1 EFG Hermes Credit Memo • Mohamed Magdi • Ahmed Abbas • Abdelrahman Essam • Ahmed Maher • Karim Wahid
1
EFG Hermes Credit Memo
• Mohamed Magdi
• Ahmed Abbas
• Abdelrahman Essam
• Ahmed Maher
• Karim Wahid
2
Financial sector background
• Egypt’s banking and finance market is one of the most developed in the
Middle East and North Africa region
• The central banking system, the stock market, and credit ratings and
scoring agencies are key institutions supporting the banking and finance
sector
• Government rules and regulations play a major role in defining the structure
and function of the banking and finance industry in global economies.
• The sector is populated by local and international banks, venture capital
firms, securities brokerages, private equity companies and credit rating and
scoring institutions, as well as two stock exchanges.
• The banking sector is overseen by the Central Bank of Egypt, while non-
bank financial institutions are regulated by the Egyptian Financial
Supervisory Authority (EFSA).
3
Financial sector background
• Egypt’s banking and finance sector was shaped in important ways by a
series of pivotal reforms that took place from 2004 to 2007, beginning with
the establishment of the Ministry of Investment in 2004. Prior to the
implementation of these reforms, Egypt had operated under an Open Door
Policy dating back to the 1970s, under which foreign banks were given free
rein to operate in Egypt.
• The government of former Prime Minister Ahmed Nazif introduced a
centralized system, which brought together the country’s non-banking
financial institutions and asset management firms under one regulatory roof.
This led to a comprehensive revival of Egypt’s financial sector, invigorated
investment and an upgraded stock exchange.
4
Company’s background
• Since its founding in 1984, EFG Hermes has evolved over 30 years into a
regional leader in financial services with over 800 employees in 6 countries
• EFG Hermes Egyptian stock company - Subject to the Law No. 95 of 1992
and its implementing regulations.
• The company launched Asset management services and security brokerage
service at 1994.
• At 1996 EFG merged with Hermes financial services and formed EFG
Hermes
• At 1998 EFG Hermes Gone public via a USD 50 million GDR offering.
5 Company’s background Line of business Main players
Securities brokerage
Beltone Securities Brokerage, Pioneers Securities, Arabeya Online Securities
Investment banking
Naeem, HC, Beltone
Asset management.
CI Capital, Beltone, Concorde
Private equity.
Citadel Capital, Abraaj Capital, Pharos
Leasing.
Egyptian drilling company, Inco lease, corplease,
Microfinance.
Reefy
6
Company’s background
Name Title Position
KARIM AWAD CHIEF EXECUTIVE OFFICER, EFG HERMES
CHIEF EXECUTIVE OFFICER AND A MEMBER OF THE BOARD OF EFG
HERMES HOLDING,SINCE2013
AMR SEIF
HEAD OF ASSET MANAGEMENT AMR SEIF JOINED EFG HERMES IN OCTOBER 2013 AS HEAD OF THE
FIRM’S ASSET MANAGEMENT DIVISION.
MOHAMED EBEID
CO-HEAD OF SECURITIES BROKERAGE JOINED THE EFG HERMES TEAM IN 1999
Shareholders structure:
Main Board of directors:
Main Executive directors
7
Industry analysis
SWOT Analysis
PESTEL
Micro Analysis
Macro Analysis
Securities brokerage
Investment banking
Microfinance
commercial bank
securities brokerage
Investment banking
leasing
Asset Management
Private equity
8 PESTEL
POLITICAL • The political environment was not
stable for the past 5 years. • The government decisions affect
the industry. • Political stability plays a great role
for industry growth. • Randomness of the economic and
political decisions started to be more consistent.
Economic • Inflation rate is constantly increasing despite the
CBE decisions to increase the interest rate trying to absorb the inflation.
• Shortage in foreign currencies has the following effects: Continuous increase in the exchange rate Increasing Foreign Debt level Deteriorating Importing and manufacturing
processes (depending on imported components).
• Undervalued official price of foreign currency, in addition to foreign currency black market existence resulted in having two exchange rates in Egypt (with approximate variance of 75% between the two prices).
9 PESTEL
Social • High total population around 91
Million on The majority of the population falls between 25 and 44 years old.
