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Securities Brokerage
Investment Banking
Asset Management
Private Equity
Merchant Bank on the Nile
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Read our exclusive interview
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 EFG - HERMES
"A Merchant Banking House on the Nile"
Manager:
Dr. Mohamed Taymour, Chairman
Contact:
58 Tahrir St., Dokki
Giza
Egypt
Tel. (20) 2 338.3626/7/8
Fax: (20) 2 338.3616 / 3629
Web site: http://www.efg-hermes.com
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Strategy
 About EFG-Hermes
Dealing with EFG-Hermes means
A team committed to satisfy your financial services needs
Experienced individuals in domestic and regional financial markets
An organization focused to deliver services consistent with international standards and regulatory compliance
… A paved pathway into the emerging market of Egypt and the Arab world
EFG-Hermes’s present structure is the result of combining several businesses after the highly publicized merger of EFG Group and the Hermes Financial Group, in June 1996, the country’s two leading investment banks. The Company conduct its business through 10 operating subsidiaries located in Egypt and offshore, and specializes in securities brokerage, investment banking, asset management and private equity.
EFG-Hermes Securities Brokerage traded volume on the Cairo Stock Exchange accounted for 14.6% of total in 1997, i.e. the largest traded volume. Its clients include more than 1,500 local and international financial institutions as well as wealthy individuals in Egypt, the Arab world, U.S., U.K., Europe, and Asia.
In June 1997 World Equity magazine rated EFG-Hermes research the best in Egypt , based on a survey of 700 emerging market fund managers. The firm publishes a daily newsletter sent to over 800 financial institutions worldwide and a quarterly report on Egyptian politics, economy, capital markets, and major industries. Research is also available on 60 activity traded companies.
EFG-Hermes has also been financial advisor in major M&A transactions, including the 1997, $1.688 billion merger of Saudi Cairo Bank and United Saudi Commercial Bank. EFG-Hermes was an advisor to Banque du Caire.
EFG-Hermes Asset Management manages eight of Egypt’s leading mutual funds, including two offshore funds, through three legal entities. At the end of
1997, assets under management totaled EŁ1.6 billion.
EFG-Hermes Private Equity manages two closed-end funds, L250 million Arab Bank Investment Co., and the $54 million Horus Fund.
For a detailed company profile please visit our Website: http://www.efg-hermes.com
Top of page.
Interview with
DR. MOHAMED TAYMOUR
CHAIRMAN OF EFG-HERMES
Sunday 20th December 1998
1/Q: EFG-Hermes is the leading investment bank in Egypt. Could you give our readers a brief historical background and the activities of EFG-Hermes?
We are an investment bank. Our activities encompass all the classical investment banking activities. We have a brokerage firm, an asset management division, a corporate finance division and an investment banking division. Our brokerage firm is by far the largest in the country. Our asset management division is probably the first or the second largest. Our investment banking activity is by far the largest in terms of number and value of transactions. We have about 310 people in the organization at this point in time. We are the only investment banking activity in Egypt that is listed on the London Stock Exchange. Our strength is that we are not a ‘boutique’ investment bank. We cover the whole spectrum of the activity. You can not say that one is stronger than the other.
2/Q: What is your opinion about the government’s strong commitment to economic reform and privatization?
We publish substantial research on the Egyptian economy and individual corporations but in general the Egyptian economy has almost made a miraculous transformation since the beginning of the 1990s. If you compare the numbers of 1991 with today’s numbers you will find that we have improved on all fronts. Inflation dropped from 29% to below 4% today. The budget deficit reached 19% of GDP. At present it is less than 1%. The Central Bank reserves were about $3 billion or $4 billion. Now, they are over
$20 billion. All the macroeconomic variables and macroeconomic profile of the country have improved tremendously. The economy is growing now at a decent 5.4% per year after a stagnation period at the beginning of the 1990s that resulted from applying new policies that were subscribed by the IMF. From the macroeconomic point of view we are very solid. We have only one problem. Unemployment is still high. It is very important. We have to work hard to overcome it, but it certainly is improving and more job opportunities are being developed at the present time. The capital market has also seen great transformations, i.e. from a weak market in the early 1990s to a very vibrant one at the present time with close to 800 companies that are listed. Trading is active. We have between $20 million and $30 million of trading today compared to less than $0.5 million dollars 6 or 7 years ago. It is now between $35 - $45 a day. As you can see we have improved a lot.
