efg hermes analysis

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


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


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


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


then 2%



Kuwait


then 2%



Jordan


then 2%



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


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



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

MTL Term Sheet

55

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

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