A private equity fund launched by Gamal Mubarak managed to reel in millions of dollars of investment from Egypt’s elite, revealing the depths to which political and business connections ran as he began rising in stature in the late 1990s.
According to a document obtained by Rebel Economy, Gamal Mubarak’s $54 million Horus I Fund, created in 1997, attracted some of the country’s most controversial businessmen including steel fugitive tycoon and Mubarak-confidante Hussein Salem, steel magnate Ahmed Ezz, who was acquitted in June after being charged with monopolising the country’s steel market, and the ex-CEO of Egyptian investment bank EFG Hermes, Hassan Heikal. Heikal is a defendant in an insider trading case involving both of the Mubarak sons. His former colleague, Yasser El Mallawany, who is still officially an employee of EFG, is another investor in the Horus Fund.[caption id="attachment_2059" align="aligncenter" width="640"] Full list of investors who committed to Gamal Mubarak’s fund[/caption]
The fund, which was operated by EFG Hermes and invested in Egyptian projects and companies, attracted millions of dollars of investment from members of Egypt’s old guard, some of whom have been targeted in corruption cases since the fall of Hosni Mubarak in 2011. Although there is no evidence the fund engaged in corrupt activity, the connections between the people named as investors on the account has never been properly investigated by the Egyptian authorities.
The list of individuals and companies published above raises questions that have so far been left unanswered by Egyptian investigators.
The document, which details how much individuals and companies committed to the fund at the time of launch, also provides a window into the everlasting influence of Mubarak’s old guard and their long-standing ties to Gulf nationals in Saudi Arabia, Kuwait, the United Arab Emirates and Qatar.
It represents the beginning of Gamal Mubarak’s foray into private equity, where his financial interests in the Egyptian economy, from tourism to agriculture to oil, began to grow. The fund was created prior to Gamal’s entry into political life, when he acquired 18% of EFG Hermes Private Equity.
Among the handful of Gulf companies listed is First Arabian Development and Investment Company, run by Hamza al Kholi, a prominent Saudi Arabian businessman, and Yahya Al Yahya, the chief executive director of Gulf International Bank.
The ZAD Global Direct Investments Fund is also a notable appearance on the list. This investment company, founded by Prince Mishaal Al-Saud, second child of the Prince Abdullah bin Turki bin Abdulaziz Al-Saud in Jeddah is a privately controlled investment company, organized, owned, controlled and operated as the investment vehicle for the family of Prince Mishaal for the purpose of managing the family’s investments.
Some businessmen have used clever ways to hide their investment activity. A company connected to Hussein Salem appears on the document. Clelia Assets Corporation, a Panama registered company, is linked to his name.
Salem fled Egypt in 2011 when he came under fire for tax evasion and his complicity in a corrupt gas deal.
Other controversial names on the list include Mohammed Abou El Enein, the chief executive of Cleopatra Ceramics, a major Middle East ceramics firm that has faced repeated labour strikes.
Abou El Enein, who once called himself “the noblest businessman on Earth”, was at one point under investigation for allegedly violating labour laws. Workers have staged sporadic strikes asking for improved working conditions and higher wages.
The fund is a worrying sign of how little progress Egypt has been made in defeating a tight circle of Egypt’s mafia, some of whom were subject to now forgotten corruption cases.
And now, there is evidence that some of Mubarak-era moguls may make a reappearance on Egypt’s political and business scene. Hussein Salem, who is currently exiled in Spain, has reportedly asked to make a deal with the interim government that would end any court cases against him. He has said he is presenting a new initiative to the interim government which includes funding for the unemployed in the tourism sector, as well as restoration of police stations, churches and mosques.
Hassan Heikal, who resigned from EFG Hermes earlier this year, has indicated that he will be acting in a consultancy basis to the Egyptian government. He has signalled he will offer ideas and launch new initiatives “that offer long-term solutions to Egypt’s fiscal challenges and economic development,” according to a statement he made when he resigned.
But the army has a strategy of its own. It’s interest is in preventing an examination of its own assets and business interests, which not only is likely to affect other investigations but focus on a shift away from Mubarak-era crimes toward the Muslim Brotherhood and the former president Mohammed Morsi.
So as the army continues its assault against the Muslim Brotherhood, journalists and civilians, the more these characters will disappear into the background, leaving them free to operate, uninterrupted.
When the deal between Egyptian investment bank EFG Hermes and Qatar’s QInvest fell apart yesterday, some in the banking industry were not surprised blaming Egypt’s stagnant business environment.
“Since when did the regulator approve anything after the revolution?” lamented one banker.
The Cairo and Doha-based banks said a planned joint venture had ended after they reached a 12-month deadline without approval from the Egyptian regulator, the Egyptian Financial Services Authority. The two sides had received approval from countries including Saudi Arabia, the United Arab Emirates, Qatar, and Jordan.
It was seen as the latest casualty of Egypt’s struggling economy after January 2011. But there is more to the story than meets the eye.
