Fertilizers acquisition deals: Egypt bleeds profitable industry

Recently, two Egyptian fertilizers companies were partially acquired by Gulf investment funds, Saudi and Emirati in particular. Both companies are joint-stock companies with their stocks owned mainly by state economic bodies like Nasser Bank, National Investment Bank, and Egyptian Petroleum Authority. Both companies are factually state-owned businesses dealt with legally as private entities.

The two deals were said to be within the state plan to encourage direct foreign investment in the country instead of portfolio investment of investing short-term loans in treasury bills, which is known as “hot money”, which the minister of finance admitted recently that it was a mistake to depend on it over the past few years. The question, however, is whether what happened was a direct investment or not. The acquisition of successful, profitable companies does not achieve the target of widening the Egyptian productive enterprises. Instead, what occurred was that the government took quick profit it badly needed to bridge its severe financial crisis while ceding the revenues of profitable assets.

Abu Keir Fertilizers: Egypt’s gift to Abu Dhabi

The first case is Abu Keir Fertilizers, which is an Egyptian joint-stock company owned by state economic bodies as follows, National Investment Bank (21.5%), the Egyptian Petroleum Authority (19%), the Industrial Development Authority (10%), Nasser Bank (6%), and the Chemical Industries Holding Company (5.5%) as well as the contributor employers union (5%) and Al-Ahly Capital Bank. The nominal capital of the corporation is 1.8 billion pounds distributed on 1.26 billion shares, with the share’s par value at 1.5 pounds.

Last April, the company declared the National Investment Bank sold its share in the company, 271.5 million shares (21.5%), to Alpha Oryx, a company owned by Abu Dhabi Investment Fund. The deal amounted to about 392 million dollars (about 7.5 billion pounds. Last July, the company declared it reaped 9 billion pounds net profit in 2021/2022 of 16 billion pounds revenues with a 160% annual increase. According to the recent deal, Alpha Oryx profited from 1.9 billion pounds. Although the company will not receive all profit within the dividends, it is expected to achieve a 100% return on investment within four years, supposing no profit growth. Within two years, profit will grow at the same annual rate as this year.

MOPCO: New Gulf’s goose that lays golden eggs

The second case is Misr Fertilizers – MOPCO, which is also a joint-stock company owned by the state economic bodies as follows, the Chemical Industries Holding Company (31%), the Egyptian treasury (26%) and the National Investment Bank (13%) as well as about 13% share for both EGAS and GASCO companies. Last April, within the Emirati big acquisition deal in Egypt that included Abu Keir Fertilizers, CIB bank, Fawry and Alexandria Containers, Alfa Oryx acquired a 20% share of MOPCO from the Egyptian treasury share. The deal was worth 266 million dollars (about 5 billion pounds). A week ago, the Saudi Public Investments Fund acquired a new 25% share of MOPCO, including the total percentage of NIB and the remainder of the Egyptian treasury share.

MOPCO achieved 2.85 billion pounds net profit within the first half of 2022 compared to 650 million pounds, which is a 400% annual increase. The figures say the Egyptian government has not been seeking to restructure the ownership of the assets or encourage investment. Still, instead, it abandons its profitable holdings because of its critical financial requirements.

The future of the Fertilizers industry

Annually, Egypt produces 8 million tons of urea fertilizer and 3.5 million tons of phosphatic fertilizers, which allows it to be the world’s sixth exporter of urea with 6.5 million tons. In 2021, the Egyptian fertilizer exports hit 2.3 billion dollars compared to 1.4 billion dollars.

The Russian-Ukrainian war led to a boom in fertilizers prices and world demand for fertilizers. Accordingly, the chairman of the Chemical Industries Holding Companies, Emad Eddin Mustafa, stated after the war that fertilizers would be the engine of Egyptian exports expecting them to hit 10 billion dollars. On the other hand, the Gulf is a megaproducer of fertilizers and the world’s first exporter of urea, with a 33% share of the international market. This fact raises concern over the Gulf’s intentions behind acquiring the Egyptian fertilizers industry. Egypt has had a bad experience with DP World, the Emirati company that manages some Egyptian ports, and worked to downgrade them to save the competency of other Emirati ports in the region.