In May 1997 Morgan Stanley Middle East Inc. acquired 30% of both HC Securities & Investment and Hussein Choucri Financial Advisors through a capital increase. I think this is the first time Morgan Stanley is involved as a minor partner in such a venture. What are the reasons which would explain this unusual decision?
My association with Morgan Stanley goes back 20 years ago when I joined the firm as an associate in 1980. I was with the company for 13 years during which a lot of trust and confidence was built. They knew that my business ethics and the way I would conduct the business in Egypt was compatible with Morgan Stanley's culture. I believe that being comfortable with their partner was a major factor in convincing them to go ahead with the joint venture. The other factor is on the business side. Morgan Stanley looked at the joint venture as an inexpensive option on the Egyptian Market. Should Egypt become very active and present an attractive business opportunity, they would already be in the market without having to make a large investment. So that's the way they looked at it. They were comfortable with their partner and they had an option on a potentially big market.
And then the International Finance Corporation took another 10% in HC Securities and Investment also through a capital increase in 1999. Another injection of confidence?
As you know the IFC works only in emerging markets and is looked upon as the ultimate authority on emerging markets. The IFC's investment in HC Securities & Investment is a confirmation of the excellent reputation, which we built over the past few years. We are very happy to have them with us and it definitely helps our image with clients. At the end of the day, a client comes to this firm because they believe in the high caliber of professionals who provide the service. We are able to attract multinational and large local corporate clients not only because we have Morgan Stanley and the IFC but because it is perceived that a company which has Morgan Stanley and IFC as shareholders would be of high and reliable quality otherwise they wouldn't have invested in it. So it feeds on itself if you will.
Although HC Securities & Investment was established in 1996, 4 years ago, and despite the fact that you started from scratch in 1994, in this short period of time your company has grown the way and gained ground to its competitors. Are you satisfied with what you have already achieved or are you one of those businessmen who thinks that there is no time for complacency?
We still have a long way to go and a lot of growth to achieve. Obviously, we are satisfied with what we have achieved so far having started from scratch. We have built an institution that has a strong presence in the market. However, we have not yet achieved our maximum potential and we have a long way to go. I strongly believe that we can still grow further in all areas. To give you an example, over the past year we have increased our staff from 45 to 80, which is a strong indication that we still have big plans. We plan to be in the top 2 or 3 firms in every line of our business. That's our goal.
You started your activities with the more conservative portfolio management services, then you branched out into the more volatile corporate finance and later you added the rest of the investment banking services. Is it the result of a calculated diversify-to-grow strategy or is it simply do or die?
No. We could have continued being specialized in portfolio management and be happy with it. But my aspiration was to build a firm that could offer the whole array of investment banking services. So, we started adding the other pieces. The other point is that from a manger's point of view it is much better to run a business with a diversified portfolio of activities rather than one that relies only on one activity. There are natural economies of scale in having investment banking and brokerage working side-by-side. Also asset management and brokerage complement and feed on each other. So there is complimentarily and economies of scale as well as diversification, which enables us to offer our clients a complete set of services. I set high goals for myself. I want to be successful, myself and the group of people working with me. I have aspirations to make this firm a meaningful force in Egypt and the region.
Last year you took over a brokerage firm and by doing so you took one step further in your strategy of diversification. Just how successful has the brokerage arm proved to be?
We took over the business in March 1999, and spent the whole of 1999 building the group because the quality of staff I wanted to attract was not readily available. We also made a lot of investments in technology to bring the company up to the standard of the group.
Between November and February 2000, we made a very big leap indeed. According to a recent survey, we ranked 8th among brokerage company compared to 35 at the end of June 1999.
We have assembled a very special group of professionals and I have no doubt that our brokerage arm will do very well.
Could it be explained by the fact that you have used your existing portfolio in other lines of your activities?
Naturally, our asset management activity supported the brokerage operation in the beginning. However, today the business from the asset management group does not account for more than 10-15% of the turnover of the Brokerage Company.
In which of the areas you are operating do you forecast a brighter future in the next years?
Our three lines of business are doing very well. In corporate finance, we are working on several large transactions. We represented a foreign cement producer in the acquisition of a local cement company. We currently represent Credit Agricole who are interested in acquiring a bank. We are working on a number of debt and equity issues. On the asset management side, our assets under management continue to grow both from existing and new clients. In brokerage.We have only covered a small percentage of our target client list especially foreign brokers and fund managers. As the list of active clients expands, we will continue to grow. People like the quality that we offer, and the sponsorship that we have. We have an excellent profile and we provide service in a first class way.
HC Securities & Investment is not the largest firm in its sector in Egypt. What is the feature that makes HC Securities & Investment unique in its sector?
It is definitely the integrity. Clients come to us and they know that we will give them proper advise regardless of anything. What really matters to us is the best interest of our clients.
Both our clients and competitors respect us not because of size but rather the integrity and the quality of work that we produce You could argue that we are getting stronger acclaim or wider recognition than our size would suggest.
What is your human resources policy? Do you train your own people, do you give opportunities to young people?