- What have been EFG-Hermes’ achievements during this transition period?
I think that we have been instrumental in helping the government with the privatization activities. Many of the large privatization activities that were undertaken were marketed by EFG-Hermes through our brokers and investment banking activities, like the cement factories, tobacco, real estate, etc. I think that we benefited as a firm from the privatization program and we like to think that we contributed to the program at the same time.
3/Q: In 1992, according to the structural reform the capital market has been revitalized. Still, some say that the Egyptian Stock Market is still in its infancy
(some international institutional investors think that the market is too small). What is your opinion?
It is definitely too small. But it is only 4 years old. The real growth in the stock market started in 1994. So, to say that it is one large stock market would not be true. But if you compare when the stock market was not there 4 years ago and today you have daily transactions worth $40 million per day, then, I think it is an achievement.
4/Q: What should the government do to attract more foreign investments?
The government has done a lot but still it needs to do more. I think that the privatization program in particular that was the big driving force behind the stock market has slowed down a little bit although there are signs that it will be revived again. We need some very large privatization work to be done. A recent sale of a cement Company to a strategic investor (Lafarge in France) is certainly a step in the right direction. We need very large capitalization companies like telecommunications, for example, to come to the market. A very big part of the electricity sector will come very soon to the market. Actually, we expect a new phase of privatization to start some time next year. They have already made a short list of investment banks that are competing for the job. I think that this is certainly a step in the right direction because as I said the market here needs large capitalization companies in order to give it the necessary breadth and depth that may be lacking at the present time. So, we hope that the privatization program will speed up again and that the government would start the privatization of utilities and at the same time get rid of what it still holds in some of the companies that were partially privatized like the cement sector and the real estate sector. A number of sectors were partially privatized, where the government holds 40% or
60% of the company. They still hold a big percentage that allows them to control those companies.
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- Do you agree that the best state companies have already been privatized?
They were not completely sold. They have been partially privatized but in many of those companies the government still hold 40% or 60%. We feel that it is very important that the government gets out of those sectors completely and lets the private sector take over.
- What do you think of the government’s plan to diversify the bond market?
The bond market is another area that I think needs a lot of development in Egypt. The bond market is almost nonexistent at the present time. We do not have enough issues, enough government bonds to construct the proper yield curve and at the same time the private companies have not yet been very active in using the bonds to obtain debt. But again, this is changing. It is not changing at the speed that I would like, but certain legal and regulatory impediments that existed have been removed. There were certain issues that were related to taxation and other matters but all of these are now solved. We hope to see a renaissance of bond activity in Egypt.
5/Q: A number of leading brokerage firms are starting to pay more and more attention to the Egyptian market. Competition is increasing. What are your specific advantages compared to your main competitors?
First, we already have a number of foreign brokerage firms like Fleming, ING Barring and HSBC. So, we have at least three foreign brokerage firms operating in Egypt either directly or through partnerships. I must say that we have not felt threatened by any of them. If anything, our market share has been increasing, probably as twice as big as the next firm. As long as you have the right research, the right people and the right connections, we always have people travelling all over the world. If you continue to deliver good research and good service, maintain contacts with your clients and have the right capitalization, foreign competition becomes less threatening.
- What are the main guidelines of your strategy to increase your market share?
