US Congress probes Sarwa Capital IPO after Sawiris bid

A probe into the initial public offering of Cairo-based Sarwa Capital by the United States Congress marks a political development in the turmoil surrounding the Egyptian Financial Regulatory Authority’s (FRA) decision to suspend Beltone Financial Holding’s IPO unit, which managed the IPO.

With a 70 percent stake in Beltone Financial, Naguib Sawiris’s Orascom Investment Holding (OIH) is now caught in the crosswind of Egyptian and US investigations after allegations of misconduct in the management of the IPO of Sarwa Capital, a financial services company in which the Egyptian-American Enterprise Fund (EAEF), powered by US government money, has majority ownership.

With stakes in multinational corporations and investments around the world, Sawiris is a billionaire Egyptian businessman who has made headlines before — by making a bid that was blocked by the Canadian government in 2013, for example, and through recurrent attempts to make to make himself a significant shareholder at several companies.

Although the date on which the US Congress decided to probe the IPO is not clear, it came after Sawiris, through OIH, made a bid to buy a large stake in Sarwa Capital following a plunge in its share price the day after it started trading on the Egyptian Exchange on October 15, a senior source at Beltone tells Mada Masr on condition of anonymity.

On November 1, the FRA suspended Beltone’s IPO unit for six months and mandated Beltone’s brokerage arm to increase insurance cover to LE50 million.

“[Beltone] will take all necessary proceedings to obtain further details and stipulations of said decision and based upon its findings will pursue the appropriate legal actions to safeguard its interests and those of its shareholders and clients,” the company said in a statement.

While the motives behind the OIH bid are not clear, comments to Mada Masr from sources close to the regulatory authority and Beltone, as well as reports in Egyptian media, paint a picture of what could be competing or coinciding aims for the move. One narrative would have Sawiris standing to benefit from the plunge in price from his position as owner of both Beltone and OIH, thereby also gaining a foothold into Sarwa’s management. However, the Sarwa saga is also increasingly a political issue. With US Congress involvement, the financial sector stands to take a blow to international confidence, and an OIH bid at the behest of the Egyptian government would allow Beltone and the sector at large to avoid a black mark.


Sarwa Capital is a financial services company that provides retail financial solutions, such as automotive credit and consumer finance, as well as corporate solutions, such as securitization and corporate leasing. Created in 2001, the company brought in LE204 million in net profits in 2017, double that recorded in 2016.

The EAEF had a majority ownership stake in Sarwa Capital with 73 percent shares prior to the IPO, which decreased the fund’s stake to 41 percent.

The enterprise fund was launched by the US in Egypt in 2013 to follow the Enterprise Fund model created after the fall of the Berlin Wall to support the expansion of the financial sector in countries in transition. First promised by Barack Obama in the aftermath of the Arab Spring, the EAEF was established to “promote the development of the Egyptian private sector and catalyze investment in Egypt’s promising SMEs.”

According to the senior source at Beltone, the EAEF submits reports to the US Congress on a regular basis.

At the beginning of this year, the EAEF received several offers to buy its majority stakes in Sarwa Capital, including an offer from Sawiris. But the fund turned them down, preferring the IPO track, sources close to the Sarwa IPO in Beltone, Sarwa and a legal consultancy firm tell Mada Masr on condition of anonymity.

And so the Sarwa Capital IPO went ahead on October 15. The IPO was largely dependent on a private offering through which 90 percent of the shares being offered were allocated to institutional investors and their clients. In the second phase, 10 percent of the shares were sold in a public offering mostly to individuals.

When the IPO process began with an institutional offering, Sawiris refused to buy a stake in the company, as the private placement had a ceiling of 10 percent, two Beltone sources close to the IPO told Mada Masr. Sawiris wanted more.

Initially, the IPO was hailed as a success, as the private offering was oversubscribed by more than 10 times and the public offering was oversubscribed by more than 30 times.

Then on October 16, a day after Sarwa Capital’s shares began trading, its share price fell 11 percent and the investors who bought the first shares suffered losses, against their expectations.

Two sources from Beltone’s brokerage and investment bank wings close to the IPO peg the surprise plunge on asset manager attitudes. “The plunge in the share price after the beginning of trade is due to a pessimistic view by domestic asset managers who missed the opportunity to invest in the Cairo for Investment IPO that, which came two weeks before the Sarwa Capital IPO and made returns of 18 percent as soon as it traded,” one of the sources says.

The Cairo for Investment and Real Estate Development company was listed in September, and its IPO was oversubscribed by 18.87 times in the public offering and 10.36 times in the private offering. The private placement was mostly subscribed to by foreign investors, while the public placement was mostly subscribed by Egyptian investors.