• One of Egypt’s biggest socio- problems is the high unemployment rate which has been growing over the years reaching 12.5% on June 2016.
• The high rates of unemployment and population growth coupled with low wages in most of the public sector companies contribute to the poverty levels, with close to 20% of Egypt’s population below the poverty line
Technology • Technological advancement is a major factor of success
in financial services industry in general, especially in the field of brokerage services, investment banking and private equity.
• A brokerage firm needs to be linked to EGX with no tolerance of delay of failure as it would highly effect daily transactions, and as well providing their clients with the latest information on international markets provided by services like Bloomberg and Reuters.
• Egypt’s infrastructure of technology and network is not highly advanced, though the existing internet service provided to financial services company is relatively high speed and stable services, Financial services firms tends to give serious attention to IT departments specially while establishing the firm, and tends to build a solid network depending solely on imported high technological machines.
10 PESTEL Environmental
• Egypt is highly depending on agricultural due to lack of manufacturing technology and capital, and with the existing scarcity of water problem that is expected to develop over time with the Ethiopian government announcement of finishing almost 70% of the new Ethiopian Renaissance Dam on Nile river, which would make the water scarcity problem more severe in Egypt, directing it to import some of the heavy water consumption products that it used to plant, which would affect the industries depending on agriculture and negatively effecting investment in private companies related to agriculture or factories that needs a fresh water resources for various uses.
Legal The poor enforcement of legal contracts, and unpredictable judicial system are two major impediments to doing business in Egypt, affecting foreign Investments. • The new prospective investment law though
will simplify investment process in Egypt mainly through: “One stop shop” system that will be the
only source of licenses for new investors to initiate their business.
A new law that protects investors from nationalization as well as ensuring their funds in USD by the official Exchange rate in existing process.
A regulation that will also set out a unified mechanism to settle new investment disputes and a law that will prohibit any regulatory body from investing.
11
Securities brokerage Porter analysis
Intensity of Existing Rivalry
High
Bargaining Power of customers low
Bargaining Power of Suppliers
low
Threat of new entrants low
Threat of Substitutes low
12
Securities brokerage 7 risk characteristics
Cost structure
The industry depend on the well-educated employees to run its operations so It’s a high operating cost
Maturity
Growing industry
Cyclicality
Cyclical
Profitability
considered a highly profitable industry as it is still in the growing phase and it’s considered a concentrated industry.
Dependency
Low dependent
Substitutes
there is no substitutes for the industry, but there is substitutes in the provider of the service as it depend in the quality of the service and loyalty.
Regulations
The industry Is heavily affected by the government regulations
13
Investment banking Porter analysis
Intensity of Existing Rivalry low
Bargaining Power of customers Moderate
Bargaining Power of Suppliers low
Threat of new entrants low
Threat of Substitutes low
14 Investment banking 7 risk characteristics
Cost structure
An experienced and well-educated advisors is needed to run the company so this means high operation leverage
Maturity
growing
Cyclicality
Cyclical
Profitability
The investment banking is considered a highly profitable industry as it is still in the growing phase and it’s considered a concentrated industry.
Dependency
heavily dependent on the demand side as it depends on the economic status as in expansion market there are a lot of players who can demand for the investment banking services.
Substitutes
there is no substitutes for the industry, but there is substitutes in the provider of the service as it depend in the quality of the service and loyalty.
Regulations
Acquisitions take place through open market transactions or tender offers.
15
SWOT Analysis Strengths
• EFG Hermes has physical presence in 6 markets and indirect access to 6 more.
• The first and only Arab investment bank to advise regional governments on long-term growth strategies.
• Dominating the flow of foreign capital into the region • Largest and most comprehensive research capabilities in
the region • The advisor of choice for multinationals entering Arab
world markets
Weaknesses • Highly affected by the
economic conditions. • High operating leverage • Highly depending on the
monetary& fiscal policy.
Opportunities • The country’s need for large-scale infrastructure and
other investments as well as consumer demand • Successful track Record of structuring and executing
large, complex transaction on behalf of different kinds of investors.
