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Al-Ahram Weekly 2 - 8 September 1999 Issue No. 445 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 2 - 8 September 1999 Issue No. 445
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Focus Culture Features Profile Travel Living Sports People Time Out Chronicles Cartoons Letters Privatisation strapped for cash
By Gamal Essam El-DinThe Cabinet Privatisation Committee (CPC) is due to hold an urgent meeting next week to review the financial standing of public sector companies slated for privatisation soon. The financial reports of public sector companies for fiscal year 1998/1999 show many successes, according to Mokhtar Khattab, Senior Adviser to Public Enterprise Minister Atef Ebeid. And the government's efforts to improve the financial structures of these companies have continued to show signs of paying off, he said.
But the committee will also debate a more pressing matter: the current recession in the stock market and the potentially grave consequences of the current liquidity squeeze on future state sell-offs of public companies. Although most government officials tried to dismiss the idea of an actual liquidity crunch, they admitted that the continuing drop in the share prices of most privatised companies is not just the result of a temporary recession. Rather it is glaring evidence of the severe shortage of cash in the market.
On the bright side, at the end of last June, out of 163 public companies still on the list scheduled for privatisation, 145 continued to be profitable while 18 were registered as loss-making, Khattab said. The successful companies had total profits of LE2,419 billion in 1998-1999, up from LE2,212 billion realised by 193 companies in 1997-1998, he added.
The financial reforms also mean that the number of loss-making companies has dropped by 108, from 126 to 18, since the privatisation programme took off in 1993, Khattab said. The remaining reform of the 18 loss-making companies, Khattab explained, will require huge efforts because they are burdened with tremendous debts, huge unsold inventories and redundant labour. The most striking cases on this list are Helwan Iron and Steel Company, Misr/Helwan Spinning and Weaving Company, Misr Rayon Company and the Egyptian Company for Refractories. During the past six years ending 1 July, 131 companies were either partially or fully privatised, generating receipts of around LE10 billion, Khattab said. Out of this total, LE4.2 billion was transferred to the state treasury, LE3.6 billion was allotted to settle debts while LE2.2 billion was set aside to fund the workers' early retirement programme.
Although these results demonstrate the improvement in the financial position of public sector firms, most economic experts agree that the privatisation programme still has many obstacles to surmount before it is completed.
According to statistics recently released by the Capital Markets Authority (CMA), out of 57 public sector companies whose shares were floated on the stock market in the last six months, the share prices of 43 companies fell by 75 per cent. This fact and the current liquidity squeeze were the main reasons for the government to have second thoughts before going ahead with the long awaited floating of 10 per cent of the shares in the Greater Cairo Company for Electric Power (GCCEP).
Market insiders, however, differed widely on whether floating the shares of GCCEP, which has assets valued at an estimated LE7.3 billion, could finally bail the market out of its current recession and inject liquidity. Said Gabr, a stock market analyst at Misr International Bank, expressed fears that floating GCCEP's shares now could come at the expense of the shares of other companies, thereby leading to a new downward spiral in prices. Floating GCCEP's shares could push investors to sell shares they own in other companies in favour of buying GCCEP's, Gabr warned. "This is not a good thing because it could make the recession in the market worse," said Gabr.
But Mustafa El-Said, MP and a former Economy Minister, argued that the government should always keep its promise on the timing of floating shares because otherwise it will lose credibility in the investors' eyes. "From this point of view, floating GCCEP's shares at the present time could help regain the investors' confidence and inject badly needed cash into the market. This floating can be especially good if it is accompanied by a sale of the shares of the highly profitable Alexandria and the National Cement companies," El-Said said.
At the beginning of last month, stock brokers and economists gave a lukewarm reception to a new government initiative to sell off 34 firms. They argued that this initiative could be harmful because the equity market is currently saturated with excessive supply and depressed demand, and also because of the present dollar shortage which has scared many overseas investors away from the Egyptian equity market. "The current squeeze in dollar liquidity made overseas investors believe that they would face difficulties if they tried to convert their Egyptian pound profits into dollars, especially if they took a decision to leave," El-Said said.
However, Khattab said many of the companies slated for privatisation in the near future are for sale to strategic investors rather than destined to be floated in the equity market. "Besides, when we say that 34 companies will be privatised, we do not mean that all of them will be privatised at one time. Those not sold to strategic investors will be floated on the market at different times, taking into consideration the negative impact of such problems as the liquidity crunch and the recession on the floating process," Khattab explained.
The severe liquidity squeeze also has been a major reason for delaying the floating of shares of additional companies on the market, economic experts said. The valuation work for the shares of most of the affiliated companies of the Holding Transport Company (HTC) was finalised a long time ago, according to HTC Chairman Attiya Abdel-Karim. "They are now ready for privatisation, but the market recession and liquidity crunch stand in the way," he said. The same thing applies to the Holding Company for Rice and Flour Mills (HCRFM) whose general assembly decided last month to float 10 per cent of the shares of three of its affiliated companies. However, HCRFM's Chairman Kamal Ghoneim said that after consultation with the Cabinet Privatisation Committee, the decision to go ahead was delayed until the liquidity crunch eases and the current recession in the market is over.
