A number of Saudi and Egyptian businessmen with investments running into the billions of pounds have decided to put their investments in the Egyptian economy on hold, according to the local media. The moves came in reaction to the prosecutor-general's decision on Sunday to freeze the assets of 23 businessmen, including five from Saudi Arabia and two from the UAE, in the wake of alleged stock market manipulation in the sale of the Al-Watany Bank of Egypt to the National Bank of Kuwait in 2007. The decision is the newest development in a case that started in May 2012, when Gamal and Alaa Mubarak, the two sons of ousted former president Hosni Mubarak, together with seven others including two executive officers of EFG-Hermes, the bank advising on the deal, were accused of making illegal profits of LE2.5 billion from the sale. A further 14 defendant were added by the prosecutor-general to the case last week, these including members of the Al-Watany Bank's board of directors and shareholders. The move surprised many, since during the last hearing of the case on Sunday the judge turned down the prosecutor-general's request to freeze the assets of the defendants. “It is unprecedented for the prosecutor-general to take such a step, especially since the case is still being investigated and no ruling has convicted the investors,” Mohsen Adel, a stock market expert and head of the Egyptian Association for Finance and Investments, said. A Cairo appeals court was expected to consider on Wednesday whether or not to lift the freeze. A lawyer with the stock market regulator the Egyptian Financial Supervisory Authority (EFSA) told a local news website that under the Egyptian capital market law the prosecutor-general could not take legal action against a businessman or stock market investor unless the EFSA approved it. Although the prosecutor-general said the step was meant as a precautionary measure, it seems to show that the government, suffering from a lack of investment, a growing budget deficit, and a deteriorating pound, is desperate to keep money in Egypt until the results of the investigation are released, Adel commented. However, the potential losses relating to the move might be larger than its benefits. “It takes investment disputes with Arab businessmen to unprecedented levels, and while the prosecutor-general has tried to tone things down by saying it is only a precautionary measure, it is these unjustified precautionary measures that freak out investors,” Adel said. The Arab investors include members of the Saudi Al-Sharbatly family who have been investing in Egypt since the 1950s and have multi-billion pound investments in the country's tourism and real estate and cement sectors. It is not the first time that Arab investors have faced legal charges or problems with the Egyptian authorities since the 2011 revolution. Hussein Al-Sejwany, head of the UAE-based Damac company, received a five-year term in prison in 2011, in addition to the confiscation of land the company had bought before the revolution, on the grounds that it had not paid fair prices. The government has been trying to reach an out-of-court settlement with Damac, asking it to pay financial compensation for changing the agreed use of the land. There is also a list of other cases in which the Egyptian government has taken back privatised companies or plots of land from Arab investors since the Revolution. Some of these cases have been referred to international arbitration. In the Al-Watany Bank case, and according to a stock market observer talking on television on Monday, the combined investments of the accused businessmen were set at LE20 billion, a huge sum when compared to daily market transactions on the Egyptian stock market, which stand at an average of LE200 million. “The outflow of these funds from the market could be disastrous,” he said. Overall Arab transactions in the Egyptian stock market since the beginning of the year have shown that they are net sellers with a balance of LE549 million, meaning that their selling orders have exceeded their buying transactions by this figure. The market reacted to the news negatively in early transactions on Monday, but press releases from companies whose senior officials or shareholders were included in the case helped absorb selling pressures. EFG-Hermes, Al-Seweedy Cables, Maridive Oil and Al-Sharbatly-owned South of Wadi Cement and Golden Pyramids, the operator of the City Stars Mall all released statements stressing that the decision would not affect the companies. EFG-Hermes said that the decision would not affect the firm in terms of funds, assets, operations, interests or liabilities. Al-Seweedy Cables said that Hisham Al-Seweedy, named in the case, was not a member of the company's board of directors and did not hold an executive position in the company. Yassin Elaish, head of Maridive Oil and Hisham Al-Seweedy were among names added to the list of the accused in the case and whose assets have been seized. It is not known how long the market will take to react to the most recent developments, but the decision on Wednesday could have a major impact. “The problem is that we don't have a clear mechanism to deal with investment disputes, and thus no one can apprehend the outcome of a case or assess the effect of the rulings on the market,” Adel said. The decision of the businessmen to withdraw their assets could put pressure on the government to cancel its decision to go for an asset-freeze, according to many observers. But it was not known whether the decision had affected its policy of seeking reconciliation with Mubarak-era businessmen. “We have been hearing a lot of talk about reconciliation with businessmen and their returning their money to Egypt recently, but moves like Sunday's decision and what has been happening with the Sawiris family send out a totally different message,” Adel said.
