Sell-Side Overview

The year just ended was a volatile one for frontier emerging markets (FEM). Capital markets were buffeted by several forces, including the Federal Reserve’s rate rises, trade tensions, fluctuations in the oil price, and localized debt crises. Having yielded a 34.2% return in the year to 31 December 2017, the MSCI Emerging closed 2018 down 14.57%.

Despite this backdrop, EFG Hermes’ sell-side divisions forged ahead to deepen the Firm’s footprint across the frontier space, consolidating the Firm’s leading position. Our sell-side platform includes the Firm’s Securities Brokerage, Investment Banking, Structured Products, and Research Divisions. In 2018 these divisions built on the expansions they have led in previous years, further underlining the Firm’s toehold in new and established markets.

EFG Hermes’s Securities Brokerage division grew its market share in the Emirati, Egyptian, and Kuwaiti spaces, maintaining its high ranking across these and other markets in 2018. Especially notable was the division’s performance in Saudi Arabia, with its market share almost doubling compared to 2017. With the market growing more institutionalized, in 2018 the division doubled its market share in Saudi Arabia, attracting a wider range of clients than in previous years. Besides our established relationships with international institutions seeking to invest in that market, we have now secured business from local and regional institutional funds seeking to outsource their brokerage functions, as well as new sovereign wealth fund clients. Meanwhile, the division’s first foray into FEMs, including Pakistan and Kenya, boded well for the future of the business’s operations there, contributing 11% to the division’s top-line.

Developments were similarly positive on the Investment Banking front. In July of 2018, the Investment Banking division closed its first transaction in FEMs, serving as joint bookrunner for microlender ASA International’s IPO of GBP 125.2 million on the LSE. The division’s second FEM transaction was concluded that same month, and in record time: EFG Hermes Investment Banking acted as sole bookrunner on the USD 226 million accelerated equity offering (AEO) of Humansoft Holding Company on the Kuwait Exchange. In our home market of Egypt, the division acted as sole global coordinator and bookrunner to the USD 70 million IPO of Cairo for Investment and Real Estate Development (CIRA) following the successful facilitation of a USD 40 million debt facility for CIRA. Combined, the accomplishments highlight the division’s ability to leverage its merchant banking and debt rising capabilities to provide clients with value accretive solutions. Overall, 2018 proved to be another record year for the division, closing 19 equity, M&A, and debt capital market transactions across an ever-expanding footprint.

On the Structured Products front, 2018 brought more success. The division diversified its offerings to include more capital-guaranteed products, equity finance structures, and derivatives, providing MENA and frontier clients with solutions tailored to fit their distinct needs and risk profiles.

Our Research division also continued to thrive. Our top-ranked outfit now covers 256 firms across 20 MENA, Frontier, and other markets. With a growing number of our institutional research clients requiring certified adherence to the Markets in Financial Instruments Directive (MiFID), EFG Hermes moved in 2018 to implement the necessary measures. This resulted in increased demand from new and existing clients, with many of the latter seeking to concentrate their trading activities with the Firm and further leverage its top-class research and comprehensive coverage.

EFG Hermes’s Sell-Side teams are cautiously optimistic moving into 2019. While some of the factors troubling frontier emerging capital markets will remain at play in 2019, particularly tensions surrounding global trade and volatility in oil prices, a number of developments may help to boost activity over the coming months. MENA heavyweight Saudi Arabia is expected to welcome large fund inflows with its inclusion in the FTSE and MSCI Emerging Market indices, which is expected to bolster demand for our services in the foreseeable future. Our Investment Banking Division is especially well-placed to benefit from the expected upturn. We have assembled an impressive pipeline of transactions for the year ahead, including two high-profile equity offerings and a large M&A transaction. These will further embed the Firm into the local Saudi space and widen the base from which its Investment Banking and Brokerage divisions can pursue future growth. Meanwhile, as the Egyptian economy continues to lead regional growth and the government jump-start its privatization program, the Firm will continue to increase its deal count in the home market.

Beyond the MENA region, moderate net inflows into markets in Sub-Saharan Africa and Southeast Asia will help consolidate the Firms’ position in these markets. In Pakistan, where a business-friendly government was recently elected, our teams have worked to double the Firm’s market share and put us in a prime position to gain from rising interest in Pakistani assets. We are working to build a similar base in Kenya and have established an experienced fixed income team on the ground in Nigeria, which should see a considerable uptick in volumes over the coming year, and EFG Hermes is well positioned to benefit there as well. Moreover, we have assembled a healthy pipeline of RFPs and advisory deals across our FEM operation, and will work to deepen the footprint of our Structured Products business in non-MENA markets.

Mohamed Ebeid,
Co-CEO for the Investment Bank, EFG Hermes