Abraaj Capital, the Dubai-based private equity firm, has offered $505m to acquire a 25 per cent stake in EFG Hermes, the Cairo-based investment bank.
The offer, subject to approval by a general assembly of EFG shareholders, would make Abraaj by far the largest single shareholder in EFG, which has been expanding aggressively in the Middle East this year, including into Lebanon.
EFG is listed on the Cairo and London stock exchanges, and is about two-thirds publicly owned.
Sources close to the negotiations, which were taking place in London on Monday, said the offer valued EFG shares at 30 Egyptian pounds, slightly above market value on the Cairo and Alexandria stock exchange at the start of the day’s trading.
Abraaj is undeterred by EFG’s exposure to Lebanon, where the bank acquired a 20 per cent stake in Bank Audi this year. The country now accounts for about one- third of EFG’s overall business.
“This is a vote of confidence in the entire region because this is a regional play,” said Frederic Sycre, head of investor relations at Abraaj. Mr Sycre declined to comment on other aspects of the offer.
Another source close to the deal said Abraaj appeared to be betting on EFG Hermes benefiting from the flush of liquidity in the Gulf resulting from high oil prices, after positioning itself as one of the most active regional investment banks.
EFG has more than 40 per cent of the market for securities broking in Egypt, and has won about 7 per cent of this market in the United Arab Emirates since opening an office there in late 2004.
This year the bank won a licence to operate investment banking and asset management activities at the Dubai International Financial Exchange. It then won a licence to operate in Saudi Arabia, and as part of its expansion plans acquired the stake in Bank Audi, one of Lebanon’s largest banks.
Fitch, the ratings agency, last week said it might cut Bank Audi’s C/D rating, because of the possibility of impaired lending resulting from the Lebanon conflict.
EFG has suffered a sharp fall in its share price since Israel launched its bombing campaign two weeks ago, destroying infrastructure and dealing a blow to Lebanon’s important tourism industry in response to the abduction of two Israeli soldiers by Hizbollah guerrillas.
Shares in EFG, the most heavily traded stock in Egypt, jumped 23.8 per cent overall on news of Abraaj’s offer yesterday.
It is thought Abraaj made its move now to take advantage of the fact that EFG shares are trading at a relative discount following a general decline in Middle Eastern markets, and more recently as a result of its exposure to Lebanon.
Abraaj may also be betting on Bank Audi proving a sound investment in the longer term. The bank has licenses to operate in London, Switzerland and other banking centres and is one of Lebanon’s largest banks.
One source close to the deal suggested that EFG could at a later stage decide to increase its stake in Bank Audi, using part of the proceeds from the capital increase, should the deal with Abraaj go ahead.
Abraaj has been a pioneer in the Middle East’s small but fast-growing private equity business. This month it poached one of EFG’s chief executives, Mustafa Abdel-Wadood, to become a managing director and board member.