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Al-Ahram Weekly 31 August - 6 September 2000 Issue No. 497 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 31 August - 6 September 2000 Issue No. 497
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Lakah buys time
By Gamal Essam El-DinGovernment efforts to settle LE1.2 billion in unpaid debts owed by business tycoon Rami Lakah to a number of Egyptian banks gained momentum this week. Governor of the Central Bank of Egypt (CBE) Ismail Hassan announced that Lakah suggested "a long-term settlement plan" to solve his financial problems.
This plan, according to Hassan, will first be reviewed in detail by managers from CBE, Banque du Caire, the National Bank of Egypt and the Islamic Bank. It will then be discussed in the presence of Lakah's legal advisers and representatives of government ministries owing Lakah large amounts of money.
The suggested settlement package will divide Lakah's unpaid debts into two categories: LE600 million to be repaid immediately and another LE600 million to be settled by the year 2006.
To settle debts in the first category, Lakah will waive LE138 million owed to his group of companies for work they completed under contracts with various government and private sector companies. "This amount will be deducted from Lakah's overall debts to the banks," Hassan said.
In addition, the banks will take possession of properties personally owned by Lakah which are valued at approximately LE118 million. Located in Heliopolis, these include a mansion estimated at LE50 million; a semi-finished apartment building estimated at LE18 million and the Swissôtel hotel chain in Egypt.
Pending their assessment, Lakah-owned factories producing detergent and electric lamps will also be turned over to the banks. These assets are expected to be valued at no less than LE200 million.
As for the second category of debts, Lakah will pay these in 2006, upon the maturing of private sector bonds owned by the businessman which are predicted to yield LE600 million. This arrangement was accepted by the banks as Lakah has personal deposits of LE150 million in Banque du Caire, which is expected to increase to LE250 million by 2006, along with LE250 million-worth of deposits at the National Bank of Egypt.
The plan proposed that outstanding debts after the immediate and 2006 repayments are made will be rescheduled over eight years.
Lakah proposed that his creditor banks continue to operate his contracting activities in Egypt, especially those for constructing hospitals. "The funding and the completion of these projects will ensure that banks have direct access to huge cash flows," Lakah said. However, he warned that a delay on the part of the government in accepting this settlement plan might cause panic in the market. The businessman said he would not make any new investments without first obtaining the approval of his creditors.
In the meantime, Minister of Health Ismail Sallam submitted to CBE a list of the contracts completed by Lakah's companies for the ministry in recent years. Lakah asserted that the value of this work exceeds LE400 million.
Lakah's sudden comings and goings from Egypt along with the disclosure of the actual magnitude of his debt have, in the eyes of some, impacted negatively not only the tycoon's image but also on the entire business community.
The Investors' Association of the 6th of October Industrial City has called upon the government to intervene to facilitate the rescheduling of debts owed by several businessmen. "It is deplorable that most national banks adopt an aggressive attitude towards businessmen. They do not take into consideration the negative developments in market conditions, especially at times of severe recession. This policy leaves businessmen saddled with huge debts and finally forces them to flee abroad," said Hani Sorour, secretary-general of the association.
Sorour suggested that the occasional flight abroad by businessmen is potentially damaging to the national economy. "Most of those who fled the country were bogged down in huge debts due to recession. These businessmen are serious people while the government is largely to blame for the recession," said Sorour.
Some reports asserted that as many as 72,000 companies have gone broke this year. These companies had largely depended on bank loans but the recession and liquidity crisis left them insolvent.
Investors at the 10th of Ramadan industrial city have also joined forces to lobby the banking sector against resorting to tough measures on businessmen especially in view of current economic conditions. "Maintaining these policies will have a negative impact on businessmen and banks," said Hamdi Soliman, chairman of the 10th of Ramadan Investors' Association.
For his part, CBE's Governor Hassan announced that his institution has instructed banks to consult with it before taking stringent measures against insolvent businessmen. "Banks should make a distinction between those who suffer from insolvency for external reasons such as market recession and those who deliberately default on the loans," he noted. Accordingly, Hassan continued, "those in the former group should be helped to survive the crisis while the others should be referred to prosecution authorities at once."
Defending the CBE, Hassan said that following the November 1997 terrorist attack on tourists in Luxor, the banking sector extended a helping hand to the tourism sector investors by rescheduling their debts and offering soft terms for loans. Emphasising the need for a spirit of cooperation between banks and businessmen Hassan said that "without serious businessmen, banks cannot continue to perform their role. Businessmen who suffer from financial troubles will find a sympathetic ear at banks as long as they are serious and interested in expanding their activities."
Related stories:
Business blues 24 - 30 August 2000
A businessman's blight 3 - 9 August 2000
