Egypt, new dimensions, new frontiers

Mr. Adel Youssry Hassan Khedr, Chairman of FinRate Consulting

Egypt -

"The Ultimate Corporate Finance Boutique"

Interview with:

Mr. Adel Youssry Hassan Khedr

Cairo, March 26th, 2000
Congratulations on your ten year anniversary. Could you provide us with a brief history of Fin Rate?

Before incorporating FinRate Consulting I was managing CIB. At the time the private sector was growing fast, there were plenty of market opportunities, and the volume of buying and selling was growing. Nevertheless, there was no serious attention being paid by the business owners to the development of the infrastructure of their companies. They were buying and selling more, producing greater volumes, but there was little attention given to developing management, support functions, policies and information systems. With the growing sizes of companies, what happened was that the weak aspects of companies did not create the equilibrium needed for the business to run smoothly. It is very important to observe the equilibrium between people, resources, systems, policies and procedures to have a company run well.

This was one of the major reasons why I started FinRate; to help the private sector grow on healthier terms. This has been our motto since we began, and it has never changed. Certainly our services have evolved with the re-activation of the stock exchange, but our mandate is still the same. Five years ago, with the re-activation of the stock exchange we became more focused on corporate finance services, still maintaining our management and financial advisory capabilities. There is synergy between these services.

Could you elaborate this concept of a "Corporate Finance Boutique" and how synergies are developed with management consulting and head hunting?

How do they work together? In corporate finance we assist companies in acquisitions and investment situations, equity sale or raising whether through a third party or the market. If it is with the market it is like pre-IPO advisory/assistance, and if it is to a private entity it is a merger or acquisition. In all cases, whether we are representing the buyer or the seller, we need to make sure that the company is completely and fully represented. If there is something wrong in the company, either in its strategy, organisation or staff, we do the necessary financial and managerial restructuring required to make sure the owners get the best value. It is like sending your car to the maintenance shop before you sell it - we start corrective actions with the client before he goes out for sale or on an IPO.

First we do a diagnostic study. We make a complete check on management practices, policies and procedures, business strategy, finance and resources management. Then we present our observations and opinion whether things we liked or disliked, what is missing in the business and what should be done about it. The second phase could mean corrective actions: hiring professionals for the firm, re-structuring or raising finance, asset reallocation or building the infrastructure. This is how the management consulting, corporate finance and head hunting services interrelate.

Do you also assist for policies and procedures?

Although we no longer build policies and procedures for our clients, we develop the necessary terms of reference. We set: what is required, how to achieve necessary results, we provide specs, we hire a competent firm, and we help the client receive the deliverables. Finally, we see the client through the application challenges.

Could you tell us what type of company you are working with or targeting, and perhaps mention a particular operation which you are especially proud of?

We do very little business with government or public sector companies. Our clients are usually from large private sector entities. The reason is that we need the client to move quickly on what we agree on, as opposed to government entities where many decisions need longer time. Restructuring is like cooking; if it is not done in a reasonable time frame, it does not work. It is a series of numerous decision which have to take place in harmony, and we deal with owners who want to get things done and get things right.

Those who are confused and unsure of where they want to go, we would rather not deal with them because this is like taking medicine, if you don't take it at the right doses at the right times, it does not have the same effect. It is a program that has to be structured on a strict schedule, and I believe that running in unison with the client is an important aspect of successful consulting.

Where do you see FRC distinctly different form other firms? And how did you start your head hunting service?

Let us say that we have three activities under one roof. When we take on a project we always make sure it happens. It is not an issue of producing a report - whatever the situation whether it is an acquisition, arrangement of finance or restructuring, we always make sure that we see it through and make sure it happens. We do not sell academia, we sell practical solutions to our clients and we help make them happen.

Before we had our own head hunting services, we had to place an ad in the newspapers to find top-level executives for our clients. Highly qualified people do not respond to these ads, so head hunting was necessary. It is all about knowing who is out there, getting to know him or her, communicating opportunities and we now have a fully dedicated team responsible for contacts with high level executives in Egypt and the Middle East.

How do you relate to investment banks?

