Egypt bourse suspends Palm Hills trading after court ruling on corruption charges

Ahram Online, Wednesday 27 Apr 2011

Today the Egypt stock exchange halts Palm Hills Development share trading after a court rules that the sale of state land to the company was illegal

Photo: Fouad Mansour

Egypt's stock exchange suspends trading in Palm Hills shares on Wednesday, saying it was awaiting a response from the company to a request for information.

An Egyptian court ruled on Tuesday that a land sale to Palm Hills Development (PHD) was illegal and scrapped the contract. Palm Hills and other Egyptian real estate firms are reeling under a string of legal challenges to their land holdings.

The court annulled the sale of 960 thousand sqm of land to Palm Hills on charges that the land was illegally earmarked for Palm Hills at much below market price and despite higher bids. 

"The negative ruling was expected by the market, as well as the company’s management. We believe that the final outcome of litigation should take a while, as the management aims to file an appeal against this verdict, which will take a minimum of six months," a report by Beltone Financial released Wednesday reads.

The report by Egypt's leading investment bank added that despite the ruling, management is continuing with its construction plans and aims to hand over a significant portion of the project in 2011.

"It is important to note that the negative ruling does not impede PHD to construct and deliver the units as scheduled" the report adds "Moreover, as PHD has executed significant construction and has started to deliver the units it is unlikely that PHD will be asked to return the land."

The release added that in the event that the final verdict is against PHD that realistically "PHD [could end up] paying an additional amount to the government / [New Urban Communities Authority] NUCA for that land."

However Beltone said that given the current circumstances it is very difficult to determine the appropriate market price for that land deal and, in turn, what the company’s potential liabilities will be. So far, PHD has not provided any provisions for such contingent liabilities.

PHD stock has been the worst performer year-to-date (down 70 per cent) owing to the land dispute risk and liquidity concerns in the near term; Beltone states they continue to remain cautious on the stock until they see clarity in the land dispute case and improvement in their liquidity in the near term.

Last September a similar case was filed by lawyer and construction company owner, Hamdy El-Fakharany, after the Administrative Court issued a verdict declaring that the Talat Mustafa Group’s (TMG) contract with the ministry of housing for ownership of Madinaty Compound's land through direct land allocation was illegal.

Founded in 2005 by Mansour and Maghraby Investment and Development (MMID), PHD has one of the largest land banks in Egypt. The company is owned by Mohamed Mansour the former minister of transport, and his cousin, Ahmed El-Maghrabi, the ex-minister of tourism, who later took over as minister of housing in a 2005 cabinet reshuffle.

Both are now facing charges of profiteering from their positions as ministers and plundering of public money.

An investigative piece by Ahram Online published last December confirms that PHD has one of the largest land banks in the country, with most of its revenues during the period 2007-2009 coming from the resale of plots of land.

The mother company (MMID) belongs to one of Egypt's largest family-owned businesses. MMID currently owns about 50 per cent of the shares. Both alaa and Gamal Mubarak also own stakes of the PHD.

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