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Al-Ahram Weekly 23 - 29 September 1999 Issue No. 448 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 23 - 29 September 1999 Issue No. 448
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Comment Focus Special Features Profile Travel Living Sports People Time Out Chronicles Cartoons Letters Scramble over department stores
By Gamal Essam El-DinA new report issued this week by the Economic Affairs Committee of the People's Assembly objected to the sale to foreign firms of any of the five major state-owned internal trade companies currently on offer. These companies manage the country's most famous department stores. The committee's objection came amid growing rumours that the Public Enterprise Ministry (PEM) might seriously consider courting foreign investors if efforts to close the gap between its valuation estimates and the offers submitted by local bidders for these companies are unsuccessful.
The committee's report, which comes a short time before the PEM announces its final decision about the offers submitted, expressed fears that letting the five companies pass into foreign hands would increase the likelihood of a foreign monopoly over the strategic internal trade sector. "Overseas ownership of the vital sector of domestic trade companies could lead to a foreign monopoly over the local consumer products market, especially in the absence of an anti-trust law," the report said. Besides, the committee added, foreign ownership could also jeopardize the future of 12,000 suppliers who largely depend on these big department stores to sell their products.
The furore over ownership of internal trade companies is not new. It began as far back as 1996. No sooner had the government unveiled its first plan for privatising these companies than a large group of local businessmen began reacting strongly against the move.
Led by Mohamed Farid Khamis, chairman of the Federation of Egyptian Industries at the time, they announced formation of a joint-stock company to buy Egypt's traditional department stores. However, these efforts were in vain as the government was still undecided about what approach to adopt in privatising such companies. The list includes Omar Effendi, Modern Fashion Company (Benzaion, Ades, Rivoli), and the Clothing and Consumer Products Company (Sednaoui) -- all three are affiliated to the Textile Manufacturing and Trade Holding Company -- the Egyptian Products Sales Company and Hanneaux and Chicorel Stores, affiliated to the Spinning and Weaving Holding Company. The five companies have 351 branches and 194 warehouses throughout Egypt.
The local businessmen's efforts began to take shape one month ago when the Cabinet Privatisation Committee (CPC) gave the final go-ahead to privatise the five internal trade companies. Several top industrialists rushed to form a consortium to bid on the companies offered for sale. The new group, called "The Industrialists of Egypt", has submitted a LE338.2 million offer to buy majority shares (76 per cent) in all the companies.
The leading companies in the consortium are Mohamed Farid Khamis (Oriental Weavers), Amr El-Nasharti (El-Nasharti Industrial and Trading Group), Ahmed Bahgat (Bahgat Group), Saad Sallam (General Olympic Group), and Magdi Yacoub (El-Tholathia Group). Financial consultants in the group are EFG-Hermes and the Commercial International Investment Company (CIIC).
The joint-stock consortium has paid-up capital of LE500 million and includes fifty other industrialists. It decided last week to form what is called a Shareholders Agreement to establish a specialised company in the field of retail marketing which would manage the department stores.
Another bid, submitted by businessman Mohamed Geneidi and estimated at LE150 million, seeks to purchase only three of the companies (Sednaoui, Benzaion, Hanneaux). A third offer, submitted by the Egyptian-Kuwaiti Holding Company, co-owned by Kuwait's El-Kharafi Group and the Commercial International Bank (CIB) of Egypt, has submitted a LE152 million offer to buy 76 per cent of Omar Effendi's shares.
The sale of Egypt's major department stores triggers fears of new monopoly
Surprisingly, the People's Assembly report also objected to selling the companies to Egyptian anchor investors on the grounds that they, too, could impose a monopoly on internal trade activities. It recommended instead that shares in the five companies be sold on the stock exchange.
There are also unofficial reports circulating that the government does not want the industrialists' group to depend on loans from local banks to buy the companies because of current liquidity problems in the banking sector.
Public Enterprise Minister Atef Ebeid announced that two different approaches can be taken in privatising the five department stores. They will either be leased to the private sector under "partnership contracts" for a 25-year period or sold to the companies' workers, he said. The land assets of the companies will be excluded from any privatisation sales because they have previously been the focus of disputes "not only with investors but also with privatisation opponents", he added. Instead, Ebeid said, "the state will charge the buyers four per cent interest annually for the use of the land". Ebeid also said that all bidders are required to submit plans to upgrade and streamline the businesses.
"Privatisation of these companies is not an end in itself. We have to make sure that these firms will continue to be a success in the future and that the rights of their employees are protected. This is why we stipulated that detailed development plans be submitted by any eligible bidders. These presentations should include plans for upgrading the technical and administrative aspects plus the size of investments to be channelled into developing retail marketing operations," Ebeid said. The PEM will use foreign experts, with a proven record in running such kinds of companies, to assess the three cash offers.
No sooner had the ministry received the three offers than the business community was awash with rumours that the government might prefer the second option, that is, selling the companies to the workers or even courting foreign investors. Following the CPC's meeting last week, Minister Ebeid did, in fact, reveal that the government might consider selling such companies to foreign investors if current negotiations with local businessmen became deadlocked.
According to Mohsen Sadek, chairman of the International Centre for Management, the valuation price for the five companies was set by the PEM at LE626 million compared with the bid by the "The Industrialists of Egypt" of LE338.2 million for a majority shareholding. "This means that there is a difference of about LE288 million. The official valuation for the three companies Geneidi is bidding on is LE270 million more than his offer, while the official estimate for Omar Effendi is LE100 million more than the bid of the Egyptian-Kuwaiti Holding Company for 76 per cent of the enterprise.
All of these differences are so big that they might block the entire sale," said Sadek. He was entrusted by the PEM with placing a value on each of the five companies. In the end, the general assemblies of these companies, with the approval of the Central Auditing Agency, may agree to lower the price in favour of "The Industrialists of Egypt", Sadek said. In this case, a second round of negotiations would be expected to reach a compromise on the price.
Mohamed Farid Khamis, speaking for the industrialists' consortium, said a large number of Egyptian industrialists are afraid that the five major department stores may be bought by foreign firms offering an attractive package with a high price or that major stakes may be sold to foreign anchor investors. "The PEM might also prefer foreign investors under the pretext that they have more expertise in running such companies. The real objective of those investors, however, is in fact to undermine these companies," Khamis said.
Other businessmen argue that in the next few years if foreigners start acting as commercial agents, they will be equally free to dump their foreign products in the local market and impose a monopoly through the department stores they have purchased. This argument was emphasised in the People's Assembly report. It said that a large number of MPs, aware that the leading department stores were owned by Jews in the pre-nationalisation years, cautioned that foreign anchor investors might turn out to be Israelis.
The government committee that awards contracts, made up of representatives from the PEM, the State Council, the Central Auditing Agency, and the Administrative Control Agency, is expected to announce its decision on the three offers in the second half of October.
