A bout of optimism

Sherine Abdel-Razek , Wednesday 6 Sep 2023

In the last few days developments on the privatisation and investment fronts came thick and fast.

GIH finalised an agreement to buy a 30 per cent stake in Eastern Company
GIH finalised an agreement to buy a 30 per cent stake in Eastern Company


The government signed a deal to sell a stake in Eastern Company, its tobacco monopoly, released an updated state-ownership document and announced a new target for privatisation receipts for the next nine months as fresh investments poured into the oil and gas sectors.

Emirati investment company Global Investment Holdings (GIH) finalised an agreement with the government to buy a 30 per cent stake in Eastern Company for $625 million in a deal that values the company at $2 billion. GIH, co-owned by Mohamed Al-Abbar, the founder of real estate giant Emmar, will become Eastern Company’s largest shareholder and provide an additional $150 million to buy raw materials to increase its manufacturing output. Last month the lack of raw materials caused by the dollar crunch pushed the prices of cigarettes to unprecedented highs.

The deal “is an affirmation of the government’s determination to encourage direct private investment in various sectors” noted a cabinet statement.

News of the deal broke following the government’s release of an updated version of the State Ownership Policy Document which outlines plans to increase the private sector’s role in the economy to 65 per cent by 2026. Since March 2022, 13 companies have been privatised for a total of $5 billion.

In February 2023, the government published a list of 32 state companies that are being placed on the bloc. It later added three more companies to the list. The document details measures the government is taking to boost private investment, including annulling preferential tax and customs arrangements enjoyed by state-owned bodies, establishing a cabinet-affiliated unit to manage the divestment of companies and naming the International Finance Cooperation as an advisor on the programme.

The document also provided a detailed list of state-owned companies — 705 in total, distributed across 19 sectors. They include companies affiliated to ministries, the Central Bank of Egypt, governorates and the Suez Canal Authority. The government’s stake in 143 of these companies exceeds 75 per cent, and 43 per cent of the firms slated for privatisation are profit-making.

The most important figure in the document, however, is the $5 billion in sale receipts the government aims to realise by June 2024.

In the last four months, the privatisation programme has been gaining momentum, much to the relief of the IMF. The fund signed a $3 billion assistance programme with Egypt and the attached conditions included adopting a flexible exchange rate and increasing the role of the private sector by divesting stakes in public companies.

In May, the government sold 10 per cent of Telecom Egypt to institutional investors, and 100 per cent of paint manufacturer Pachin to a Dubai-based company. The two deals netted $147 million. Last month, Prime Minister Mustafa Madbouli announced that Egypt had sold $1.9 billion worth of assets, including stakes in seven historical hotels to a consortium led by Talaat Mustafa group, steel giant Ezz Al-Dekheila to Ezz Steel and stakes in the Egyptian Ethylene and Derivatives Company, Egyptian Linear Alkyl Benzene and Egyptian Drilling to the Abu-Dhabi wealth fund ADQ.

The $5 billion of privatisation receips include deals concluded last year with the Saudi Public Investment Fund and ADQ who between them bought $3.1 billion of stakes in Abu Qir Fertilisers, MOPCO and E-Finance.

The list of the companies to be sold includes a Seimens-built power plant in Beni Sweif, several desalination stations and military-owned bottled water company Safy and gas station operator Wataniya.

In a filing to the bourse last week, Taqa Arabia, the energy subsidiary of Qalaa Holdings, said it had submitted an offer to buy an unspecified stake in Wataniya. According to the updated privatisation document, three other investors are currently undertaking due diligence for Wataniya, and two investors are interested in Safi. The government hopes both are sold by the end of this year.

The 70 per cent stake in the Beni Sweif power plant which is up for grabs is estimated to be worth between $1.4 and $1.9 billion. The combined cycle plant, built by German Seimens together with the local Orascom Construction and Al-Sewidi, started production in 2018 and is fully owned by the Egyptian Electricity Holding Company. It was financed by a syndicated loan from German development bank KfW, Deutsche Bank, and HSBC. Under the financing deal, the government cannot sell the plant until it repays the loans, which currently stand at EUR 735 million and LE3.5 billion, or else secures the lenders’ approval. June 2024 has been set as the deadline to complete the deal.

Stakes in Zaafarana wind farm are also for sale, with the Danish shipping and logistic company Maersk currently in negotiations to buy a 50 per cent stake.

Mohamed Al-Etribi, chairman of Banque Du Caire, told media outlets on Monday that the bank, first slated for privatisation through an IPO in 2018, is currently looking for a strategic investor. Negotiations are ongoing and a sale is expected by the end of this year.

Reports that the Italian Petroleum giant ENI, the largest investor in the local energy sector and the operator of Zohr Mediterranean Gas field, is planning to invest $7.7 billion in Egypt over the next four years topped the good news. ENI’s CEO Claudio Descalzi met President Abdel-Fattah Al-Sisi last week. The company is one of five multinationals that Oil Minister Tarek Al-Molla recently said will spend $1.8 billion on drilling more than 30 new exploration wells. The list also includes Chevron, ExxonMobil, BP, and Shell.

The Russia-Ukraine war has placed enormous strain on Egypt’s foreign currency resources, inflated its import bill, driven portfolio investors away and increased the cost of international borrowing, leaving the country in dire need of foreign investments.

Unmet demand for the dollar has led to a thriving parallel market where the greenback was being traded at LE41 last week compared to LE30.9 in the official market. Black market rates fell earlier this week to hover around LE39.5.

* A version of this article appears in print in the 7 September, 2023 edition of Al-Ahram Weekly

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