CAIRO - 18 June 2018: Thanks to significant changes in staff and in the management strategy, as well as benefiting from the bold economic reform program in Egypt, Pharos Holding for Financial Investments witnessed a strong performance last year, and the firm is expecting 2018 to be a year of further growth. The investment bank and asset manager’s CEO Angus Blair tells us his firm witnessing drastic changes is a reflection of the transformation taking place in Egypt.
Blair has been helping define and add a creative thinking touch to the investment, business and economic strategy of the Middle East and North Africa for well over 20 years. As one of the region’s leading analysts and researchers, he has been developing businesses in and for the MENA region, and has led and marketed the first Egypt global depository receipt (GDR) for the CIB (Commercial International Bank).
He has won a number of awards and recognitions for the role he’s played in the region, including being named Global Finance magazine’s “Emerging Markets Superstar.” He is now leading Pharos through a transformational phase in its research, asset management and investment banking divisions, as well as the launch of new products and services, which include a new money market fund.
Blair speaks to Egypt Today Egypt about the economic situation of the country, foreign interest in the domestic equity market, the planned initial public offering (IPO) programme and where his company is headed over the next few years.
How did the exchange rate liberalization help your business?
The devaluation of the Egyptian pound helped improve the domestic sentiment amongst investors throughout 2017, as well as change fundamentally the investment risk map for international investors into Egypt. Many international investors have increased their exposure in the market last year, particularly into Egypt’s debt markets, to the extent that most international asset managers now hold Egyptian debt.
As a result of this increased attention, our research now has a muchgreater reach,as many international investors are now asking for our research compared to several years ago. The reputation that comes from good research is vital and it plays a major rolein growing our market share and overall revenues as more investors rely on good, fundamental analysis to guide their investment decisions.
Over the last year, the majority of foreign investment into Egypt’s capital market has been in the debt market, investing well over $20 billion inflows into the government bonds and T bills. It is very important, therefore, that the government continues to ensure growth in the private sector to maximize economic growth.
We have also been seeing rising interest in the equity market too, at last, that would be helped by the planned state IPOs. I keep lobbying the government to sell bigger stakes in the public enterprises planned for IPOs and the market needs a greater number of larger stocks to give a deeper liquidity to the stock market—as well as to attract increased foreign investor inflows.
How are you working on promoting compliance?
This is one issue that most media[outlets] do not mention. When I joined Pharos in 2016, having international-standard compliance and being the best-in-market standard compliance has been my goal. It is very important in global markets and for international investors to have the best standard of compliance. We have an exceptionally good head of compliance, Mohamed Metwally, who has been here for about two and half years—he used to work for the Egyptian Financial Supervisory Authority (EFSA).
[We want to] ensure that all our staff know these standards and agree to them, or they leave the market. We have developed very good [set of] internal rules which highlights [penalties] if staff members transgress these rules. I have a zero-tolerance approach for those who break these rules willingly.
Do you have any plans to open more offices in the local market in line with your expansion plans?
Due tothe adoption of IT (information technology) and increased use of phones and laptops and by phoning the brokerage to trade, there is much less need to open new offices to increase our revenues, although it is an option that we look at regularly. We are developing our online trading platform to extend our market reach as quickly as possible.
What about your plans for expanding abroad?
In October of last year, we opened an office in Dubai, which has helped us in terms of reach for the Gulf because the institutions there are increasingly looking at Egypt. Gulf investors obviously look to invest into the stock market, as well as makemergers and acquisitions in Egypt. In fact, our Dubai office has been beneficial recently in the development and shape of our new asset management product to invest in Egypt’s debt market.
We do not need to open up within the UK or Europe because we have our partner Exotixto help extend our reach in international markets. It is also very expensive to open a new office, especially in Europe or North America, and it is not required for our present structure. We shall work withExotix to promote our international presence and to attract new interest into the Egyptian market.
Will Pharos be running any of the planned state IPOs?
We have been bidding for a number of the state IPOs and we look forward to helping the government make a success of its IPO programme.
