When the Egyptian capital market opened up in the early 1990s, three groups quickly emerged to seize dominant positions. The Egyptian Financial Group (EFG), set up by Mohamed Taymour in 1980, had a head- start, given its long presence in the market. Hermes was a smaller operation, but succeeded in building up strong links with international investors. The third player, Commercial International Investment Company (CIIC), had the advantage of the backing of Egypt's premier financial institution - Commercial International Bank (Egypt - CIB) - as well as having some of the country's most powerful private investors among its founder shareholders. Now, following a series of mergers and alliances, the three firms are working as one. They have rationalised their operations in Egypt and are looking to expand into the Gulf, with an office planned to be set up in Dubai in the next few months.
The first step in the process was taken in 1996, with the merger of EFG and Hermes. Three years later, CIIC made a bold bid to strengthen its position through forming a joint venture with UK-based investment bank Flemings. That initiative was overshadowed by the absorption of Flemings into JP Morgan Chase & Company, and by the downturn in the Egyptian and global equity markets in 2000 and 2001.
'When the going gets tough, it is time to consolidate,' says Yasser el-Mallawany, who arrived by the CIB/CIIC route to his present position as vice-chairman of EFG-Hermes Holding. The decision to set up a strategic alliance between the two heavyweights of the Egyptian financial sector was announced in June 2001, and the terms of the share-swap underpinning the deal had been agreed by the end of August.
JP Morgan Chase has pulled out of the joint venture with CIIC - it is understood that other international banks had offered to take over this share in the venture - but CIIC shareholders decided against replicating what had in the end been an unsatisfactory partnership. EFG-Hermes now holds a 14 per cent stake in CIIC, whose total equity is worth an estimated £E 900 million ($195 million), and CIIC holds 41 per cent of the £E 400 million ($87 million) equity of EFG-Hermes. The Mansour & Maghraby group, one of the founder shareholders in CIIC, also holds 10 per cent of EFG-Hermes. The combined balance sheet of EFG-Hermes/CIIC is worth some £E 3,000 million ($650 million).
At the height of their activities, the two firms had a combined payroll of close to 800. That has now been whittled down to 380. EFG-Hermes, which had more than double the staff numbers of Fleming-CIIC, had already started the process of rationalisation before the alliance. Its financial figures for the first half of 2001 show a 35 per cent reduction in general and administrative expenses, amid a 26 per cent year-on-year fall in net profits.
A key element in the alliance has been the allocation of management responsibilities. Taymour retains the position of chairman of EFG-Hermes, and Iyad Malas has moved across from Fleming-CIIC to become managing director, with special responsibility for asset management. Malas, who previously held a senior position with the International Finance Corporation, will work alongside Khaled Abdel-Meguid and international investment adviser Tristan Clube. Hassan Heikal will continue to head the investment banking division, backed by Amr el-Gerhy, who was head of corporate finance at CIIC. The proprietary private equity business will stay with CIIC, under El-Mallawany's control. A new position of chief investment officer for private equity has been taken by Hassan Abdo. Sherif Cararah has been appointed head of the brokerage and distribution department, and Sharif Saud has been put in charge of regionalisation and business development. Amr el-Kady, who was previously head of research at EFG-Hermes, is now head of the risk management division. Ahmed Heikal has been assigned full-time to Funoon, the group's media and arts affiliate.
The plans for a move into Dubai, as a springboard for wider involvement in the Gulf Arab market and, eventually, Iran, are well advanced. It is understood that the preferred vehicle will be a joint venture with UAE partners.
El-Mallawany says the main initial focus will be on asset management, but the firm has high hopes of being able to develop a broader range of activities, particularly when the Saudi market opens up. However, the state of the Egyptian market remains a major concern for EFG-Hermes over the coming period. 'The home market needs to be strong for any company to succeed in a regional expansion drive,' says El-Mallawany.
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