• A highly developed banking and finance sector with a proven track record of recovery from economic crisis
Threats • Increasing rates of interest • Government regulations • Political instability • Possible devaluation • Shortage in foreign currency
16 • At 24 February 2016 EFG Hermes acquired 76.7% in Tanmeyah for
microfinance representing all the shares owned by Qalaa Holdings.
• At 13 April 2016 EFG Hermes acquired an additional 17.3% representing all
the shares owned by Egyptian Gulf Bank.
• As a effect of this decision we decided to grant the company an overdraft in
order to expand its activities.
17
Microfinance
• Microfinance is the provision of financial services to the poor and low ‐income clients who do not have access to formal financial institutions
• According to law 141 / 2004 that assigned the social fund for development the role of coordination of MSEs in Egypt, law defined “ MSEs” as follow :
Micro enterprises – less 50,000 EGP as working capital irrespective of number of employees
Small enterprises – between 50,000 and one million EGP as working capital and less than 50 employees
• In late 1980s, ABA introduced the first micro ‐loan program to Small Enterprises in Egypt with the support of USAID.
• During the following two decades, many NGOs and banks launched MF programs
• The National Strategy was developed in 2004 and launched in 2005 with the objective of “developing a microfinance industry in which sustainable financial services for lower market segments are integrated into the overall development of a broad, inclusive, and diverse financial sector”
Industry background
18 Microfinance
Porter analysis
Intensity of Existing Rivalry High
Bargaining Power of customers Moderate
Bargaining Power of Suppliers low
Threat of new entrants High
Threat of Substitutes low
19
Microfinance 7 risk characteristics
Cost structure
The industry depend on the human capital as a key factor to run its operations
Maturity
Growing
Cyclicality
Cyclical
Profitability
It is widely known today that providing loans to micro-entrepreneurs has a relatively attractive potential to generate profits and growth.
Dependency
Heavily dependent on the supply side & its moderately dependent on the demand
Substitutes
there is no substitutes for the industry, but there is substitutes in the provider of the service
Regulations
The country is encouraging & facilitating the rules that governs the microfinance industry
20
Background of Tanmyah • Founded in 2009, as Egyptian company specialized in providing of micro-
finance solutions for individuals and small entrepreneurs with low incomes
and those who are not receiving appropriate coverage from the banking
sector in Egypt.
Name Title
AMR ABOUESH CHAIRMAN, CEO & CO-FOUNDER
AMR ABOELAZM VICE CHAIRMAN, MANAGING DIRECTOR & CO-FOUNDER
WAEL ZIADA VICE CHAIRMAN
MICRO-ENTERPRISE LENDING
• Loans range: EGP 4k-30k
• Loan tenor: 4-12 months.
• To finance working capital
VERY-SMALL ENTERPRISE LENDING
• EGP 30k-100k
• Loan tenor: 6-24 months
• To finance working capital and assets
Main Board of directors
Products
21
Financial Statement analysis Revenue growth
Item 2010 2011 2012 2013 2014 2015 2016
Revenue (standalone) 17 289 772 177 514 25 198
Revenue growth (standalone) 1600.00% 167.13% 77.07% 190.40% 95.14% 692.00%
0
100
200
300
400
500
600
700
800
900
2010 2011 2012 2013 2014 2015 2016
Revenue (stand alone)
Revenue (stand alone)
The revenue growth rate for the EFG Hermes Holding Company is very volatile to understand the source of the problem we need to break down the Revenue item
22 Revenue (standalone)
Revenue
(standalone)
Dividends income
investment from
subsidiaries
Income from available for sale
investment
Income from investment at fair
value through profit & loss
Custody activity income
the instability of the main revenue item of the Holding company income statement came from the dividends income from subsidies companies so we need to check the stability of the subsidiaries Revenue growth.
23 Group Revenue Breakdown
the subsidiaries Revenue came from their main activities (exclude the commercial bank activities)
0
50
100
150
200
250
300
350
400
450
500
Brokerage
Asset Management
Investment Banking
Private Equity (Egypt)
Leasing
Microfinance "Tanmeyah"
Revenue breakdown(Group) 2010 2011 2012 2013 2014 2015 2016
Brokerage 376 220 240 282 451 344 433
Asset Management 166 117 121 207 272 215 126
Investment Banking 167 105 122 40 138 163 186
Private Equity (Egypt) 145 144 110 134 90 86 117
Leasing 0 0 0 0 0 20 92
Microfinance "Tanmeyah" 0 0 0 0 0 0 94
Capital Markets & treasury
operations 1052 81 102 167 269 221 288
Total Revenue (group) 1906 667 695 830 1220 1049 1336
24
Group Revenue Breakdown
• The investment Banking is the more volatile activities in the group as it depend on the no. of transaction & the amount of transaction done during the year & the company is try to diversify this risk by work in regional markets.
