AN INTERVIEW WITH HAZEM SHAWKI, MD &BAKR ABDEL-WAHAB, VP

OF EFG HERMES PRIVATE EQUITY

Prior to joining EFG Hermes in 2008, Mr. Shawki was a Managing Director in Investment Banking

with Goldman Sachs, covering the MENA region. He joined Goldman Sachs in 1999 as an associate

in the Telecommunications, Media and Technology group within Investment Banking in London. In

2004, he moved to the European Financing Group in London, where he focused on Equity Capital Markets (ECM) for the European New Markets area and in 2007 he moved to Dubai to take on

coverage responsibility in the MENA region. Mr. Shawki earned his MBA from the Stanford

Graduate School of Business and a BA First Class Joint Honors in Economics and Finance from

McGill University.

HAZEM SHAWKI HEAD OF EFG HERMES

PRIVATE EQUITY

CO-SPONSOR OF 12 – 15 DECEMBER 2010

CAIRO EGYPT

With the focus of the investment market in Egypt getting fixed on the new PPP law ratified in May 2010, many questions arise regarding transparency, project pipelines, private exposure and opportunities and the ramifications of the law on existing regulations. IQPC’s interview with one of the leaders in PPP investments in Egypt gets to the heart of the issues at hand.

All opinions and statements in this interview are of the interviewee themselves and do not reflect the opinion(s) of IQPC and/ or its personnel.

IQPC: We welcome Hazem Shawki, Managing Director for EFG Hermes Private Equity and Bakr Abdel-Wahab, Vice President. EFG Hermes is a sponsor for the PPP Investment Summit, which will be taking place in Egypt this December, from the 12th to the 15th. First of all, could you please tell us something about EFG Hermes and its work with PPPs?

Hazem: EFG, as you may know, is a leading investment bank in the region. It has over 1,000 employees now, with a presence in Egypt and beyond Egypt in the Levant, and as such we engage with infrastructure investing in two ways: through our investment banking advisory capability, as well as through the private equity arm, and as you may have heard, that was evident recently when we did the first closing of an infrastructure fund targeting certain PPPs and Greenfield projects in the Mediterranean Region.

IQPC: And how long has EFG Hermes been working with infrastructure projects?

Hazem: Our involvement with infrastructure dates back to the original fund distribution companies that were started in Egypt over ten years ago, and some of the telecom licences that were issued back then as well, so it probably counts for about ten years.

IQPC: Could you elaborate on these? Just possibly an outline of the work that you have done with infrastructure projects to date?

Hazem: We have been involved in the recent round of projects, that have come to the fore, we were an active participant and a bidder in a consortium to bid for waste water, the project that was tendered and awarded last June, and we’re also engaged in the two follow-on projects on waste water in 6th October, as well as the PPP that’s being offered for the Valley Homes projects, and the roads projects as well, so here in all the pipeline of projects that have been recently coming forth in the PPP initiatives I think we are very glad actually that these things are, that these projects are being put through, because it indicates a commitment of the government to follow through on this PPP initiative, and it is for that reason that we are obviously investing time and effort to establishing a platform to direct the appropriate infrastructure investing, for Egypt’s platform, that we are in the process of putting together right now.

All opinions and statements in this interview are of the interviewee themselves and do not reflect the opinion(s) of IQPC and/ or its personnel.

IQPC: In May this year, Egypt ratified the PPP law. How do you feel that this has made a difference for entities like EFG Hermes?

Hazem: I think, for us, the biggest difference here was the fact that came after the passage of the law, which was the preference of the government to allowing a broader role for the private sector, for the private sector to get involved in infrastructure development, and establishing rules and regulations for that sort of activity, because previously some of these initiatives were ad hoc, coming from various pockets within the government. It was very difficult for someone like EFG, for example, to establish a dedicated platform and invest in developing an infrastructural platform, and also it would have been difficult for us to channel capital and investor funds in a consistent and direct way into infrastructure, because you had no certainty on the level of projects or of the pipeline, and the strength of the programme that was going to come to Egypt. Today, with the law and the pipeline that’s being communicated to us, we are able to invest and establish the platform, as well as convince investors to deploy capital to support this platform, and hopefully to invest in these projects.

IQPC: Until now, there have been sector specific PPP laws or regulations that deal with PPPs in a particular sector, and you mentioned that EFG has been involved in infrastructure projects in various sectors over the years. How do you see a unified law, such as the one that has been passed, affecting these sector specific laws?

