denies any association with the consortium Planet IB. Dubai Holding is not in any way part of this Group, nor has made any bids for EFG-Hermes.”

(Carina Kamel is a Senior Correspondent for Al Arabiya based in London and can be followed on Twitter @Carina_bn.)