• the growth of the new two activities the Leasing & Microfinance as the leasing company came in the 5th place in term of contract booked during first half of 2016, & also Microfinance Company has a very growth potential as the Egyptian government provide a great support to this industry.
0
50
100
150
200
250
300
350
400
450
500
2011 2012 2013 2014 2015 2016
Brokerage
Asset Management
Investment Banking
Private Equity (Egypt)
Leasing
Microfinance "Tanmeyah"
Capital Markets & treasury operations
25
Group Revenue Growth
0
500
1000
1500
2000
2500
3000
2010 2011 2012 2013 2014 2015 2016
Investment Bank revenue Commercial Bank revenue Sales (Group)
FY 2011 , the closure of the bourse for nearly eight weeks. affected the overall performance of the Egyptian stock exchange market & the financial activities which lead the revenue of the group to drop down by 65% but we can see that revenue after that start to grow by stable rate as the Egyptian economy slowly recover. In 2016 the company completed the sale of 44.3% of Credit Libanais’s shares, leaving the company with a 19.5% stake
26
Group Operating Expense
Item 2010 2011 2012 2013 2014 2015 2016
Investment Bank operating
Exp 874 665 716 799 748 723 988
Employee Expense 619 464 495 587 550 524 696
other operating Exp 255 201 221 212 198 199 292
Commercial Bank operating
Exp 259 550 643 756 804 898 0
Operating Exp (Group) 1133 1880 2075 2354 2300 2344 1976
Operating Exp
(Group)/operatino Rev. 46% 100% 103% 96% 61% 69% 72%
Employee Exp/operating rev. 32% 70% 71% 71% 45% 50% 51%
Employee Exp./operating exp 71% 70% 69% 73% 74% 72% 70%
• The Employee’s salaries & benefit “Fixed cost” represent the highest expense item by 70% of the total operating expenses.
• it’s a high operating leverage so we have a high business risk
27
Group Operating Expense
• But the company from FY11 applies a cost reduction measures which is reflected in the reduction happened in both Employee expenses & other expense compared with the operating Revenue achieved as we can see in the figure
28
Standalone Operating Expense
Item 2012 2013 2014 2015
Operating Exp (standalone) 267 258 160 247
Employee Expense 172 188 89 157
other operating Exp 95 70 71 90
Employee Exp./operating exp 64% 73% 56% 64%
the standalone company is similar to the group that the employees’ salaries & benefit represent the major item in the operating cost (65%) of the total operating expenses the company is maintain its Employee expenses which reflect they ability to control their fixed cost item & reflect their success in applying the cost reduction measures they adapted from 2011.
29
EBITDA Margin Item 2010 2011 2012 2013 2014 2015 2016
Investment Bank revenue 1906 667 695 830 1220 1049 1376
Investment Bank operating
Exp 874 665 716 799 748 723 988
EBITDA 1090 98 54 116 564 421 483
EBITDA Margin 57% 15% 8% 14% 46% 40% 35%
Revenue (standalone) 16 288 771 176 513 26 226
EBITDA (standalone) 603 63 490 1 122
EBITDA Margin (Standalone) 78% 36% 96% 4% 54%
• EBITDA is the profit margin that results from core operation (our caution against business risk) & show us the ability of group to pay it’s old & new debt as we can see after the 2011 hit the EBITDA decreased roughly but the following year the company start to recover & make stable 40% growth
• The EBITDA margin of the EFG Hermes holding is highly fluctuated as the fluctuation in the Dividends Income from investment in subsidiaries item change from year to another
• The EBITDA in the holding company is a good indicator for cash flow as there isn’t Account receivables.
30 Financial Leverage
(Total liability/Tangible Net Worth)
• The increase in the financial leverage till 2015 is due to the increase in the balances of due to related parties & long term tax payable.