“The period between allocating the shares and trading saw the Gulf markets get hit by news of possible US sanctions on Saudi Arabia on the back of the killing of journalist Jamal Khashoggi and a correction wave in global markets, leading investors to sell [Sarwa Capital shares] as soon as trading began in values less than that of the offering price,” one of the sources added.

On October 31, OIH made a bid for a non-controlling stake in Sarwa Capital.

Although it is not unheard of for a share price to plunge as it begins trading, Sawiris making his bid a few days after the drop fed suspicions of misconduct by Beltone’s IPO arm.

Sawiris’s offer would have seen OIH either buy a 30 percent stake in the company at the IPO set price, which was then higher than the market price, or a 30 percent share with a minimum of 20 percent, at a price 10 percent lower than the IPO price.

The timing of Sawiris’s bid coinciding with the drop from the IPO share price of LE7.36 to around LE5.47 allowed Sawiris to make an offer for a stake in the company large enough to grant him entry to the company’s management, the senior source at Beltone brokerage and a legal adviser tells Mada Masr.

The share price has since rebounded slightly, reaching LE6.2 at the end of the trading session on November 9.


The Sarwa Capital IPO raised LE700 million in capital, which is only equivalent to about 95 million shares. The overall number of sold shares was 295 million — 90 percent through the private offering to institutions and only 10 percent through the public offering to individuals in the market.

Institutional investors who took part in the private offering submitted complaints to the FRA in the days following the fall in the stock price, accusing Beltone of misconduct, according to media reports.

Several investors also requested that Sarwa’s management and Beltone buy back their shares at the offering price to compensate for their losses, if violations were proven, according to media sources.

But according to senior sources from the regulatory sector, the FRA will not overlook violations by reversing them through purchase offers, which means it will not make Sarwa or Beltone buy back the shares.  

However, for the Egyptian government, what is at stake in these suspicions is the credibility of the financial sector. If investors gain back their losses, Beltone could avoid a lawsuit from Arab and foreign investors who made complaints to the FRA, reported the privately owned Al-Shorouk newspaper, citing anonymous sources.

This provides a different context for Sawiris’s bid after the plunge in stock price. With the FRA effectively barring Beltone from buying back shares, according to what regulatory sources tell Mada Masr, Sawiris made a bid through another channel: OIH. According to Al-Shorouk, the bid at the IPO price was pushed for by high-level government authorities in an attempt to save face, so investors who lost in the share price drop could gain back their losses.

“We are looking at the Orascom bid independently from Beltone, and we have not reached a formal decision yet,” the sources from the regulatory sector say.

For now, the FRA has created a committee to investigate the allegations against Beltone.

The committee questioned executives at Beltone and asked them about the pricing mechanism and the movement of the offering funds amid accusations of false subscriptions, sources close to the IPO told Mada Masr. Although these sources explained that pricing goes through several stages and entities — making it unlikely that Beltone manipulated the valuation of the share — the accusations of unreal subscriptions to the stock remain unresolved.

“Pricing the share went through several stages,” one of the sources close to the IPO at Beltone told Mada Masr. “First the independent financial adviser determined the fair value for the Sarwa Capital share through meetings with the company management without the intervention of the IPO manager. In this meeting, the independent financial adviser specified the valuation assumptions. The meetings resulted in a fair value of LE9.2 per share. This price was then presented to the FRA for approval in accordance to the offering procedures. The authority then changed the assumptions, lowering the fair value to LE8.5 per share.”

At a later stage, during the promotion of the private offering, researchers at the companies involved in the process and asset managers met with investors and Sarwa Capital management to determine the share price and expected return on investment, added the source.

“The role of the investment bank is limited to determining the price range for the offering in collaboration with the main shareholders in the company, and this was determined to be from LE7.04 per share to LE8. Then the final price determination for private and public offerings occurs through the Book Building process,” the source tell Mada Masr, an account corroborated by a legal adviser. The investment bank, in this case Beltone’s IPO arm, then formulates a portfolio for the offerings, taking into consideration associated risks, the nature of investment for each investor and the expected duration for the investment.

Despite this complex process, deputy head for the FRA, Khaled al-Nashar, told the privately owned Al-Mal newspaper on Sunday that investigations into the Sarwa Capital IPO confirmed that there were violations of the financial markets law. The FRA decision to suspend Beltone’s IPO arm had nothing to do with the plunge in the share price, but to violations in the offering process, anonymous sources told Al-Mal, without specifying the violations’ nature.

Youssef al-Daly 

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