Last Update 18:23
Friday, 15 November 2019

In private hands?

Ten per cent of Heliopolis for Housing and Development Company equity will be up for grabs in a sale the government is promoting as a model for future privatisations, reports Safeya Mounir

Safeya Mounir , Tuesday 5 Nov 2019
In private hands?
Merryland Park in Heliopolis is owned and co-operated by the HCHD
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Many real-estate developers are bidding to purchase the 10 per cent stake with management rights in the Heliopolis Company for Housing and Development (HCHD), whose privatisation started this week, said Hisham Tawfik, the minister of public enterprise.

The 10 per cent stake is part of a plan to sell 25 per cent of the shares of the HCDC, owned by the Holding Company for Construction and Development.

Through offering the 10 per cent stake with management rights for sale, the Ministry of Public Enterprise is aiming to increase the Company’s competitive edge and revenues, raise the value of its shares, market its housing units, and restructure its administration.

Now that the contracts have been finalised, Tawfik added, the management deal can be set for seven years and can be renewed. “I believe the investor who wins the bid will have to work fast so that they can develop 20 million square metres of HCDC land,” he said.

The HCDC general assembly issued a statement saying the 10 per cent stake was to be sold to an investor specialising in real-estate development or to a consortium of a private-equity company and a real-estate development company.

Offering the management rights to the private sector was one of the best ways to raise the efficiency of the company’s management, Tawfik told Al-Ahram Weekly. This way of working might be new to the Egyptian market, but Tawfik said it could happen more often in the future.

The HCDC, established in 1906, works under the umbrella of the Ministry of Public Enterprise in housing projects, urban development, and planning and selling land while also providing it with utilities and services. The company runs projects in Heliopolis, Obour, New Heliopolis, and Heliopark.

According to press reports, the list of companies bidding to win HCDC management rights includes Emaar Misr, SODIC, BPE, and Palm Hills.

The real-estate company that wins the bid will earn in return for its managerial services shares in the HCDC in three tranches. The first third will be earned after achieving an annual growth in sales of no less than 20 per cent; the second third after making an annual growth in profits of 20 per cent after deducting taxes; and the last third after increasing the price of HCDC shares by more than 20 per cent.

The company winning the bid needs to have at least seven years of experience in the fields of management, investment and real-estate development.

HCDC profits increased by 41.8 per cent in the previous fiscal year over 2017-18, achieving gains of LE376 million, up from LE265 million the year before. Its revenues in 2018-19 reached LE1.07 billion, up from LE954 million in 2017-18, recording a 12.6 per cent increase.

The company board approved increasing its capital from LE111.2 million to LE333.7 million, distributed in 890 million shares. The increase came in the form of free shares with a 2:1 ratio as a result of the company’s retained earnings mentioned in financial statements ending on 30 June 2019.

The HCDC is one of five companies the state was going to offer on the stock market in the fourth quarter of 2018 as part of the government’s initial public offering (IPO) programme. The call was put off, however, until market conditions had improved.

A year ago, the research unit of Naeem, an investment bank, set the fair price of a HCDC share at LE67.3, with a possible increase of 3.7 times the price currently quoted at the bourse of LE18.3.

But a slowdown in sales and rising production costs, according to the report by Naeem, had caused HCDC profits to plunge to LE9 million during the first quarter of the current fiscal year, down from LE77 million during the corresponding period in the previous fiscal year.

Mona Mustafa, a financial analyst with Arabiya Online, an investment bank, said HCDC was the second-largest company after the Talaat Mustafa Group in land. Despite the company’s capacities, it had not evolved as a real-estate developer and had had no effect on the market in the previous years, she added.

The HCDC’s unused land is estimated to be worth LE80 billion. It owns the New Heliopolis City Company with 5,407 feddans, or 22.7 million square metres, of land. The HCDC has signed a cooperation agreement with SODIC, a developer, to develop 665 feddans of land and invest in a further 2,048 feddans. The remaining area, of about 2,703 feddans, is unused.

In New Cairo, the HCDC owns the Heliopark project spread over 1,695 feddans of land.

The company announced it had acquired a piece of land in Shorouk city after a presidential decree ended litigation in the area. It also said it was studying several offers proposed by real-estate developers to work on projects in Egypt’s new smairyt cities.

Offering management rights to the HCDC aimed at improving the management of the company, Mustafa said, adding that new expertise brought on board would improve how the HCDC was run and make use of its full potential. The HCDC needed different management, not additional money, Mustafa said.

In addition to the current bid, Tawfik said 12 or 15 per cent of HCDC shares would be offered in an IPO in January 2020.

Hazem Barakat, chairman of the board of B Investments, one of the companies that announced its intention to compete to win the HCDC 10 per cent stake with management rights, told the Weekly that his company had had similar experience in the Nasr City Company, of which it now owns 30 per cent.

He explained that one of the reasons he wanted to apply for the HCDC bid was that the latter owned a number of historical buildings and that his company had had experience in this field through working with the Ismailia Company for Real-Estate Development which runs the Khedival Cairo buildings in Cairo’s downtown district.

*A version of this article appears in print in the 7 November, 2019 edition of Al-Ahram Weekly.

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