• FY16 the standalone company take a long term debt from Audi bank by 150 at 10-6-2016 due 10-6-2023 used to finance the company expansion.
31 Financial Leverage Group
(Total liability/Tangible Net Worth)
• We exclude the commercial bank figures to calculate the financial leverage to the continuing activities.
• the group started recently a leasing activity & depend on the debts to finance the leasing activities by 711 M which make the financial leverage to start increase rapidly so we need to be sure that the group leverage doesn’t exceed the appropriate level.
• The company issued capital is 3.2 billion & they raised the Authorized Capital to 6 billion which give the company the ability to increase it’s equity to enhance their leverage .
Financial Leverage 2012 2013 2014 2015 2016
Total Lia (group) 48085 55492 63382 75016 5339
Total Lia (group after excluded CB) 3335 3830 4783 5542 5339
Total Eqyity 11411 11879 12282 13384 8861
TNW (group after exclude CB GW) 11326 11664 12058 13157 8277
total Lia/ Total Equity Group 425% 467% 516% 560% 60%
total Lia/ TNW Group (after excluded CB)) 29% 33% 40% 42% 65%
32
FY 2013 2014 2015
CFO „m 864 -218 588
Cash flow from operating activities for EFG Hermes company is highly fluctuated as the
fluctuation in Revenue items in 2014 although the company had net profit in that year of EGP
443, due to the significant increase of the amount the subsidiaries companies owes to EFG
Hermes Egypt , from EGP 891m in 2013 to EGP 1,620 in 2014 ( a part of its operation
activities)
Cash flow analysis
33
Net profit Margin
2012 2013 2014 2015
Total Revenue(Group) 1829 2165 2610 2616
EFG Hermes NPAT (group) 211 -540 538 461
EFG Hermes Rev 772 176 513 25
EFG Hermas NPAT 583 -916 443 -31
Net profit Margin (group) 12% NM 21% 18%
Net profit Margin (Standalone) 76% NM 86% NM
From 14 to 15 The group profitability declined 14% FY 14 included one-off gain related to SODIC’s stake sale (97 M non-core asset sale) ,if excluded the Group’s NPAT would be 5% higher. From 12 to 13 FY 2013 if we normalizing our earnings by adjusting for non-cash impairment 958 the NPAT will be 42 & despite that the FY13 the Normalized Group NPAT (before minority interest) is 427 which reflect a stable growth rate in Net profit margin to the group The holding company fluctuation is due to the fluctuated in the income dividends come from subsidiaries
34
Liquidity Ratio
Liquidity Ratio 2012 2013 2014 2015 2016
Current ratio 5.5 4.6 3.3 2.4 3
Quick ratio .4 .3 .3 .6 .4
The major amount in the current asset is due from related parties which represent 65% of the current assets & the ratio is decreased due to the
35
Major projection Assumption • Revenue (standalone)
STEP 1 We need to break down the group Revenue into its continuing activities” to reach
the total revenue of the group.
• The activities in Egypt will increase in term of fees & commissions charges because of:
I. The expected increase in the inflation to reach 18%.
II. The expected devaluation of the EGP against USD.
• The no. of transaction in Egyptian Market will increase as:
I. Starting from 2017 as Egypt’s Economic Growth is expected to slow in 2016 &
Recover in 2017 according to International Monetary Fund.
II. The country’s GDP is expected to rebound in 2017, reaching a growth of 4.3 percent
III. Egypt approaches the signing of the IMF loan
• The regional Market will continue their effected by the drop in global oil prices started
from 2015 & slowing down Gulf economies affected by the reduce in governmental
spending.