EFG Hermes’ top two executives, Hassan Heikal and Yasser El Mallawany are under investigation for alleged insider trading. They are among nine, including the two sons of former president Hosni Mubarak, alleged to have made an illegal profit of more than 2 billion Egyptian pounds ($331 million) through corrupt stock exchange transactions last May.
EFG’s CEOs and the other defendants deny the charges. The case is ongoing.
EFG spokespeople insisted there was no link between the delays in approving the joint venture and the investigations into the CEOs. But this is very difficult to believe when history shows that if any company is hit with any allegations of financial misconduct the heads of the company are usually the first to go.
The fact that Mr Heikal and Mr El Mallawany did not resign, despite investigations into a previous transaction, is likely to have put a dampener on the deal.
The CEOs reputation was no longer intact, innocent or not. Both are rumoured to have had close relationships to the former regime, especially Gamal Mubarak, within and outside the bank.
For some countries, this would be enough to prompt a resignation.
In Spain, for example, a rule of “professional virtue” is used as a prerequisite for those working in the banking industry and can be lost by anyone faced with a criminal record.
If the deal had gone through it would have paved the way for QInvest to buyout 60% of EFG, plug another $250 million into the banking business and give the CEOs a free ride out of their mess and responsibilities for the bank.
Was the head of Egypt’s regulator, Ashraf El Sharkawy, prepared to take this responsibility, knowing it would give the men a free pass?
The Financial Times alludes to this too:
According to a person familiar with the deal: “It fell through because no one in Egypt now wants to make a decision or affix their signatures to a piece of paper.”
Businessmen in Egypt have complained that, since the 2011 revolution which ousted Hosni Mubarak as president, officials have shied away from making big decisions because of fears over possible allegations of corruption.
EFG has turned to Plan B. It will sell “non-core” assets and return most of the cash to shareholders to cut costs by 35%.
In light of the deal falling apart, and another lost business opportunity, perhaps it’s time for Mr Heikal and Mr El Mallawany to do the right thing and step down, taking responsibility for their case until it is resolved.
The chief executives of Egypt’s biggest investment bank, EFG Hermes, have been quietly replaced as the bank attempts to clean up its image ahead of a potential takeover from Qatari firm Qinvest, three sources close to the matter have said.
Hassan Heikal and Yasser El Mallawany, who were last year charged with alleged insider trading alongside the sons of the former Egyptian President Hosni Mubarak, are still “technically on board but have been removed from the executive function,” said one investment banker close to the bank. Mr Heikal and Mr El Mallawany are still getting a paycheck but remain in their positions only on paper, the banker said.
EFG Hermes denied any changes were made. The changes have not yet been officially announced and Mr Heikal and Mr El Mallawany are still employed as CEOs at EFG Hermes.[caption id="attachment_1329" align="alignright" width="144"] Yasser El Mallawany[/caption]
Karim Awad and Kashif Siddiqi, who were last year announced as the new co-CEOs as part of the Qinvest takeover, are now running the bank, a second banker said. They were head of Investment Banking and head of Asset Management respectively.
Under Qinvest deal, Mr El Mallawany and Mr Heikal were to leave on completion of the transaction that would see Qinvest take control of the bank. But the deal has stalled because of delays in getting government approval in some Arab countries, according to a statement from EFG in January.
Mr Heikal, who has been living in London for at least a year, is now “pursuing other opportunities” and is “definitely not involved in the running of EFG,” a third source said.
A registry form at the Dubai International Finance Centre in the United Arab Emirates, where EFG Hermes is also registered, lists Mr Awad and Mr Siddiqi as the new directors. Mr Heikal and Mr El Mallawany are listed as former directors, ending their position in June 06 2013, just 7 days after the case of alleged insider trading was brought against them in Cairo.
In addition, EFG Hermes main website also suggests changes at the helm. As of February 16, the website title Karim Awad as Co-chief executive of the investment bank, and lists him first in the ranking on the profiles page. But this change was made only a week ago, when the website had described him under the old title of head of investment banking.[caption id="attachment_1330" align="alignleft" width="210"] Hassan Heikal[/caption]
The change is subtle, but indicates a significant shift in the bank’s executive management.
EFG has seen a sharp drop in its market value since the turmoil of the 2011 uprising in Egypt, partly because of its association with Gamal Mubarak, son of the former Egyptian president who owned a stake in its private equity business.
A further shadow was cast over EFG when its two co-chief executives, Mr Heikal and Mr El Mallawany, were among the nine alleged to have made an illegal profit of more than 2 billion Egyptian pounds ($331 million) through corrupt stock exchange transactions last May. The case is ongoing.
The ugly military power of the Gulf, including the United Arab Emirates, Saudi Arabia, Qatar and Bahrain was exposed during the “Arab Spring”.
It wasn’t a huge surprise that this oil-rich area was well-equipped with arms, but it did show that “it is presidents and colonels, not kings and princes, who have proven most vulnerable to social upheaval,” a note from Foreign Policy Research Institute sums up.
