Arguably Egypt's most debated privatisation story, the Omar Effendi saga has still a new chapter. Sherine Abdel-Razek sheds light on yet another deal to re-sell the country's oldest department store It was in 2007 that the Saudi Anwal Group bought Omar Effendi after a heated public debate that included accusing the then minister of investment Mahmoud Mohieldin of squandering state money by approving the sale of 90 per cent of the 82-store chain for roughly half the value that a state committee had recommended. The three ensuing years saw a complete facelift of most of Omar Effendi's stores and the World Bank's IFC stepping in to become a shareholder of five per cent of the company. However, the honeymoon between the Holding Company for Construction, parent company of Omar Effendi before the sale, and the current owner of 10 per cent of its equity, soon ended. Accusations from both sides that the other party was not implementing its part of the deal escalated with both resorting to arbitration two months ago. On Thursday the latest chapter in the story of the 144-year-old store was written. Al-Arabiya Lel-Istethmar, a holding company with many interests in real estate and energy companies, announced it is buying all of Anwal's 85 per cent stake for LE320 million. Member of parliament Mustafa Bakri echoed the reservations of many observers when he requested the prosecutor-general investigate the right of Anwal to sell the store while the result of arbitration had not yet been announced, stressing that the state's deal with Anwal restricted the resale of the chain's assets. While Al-Arabiya said it still needed two months to finish the due diligence process to conclude the deal, its chairman Mohamed Metwalli told state local television, "the original contract between the Saudi businessman has constraints on the sale of the chain's assets but there are no constraints on the sale of the whole chain." However, Metwalli said that the previous owner had to fulfil all his commitments towards the government so that the problems related to arbitration could be settled before the deal was finalised. Reasons for Anwal's decision to sell the store have not been publicly announced but Ezzat Mahmoud, the former head of Omar Effendi before it was sold and a member of Omar Effendi's committee in the holding company for construction, said that the decision to sell was due to the fact that the result of arbitration would not be in Anwal's favour because Anwal failed to meet some of its obligations in the original contract. "The contract says that Anwal should not change the activity of the store and should inject investments to restructure the company and guard the rights of the store's workers. The contract would be invalid if any of the above conditions were not met." Mahmoud explains that while 1,200 workers left the company according to the early retirement deal as agreed in the contract, Anwal, with its discriminatory treatment of veteran workers, pushed 1,400 employees to seek early retirement with the hope that the Saudi company would fulfil its promise of giving them a three- month bonus for every year in their tenure, an obligation it failed to meet. "The Saudi company knew it would lose arbitration so it decided to leave," Mahmoud said. Press reports noted that the decision to pull out was due to Anwal's accumulated debt. Omar Effendi has been incurring losses for the last three years, the value of which MP Bakri put at around LE500 million. The reports quoted an anonymous banking source who said that Omar Effendi's debts to banks amounted to LE350 million and that it failed to pay the first two instalments of the loans. While refusing to divulge the losses, Sherif Sabri, head of the administrative and financial division at Omar Effendi, did not deny that Omar Effendi is in the red "but this is expected amid the huge restructuring expenses including early retirement compensations and the closure of many branches for the facelift, in addition to the financial crisis which hit the store hard." Meanwhile, Sabri pointed out that even before privatisation the store was not faring well, stressing that over the three years ending in 2005, when the valuation of the store began, the average income of the store was LE40,000. Omar Effendi was founded in 1856 as Orosdi Back and has long dominated Egypt's retail sector. It changed hands and acquired its current name in the 1920s before being nationalised in 1957. The value of the deal was shocking to some people when compared to the LE600 million Anwal paid to acquire the store. But both Sabri and Mahmoud said it was still early before deciding what the LE380 million covers and how the company's debt would be dealt with. "Even if it is low, it is now a deal between two private sector players who are totally free to use their money the way they like," said Sabri. As for the value of the deal and whether it is fair, the decision is now in the hands of the two companies. The two are from the private sector and will surely choose what is in their best interests.