36
Major projection Assumption
Activities Assumption Logic Behind the assumption
Brokerage (at all it will increase)
Egypt
For FY 17 will increase only by
the expected increase in
inflation rate 18% plus a
growth rate 7% will be decrease
1% each following year
UAE Will increase by 5% As EFG Hermes is a major player
KSA
Will increase by 5% for FY17 &
then 2%
Conservative rate as it‟s fluctuate industry &
affected by many factors
Oman
Will increase by 5% for FY17 &
then 2%
Conservative rate as it‟s fluctuate industry &
affected by many factors
Kuwait
Will increase by 5% for FY17 &
then 2%
Conservative rate as it‟s fluctuate industry &
affected by many factors
Jordan
Will increase by 5% for FY17 &
then 2%
Conservative rate as it‟s fluctuate industry &
affected by many factors
pakistan Will increase by 50%
As it‟s the 2nd year for EFG in this market & we
took Conservative rate than the growth
happened in Jordan at the beginning of EFG
work in this market
37
Major projection Assumption Asset Management
Egypt Will increase by 10%
Regional Will increase by 15%
Investment Banking
Egypt
Only First FY17 will be the
historical average of FY15
& FY 16 & for the
following year will take the
same amount of FY17
Conservative rate as it‟s fluctuated industry & depend
on the no. of transaction done & the amount of each
the transaction
Regional
Only First FY17will grow
by 50% of the average
from 2010 to 2016 & for the
following year will take the
same amount of FY17
Conservative rate as it‟s fluctuated industry & depend
on the no. of transaction done & the amount of the
transaction
Private Equity (Egypt)
Only First FY17will be the
same as FY16 & then
growth by 5%
Conservative rate
Leasing Will increase by 30% It‟s the company new industry & plan to gain a market
share & expansion
Microfinance Will increase by 50% It‟s the company new industry & plan to gain a market
share & expansion
Capital Markets &
treasury operation Grow by 5% As the company has uprising trend
38
Operating expense
• Containing two main items:
I. The Employee salaries & benefits will increase
in term of amount as:
- the rapidly increase in inflation (according to IMF it
will reach 18%) but this increase will be passed to
services fees & commissions
- the increase in no. of employees included
Tanmeyah’s workforce of 1603 employees from
2016
39
Operating expense 1. operating expenses will increase by 10% as the
company successfully applied the cost
reduction measures from 2011 that successfully
reduced the employees expenses/operating
expenses from 70% in 2011 to 50% in 2015
2. Other operating expense
• Will increase by 10% started from 2017 as for
the depreciation expense of leased assets & the
provisions related to Tanmeyah’s loan portfolio.
• the two item is noncash in nature so the EBITDA
won’t change.
40 Net profit after tax & minority
interest
It will equal at its historical average 63% of net
operating revenue We will expected that 90% of
group Net profit after tax & minority interest will be
transferred to the EFG Hermes Holding Company
& the 10% of the remaining will carried forward by
subsidiaries.
Finally we reached the first item in the standalone
Revenue Which is the Dividends income from
subsidiaries
41 Revenue in EFG Hermes Holding
Company
1- Dividends income
• We assumed the investment from subsidiaries will be 90% of the Group’s Net profit after tax & minority interest.
• Income from available for sale investment By its average growth rate 86% for the first year & will be fixed amount (FY17) for the following years
• Income from investment at fair value through profit & loss will be fixed amount at 1m because of it’s a fluctuated item.
42 Revenue in EFG Hermes Holding
Company
2- Custody activity income
By its historical average amount
We now have the Company Revenue
Operating expense will be increase by 10%
• Tax payable expected to be settled by 80% each projected year
• Dividends payable expected to be paid using 50% each year projected
43
Debt service ratio
Item 2016 2017 2018 2019 2020 2021
EBITDA 122051 213811 279696 396084 572173 841863
EBITDA/Financial payment 3.4 3.3 4.2 5.6 7.2 11.9
EBITDA is improving from year to another which able the company to pay it’s obligation & has a margin to absorb any business risk.
44
Cash flow analysis
• We will have a negative cash flow from operating in the first year in the loan
& then it will be positive, for the first year we can depend on the other
revenue item (Positive CFI) as it has stable growth rate
2017 2018 2019 2020 2021
CFO -4 50 141 279 670
CFO/Total Bank Debt 0 0.2 0.7 1.6 5.8
CFO/Financial Payment -0.1 0.8 2.3 4.4 10.6
45
Financial Leverage
Item 2016 2017 2018 2019 2020 2021
Leverage (Total Lia/TNW) 9% 11% 10% 9% 8% 6%
Gearing (Total Bank debt/Total Equity) 2% 4% 4% 3% 2% 1%
Good financial ratio leverage but we must consider the leverage for the
group special in the existence of leasing & Microfinance companies
which depend on the debts to finance their activities
46
Profitability ratio
2017 2018 2019 2020 2021
Revenue growth rate 53% 28% 32% 35% 37%
Net profit margin 46% 52% 60% 68% 77%
47
Risk Assessment
• we will grant a long term loan to EFG Hermes The holding company to
finance up to 40% of the acquisition cost of XYZ company which is in the
microfinance sector and its financing different industries and have branches
in other governorates and considered one of the major players in the
microfinance field to improve EFG Hermes expansion strategy in
Microfinance field, to replace the effect of commercial bank stake sale on
the first half of FY 2016.
