EGYPT The rebirth of EGYPT ARCHIVED REPORT May 31st, 1999	Egypt The rebirth of EGYPT Read our exclusive interview HC SECURITIES & INVESTMENT Manager: Mr. Hussein Choucri, Chairman & Managing Director Contact: World Trade Center 1191 Corniche El Nil – 13th Floor Cairo 11221 Egypt Tel. (20) 2 578.1841 Fax: (20) 2 578.1843 Strategy 1/ Group Profile Hussein Choucri Financial Advisors ("HCFAA") and H.C. Securities & Investment ("HCSI"), established in 1994 and 1996 respectively, are two companies active in Investment Banking and Portfolio Management activities in Egypt and Middle East. In May 1997, Morgan Stanley Middle East, a fully owned subsidiary of Morgan Stanley Dean Writer, acquired 30% of both companies through a capital increase. H.C. Fund Management ("HCFM") which is 98% owned by HCSI received its license in May 1998. On December 31st, the Group’s net worth exceeded L.E. 23 Million. Investment Banking: Our Investment Banking team is engaged in raising capital and providing advice for the firm’s clients in Corporate Finance; Mergers and Acquisitions, Restructurings, Divestitures and Spin-offs; Capital Market Services; Project Finance; and Real Estate. The company is currently engaged in Advisory, Capital Raising and M&A assignments with value in excess of L.E. 2 Billion. Asset Management: Our Asset Management team offers institutional and individual investors portfolio management services. The company is retained to advise several institutions on their investments. Portfolios under management and advice are currently in excess of L.E. 700 Million. 2/ Group Activities see graph Investment Banking see tables Portfolio Management Over L.E. 700 million under management advice. Outperformed the index for four consecutive years, and during the first seven months of 1998. Year CSE/IFC * H.C.S.I. ** 1994 36.75% 47.16% 1995 -13.05% 21.50% 1996 47.63% 78.26% 1997 23.99% 37.81% 1998 (7 months) -15.96% -8.26 * CSE index was used for 1994 and 1995, while IFC Total Return Index was used for 1996 to 1998. ** Performance figures for 1994, 1995 and the 1st half of 1996 relate to clients’ portfolios advised by Hussein Choucri Financial Advisors and were on an advisory basis. Portfolio Investment Process see graph Top of page. INTERVIEW WITH MR. HUSSEIN CHOUCRI CHAIRMAN & MANAGING DIRECTOR OF HC SECURITIES & INVESTMENT Tuesday 26th January 1999 1/Q: Mr. Choucri, could you give us a profile of HC Securities and Investment? HC Securities and Investment (HCSI) is a financial services holding company active in Egypt and the Middle East and engaged directly and through its subsidiaries in investment banking, portfolio management, mutual fund management and recently brokerage through the acquisition of an existing company. HCSI was established in May 1996 and in the summer of 1997, Morgan Stanley Middle East Inc. (a fully owned subsidiary of Morgan Stanley Dean Witter) acquired 30% of the equity of HCSI through a capital increase. In March 1999, the International Finance Corporation’s Board of Directors has approved a 10% equity investment in HCSI through a capital increase. 2/Q: What is your opinion, especially in the financial sector, of the Government’s strong commitment to reform. What should be done? The economic reforms that the government has implemented to date have been behind the emergence of Egypt as a destination for direct investments and capital flows. Consistent with those reforms, or an added feature to those reforms, was the creation of a viable financial sector. Financial inter-mediation is very important for the government to implement an open market economy. We can not do reform and leave the infrastructure of the economy as it was under the centrally planned economy. We need to have financial intermediaries that facilitate the flow of capital between those who have it and the entities that need it. The government has rightfully understood the need to have a viable financial sector. Hence, the Capital Market Law of 1992 was introduced and to date about 140 brokerage firms, 12 mutual fund management, and about 10 portfolio management companies were created. These companies will play an increasingly important role in the years to come because as the government transfers ownership to the private sector, both parties will need investment banking services to raise the necessary capital, handle mergers, acquisitions and provide financial advice in general. The existence of financial services firms becomes a must. 3/Q: You have been established recently. Still what have been your major achievements in this transition period? We have certainly established ourselves as one of the major players in both the asset management and investment banking businesses. We are one of the top 3 money management firms. We have established a franchise that is perceived of high quality in the market. We may not be the largest, but quality is something that we are certainly known for. We were selected by the government to manage one of the three L.E. 300 million accounts for government pension funds. We also established ourselves as an important force in corporate finance and advisory business. In corporate finance, we were selected to divest Amereya Textiles on behalf of Banque Misr after competing against several domestic and international firms.This is a very large company, with an aggregate value in excess of L.E. 1 billion. The government also selected us in conjunction with Morgan Stanley for the valuation of two of the four public sector insurance companies. We also have a number of assignments in the Gulf as well. I am very optimistic about the future. - What do you mean when you say that you are small? I mean in terms of the number of people. We have about 45 employees covering all of our activities. 