First of all, we try to hire the brightest and the best and give young people an opportunity to grow with us. We invest in our people through training. We rely primarily on our partners, Morgan Stanley, who put our staff in their training courses alongside Morgan Stanley staff. It has proved very valuable not only because of the quality of the courses but because it helps build relationships between the professionals in both institutions. Each summer we send 4-5 to the investment banking associate and analyst programs. We also send individuals to do on the job training in areas like asset management and equity research.
| In addition, we provide training domestically. We recently completed two seminars where we invited two instructors from the US who devised special programs for our professionals in key areas that were of interest to the company. Those instructors provide training for institutions of the likes of Citibank, J. P. Morgan and other major financial institutions. The seminars were very well received and people appreciate the fact that the company invests in them, which is very positive.
HC Securities & Investment started its operations with shareholders' equity of 3 million pounds, By the end of 1998 it was around L.E. 22 million and funds under management were around L.E. 700 million. Can you update those figures and others for our readers?
Assets under management (both discretionary and non-discretionary) are now about L.E. 850million. Our shareholders' equity has gone up L.E. 25million. Let's not talk about profits for now. We will wait until they happen and when they happen. It is very difficult to give figures for market share, but we must be among the top 3 or 4 full service investment banking firms.
Experts agree that there is little reason for the Egyptian Stock Market to languish at low valuations. Do you think that the recently appointed Ebeid's reformist cabinet along with the new round of privatization will take the stock exchange to a new phase of development?
We certainly hope so. The new government's policy is a continuation of that initiated under the previous cabinet. Both cabinets are pursuing the same policy of giving the private sector a bigger role in the economy and reducing the government's role in business and confining it to setting rules and regulations and overall monitoring and management of the economy. So, in that sense, people are pleased to see the government is still committed to and will speed up the implementation of the reform program initiated by the previous two governments. Every now and then there are some detours or distractions that affect the market valuation. This is a result of having an open and transparent economy in which every little change in policy has an immediate effect on the market. The market scores the performance of the government immediately. If there is an indication that the government is striding away from an announced policy, stock prices go down. That is the price that people pay for having an open economy that can be judged and rated by the investment community immediately. Of course this is not to say that prices do not go down for other reasons such as corrections, overvaluations and so on. This happens too.
So from time to time there are detours or distractions but eventually the train gets back on track. So, I 'm hopeful that we will see better valuations. When low valuations persist, some big investors come in to take advantage.
Has the mutual perception between private sector and the government varied after the last cabinet reshuffle, and how would you describe these relations?
I don't think they have changed. Overall, I would say that the private sector is quite positive about the government and their mutual relationships. It's a partnership, if you will, where the government is not acting unilaterally but consults with the private sector on laws and policies. However, occasionally the government does things that do not please the private sector which happens in other countries as well.
Are you in the position to tell us whether you expect Egypt to be included in the Morgan Stanley Capital Market Indices and if it eventually happens to what extent would it lead to an increasing market confidence?
We don't know. Morgan Stanley Capital International is run independently of Morgan Stanley Dean Witter to ensure that fairness and credibility are always maintained in handling issues like which country is to be included in the index and which is not. This is to ensure that MSCI decisions are based on the market's own merits, without any influence from governments, banks or other players who may have an interest in seeing the country being included in the index.
Egypt is a country with strong macro-economic fundamentals, with a diversified economy, with a strategic position, with a large market and labor force. The country also benefits from excellent relations with the most powerful nations. On other hand, Egypt is still carrying some burdens, such as the traditional balance of trade deficit, unemployment and export and foreign direct investment's low performance. What are, according to you, the measures which should be adopted in order to lift these burdens?
First, I think you forget to mention bureaucracy. Now, what we should try to do is to create new stable foreign currency earners, which are not subject to fluctuations, like tourism or remittances from Egyptian workers abroad. To achieve that we need to build an industrial base directed for exports. I think that's the challenge.
When you say that there is a need to create exportable products, do you mean that Egyptian manufacturers should increase the quality of their products, that they must invest in branding and marketing?
Yes, and create additional production capacities. You may have some products that are not of adequate quality for export. But, in my opinion, it is more important to our industrial capacity.
Some analysts say that some sectors are saturated, that investors follow the trend marked by previous investors and by doing this they create a vicious chain. Do you think that Egyptian businessmen lack imagination as some say or is just that they should invest more in market surveys and other conscientious and reliable studies that could enable them to make the right decision as when and where to invest?
Egyptian businesses need to upgrade management. This includes all the functions for production finance, marketing, human resources and IT etc. We also need to have the proper management that can interact and compete with the outside world. We need to create a whole new culture that is exports oriented.
What is the reason or reasons that led you to return to Egypt and set up HC Securities & Investment?
There are two reasons, in fact. The first one is that I was looking for a new challenge. Having been managing director for many years in emerging markets, I was ready to take on a new challenge and this seemed at the time a very good one. The second point is I always had an aspiration to start a business on my own and to test myself. The time was right, the age was right, the experience seemed right, so I decided to take the plunge.
The situation of Egypt by the time you took the decision to return and the present situation, are they similar?
No, the present is much better than when I came in 1993. It was not as clear as it is now; it was more of a gamble if you will. I was going on instincts more than real facts. We knew the government was embarking in a new direction and we could see some signs, but right now it's much clearer. |