• We will grant Tanmeyah Company a short term revolving facility in order to
finance the company’s microfinance facilities.
48
Risk Assessment
Systematic Risk Our Bank will be exposed to undiversifiable risk represented in the following type of risks:
• Economic instability and EGP prospected devaluation.
• Interest rate risk: risk of fluctuating floating interest rate declared from CBE that our bank will be exposed to ( floating / fixed).
49
Risk Assessment
Un-Systematic Risk
As a growing new field in Egypt, with many prospective success chances, Microfinance sector still is facing some challenges through legal and governmental procedures in addition to financial risks represented in the following:
• Default probability from Microfinance clients : Mitigated through allowing availability in tranches
• Stability future repayment : Mitigated through directing 7.5% of EFG Group portfolio to Risk Free investments (T.Bills)
• Concentration ratio in financing specific fields : Mitigated through limiting out exposure to 10% per sector.
50
Short Term Revolving facility term sheet Borrower Tanmeyah
Facility type Short term revolving facility
Facility amount 50 million EGP
Currency The facility will be available in EGP only
Purpose To finance the company‟s microfinance facilities
Supported by New clients commercial papers
Utilization Mechanism
The loan will be utilized in the form of tranches as follows:
1. 12.5 Million to finance 4 months loans
2. 12.5 million to finance 6 months loans
3. 12.5 million to finance 9 months loans
4. 12.5 million to finance 11 months loans
Commissions
• Highest Debt balance fixed commission = 1.25% calculated
annually on the highest debt balance the overdraft account will
reach.
• Stamp tax duty equivalent to 0.004 on the highest debt balance
half of this amount is paid by the customer and the other half is
paid by the bank
51
Revolving Condition To get a revolving amount of total payments of 50 Million.
Undertakes
Obtaining a signed undertaking from EFG Hermes “ The
holding company” to get a written approval from our bank
before reducing its stake in Tanmyeah company
Repayment From the company‟s sales proceeds
Maturity One year
Interest
Interest rate is calculated on the daily outstanding amount and
is payable monthly and in arrears. Interest calculation will be
based on 360 days /year.
lending corridor rate + 2%
Documentation
The following list of documentation should be finalized upon
the completion of loan agreement, and will include but not
limited to the items listed hereunder:
1. Facility request
2. Promissory notes
3. Over Draft Agreement “ODA”contract
4. Corporate guarantee from EFG Hermes Holding company
Short Term Revolving facility term sheet
52
MTL Term Sheet
• This term sheet is intended to describe the general terms and conditions of
financing a proposed acquisition of XYZ Company, a company organized
under the laws of Egypt by our client EFG Hermes.
• Parties:
• EFG Hermes and will be referred to as the borrower
• XYZ Company and will be referred to as the acquired company
• National bank of Egypt and will be referred to as the bank
53
Borrower EFG HERMES
Facility type Medium Term Loan
Facility amount&
purpose
Up to 140 Million EGP to finance up to 40% of the
acquisition transaction of xyz company
Currency The facility will be available in Egyptian currency
only
Availability
Subject to the satisfaction of the conditions
precedent, the facility shall be available for
drawdown from the date of signing the loan
agreement for 6 months or acquisition
completion whichever is earlier
Grace period NIL
Final maturity 5 years from the end of the availability period
MTL Term Sheet
54
Repayment To be repaid over ascending installments
Prepayment
Any amount may be repaid by the borrower at any
interest payment date against a 50 basis point flat
penalty, calculated on amount prepaid and subject to
providing a prepayment notice indicating principle
prepayment amount and prepayment date at least 15
business days prior to the desired prepayment date.
