Shareholders and workers at the Nile Cotton Ginning Company (NCGC) are continuing to wait for a solution to their dispute with the government in what has been a drawn-out process that has seen the company enter a kind of legal limbo.
The company was a public company that was privatised in 1997, but a court order in 2013 nullified its privatisation and ordered the owners to return it to the government.
In 2015, the Administrative Court rejected an appeal by the Holding Company for Construction and Development (HCCD) on behalf of the government to suspend the earlier verdict.
The cabinet presented a request to the Supreme Administrative Court (SAC) asking about the verdict’s implementation. The SAC recommended holding negotiations between the two parties, namely the government and the company’s shareholders, to reach an acceptable settlement.
Several years later, the negotiations remain ongoing. Work has been halted at the company, its shares are no longer traded on the stock exchange, losses are being reported every year, and shareholders are complaining.
In an attempt to solve the problem, the Ministry of Public Enterprise has prepared a law currently being discussed in the legislative and economic committees of parliament. The law is expected to be finalised within the coming weeks.
The draft law states that the prime minister has the authority to refer cases of the nullification of the privatisation of public companies to dispute settlement committees formed in accordance with Investment Law 72/2017.
The government says that this will protect shareholders’ rights and send a message of confidence to local as well as foreign investors.
Mokhtar Al-Sherif, a member of the Federation of Economic Development Associations, said that the law, if it passes in parliament, will not solve the problem since the government cannot select a dispute settlement authority or committee when it is a party to the dispute.
“This would not be fair for shareholders, as members of these investment dispute committees are representatives of the government. The committees are formed of members from the ministries of justice, investment, finance and public enterprise,” Al-Sherif added.
The new investment law states that when concluding any contract the parties must agree on a dispute settlement authority that they will refer to in case of disputes, according to Al-Sherif.
“The government should be committed to its privatisation, and the company’s ownership should remain in its shareholders’ hands,” he said.
The company’s shareholders blame the government for what they say is neglecting their interests, adding that it has no desire to solve the problem. They have been badly affected by the freeze placed on their capital over recent years, they add.
In November 2018, the Ministry of Public Enterprise started a comprehensive evaluation of the company’s assets as a step towards facilitating procedures when reaching a final settlement.
Minister of Public Enterprise Hisham Tawfik has held several meetings with NCGC shareholders during the last two months and asked them to present suggestions in order to reach a fair settlement for all the parties.
The meetings ended with two ideas: either that the company returns to the public sector and the government pays compensation to shareholders following the evaluation of company assets, or that the shareholders pay the government 10 per cent of the value of the company’s land, which will be revaluated for real estate activity, and the company remains in private ownership.
Foreign shareholders, who own 30 per cent of the stock, have been looking to enforce a mandatory tender offer on their stake by the Holding Company for Construction and Development.
The shareholders, who include investors from Saudi Arabia, the UK, Syria and others, plan to launch an arbitration case over their dispute with the parent company. They will ask for compensation after the eight years of unresolved disputes with the government.
Anwar Al-Naqeeb, a professor of economics at the Sadat Academy for Management Sciences, said that the foreign shareholders would likely win the case and the government would be obliged to pay large sums to them because of problems in the previous contracts.
“Such cases make foreign investors afraid to invest in Egypt, and that’s why Egypt stands at number 128 in attracting investments according to the latest World Bank Doing Business report,” he explained.
He added that the government should bear its responsibility even if there are financial losses when selling the company in order to help protect Egypt’s reputation and attract more foreign direct investments.
He agreed with Al-Sherif that the new law would not put an end to the problem since it would only apply to cases following its issuance and not retroactively.
Al-Naqeeb suggested that the company’s assets be reevaluated and sold off. “The liquidation of the company is the best solution. The government could then use the revenue to pay the shareholders their capital and suitable interest to cover the past eight years. The workers should receive compensation,” he said.
Ehab Al-Dessouki, head of the Sadat Academy for Management Sciences, said the government must find an acceptable solution since the investors had had nothing to do with problems in the privatisation process.
If the government had the will to solve the issue, Al-Dessouki said, it should buy 51 per cent of the shares from the shareholders at a fair price. “The company can then resume its activities and shares can be traded on the exchange.” he added.
The NCGC was established in 1965 and is based in Giza. It works in the ginning and import and export of cotton in addition to other activities. It was put under the umbrella of the Holding Company for Spinning and Weaving in 1996 and was listed on the stock exchange in 1997.
* A version of this article appears in print in the 10 January, 2018 edition of Al-Ahram Weekly under the headline: Cotton company in limbo