The government gave its stalled privatisation programme a strong boost last week by announcing the sale of five state-owned companies.

They included selling stakes in a company owning seven historic hotels, in companies in the oil and petrochemical industries, and in the government abandoning its stake in Egypt’s largest steel producer.

The buyers include the local Talaat Moustafa Group and Al-Ezz Dekheila (EZDK) as well as the Emirati Abu Dhabi Developmental Holding Company (ADQ).

The slow pace of Egypt’s privatisation deals has been a main reservation of the International Monetary Fund (IMF) on the structural reform programme that is currently being implemented, along with the not fully flexible exchange rate.

“We welcome the Egyptian authorities’ announcement that they have signed contracts to sell equity stakes in state-owned entities worth $1.9 billion. Divesting is a critical component of the [IMF’s] Extended Fund Facility (EFF)-supported programme, supporting the gradual withdrawal of the state from economic activity and providing resources for external financing and debt reduction,” said head of the IMF’s Communication Department Julie Kozack a day after the announcement.

A main feature of the deals is that the buyers in two cases are Egyptian private-sector companies. The sales of the public-sector entities will help the government raise foreign currency to cover its financing gap.

But another common factor is that all the companies sold earn foreign currency, meaning that by selling them the government is sacrificing a source of foreign currency. However, experts believed that the companies would attract serious investors who wanted to put their money in investments that would yield returns.

The announced deals include some of Egypt’s most famous and historic hotels. The Arab Company for Tourism and Hotels Investments (ICON), the hospitality arm of the Talaat Moustafa Group (TMGH), will acquire a 37 per cent stake in the recently established holding company that owns seven historic hotels in Cairo, Aswan, and Luxor in cooperation with unnamed foreign investors.

 The deal is worth some $700 million, Hala Al-Said, the minister of planning, said during a press conference held to announce the deals.

TMGH then released a statement explaining that ICON’s offer includes buying significant stakes and management rights in the Sofitel Legend Old Cataract Aswan, the Movenpick Resort Aswan, the Sofitel Winter Palace Luxor, the Steigenberger Hotel Tahrir, the Steigenberger Cecil Alexandria, the Marriott Mena House Cairo, and the Marriott Omar Khayam Zamalek.

The deal will be implemented through a capital increase in the holding company.

“This strategic move aligns with the group’s growth strategy to solidify its position as the leading player in Egypt’s upscale hospitality segment,” TMGH said.

The group, 83 per cent owned by Talaat Moustafa Group, already owns a  portfolio of luxury hotels including the Four Seasons Nile Plaza, the Four Seasons San Stefano, the Four Seasons Sharm El-Sheikh, and the Kempiniski Nile Hotel.

Inclusive of projects under development and construction, the acquisition will bring ICON’s hotel portfolio to a total of 15 hotels and increase its room base to some 5,000 rooms.

While the group will pay a lump sum in dollars to acquire the 37 per cent stake, the acquisition will add to its future revenues in hard currencies and is in line with its “strategy to maximise recurring income activities,” according to the statement.

TMGH plans to develop and upgrade the hotels to increase their operational efficiency and attract a higher quality of tourism to Egypt, leveraging their unique and historical significance.

“The upgrades and modernisations will result in increasing their revenues as a function of higher room rates compared to the current levels achieved by these hotels,” the statement said.  

Last month, news reports said that the Qatar Investment Authority was in the final phase of negotiations to buy a 30 per cent stake of the holding company for $750 million, as the evaluations undertaken by an international financial house had put the fair value of the company as a whole at $2.2 billion.

The government had previously said that it would offer a stake in the hotels through a capital increase in dollars to be used to raise their efficiency and boost profitability in preparation for offering a stake on the Egyptian Stock Exchange.

Egypt is capitalising on the receipts of the sale of state-owned entities as a means to secure much-needed foreign currency. It had been betting on Gulf investors being interested in the local market, but problems with valuations due to the unstable dollar-pound exchange rate have slowed down the process.  

ADQ is an exception, as since late 2021 it has heavily invested in a number of listed companies in key sectors of Egypt’s economy, building on its long-term commitment to investing in the country’s economic growth through its $20 billion joint strategic investment platform agreed in 2021.

The investments started with ADQ as part of a consortium with Al-Dar Properties buying 85 per cent of Egyptian real-estate developer SODIC for LE6 billion.