We are opening up more branches outside Cairo. We have a branch now in Alexandria and another in Port Said. We will have a branch in Southern Egypt very soon. In addition, we are maintaining and expanding our outside network by which I mean the Gulf area where we always have sales people going there to make contacts. We are beginning to look at the Japanese market as a potential area where we would like to have more contacts especially that Japan has lately opened up and it is easier to get Japanese institutional investors now to invest in other countries. The main thing really is that we have a long way to go in the Egyptian market itself. Many people have not been introduced to the stock market yet, especially outside Cairo and Alexandria.
- Do you plan to offer a new range of services or products?
Yes. We do this all the time. We have a portfolio management company that has just come up with a guaranteed product. It is the first time we have that kind of product in Egypt. We intend also to strengthen our ties with Egyptians living in the Gulf area and offer them portfolio management services. We are also very much interested in the bond market now and we are the only company that has a fixed income desk. We think that this can be a very large market and we want to be there when it starts.
6/Q: Egypt and the USA agreed on a Partnership for Economic Growth
& Development. According to your opinion, how will this affect both the Egyptian and the American economies?
I do not think that it will affect the American economy very much, but it does create a channel for communications between business people in both countries. I think we are beginning to see more and more Egyptian companies interested in the Egyptian market. We are partners with Air Touch, the largest mobile phone operator in the USA. We started a company in Egypt, MisrFone, that is the second operator of a cellular phone network. We are also seeing more and more American companies interested in the electricity sector like the BOT projects. I think that we are beginning to see a trend of direct foreign investments by American companies in Egypt other than portfolio investments through the stock exchange. If 1998 is an indicator then we should see quite a flow of American companies coming into Egypt, not as portfolio investors but to start new projects or to acquire existing projects. This is something that is beginning to happen now, i.e. large multinational firms acquiring firms in Egypt instead of acquiring green field projects. We have just finished a transaction where Glaxo Wellcome acquired a local pharmaceutical company. It was a $125 million deal. By local standard this was quite respectable. Nestle, for example, acquired an ice cream company in Egypt. This is a new trend that we have not seen in the past and I think that we will be witnessing similar acquisitions more and more.
7/Q: In the States, "contacts often mean contracts". What are you doing to attract Fund Managers or Foreign Investors?
We have a representative in New York where an employee is resident in New York with a broker also. We have at least once or twice someone travelling to New York or other cities like Boston and San Francisco. We publish very decent researches that are transmitted to about 300 clients in the USA on daily, weekly and monthly basis through the Internet. We also have a web site that is very active with over 10,000 hits per week.
8/Q: EFG-Hermes is Egypt’s top investment banking conglomerate and EFG-Hermes was rated best in Egypt. What is your secret?
Hard work is our secret. Another important element is that the average age of our employees is about 30 years. We have a lot of bright young people. The management, other than myself, is very young. They are all in their thirties and very active.
9/Q: Let us assume that I am an investor and that I have $2,000,000 to invest them in Egypt. What would you advise me to do?
If you have $2,000,000 I would advise you to invest them in the stock market. The stock market is grossly under-valued at the moment. Anyone who would invest in the stock market now will make a fortune in the near future.
10/Q: Could you give us your personal background?
I am an engineer. My undergraduate degree and my Doctorate were both in engineering. I never worked as an engineer. From the beginning I worked in finance. I graduated from Cairo University and then I went to Dartmouth College in the United States, where I obtained my doctorate. I graduated in 1970. I worked there for a couple of years after graduation. Then I went to Kuwait with a regional development bank. I returned to Egypt in 1980 when I started this firm.
11/Q: Since you have been Chairman of your company what has been your most satisfying personal achievement?
I think building this company is in itself an achievement.
12/Q:What will be your final message to our readers?
I would tell them to invest in Egypt. It is certainly a very good opportunity.
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© World INvestment NEws, 1998.
This is the electronic edition of the special country report on Egypt published in FORBES Magazine,
May 31st issue.
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EGYPT
