 |
Al-Ahram Weekly 12 - 18 August 1999 Issue No. 442 
|
||
Published in Cairo by AL-AHRAM established in 1875 |
| ||
|
Al-Ahram Weekly 12 - 18 August 1999 Issue No. 442
|
||
| Published in Cairo by AL-AHRAM established in 1875 |
| ||
Egypt Region International Economy Opinion Culture Profile Books Features Travel Living Sports Time Out Chronicles People Cartoons Letters Privatisation at high speed
By Gamal Essam El-DinThe government's plans to speed up the privatisation programme gained momentum last week when the Cabinet Privatisation Committee (CPC), headed by Prime Minister Kamal El-Ganzouri, decided to sell off companies in the vital insurance, banking and energy sectors along with others in manufacturing industry, internal trade, construction and tourism.
The new government initiative was taken following the completion of valuation reports which are used to set the market value of these companies, said Mokhtar Khattab, a senior adviser to Public Business Minister Atef Ebeid. While the book value of these companies stands at LE2.9 billion, their market value is estimated at LE9.4 billion, according to Khattab. Twenty-three of these companies are to be offered in the stock exchange, while 10 are expected to be sold to strategic investors. One company, the Tanta Flax and Oil Company, will be liquidated.
Khattab said that the most attractive companies on the list are Torah Cement Company, the National Cement Company, the Eastern Tobacco and Cigarette Company, the Chemical Industries Development Company (CID), the Egyptian Starch, Yeast and Detergent Company and El-Nasr Electrical and Electronic Apparatus (Philips).
The 33 companies slated for sale include 12 chemical companies, six metallurgical companies, four textile and cotton ginning companies, two contracting companies, two drug companies, two agricultural companies, two food processing companies, one shipbuilding company, one tourist company and one engineering company.
Negotiations are under way to sell off the Assiut Cement Company and the Alexandria Portland Cement Company to two international cement manufacturers, Ebeid said last week. Several international producers recently showed significant interest in acquisitions in the Egyptian market, one being the French company Lafarge which last month bought the Beni Sueif Cement Company.
Khattab revealed that since the start of the privatisation programme in the early 1990s, the government has sold off 127 companies from a list of 314. Out of the total, majority shares of 109 companies were either floated on the stock market or sold off to strategic investors, while minority shares in 18 companies were also sold. The proceeds of these privatisation sales, Khattab added, have reached nearly LE10 billion, LE2.2 billion of which were generated in fiscal year 1998/1999. Out of the latter amount, LE800 million was allocated to settle part of the sold companies' debts, LE400 million was set apart to fund early retirement programmes and LE1 billion was transferred to the Finance Ministry's account, he said.
Apart from the industrial sector, the government has decided to extend privatisation to three important new fields, insurance, banking, and energy.
In the insurance field, the government's plans to sell its majority shares in four giant companies have already shifted into high gear. In its next meeting, the CPC is expected to agree to privatise 98 per cent of its shares in the Egyptian-American Insurance Company (EAIC). The committee's decision will be taken immediately after completion of the valuation of EAIC's assets now being carried out by HSBC, the internationally known British banking and financial services business. In a report sent last week to the People's Assembly, Minister of Economy Youssef Boutros Ghali said that the government has also managed to attract the two American investment houses, Merrill Lynch and Morgan Stanley Dean Whitter, to undertake the valuation work for the other public companies.
Ghali said that privatisation in the banking sector will be handled with the utmost care because of strong public sensitivity to private ownership of banks. Abdallah Tayel, chairman of the parliament's Economics Committee, told Al-Ahram Weekly that privatisation of the four large public sector banks will take place sooner or later. "The sooner this sector is privatised the better it will be for Egypt, so that it can smoothly comply with the GATT Agreement and compete in banking services in the next century," Tayel said.
The recent banking scandal, currently dubbed by the local press the "loan deputies" case, will by no means discourage investors' interest in this sector, he added. "On the contrary, this case confirms that the Central Bank of Egypt is highly efficient and has complete authority to take preventive measures against corruption in this field. I hope in the coming period that privatisation in this sector will be accompanied by a wave of mergers which will lead to the creation of giant banks. These banks will be capable of competing and meeting the funding needs of Egypt's mega-development projects in the next century," Tayel said.
There has been increasing interest on the part of overseas banks in investing in Egypt. The UK-based investment bank Robert Flemings has set up a joint venture with the Commercial International Investment Company (CIIC), a subsidiary of the Commercial Investment Bank (CIB). And the UK-based Barclays Bank has increased its equity in Cairo Barclays Bank from 49 per cent to 60 per cent.
In the energy sector, most economic observers agree that the government is serious about moving ahead with privatisation of power companies. This month the government will float 10 per cent of its shares in the Greater Cairo Company for Power, which has assets valued at an estimated LE7.3 billion. Moreover, many foreign investors are competing for contracts for the large number of BOOT (Build-Own-Operate-Transfer) electrical power projects in Egypt. A case in point is Electricite de France, which last May was awarded, during French Prime Minister Lionel Jospin's visit to Cairo, two BOOT contracts to build new electricity stations at Suez and Port Said. The US-based company Intergen is also currently involved in building a 650-megawatt power project at Sidi Kreir, west of Alexandria.
But while economic analysts welcome the current brisk pace of privatisation in the financial and energy sectors, stockbrokers warn that floating so many companies in the stock market in a relatively short period could negatively affect the privatisation programme. Analyst Hani Tawfik said that the equity market is currently saturated with high supply and low demand. "As a result, floating such a large number of companies could lead to a prolonged downturn at the expense of brokers, investors and the privatisation programme itself," he warned.