4/Q: Most of our readers are businessmen who are interested in figures. Can you give us the main figures of your company? At present, HCSI is currently engaged in Advisory, Capital Raising and M&A assignments with value in excess of LE 3 billion. Funds under management at present must be around L.E. 700 million. Shareholders equity at the end of 1998 mustbe was around L.E. 22 million. We started with L.E. 3 million in 1996, so you can see how equity has undergone substantial growth. 5/Q: How do you describe your overall strategy to increase your market share? We would like to offer comprehensive investment banking services. When we started, we began with portfolio management, branched out to include corporate finance, added the mutual fund management last year and recently acquired a brokerage firm. So, the strategy is to grow along all the lines of activity for a full range of services. I have learned that financial services should be managed as a portfolio of businesses. You may have one activity not doing too well in one year but then you have the benefit of having two or three other activities that can pick up this lag. We have seen on Wall Street, for instance that it pays to have, in addition to investment banking, a steady stream of earnings from asset management and brokerage. When I started I went to a more stable source of income, portfolio management. I knew that I needed to cover overhead cost quickly and we were fortunate in the sense that we were able to collect funds quickly from the management that gave us this reliable and steady stream of income. Then, we branched into corporate finance that, perhaps, had more volatility, because you do not know where the next fee will come from or the time span of the assignment. So, it was a convenient balance. Then, we decided that with our type of sponsorship and quality, we needed to be involved in the other services as well. I believe that the brokerage firm will be very successful. Having Morgan Stanley as a strategic investor is a sign of credibility for the foreign as well as domestic clients. 6/Q: What are your stronger assets to face competition? I do not believe that the foreign firms are a threat to domestic companies, yet. Those who have the clout are not yet attracted to set up a full-fledged operation in Egypt, because of the size of the market. The size is not big enough to attract top tier investment banks to set up operations here. On the domestic front, our major advantage is our quality. We emphasize quality. We provide superior training to our staff. Over the past two years we have sent 8 professionals to Morgan Stanley in New York to receive training. This year we will send 3 or 4 people. We are also about to bring an instructor to give a 4-day training on a number of subjects which are of interest to our firm. This instructor gives courses at top financial institutions in the US. We will do this from time and time. These are the advantages that distinguish H. C. Securities and Investment from its peers. 7/Q: The Stock Market is considered to be still small. How do you see the future for the Cairo Stock Market? The Stock Market will grow even more. We have started from a very low base - or perhaps no base at all- yet we have grown substantially and will continue to grow. As the financial intermediation function becomes more professional and as the public becomes better educated about financial instruments, you will see the market growing. Education is very important. Until the Stock Market started, Egyptians have been investing only in real estate or saving accounts. Mutual funds were introduced as a vehicle for small investors to tap the potential of investing in the capital market. The market is still small in absolute numbers but in percentage terms it has shown positive growth compared to other markets. 8/Q: Assume that I am an institutional investor who wants to find a reliable firm on the Cairo Stock Exchange to do business with. Would you welcome me? Yes, of course. On the portfolio management side, we already manage money for off-shore and domestic institutions. Also many of the brokerage firms service large foreign accounts. - What about American accounts? We have two or three American accounts that we manage money for. 9/Q: Could you give us your personal background? I grew up and was educated in Egypt. Then, I worked for two years in the Egyptian banking sector. I spent one year working for the National Bank of Egypt and another for the Credit Lyonnais. Then, I went to Abu Dhabi where I worked for Abu Dhabi Investment Company for three years. I went to Morgan Stanley in New York where I worked for thirteen years. I was managing director for the emerging markets in the Middle East & the Indian Subcontinent from 87 to 93. I returned to Egypt in 1993, became advisory director of Morgan Stanley and set up this firm. Then, Morgan Stanley became a partner. 10/Q: What was your most satisfying personal achievement since you have been Chairman of your company? It was to grow this firm. I was by myself for the first 3 months. The most satisfying achievement is to see something that you started from scratch grow the way this firm has. The challenge was to maintain the kind of quality that we started with. Most senior staff members have MBAs. 11/Q: Keeping in mind that Forbes magazine reaches more than 4 million people, what will your last message to them be? My message will be more general about Egypt. Egypt is an attractive destination for investments. They should take the time to analyze and understand what is happening here and make the distinction and not put Egypt in the same basket with other emerging markets because Egypt did not have the same problems that other emerging markets faced. It has paid off for those who already came to Egypt. The country is turning around. Transformation is taking place in steps. If you look at it from a macro point of view, you will find a major transformation. 2/ Group Activities Investment Banking Portfolio Investment Process   Read on   © World INvestment NEws, 1998. This is the electronic edition of the special country report on Egypt published in FORBES Magazine, May 31st issue. Developed by AgenciaE.Tv