This subject, worth a post of its own, is one worth keeping an eye on if only for the United States’ (and the United Kingdom in some cases) involvement in supporting these autocracies for their own benefit.
The work, which will be done at the Robins Air Force Base in Georgia, offers a glimpse into the long-standing ties between the US and Saudi Arabia.
And with most deals, it’s win-win. For the US, Saudi Arabia’s military power helps protect it against Iran, while for Saudi it is about maintaining rule.
Saudi Arabia used F-15s and Apache helicopters in late 2009 to fight Muslim Shiite rebels who crossed the border from Yemen and seized territory inside the kingdom.
Despite sporadic demonstrations, little opposition has mobilised against ruling families in the Gulf, aside from Bahrain, where the threat to monarchical rule was countered with local security forces helped by the Gulf Cooperation Council troops.
Order is maintained, for now.
◊ ◊ ◊
Finally some real work on energy subsidy reform from Egypt. The North African nation Egypt has taken a first step to getting expensive energy subsidies under control, a key component of an economic reform programme the cash-strapped government is presenting to the IMF to obtain a loan, Reuters reported.
The cabinet received on Thursday the preliminary results of a pilot programme to use ration cards to distribute cooking gas to the needy instead of selling it on demand, Petroleum Minister Osama Kamal is quoted as saying.
The government spent 96 billion Egyptian pounds, or 20% of all expenditure, on subsidising petroleum products, including cooking gas, in the financial year that ended on June 30.
The ration system, where gas cylinders are only given out to those with the correct cards, has only been tested in four governorates (there are just under 30), but a start is better than nothing.
◊ ◊ ◊
Egyptian investment bank EFG Hermes aims to expand into Turkey, Iraq and Libya and plans to grow its asset management arm by 50% after the completion of its joint venture with Qatar’s QInvest, it said on Friday.
Ok, the ambitions sound reasonable enough, especially considering EFG Hermes is one of just a handful of investment banks that is plying to become more of a regional power.
However there is a big glitch to this plan. EFG’s top two chief executives, Yasser El Mallawany and Hassan Heikal are currently under investigation for alleged insider trading. The controversial case, which also implicates the once untouchable Mubarak sons, has been dragging on since the beginning of this year.
In a post-revolutionary climate, where transparency and accountability are King, will EFG’s reputation hold up, even with Qatar’s influence?
Perhaps it’s time to let go of the weakest link? Yes, EFG has so far protected Heikal and El Mallawany, but the damage has been done and the bank is effectively being taken over by the Qatari firm. There’s nothing to it now but to fire the CEOs.
◊ ◊ ◊
The latest James Bond blockbuster has the villain, not as a giant with metal teeth, or a Japanese man adept at throwing a steel-rimmed bowler hat, but as a super cyber hacker.
This is today’s national security risk and the US and some countries in the Middle East have become the main targets.
The National’s Tony Glover sets out the US defence secretary’s main fears and new strategy against cyber crime. Leon Panetta, has warned that America is facing the prospect of a highly targeted and orchestrated attack by adversaries of the United States, which officials identified as China, Russia, Iran and militant groups.
Mr Panetta outlined a nightmare scenario in which the US suffers a string of disasters such as derailed passenger trains loaded with lethal chemicals, simultaneous contamination of the water supply in major cities and a shutdown of the power grid across large parts of the country.
In case you were wondering, Egypt continues to attract investment from foreign oil partners and the billion of dollars they are owed by the Egyptian government is not putting them off, the head of the state-run gas company Egyptian Natural Gas Holding Co told Bloomberg yesterday.
Chairman Mohamed Shoeib was so positive in fact that he said his company’s debts to overseas partners “aren’t that high,” without being more specific.
It’s a strange comment at a time when Egypt clearly owes even small and medium sized oil companies such as UK-based Dana Petroleum (not to be confused with the UAE-based Dana Gas) tens of millions of dollars.
It was a busy day yesterday for Egypt’s business community, as another big business conference in just a few months was held to entice foreign investors back to Cairo.
But before we get to that, cast your eye on this “Formal Apology” made to Bank of America /Merrill Lynch, from Egyptian bank EFG Hermes on behalf of one of their analysts. This was an email sent yesterday to clients:
We sincerely apologize to Bank of America – Merrill Lynch (BAML) and our / their clients for a note titled ‘Recent Saudi Weakness: Summary Of Local Chatter’ sent by our sales desk in Dubai. The note, written by a junior employee of EFG – Hermes in Saudi, failed to highlight the source of the information or that the material was prepared by BAML and not his own. It is with the utmost sincerity that we apologize to BAML and our clients for this embarrassing oversight.
EFG Regional Trading Team
Not just journalism that attracts plagiarism…
Yesterday, the country’s prime minister Hisham Qandil tried to woo investors saying he wants the country to become a mecca for investments and officials are determined to boost confidence to revive an economy battered by last year’s unrest that ousted President Hosni Mubarak.
Here’s a round-up of the most important news (with some gossip behind of the scenes of the Euromoney conference):