Our business is very simple, Patrick. How much have you dispersed? How much have you collected? How many customers have churned? How many have retained? How many did you cross-sell to? There's six, seven indicators. It's not rocket science. So we just need to be on track. We need to be on it. Have to be plugged in, plugged in, plugged in.
From Enterprise AM, I'm Patrick, and this is Making It, where I talk shop with people who run the biggest companies in our part of the world.
Hey everyone. Today on Making It, I'm talking to Mounir Nakhla. Mounir is the founder of MNT-Halan. It's one of those companies that everybody in the community thinks that they know, but that very few of us can explain in a sentence. MNT started out financing tuk-tuks and motorbikes in Egypt. Today, it lends to consumers and small businesses. It offers everything from credit cards to investment products, and it operates in Egypt, Turkey, Pakistan, and the UAE.
Depending on how you squint, it's a lender, a fintech, a distribution network, or something that looks a lot like a bank, but without the deposits, at least for now. Mounir built this in 17 years, and today he's taking the Egyptian part of this business public on the EGX. CIB, Egypt's largest private sector bank, said earlier this week that it was going to take a 2 billion Egyptian pound cornerstone position in that IPO. MNT is putting 20% of its Egypt unit up for grabs, and the IPO should close later this month. It's on track to be the biggest in Egypt since 2021 and could make it into the top 10 of all time. Mounir and I spoke in September before the announcement. MNT is going to use the money to fund growth in Egypt and to expand into other markets. The bet for investors here at home is that the IPO brings foreign investors back into the market. But the test is about more than whether the share pops on day one. It's about who buys into the offering and do those investors stay. The hope is that MNT opens the door for other companies to follow. That includes family businesses that want to institutionalize, companies that need to raise money for growth, and businesses backed by private equity and venture capital investors who need to give their early LPs a way out. Mounir answers some tough questions about talk on the airwaves this summer about a bubble in consumer finance, about the risk in the loans he's making, and about himself. For most of the 15 years that I've known him, he's described himself as a micromanager learning to delegate. In this conversation, he tells me he may have delegated a bit too much. And he introduces me to Apollo, the AI tool that he wakes up to every morning. This is a conversation about an IPO and about the two transitions that have to happen to make it possible. Oh, and before we get started, I'm going to ask you to listen to a disclosure and then some legal ease. First, the disclosure. A few weeks after we recorded this, MNT became the anchor sponsor of Enterprise AM AI and Innovation. It's our flagship briefing on all things AI in MENA. Second, the disclaimer. The lawyers, and by that I mean Enterprise's, MNT's, and everyone else's, really want you to know that nothing you're going to hear today is an offer to sell securities or the solicitation of an offer to buy securities. And nothing you're going to hear constitutes investment advice. So, with those caveats, let's get going. Mounir, welcome to Making It.
Thank you, Patrick. It's good to be here.
You have spent 15 years choosing your shareholders privately. None of us can fully choose, right? People can say no to us. But the final decision, that guy's in or out of my cap table, it's come down to you. And you're going to let the market decide for you. Why?
Believe it or not, my first shareholder, I didn't choose him. He chose me. So they found me. They told me, 'Mounir, we've got an idea. We know about you. Let's do it.'
That was my second shareholder. I didn't choose him either. It was Ziad Abaza from DPI.
We were at a Christmas party and he told me, 'I'm interested in your business. I've heard about you. I want to invest with you.' Thereafter, I started choosing. Every shareholder that has come on board has become a friend. You develop a relationship, and that relationship...
How many shareholders do you have right now?
Quite a few. We've got maybe in the teens. So, the big shareholders...
These are people you know one-on-one.
The big shareholders, I know them all. We're friends. We go for lunches, we go for dinners, we have heart-to-hearts, and that's the best way to run a business because it has to be done in full transparency and alignment of thought. Because once there is alignment of thought, there's alignment of strategy, and then there is trust and execution. So the big difference is I won't have the luxury of building these personal relationships with a public market. So there needs to be good communication, thorough communication, transparent communication. It's all a function of expectations and results. And if we can manage this dance between expectations and results, I think the relationship will remain healthy and trust will be built.
What does going public make possible for the company that another private round or more bank debt can't solve?
So I think three main things. One, immediate access to sizable liquidity, future access if needed. So you're bolstering your balance sheet, you're bringing in money into the top co. So it's both whether it's subsidiary level or top co level.
And in the future you could go do another primary, a small secondary.
100%, with very short notice.
Number two is whenever we were discussing the top co valuation, we had some random investors, not so many, but quite a few, that would mention, 'What about the Egypt discount?' And I'd say, 'Why is there an Egypt discount?' If you look at peers, if you look at the market, if you look at where companies are trading, they're actually not at a discount at all. I wanted to kill this conversation, and there is no reason to apply a discount to Egypt. Maybe that would have been justifiable in early 2024 or in 2022.
When you have a big FX overhang and a parallel market and rampant inflation.
Sure. But there's no reason whatsoever to have this now. Different universe today.
And listing on the EGX is a testament of the value of the Egyptian business because then it's totally transparent. It's tradable.