We do not see ourselves competing with investment bank but rather complement one another. We have done business with many such as HSBC, EFG Hermes, CIIC. We take on the client much earlier at say T minus 360 days, T being the time when the transaction is consumed, while the investment banks come in post restructuring say T minus 90 days or 120 days. So we stay with the client longer preparing him to go to the market. The final presentation and distribution of a transaction is carried out by the investment banks.
What is the share of these three activities in the whole of your operations?

Three years ago management consulting represented 40 per cent of business, corporate finance the other 40 and 20 per cent for head hunting. Now management consulting does not represent more than 10 per cent of business. The reason is that all of our mandates are corporate finance related - transaction related - and the MC area is now confined only to diagnostic services - showing the client the way, identifying problems and providing assistance to build and restructure his business.

What do you think should to be done in order to bring the stock exchange into a new phase of development and particularly to boost the bond market?

What I see missing on the Egyptian Stock Exchange is a well-informed, intelligent local investor. Most of the individual buyers and sellers in the stock exchange are not investors they are speculators. They want to get into the market, get out and make 20 per cent in two or six weeks. Because this has happened in the past, it is assumed that this will continue to happen in the future.

Although we need speculators, having a large part of the domestic savings in Egyptian stocks should be dealt with as a cultural issue. For instance: the best research on Egyptian shares is written in English, and this is quite sophisticated for the average Egyptian investor. There has not been any effort done to support a new generation of potential future investors and to educate them on the mechanics of the stock exchange. People who work in simple jobs are ashamed to say that they do not know, and you have to approach them with research and information on the fundamentals of investing, and try to encourage them to invest in the stock exchange. The individuals share of the float is still quite insignificant if compared to bank deposits.

What do you think has to be done in order to educate Egyptians on this issue?

This has to be done through the mass media of the country, linking the media with the stock exchange to educate the public. There has to be more effort to present simple, straightforward analysis on stocks. People have to realize that the daily movement on stock has very little bearing on the value of their money if they are there to stay for a longer time. Stocks should be looked upon as long term investments that protects the family savings from inflation; it is not all trading. What could happen in a company in several weeks that would make you buy and sell its stock during that period of time? I think we have to learn to become investors first, then to become traders.

Focusing on your head hunting services, how easy is it to find top management here in Egypt, and what is the profile of top managers which companies are looking for in Egypt?

Egypt is the wealthiest country in the area when it comes to skills. The process begins by a company contacting us and telling us which positions have to be filled. We spend a considerable amount of time understanding the company, its culture, genuine needs, what specifications are they looking from that senior executive, what is his mandate. Then our search team gets to work and looks specifically for people who correspond to this assignment and these specifications. Once we have found suitable candidates, we prepare a candidate assessment report outlining the results of our search and two or three preferred profiles. Then we conduct interviews and choose the right candidate, together with the company.

Some people say that in order to bring stability to the country's reserves, Egypt needs to find new foreign currency earners. Some others stress that, in fact, the priority should be given to the development of the present foreign currency earners, especially tourism given its great potential. May I have your assessment on this issue?

We need first to become self-sufficient on food, our annual food import bill is still high. Secondly, we have to some local technology and R&D to cut down on importing technology. Then we need to focus our attention and resources to expanding on foreign currency generators where we have comparative advantage. Despite the track record we have in manufactured and agricultural product exports, their amounts and potential remain insignificant.

I believe we have a comparative advantage in attracting visitors for Egypt i.e. incoming Tourism. For the Middle East area, Egypt is the cultural centre of the Arabic-speaking world. It was traditionally a leader in education and health care attracting many Arab families. I believe we did not capitalise on that and allowed it to slip. In this area we can build on our proximity, cultural wealth, values and language advantage to once again become the destination of choice.

For the international market, I will not repeat the historical wealth of Egypt that attracts many tourists every year. The potential is enormous, we have a diversity of things to offer. Think of a country like Spain that is attracting more than 40 million tourists per year, while we hardly receive 4 million. There are many things that should be done in this respect, starting from relieving the strict security measures that are presently being implemented so as to allow tourists more freedom. We also need to attract more foreign direct investment. We are still far from our potential and I am afraid we are not doing enough.

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© World INvestment NEws, 2000.
This is the electronic edition of the special country report on Egypt published in Forbes Global Magazine.
August 7th 2000 Issue.
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