Bank Misr (BM), Arab African International Bank (AAIB) and National Bank of Egypt (NBE) are the three banks with the largest exposure to Ezz Steel, according to Beltone Financial and other sources.
On 15 September, an Egyptian court ordered the withdrawal of two new steel plant licences from Ezz Steel in addition to sentencing Ahmed Ezz and former IDA head Amr Assal to 10 years in jail with a LE660 million fine to be paid between them.
The court ruling also withdrew licences from steel makers Beshay Steel and Suez Steel.
“Just like any corporate client whose potential growth/repayment ability has been pulled back, the bank will raise its risk provision for the client,” says a source at AAIB speaking to Ahram Online on condition of anonymity.
The source explained that instead of putting 2 to 5 per cent of loan value aside for risk mitigation, the bank will have to raise its risk provision to 20 to 25 per cent. Raising the provision will significantly hit the bank’s profitability.
Ezz Steel’s total debt, as of FY2010, stood at LE9.8 billion ($1.6 bn), of which LE6.5 billion relates to debt in sister company, Ezz El-Dekheila (EZDK), meaning that Ezz Steel has LE3.3 bn of loans as for its standalone operations.
NBE, AAIB, and BM have a large exposure with Ezz Steel through a LE1.8 bn joint loan (syndication), according to Al-Mal newspaper.
The remaining LE3.3 billion of Ezz Steel debt is distributed between approximately LE1 billion of local bonds and undisclosed loans from public banks.
Ahram's source at AAIB declined to confirm the published figures.
AAIB has been heavily criticised after the 25 January uprising due to its previous appointment of Gamal Mubarak on its board of directors as a representative of the Central Bank of Egypt, which owns around 50 per cent of the bank.
Al-Mal also reported the three afore-mentioned banks also offered Suez Steel LE3.36 bn and Beshay Steel LE0.84 bn, with the participation of 13 other banks.
AAIB’s exposure to Suez Steel, however, is much more significant to Suez Steel than its exposures to Ezz or Beshay, suggesting that AAIB has sizeable share of the firm's LE3.36 bn syndication.
Beltone reports that EZDK’s LE6.5 billion debt is divided, with LE2.5 billion granted by a consortium of banks with AAIB as syndication manager. AAIB also offers the company LE0.23 billion in revolving facilities and LE0.3 billion in short-term facilities.
Ezz Steel said on Sunday the court ruling would not impact current operations but was expected to hit future investments. It said former chairman Ahmed Ezz, who had held a top post in ousted Hosni Mubarak's party, would appeal his sentence.
Bank Audi and National Société Générale Bank (NSGB) are also exposed to EZDK with LE0.6 billion and LE0.3 billion, respectively, mainly denominated in US dollars. Public banks are exposed to LE0.5 billion in short-term facilities.
The lenders of a residual of EGP2.0 billion have not been disclosed.