Hazem: For us, obviously the direct impact here is it reduces uncertainty and obviously the automatic corollary of that is it increases investor appetite, or gives more confidence to the investor coming into the sector, to have a more predictable investing environment in which to operate. Anything that increases uncertainty or influences difficulties between different sectors or different departments issuing projects hampers, I think, the investors for us, so the direct benefit for us is really having a uniform platform which

a) allows us to gain certainty on the growth from a contractual standpoint, but also at the same time

b) reduces the transaction costs of needing to investigate and go to a ground level every time you’re engaging on a project, and we talk about the very basic fundamentals of the PPPs, guarantors and counter parties and things of that nature. I don’t know if Bakr has anything to add to that?

Bakr: It also gives us probably a better visibility of the pipeline, because previously you needed to look in various pockets within the government authority for projects that are being studied or being discussed, whereas now, under this unified law, the pipeline is clear. Unfortunately, it’s not too strong at the moment, but I think its early days, and with a fact finding project or so, we start to see a stronger pipeline.

All opinions and statements in this interview are of the interviewee themselves and do not reflect the opinion(s) of IQPC and/ or its personnel.

IQPC: Yes, that’s actually a very good point. I think we have heard the same thing, that while the pipeline is not as strong as it should be now, it is in the infancy stage, and everybody is very, very positive on the unification aspect of this law. Being an entity like EFG Hermes and having worked in the various sectors, I’m sure you appreciate the value of the private sector when it comes to PPPs. In your experience, Hazem & Bakr the question is to both of you, what needs to change in the private sector for them to really reap the potential economic benefits of PPPs in Egypt? And, while we’re on that question, I want to also ask if you could tell us more about the same question, but with regard to another economy, like for example Kuwait or Jordan?

Hazem: I think investing in infrastructure and primarily infrastructure, because that’s what we’re talking about here, is increasing the net capital stock of infrastructure in these economies, the involvement of the private sector needs to come in a guise that facilitates the profile of the investment that’s possible to be reached here, which is once you have project executioners, analogous to utility, it’s a very stable, long term profile, and the key question for us for the private sector to be involved here is, how do you package this product and channel the traffic efficiently to these projects? And, what is the ultimate form of ownership? It has been the case previously for family groups and conglomerates that own some of these assets, it has also been the case that strategic investors, primarily foreign, because they had the technical know how and they were the operational owner, that established these entities, and now what we’re talking about is bringing some of these capabilities back home for domestic institutions to establish these entities, but then in a way, that was for some of the private sector entities trying to engage in this because it differentiates in a way the types of business that they engage in, the capital structure, their value proposition, especially if they’re publicly listed, and that transition needs to be clearly articulated for the markets, that there is a very clear understanding as to what a company is trying to do, and the risk profile is taken on, and the synergies of the organisations that are involved or participate in this sort of infrastructure work. Bakr, what would you say? Do you have anything to add on this? Bakr: No, I agree with what you’ve mentioned, and I guess relating to Egypt and even some of the Middle Eastern countries, one of the things that needs to change is probably to see sponsors taking on more of a leadership role, because what we have been seeing to date is predominantly global companies going into a region and sponsors taking more of local partner, which is good and it needs to be maintained, but we would also like to see more leadership on taking on big regional contracts, and taking on the operation and maintenance of the roads and the power plants, and to start to see themselves regional and national champions, and I think this will come with time.

All opinions and statements in this interview are of the interviewee themselves and do not reflect the opinion(s) of IQPC and/ or its personnel.

Further, also the network around an infrastructure transaction, as you both know, advisors play a huge role. Again, one of the things that need to change is project finance advisories and infrastructure legal advisories taking on more of a, being at the forefront, and strengthening the region’s capabilities.

IQPC: Egypt is quite easily one of the strongest financial economies in the Middle East. Obviously foreign investors and foreign capital is important, because when foreign investors do come into a PPP role, they look at a long term multi-billion dollar exposure and benefit, because you’re talking about something that could take up to 10, 15, maybe 20 years, depending on the project of the infrastructure, but at the same time, you mentioned that the local sponsors, while they are involved, there should be more involvement and they should take up a leadership role. Who do you see leading the way, in terms of this?

