Egypt illegal gains enquiry brings new threat to EFG-QInvest deal

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Egypt’s Illicit Gains Authority has intervened in a proposed joint venture between Qatar’s QInvest and the Cairo-based investment bank EFG-Hermes, in a move that could prove a further setback to a deal already close to collapse.

The Illicit Gains Authority (IGA) has asked the Egyptian Financial Supervisory Authority to refrain from approving any deals related to the stocks of EFG-Hermes Holding without first notifying the government authority.

A source at IGA told Al Arabiya it would be problematic to make changes to the legal structure of EFG-Hermes, given that some of its stakeholders and its co-chief executive officers are standing trial.

EFG-Hermes had previously said the agreed joint venture with QInvest is at risk unless the Egyptian Financial Supervisory Authority approves the transaction before the accord is set to expire in May.

The proposed deal has already won approval from regulators in various countries, and would bring $300 million of foreign direct investment to Egypt, EFG-Hermes said in a statement to the Egyptian Exchange earlier this month.

QInvest, a unit of Qatar Islamic Bank, and EFG-Hermes plan to create an investment bank with operations in the Middle East, Africa and Turkey, as well as southern and southeastern Asia, Bloomberg reported.

If EFG-Hermes doesn’t get the approval of the Egyptian Financial Supervisory Authority “in the coming days, the implementation of the partnership agreement will become difficult,” the company said earlier this month, according to Bloomberg.

EFG-Hermes co-chief executives Yasser Al Mallawany and Hassan Heikal are defendants alongside former Egyptian President Hosni Mubarak’s sons Alaa and Gamal, and five others on charges of illicit gains related to the 2007 sale of El Watany Bank of Egypt.

The trial began in July 2012. EFG-Hermes’ investor-relations manager, Hanzada Nessim, said last month there is “no relation” between the trial and delays to the sale, according to Bloomberg.

The request made by the IGA could prove to be a further setback to the EFG-QInvest venture.

The IGA, which is part of Egypt’s Ministry of Justice, has the power to block the controversial deal. It generally looks into cases across several scenarios, according to the website of Egypt’s General Department of Public Funds, Crimes, Investigations Police.

These include the sudden increase in the wealth of a person or organization; illegal behavior in connection with illegal gains; and illegal gains made by those in public service or those abusing their office.

EFG-Hermes told Al Arabiya the group has "always endeavoured to conduct our affairs with complete propriety and continue to do so to the satisfaction of regulators across our footprint."

EFG-Hermes said the venture with QInvest would not necessarily constitute a change to the legal structure of EFG-Hermes, as was suggested by the IGA.

"EFG Hermes Holding is not being sold or changing legal form, but merely transferring part of its assets to a joint venture with QInvest. Dividends from the distribution of such assets will go to more than 11,000 shareholders," EFG-Hermes said in an email to Al Arabiya.

"Our shareholder base is quite wide and does not include Mr. Gamal Mubarak. The largest shareholders in the firm include local, regional and international institutions and investment funds in addition to the sovereign wealth funds of Dubai and the Government of Abu Dhabi.

"The Board of Directors of EFG Hermes Holding further affirms the firm’s full compliance with all laws and regulations applicable to its business and operations and its diligence in observing corporate governance rules. The Board also confirms its full support and confidence in the firm’s Chief Executive Officers, their compliance with the law, their competence and ability to prudently manage the firm and protect the interests of its shareholders."

A representative of QInvest did not immediately respond to a request for comment when contacted by Al Arabiya.