After shunning Egypt for over a year because of political instability, Gulf Arab investors are returning to the country, lured by signs that politics are settling down and by the opportunity to buy assets at beaten-down prices.
The interest of Gulf Arabs, who tend to be more familiar with Egypt's political dynamics and business culture than Western investors, is a positive sign for the country's battered economy - especially since some Western firms are pulling out of Egypt because of financial pressures in their home markets.
"There has been a renewed improvement in Gulf investor appetite for Egypt this year. This is not confined just to the financial industry - the pick-up has been across sectors," said Declan Hayes, managing director for transaction services at Deloitte Middle East, a consultancy.
Egypt's immediate economic prospects remain difficult. The economy barely grew last year because of industrial unrest and capital flight that followed the ousting of authoritarian president Hosni Mubarak in February 2011. The International Monetary Fund predicts economic growth of just 1.5 percent this year - not nearly enough to make a dent in high unemployment.
The country's new Islamist President Mohamed Mursi, elected in June, faces tensions between his Muslim Brotherhood and the military. Egypt has still not managed to write a new constitution, and parliamentary elections may need to be held after a court annulled the results of polls early this year.
Many Gulf investors now appear willing to accept such risks, however, because they think Mursi's election has at least started the process of solving the problems.
Mursi has redefined his relations with the military by dismissing two top generals. He has also taken the politically courageous step of asking the IMF for a $4.8bn loan, larger than the $3.2bn which Cairo was previously discussing, and visited China last month to discuss investment.
"The recent moves by the president to rejuvenate the military leadership and remove a potential political deadlock have created confidence," said Ahmed Badreldin, senior partner and co-head of large-capital private equity at Dubai-based Abraaj Capital, the region's biggest private equity firm.
"The visit to China is one such example of reinforcing the message that Egypt is open for business, and that investors' rights will be maintained and preserved."
An Egyptian company in Abraaj's portfolio, Al Borg Laboratories, agreed last month to merge with Al Mokhtabar Laboratories to create what it said would be the largest medical diagnostics business in the Middle East and South Asia.
One sign of improving business confidence is the rebound in Egypt's stock market, which climbed this week to its highest level since June 2011, up 53 percent so far this year - though it is still 24 percent below last year's peak.
The easiest pickings for Gulf investors in Egypt appear to be banking operations put up for sale by European lenders, which are retrenching globally. Flush with cash because of high oil prices, banks from the Gulf do not need to seek near-term profits in Egypt; they can take the long view, counting on Egypt's population growth to deliver profits down the road.
French bank Societe Generale said last week that it had entered preliminary talks with Qatar National Bank (QNB) to sell its 77.2-percent stake in its Egyptian arm, National Societe Generale Bank.
QNB may be obliged to make a mandatory offer to minority shareholders which would see it acquire the entire bank, Egyptian investment bank EFG Hermes said, adding that the Qatari lender might end up paying as much as $3bn for the unit.
BNP Paribas, another French lender, is seeking initial bids for the sale of its Egyptian retail arm, which could generate between $400-$500m, sources familiar with the sale process said.
Interest in this deal is coming mainly from banks in the UAE, Kuwait and Qatar as well as Turkey, bankers said, declining to be named because they were not authorised to speak to media.
"We are telling our Gulf banking clients that this is probably the best opportunity ever for them to get into Egypt by buying quality assets at attractive prices," a Dubai-based banker said.
Meanwhile QInvest, a Qatari investment firm part-owned by the state, plans to acquire EFG Hermes after last year's economic turmoil left the Egyptian bank with little means to expand across the region.
Sectors other than banking are also in play as Gulf investors anticipate Mursi's government will beef up infrastructure projects and policies to expand discretionary spending by a young population of about 80 million. Some projects will be funded by the investors' own governments; Saudi Arabia and Qatar have pledged several billion dollars of aid to Egypt in recent weeks.
"The interest is not confined just to the financial industry - the pick-up has been across other sectors including energy, oil and gas, consumer staples and in some cases, renewable energy-related investments," said Deloitte's Hayes.
Saudi food group Savola bought out the remaining stakes it did not own in two Egyptian companies late last year as part of a regional expansion plan.
Saudi-based private equity firm Amwal Alkhaleej, which has stakes in Egyptian companies such as Arab Cotton Ginning, is looking at another Egyptian investment, its chief executive said in an interview in April.
Infrastructure is another area which Gulf investors are expected to enter, if Cairo can offer the necessary administrative support and legal protections.
"Going forward, and with Egypt's rising infrastructure needs from roads to power stations, we see increased foreign and Arab investor participation in these sectors, especially if a compelling public-private partnership framework is put in place," Abraaj's Badreldin said.
Until the shape of Egypt's post-revolution politics becomes clear, the country will remain risky in the eyes of many investors. A mergers and acquisitions banker in Egypt said that although overall M&A interest in the country was improving, it remained well below its level in 2010, before the revolution.
"There is always a risk premium for investments in Egypt. Investors are aware that though there is stability now, the country is not fully out of the woods," the Dubai banker said.
Another major risk is a currency devaluation, which could slash the value of investments in Egypt.
So far the central bank has sold its foreign currency supplies to prevent any sharp fall by the Egyptian pound, which has edged down to a seven-year low of 6.1 against the dollar from 5.8 before the revolution.
The defence of the currency has more than halved Egypt's foreign reserves, however, and many analysts think the central bank may still end up permitting a substantial devaluation this year or early next, perhaps as far as 6.5 or even 7.0.
But with aid from the IMF and Gulf countries, Egypt may be able to escape a violent, uncontrolled devaluation and merely manage its currency down slowly to stimulate exports. Most foreign investors would probably accept such a process and it would not deter them from acquisitions, many bankers said.
"It might be a managed, controlled devaluation and if that is the case, then the Egyptian bank sector will continue to be fundamentally strong," said Aybek Islamov, an analyst at HSBC.
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