Yeah. Otherwise, you would have gone to ADX as an expatriate of the business and done a listing there. We're listing in Egypt, and it's an Egyptian company, and we're proud. And I think it's going to be good for the company and good for the market.
So you list here, your valuation is a matter of public record. There's no conversation to be had at the top co level of how much is your Egyptian operation really worth.
How much is it worth? Go on Reuters, go on Bloomberg. Look at the market cap. There you go. And there's no reason to value another subsidiary in another country with higher multiples if the underlying drivers of the valuation here are more solid. So if I have better growth, if the underlying fundamentals are stronger here, it should actually merit a higher multiple.
So the third point is government incentives, and particularly tax incentives. With that, there's a certain valuation with a certain amount being listed that the government came out and said, if you achieve these two targets, your tax rate goes down from 22.5% to 15%. That would be a big win if we can achieve it.
And number four is bringing everyone on board. So we want to have everyone enjoy our journey, make money with us. If the stock price is rising, we want everybody to have. So we want to share the love.
I'm curious why you think it is that funds that have been out of Egypt for years and years and years will come back into the market. They're coming back for you.
Look, institutions were net sellers in August, right?
Yeah. Yeah. You can't take one month at a time.
You can't. But I mean, the market has been retail-driven, right? But you've been on the road, I've been on the road, and I've met maybe at least 70, 80 investors, whether online or physically, in maybe three or four geographies.
The Gulf, UK, South Africa, some even US investors.
So I've had so many people tell me, 'Oh, Egypt, we want to come back to Egypt. We haven't been in Egypt since 2006, 2007. That's a great opportunity. Is it a sizable IPO? I hope it's not one of those very small IPOs.'
We want a big IPO. That's the type of... And then the public investor is very, very different to the private investor. It's like getting into a long-term relationship or a marriage with a private investor, or a public investor where it's a shorter relationship. They like you, they stay. They don't like you, they dump you.
And that makes it actually much harder on us to execute, operate, deliver on their expectations. And that's why the communication needs to be very, very good.
Before we talk about what foreign institutions like about you, what questions they're asking about you, Hassa used to be turned into the spokesperson for Egypt. It's all Egypt political risk, Egypt macro. Talk to me about the country. When will I come back to the country? No one asked about CIB when he was at CIB. You know, it was always, 'Give me the story of Egypt because, you know, I'm curious about Egypt, but I'm not putting money in today.' You're meeting with people who you say are interested in Egypt. What interests them about the country now?
So, there's one incident that happened this year that has increased the Egypt confidence by a multiplier.
And this is how the Central Bank of Egypt handled the crisis of the Iran war.
Hassan has been freaking on point the last 12 months.
On point, and everyone has been speaking incredibly well. So your movement from 46 to 54 and then subsiding again, this has created a lot of confidence. Number two is the outlook on the stability of the country, not only in absolute but in relation to others in the region. Feels good that we're the ones who are stable for a change, right?
It's great to have Egypt where it is today.
Yeah. Number three is, as I mentioned, a lot of these public market investors are traders, and if Egypt has done well for them or for some investors, whether they were part of it or not part of it in the past two years, they want to be part of the party, and giving them an opportunity with a sizable offering can bring them in.
Explain to our listeners why a sizable offering is important.
Because of minimum ticket sizes. If you have an investor, their minimum ticket size is $15 million. The whole IPO is $20 million. It doesn't work. They have limitations.
It costs them as much to do diligence on a $1 ticket as it does on a $15 million ticket, right? They have to spend time. They have to make it work for a while. They have to justify it to their investment committee.
100%. But it's not only that. This is something I'm learning in the last two, three months. But what I'm seeing is investors have two criteria to quantify their investment ticket. One is if they decide to exit, how many days of liquidity can they exit on? Some investors would tell you five days, some would say seven days, some would say ten days, but there's a cap there down there. So they need to estimate how much liquidity there will be, and that's a cap on their ticket. The other thing is it has to make some sort of as a percent of their AUMs, of their assets under management. So if someone's managing, or if there's a fund managing $3 billion, how low can they go? So that's where the tension comes.
That's why a sizable offering attracts a lot of people.
And honestly, for us to have a liquid stock, it is one of our objectives.
How much of that is in your control? How do you, as the company, set out to design a capital structure that gives liquidity?
So I'll tell you something, Patrick, as a matter of principle.
Very, very few things in this world are within your control.
But if you set off the right intention and you put in the effort, you usually get to the result you want, irrespective of control.
So that's your hope, right?
So it's a target. So it's something we're talking about. We want liquidity. We want liquidity. Do we have liquidity? Not bad. We need to increase it. What do we need to do? We get the right advisor. We get the right people on board. You'll have it as long as it's on your target list.
Yeah. Because there are others who have struggled with that question in this market.
In order to have liquidity, you need to have buyers and sellers. So you can't say, 'I just want buyers, buyers, people who are long.' And having buyers and sellers, and maybe having a little bit more buyers than sellers, just a little bit, to keep the price going up.
So I think that's how we'll try and do it. And retail helps with liquidity.
