EFG Hermes launches its strategy for growth with the sale of Credit Libanais (CL), which offered few opportunities as a result of the absence of additional acquisitions in Egypt. While CL previously contributed to the cash flow of the firm, its sale will fund the investment bank’s growth strategy set forward earlier this year.
On 16 March, EFG Hermes announced that it reached a deal to sell its stake in Credit Libanais. The sale is set to take place over two phases, with the immediate sale of 40% of CL upon the approval of regulatory bodies. The second phase took place on 11 May when EFG Hermes’s board of directors mandated that Credit Libanais investment bank sell 23.7% on a “best efforts” basis. Finally, on 7 June, the sale was finalised with the remaining 40% of CL shares sold
Valuation of CL became the main impediment to its sale, with the management of EFG Hermes intent on the return to investors and moving EFG Hermes forward with their growth strategy.
EFG Hermes will further capitalise on newly established businesses and expand its financial platform with EFG Hermes Leasing and Tanmeyah Microfinance, which performed well in 2015 but will need additional capital to fund its future growth, expected to start immediately.
EFG’s expansion in their financial platform aimed primarily at the Egyptian market as the country of 90 million has minimal access to banking and finance.
The main objective in the coming period, however, will be the expansion of their assets under management (AUMs) in both the public and private sector to a level that will guarantee a steady stream of revenue. AUMs are set to double to $1.1bn. Previously, market performance and unfavourable changes in the regulatory environment did not support the growth of AUMs, which is one of the most underdeveloped sections in the banking sector in the MENA region.
EFG has been implementing a strategy that is focused on assets that offer strong yield in profits. A very large market demand exists in MENA as well as Europe for tailor made investment opportunities. As a result of the lucrative return on equity potential, EFG has room for growth.
Having a stronger liquidity balance sheet will also offer ample opportunities providing capital in the form of ownership rights. Accordingly, they will start to pursue debt and equity services which have seen increased growth despite a foreign currency crisis. EFG Hermes will also increase profitability by supporting businesses about to go public as Initial Public Offerings (IPOs) by providing additional capital.
The final phase of the growth strategy is transforming EFG Hermes into a Frontier House over the course of the next two years which will entail the expansion into a number of new markets. Business plans have been finalised with completion set to take place in the beginning of FY 2017 for the acquisition of a Pakistani entity as well as penetration into other markets that could offer opportunities for growth, including Morocco, Vietnam, Bangladesh, Sri Lanka, and Kenya.