Interest
Interest rate is calculated on the daily outstanding
amount and is payable quarterly and in arrears. Interest
calculation will be based on 360 days in the year.
3 months lending corridor rate + 3%
Upfront fees 25 basis points payable upon signing the facility
agreement
Commission applicable
on collecting commercial
papers
0.001 % with a minimum of 5 L.E
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Default/penalty interest
An additional 1% per annum will be added to the applicable
interest rate on all principle, interest payments, fees and
commissions that are not settled on their respective due dates
Computation of interest
Interest payable under this facility will be calculated on the
basis of the actual number of days elapsed in a year of 360
days
Banks accounts
The borrower shall open and maintain the following accounts :
1. Revenues account where the acquired company normal
revenues will be deposited
2. Debt service accrual account for upcoming interest&
principal payments. (one third of the next three months
debt service payment each month)
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Cash waterfall
Payment from revenues account to be made in the following order:
1. Acquired company‟s operating cost
2. Fee, commissions and expenses
3. Debt service accrual account
4. dividends
Security documentation
The following list of documentation should be finalized upon the
completion of loan agreement, and will include but not limited to the
items listed hereunder:
1. Facility request
2. Promissory note equivalent to the disbursed funds
3. Loan agreement
4. First degree commercial mortgage
5. First degree real estate mortgage
6. Pledge of debt service accrual account
7. Getting the acquired company‟s commercial papers to collect it
against the agreed commission
Financial covenants 1. Financial leverage not to exceed 1:1
Leverage calculated as total liabilities / tnw
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Undertakings
The borrower, prior to the disbursement will assume a number of
positive and negative undertakings include but not limited to the
following:
Positive undertakings: 1. The borrower has to open an account at the bank and deposit
the remaining 60% of the acquisition transaction equivalent to
210 Million EGP prior to signing the loan agreement.
2. The acquired company financial statements must be audited by
the borrowers same auditor.
3. The borrower undertakes to sign a balance confirmation twice a
year
4. The borrower undertakes to maintain adequate insurance cover for the acquired company throughout the tenor of the facility against all risks. Such insurance will be in favor of the bank.
5. Maintaining a position of at least 7.5% of its investment portfolio in risk free investments (Treasury bills).
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Undertakings
Negative undertakings: 1. The borrower undertakes that the acquired company will not
concentrate its financing activities for more than 25% in one sector 2. The borrower undertakes not to change the acquired company’s line
of activities, organizational structure or dispose of any of its assets prior to securing a written approval from the bank.
3. The borrower undertakes not to pledge, mortgage any of the acquired company’s asset prior to obtaining a written approval from the bank.
4. The borrower undertakes not to distribute dividends prior obtaining a written approval from the bank.
5. The borrower undertakes not to reduce its stake in the acquired company prior obtaining a written approval from the bank.
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Conditions precedent to disbursement of the loan
Disbursement of the loan amount will be subject to the completion of a list of conditions precedent in form and substance satisfactory to the bank, including but not limited to the submission of the following documentation: 1. A certified and notarized copy of the board of directors
resolution approving the terms and conditions of the loan agreement
2. Submission of power of attorney to perfect commercial mortgage over tangible& intangible assets of the acquired company.
3. Submission of power of attorney to perfect real estate mortgage
4. Debt service accrual account to be opened and pledged in favor of the bank.
5. The receipt of a drawdown request 6. The receipt of promissory note 7. A written confirmation from the board of the directors
approving all undertakings.
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Event of default
A number of conditions and situations including but not limited
to the following will be considered events of default:
1. Termination or freeze of the borrower‟s or the acquired
company commercial activities.
2. The borrower fails to make any payments of principle and
interest when due as detailed in the loan agreement.
3. The borrower fails to renew or make due payments under
the insurance policy assigned to the bank.
4. Insolvency, bankruptcy, liquidation, or discontinuance of
the borrower or the acquired company.
5. Any breach of undertakings.
The borrower will be granted a cure period with a
maximum of 60 days to rectify any event of default with
the exception of events 2,3 which shall be subject to 5
days cure only.
Governing law The loan agreement will be governed by the laws of the Egypt
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Thank You