Since then, it has pumped investments into other major companies, such as the Commercial International Bank (CIB), Egypt’s largest private-sector bank, the leading e-payments platform Fawry, the Alexandria Container and Cargo Handling Company, a prominent logistics player, and two companies from the chemicals industries, the Misr Fertilisers Production Company (MOPCO) and Abu Qir Fertilisers and Chemical Industries.

Last week, it succeeded in grabbing 25 to 30 per cent stakes in three oil and petrochemical companies for $800 million. These are the Egyptian Drilling Company (EDC), Egyptian Linear Alkyl Benzene (ELAB), and the Ethylene and Derivatives Company (ETHYDCO). The three companies had been put under the umbrella of the pre-initial public offer (IPO) fund affiliated to the Sovereign Fund of Egypt to prepare them for privatisation.

EDC is one of the leading drilling contractors in Egypt and the Middle East and North Africa (MENA) region. It was established in 1976 as a 50/50 joint operation between the Danish shipping and logistics company Maersk and the Egyptian General Petroleum Corporation (EGPC).

In 2017, Maersk sold its stake to EGPC for $100 million.

The company is not listed, so its financial results are not published. But online reports say it has an over $1billion balance sheet and controls 65 per cent of the Egyptian drilling market.

EDC owns and operates a total of 70 rigs offshore and on shore. It has active operations in Egypt, Saudi Arabia, and Kuwait in addition to dormant activities in Syria, Libya, and Qatar.

The second company sold to ADQ is the Egyptian Linear Alkyl Benzene Company (ELAB) established in 2003 to produce linear alkyl benzene, an important raw material used in laundry detergents, light duty dishwashing liquids, and industrial cleaners.

It is owned by state entities including the National Investment Bank, the Egyptian Petrochemicals Holding Company, and the Ministry of Finance. The company’s exports exceeded $100 billion in 2017, the latest available data on its activities found online.

Seventy per cent of the company’s exports go to Europe and the rest to the MENA region as well as some countries in Asia and South America.

The Egyptian Ethylene and Derivatives Company (ETHYDCO) was established in 2011 with a total investment of $1.9 billion. It owns the largest petrochemicals complex in Egypt and Africa, according to its Website.

Last year, Sidi Kerir Petrochemicals (Sidpec), which owns a 20 per cent of ETHYDCO, expressed an interest in buying the remaining shares through a share swap. In February, Sidpec, a listed company, said in a Stock Market disclosure that Baker Tilly, a US financial consultancy, was evaluating the two companies.

On Monday, Sidpec said its board of directors had given the greenlight to the merger after approving Baker Tilly’s evaluation of the companies putting ETHYDCO’s value at LE33.5 billion and Sidpec’s at LE23.1 billion.

Sidpec will acquire a lesser stake than the one it initially targeted as ADQ now owns a 25 to 30 per cent of ETHYDCO.

Al-Ezz Dekheila’s (EZDK) deal to buy out the government’s stake in Egypt’s largest steel maker will grant the company and its parent Ezz Steel a tight grip on the local steel market.

EZDK will be buying out the government’s 31 per cent stake for $241 million through a loan from Emirati banks. It was announced that 60 per cent of the value will be paid in dollars and the remainder in Egyptian pounds.

Ezz Steel owns 64 per cent of the company, and adding this to the 31 per cent EZDK is buying from the government means that 95 per cent is now in private hands.  As a result, the company said it will undergo voluntarily delisting from the Stock Exchange.

EZDK’s board of directors approved a plan last week to compensate minority shareholders affected by the delisting by buying their shares at LE1,250 each.

EZDK is Egypt’s largest steel manufacturing facility. It was established in 1982 under the name of the Alexandria National Iron and Steel Company (ANSDK). It was privatised in 2006 when Ezz Steel, owned by businessman and close aide of late president Hosni Mubarak’s son Ahmed Ezz, bought 21 per cent of the company.

He increased his stake over the years to reach the current 64 per cent. EZDK has a market share of almost 65 per cent.

The new deals bring the total number of privatisation transactions in 2023 to seven as the state sold stakes in Telecom Egypt (TE) and paints producer Pachin in May.  

The government is about one-quarter through a list of 32 state companies that it announced it would sell stakes in, and is preparing other sales of stakes in other companies, said Prime Minister Mustafa Madbouli during a press conference this week.

On the list for the next few months are the Gabal al-Zeit Wind Farm, the military-owned Wataniya Petroleum, and a power plant built by Siemens, in addition to water desalination plants.

Madbouli put the receipts of future sales at $1 billion.

* A version of this article appears in print in the 20 July, 2023 edition of Al-Ahram Weekly