Hazem: I think that I’ll give you a perspective and later expand on that. I think there are two sides to this equation. There is a side that, as you mentioned about the direct benefits of the economy in terms of know how and building up skills and establishing a sponsor that then is in its own right is capable of growing regionally and trading a regional or a multinational platform for the sort of business it does, and there are already in Egypt successful companies that aim to do that leveraging their strength in Egypt, and EFG is one of these companies. But, I think you need to be cognisant of the fact that we need to also ensure that the building of all the skills happens over a period of time, gradually and we cannot take risks on the quality of the infrastructure that is ultimately being provided to the end user, and ultimately the people in Egypt, because the first part is just to ensure that the quality of service that is being procured through the PPP for the country is of the right standard and quality. So, you can perhaps look at that, but I think it’s…the most important direction here is first to enable the quality to be delivered. IQPC: Bakr? Bakr: I think Hazem is right. I don’t extend support, for example, opening up the procurement sources at tenders for regional or local companies first and then going internationally. I think it should be open to everyone, similar to what we’ve seen in the power sector in Egypt, but what I would like to see, just elaborating from this, my previous answer, is regional leaders competing on the same level ground as some of the global leaders, and I think this will come with time, and it’s an evolution. To say a company can participate in the bid, as more of a local partner and then the second bid, perhaps a bigger interest in the project, more participation and then by the third project, we can see that company having their actual skills, the credentials and the required experience to pre-qualify and enter the tender as a consortium leader, and also the benefits of the economy can be produced, if you’re open to the international

All opinions and statements in this interview are of the interviewee themselves and do not reflect the opinion(s) of IQPC and/ or its personnel.

partnerships, because again on how it stands today, on probably the tough contractor level and the local employment level in a lot of situations, with large infrastructural projects, jobs will still be created and the skills will still be transferred, even if it’s international, and if local companies are taking the lead on some of the fact finding projects. So, I guess the conclusion is to open up to international tenders.

IQPC: EFG Hermes is the Co-Sponsor for the PPP Investment Summit, and it’s a pleasure to have you on board. There’s going to be a lot of expertise at this event. Being under the patronage of the Ministry of Finance, we have very high level people from the government, the private sector and from the capital and investment banking sector. What do you think will be the major talking point among people when they are networking at this event?

Hazem: I can tell you what our main concern is, which I think is a concern that perhaps others will share, and something that they will want to communicate and impress upon the Ministry representatives, which is: we, to deliver on the ambitious investment pipeline and what is required in terms of infrastructure upgrade, we need to really strengthen the pipeline and increase the throughput capacity and processing capacity within the government to enable it to tender and deal with multiple projects at the same time, and that obviously with them embarking on a new set of regulations and a new construct, we just need to avoid any bottlenecks, as to the capacity of essentially the people on the government side to manage and handle many of these projects, because there are problems that I think we’ve known and we’ve seen from other PPP projects and infrastructure initiatives around the world, that the tendering process and the qualification and the financial close takes time, and we need to be able to deliver on the initiatives, the pipeline that’s been put forward by the various Ministries and sectors, to create enough of a capacity for investment on behalf of the government to enable that programme to really succeed and to in a way meet the high expectations that we as investors and others, I’m sure, are expecting that this will deliver. IQPC: Bakr? Bakr: Actually, I completely agree with Hazem. One of the concerns is that the pipelines, if you look at the detail of, for example, the UK, it’s a little bit slow, the last few years, but at its peak, in its first seven or eight years, by the end of that, there were about 600 projects signed and about 25 billion GBP worth of capital funding those projects aggregated, so what we’re seeing at the moment is a good start, but we really need to see a stronger pipeline, so entities like EFG or others may be main sponsors from the industrial side of things, would engage in more than one at the same time. So, this is our main point. I think we hope that will be communicated to the authorities and through PPP. IQPC: Definitely. We will make sure that this query goes through the ranks and of course, there will be various panel sessions, and in the various sessions with them, I’m sure companies such as EFG Hermes and the others, who are coming to this Summit, will bring this up and I hope to see a very dynamic dialogue

All opinions and statements in this interview are of the interviewee themselves and do not reflect the opinion(s) of IQPC and/ or its personnel.

taking place, and I also hope to see you receiving the answers that you’re looking for, when you attend. Thank you, gentlemen, for a great and educating conversation here, it was really eye opening and I’m sure our audience will appreciate the insight that you’ve given in your capacity as one of the leaders in investment banking in the region. I look forward to see EFG Hermes at the PPP Investment Summit in Egypt in December.

FOR MORE GREAT CONTENT OR TO REGISTER FOR THIS EXCLUSIVE EVENT, CALL US ON +9714 364 2975 OR EMAIL US ON ENQUIRY@IQPC.AE

All opinions and statements in this interview are of the interviewee themselves and do not reflect the opinion(s) of IQPC and/ or its personnel.