Briefs

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Spotlight on Sawiris

BUSINESS tycoon and Orascom Telecom Holding (OTH) Chairman Naguib Sawiris was in the international spotlight last week. A report published by Israeli newspaper Maarev, translated by many local websites and privately-owned newspapers, claimed that Sawiris had paid bribes to Israeli Minister of Defence Ehud Barak and his wife Nili Priel to help him get the approvals needed for OTH to increase its stake in Israeli operator Partners Communication (PC). OTH currently owns 10 per cent of PC, Israel's second largest mobile network operator.

As it turns out, Sawiris did not buy this stake directly but rather through his acquisition of a 23 per cent holding in the Hong Kong-based Hutchison Telecommunication International Limited (HTIL), which in turn owns 51 per cent in PC.

According to the Israeli telecommunication law, foreign companies can't own more than 10 per cent of local telecommunication companies unless they have the approval of Israel's security agency Shin Beth.

When Shin Beth refused Sawiris's offer, pressure from Barak followed, to give the go-ahead for the deal. Maarev concludes in its report that Barak's efforts definitely did not come without a price. From his side Barak admitted that he interfered to convince both Israeli Prime Minister Ehud Olmert and the Israeli head of intelligence to give Sawiris the approval. But according to a statement issued by Barak's office the favours were not done in return for any commissions or bribes.

Priel who runs a PR company was accused by the Israeli media of using her husband's position to create connections with Israel's business elite. A couple of days after Maarev' s story was published she closed her PR company down.

Sawiris's office did not issue any comment, nor did the PR department at OTH, saying instead that Sawiris is out of town.

And as though this were insufficient, Sawiris also figured prominently in the news when MobiNil, Egypt's largest mobile telecommunications operator and 33.1 per cent owned by OTH, announced that Sawiris will no longer be chairman of the board. He is to be replaced by Alex Shalabi, the company's CEO.

Analysts believe that this move was made to calm investors, who had been shaken by reports on the Egyptian businessman being willing to invest more in Israel.

Downgraded to stable

FITCH Ratings lowered its outlook on Egypt from positive to stable, in addition to cutting the country's local currency debt rating to BBB- from BBB, citing the risk from inflationary pressures.

"This year's surge in global food and fuel prices has increased the challenges facing Egypt's policymakers," said Richard Fox, head of Middle East and Africa Sovereign Ratings at Fitch in a statement. "The power of Egypt's monetary tools to curb inflation is still quite weak, raising the prospect of double-digit inflation continuing well into next year."

Egypt's urban inflation stood at 22 per cent in the year 2008 up to July. Moreover, the introduction of VAT, legislation for which is expected to be introduced to the People's Assembly in November, will inevitably raise prices, so timing will be sensitive to inflation dynamics. Despite increased interest rates, double-digit inflation is likely to continue well into next year.

Fitch criticised the slow-down in reduction of fiscal deficit leaving it around 7.7 per cent of GDP in 2008 as amongst the highest of any Fitch-rated countries. Fitch cited Egypt's external finances as a strength, but reform was key to any ratings improvement.

The statement carried hints of the possibility of further downgrades. "A stalling of reforms or an ineffectual policy response to future shocks would prompt negative rating action," according to Fitch.

The shift is expected to have a negative effect on the already ailing capital market which reacted adversely to a similar move by Moody's in May. In fact, market experts believe it might lead to putting a plan to issue $2 billion Egyptian Eurobonds by September on ice for the time being.