What would make this a successful IPO?
That's a difficult one. No.
I'm not asking you to put a number on it. Explain to people what a pop is. You got to remember a lot of people listening to this are going to be thinking about IPOs for the first time, and we have younger listeners who haven't been through a successful IPO in Egypt.
A pop is that typically when you come to list, you set a valuation for the company. There's a whole exercise of how much this company is worth, and you've got analysts from banks and independent financial advisors and a whole bunch of people who are putting a value to your company. And then the bankers come up to the owners of the company and tell them, 'Hey guys, we want a discount.' 'Why do you want a discount?' 'We want a discount.' 'I don't want to give a discount.' 'But we're going to give a discount.' 'Okay.' So you give the people a discount. And then what typically should happen on day one of trading is the value of the company goes from the discounted amount that you sold at the IPO to the real value of the company, and that's the pop.
So, a pop on day one. And before we started recording, I've already made you promise to come back in 12 months to talk about how everything went, right?
That's a lot of pressure. I don't only have to answer to the public market, but I also have to come to Enterprise and answer to family.
No, I'm looking forward to coming back with my head up high.
What's success 12 months from now? What does it look like for you?
So success in 12 months is everyone joining our journey to be happy.
It's a big goal. For them to be happy, we need to give them good returns. So that's success.
So share price performance.
Bottom line of the company is growing. With the IPO, people are coming to make money. We're a growth story. We have a lot of efficiencies to be made, whether in risk, whether in costing, whether in growth. So lots of efficiencies. And if we can execute well and the macro is doing well, then the share price should have a positive streak, and that would give good returns to investors, and they would be happy. And then if they are happy, I would be happy.
All right. When we come back, what does MNT-Halan actually do? How does it make money, and where does the next phase of growth come from?
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So I am a prospective investor. What is MNT, and why should I buy the stock?
So we're the largest non-bank provider of financial services through technology, but also through very, very strong physical presence. We have an integrated ecosystem where we provide financing, we provide investment opportunities, whether in money market funds, we provide payments, cards, wallets, and we have value-added services, whether it's games or a marketplace, to acquire and retain customers. Once you join us as a customer, it's very unlikely that you will leave our ecosystem. We have so many products. We're laser-focused on growth and profitability. We manage risk well, and we have a tech team that's 100 people, 100 people that are working on scoring models, working on AI, and working on efficiencies to improve our bottom line and margins.
And who are your clients?
Every Egyptian, small businesses, micro businesses, and big businesses. So think of someone who wants to buy a mobile phone, a television, or a father who wants to marry his daughter and buy her stuff on credit. Think of a small business that's scaling, whether it's in the agriculture sector, whether it's the owner of a light vehicle or a small kiosk that wants to add more expensive products, and we provide financing for that. We also have a card that is a unique card. So our card works both credit and debit, and that's a unique proposition.
So you do that switch change through the application. Think that Egypt has 5.5, maybe 6 million unique credit card holders for a population of 115 million people.
35 banks have been distributing cards for 35 years, and they've distributed to 6 million unique people. In two years, we distributed to 1.4 million unique people, of which maybe 25, 30% are active users.
So we've got maybe today 2 million users, maybe 1.3, 1.4 million borrowers. So the scale of growth, distribution with the technology, with the app, with the retention, with the cross-selling, is a unique proposition of financial services in Egypt.
How does the Egyptian company make money today?
So we've got many sources of revenues, whether it's in payments, e-commerce, or commissions from investments, but the main way we make money is from lending funds.
So you effectively have a NIM, a net interest...
You have a net interest margin, and then you've got the cost-to-income ratio, cost of risk, and then that's your bottom line. So you make money from the NIM, 100%.
How much of your top line is that, roughly speaking?
90 plus percent. Okay. What products, or what lines of business, or what types of clients are the most profitable for you?
So unit economics is a curious thing because we've got some products that have lower NIMs, but on a risk-adjusted basis, they're quite profitable. Then you've got other products that are quite digital, but they have a high cost of risk, but a very, very low cost to serve.
Because if you're distributing digitally, if you're underwriting digitally, if you're collecting digitally, then there's very, very little SG&A or cost. It's pretty low. So we have greater appetite to take a bigger cost of risk because the cost to income is low.
But in general, we try and have most of our lending products land on a bottom line, on a unit economic level, more or less within the same range.
And you're playing with NIMs from there.
Yes. So you're playing with three main things. Your net interest margin, which is the cost of funds, is steady, so you don't have a lot of autonomy over that. But then the pricing, which is the yield, and then number two is the cost of risk. So how good are our scoring models here? Do we need an additional layer of scoring, etc., etc., etc.? And this segment versus this segment. And number three, is there a high cost to operate it or is it a low cost to operate? And you take these three, put them in a mixer, and you get your unit economics. And then there's a fourth variable that's always in mind, which is growth, because we're really handing out money to people. So our business is very easy. It's not rocket science. Who wants money? I want money. I want money. I want money. And we're really distributing money, right? So the difficult part is getting it back.
It's getting it back. So it's really how you assess the risk, how you collect, that's the difficult part.