The government is intending to sell stakes ranging between 15 percent and 30 percent: Why do you think this is not enough?
I recommend that the government try to sell larger stakes because the stock market needs large and liquid new listings. This would also help attract more foreign investors into the stock market. Over the last decade, the stock market lost several very large listed stocks, among them areMobinil and Vodafone Egypt. I think that to ensure a healthier stock market in the long term, we should sell larger stakes in the IPOs to provide a much more attractive and liquid market, which would also then help the growth in the domestic insurance and pensions markets.
Are you concerned about liquidity; will therebe enough to cover these IPOs?
There is already good liquidity in the market and investors need large and new IPOs; they want them, and their liquidity can handle larger IPOs. They would also attract much-needed foreign investment in the equity market, which could help to balance the debt investment which international investors have made. Right now, if one looks at the stock market in global terms of liquidity, there is only one stock that meets international requirements, which is the CIB. Clearly, this is not enough.
Everything has begun to settle after the devaluation and other reforms, and now, this year has to see other major changes and transformation and investors also expect more now from the government. We are expecting a recovery in the earnings of companies in the private sector and in listed companies as they have been readjusting to the overall markets after the devaluation and the resulting high inflation. This year theprivate sector will be building on this change and domestic and international liquidity.
What are your suggestions for the government to have successful IPOs?
Ahead of listing, you look at the quality of personnel and the institutionalization across each institution that will come to the market, because being listed means a very different way of reporting from being a government entity. It is very important to look at the quality of the board structure, of the management, and the depth of the transparency of governance.
We have been seeing behind the scenes that a number of the companies that will be listed have been seeing very significant changes in personnel, and management. By ensuring that these changes are made in the companies that will undergo IPOs, the companies are much more ready to face investors and the future levels of better disclosure.
New listings make us excited because we have new stocks to research and potentially invest in and the market needs to see a resumption of major flows of foreign capital, which will add to the quality and depth of disclosure and transparency. I think Egypt needs to ensure that it always is the best in the region in terms of disclosure – although more needs to be done, particularly as new areas of disclosure are being added, notably environmental impact reports.
After the devaluation in November, 2016, foreign investors have, at last, started to return to Egypt, helped by improved prospects for companies reporting good earnings. Investors have investment choices all over the world and they all want more certainty. The flotation of the Egyptian pound helped reset the value and the risk map of Egypt in a positive way and new IPOs will add to the overall liquidity in the market, attracting even more investors—as long as there are no economic shocks. However, Egypt is relatively a small stock market in global terms, and as I keep saying, the market really needs to see new listings of size.
How are you working with your team toward future success?
Firstly, we had some changes in the management of several divisions and the end result was that the firm has gained significantly in terms of its market visibility, expertise [and market share]. Much of that was helped by the exceptionally good research division, headed by Radwa El-Sweify(who used to work at the World Bank) and by the much-increased reach of the brokerage division. Additionally, we had—and still have—a number of good investment banking deals. Over the last decade, Pharos has been rising steadily each year to be in the top few investment banks in Egypt.
We constantly strive to increase our business in general, because it is not just about the market share, the important point is increasing the actual real business over the long term by building a long term best-in-market reputation.
We plan to add more people in the research division as we aim to broaden coverage. Another major transformation is in asset management where we brought in Ahmed Al-Ashy to head our fixed-income operations and where we shall also add new people to cover equities and other assets.We have also been making major changes in investment banking, with a new head, Noha El Ghazaly, and also adding new investment bankers into this division to raise its competence for the long term.
Young talent in Egypt issuperb and in the financial services sector, that young talent finds a way to excel at a young age, for women as much as men. InLondon, people are promoted on how good they are, not on how many years they have worked, and this is a philosophy we have. At Pharos, for example, women run two significant divisions, research and investment banking.
Looking ahead, I am also excited by the opportunities which our tie-up with Exotix in London, New York and in other markets should bring. The year 2018 is a year of added-value growth and building on what we have done through the past few years and transforming the business further through cross-selling as we promote the business for the long term.