Privatisation 2001

By Niveen Wahish
No sooner had the new year begun than Prime Minister Atef Ebeid announced that the government was planning the privatisation of 49 companies this year. His statement was soon followed by an advertisement in the national papers listing the companies and inviting investors and investment banks to present their letters of intent for any of the companies or assets on offer. The ad also said that an information booklet on each company is available and that the exact date for sale and receiving the bids for the entities will be announced by the relevant holding company.
The government announcement was hailed as a "strong statement" by Richard Symonds, managing director of Carana Corporation's Privatisation Coordination Support Unit. "It is an indication that the government is serious about privatisation," he said.
But some other observers are sceptical, predicting that this year's programme might meet the same fate as those of previous years and not be fully carried out. Ihab El-Dessouqi, assistant professor at the department of economics of the Sadat Academy for Administrative Sciences, criticised the slow progress of the privatisation programme. "Privatisation is one of the main axes needed to [transform Egypt's economy] into a market economy. If it is not completed, the growth rate and investment climate will be negatively affected," Dessouqi said.
The advertisement listed companies affiliated to eight holding companies. The Holding Company for Food Industries is offering 11 companies, six of which will be partially privatised. The remaining holding companies include those for commerce, engineering industries, construction, metallurgical and mining, housing, tourism and cinema, chemical industries, as well as that for transport, comprising both maritime and land transport.
The ad also announced the sale of minority stakes in four companies either to an anchor investor, or on the stock exchange. These include up to 15 per cent in the Eastern Tobacco Company, of which 28.7 per cent has already been sold in a public offering and five per cent to its Employee Shareholders Association (ESA). That sale was effected in two transfers that took place in 1995 and 1997. A stake of up to 40 per cent of the Chemical Industries Development (CID) company will be floated on the stock market. The pharmaceuticals industry will see up to seven per cent of the Nile Pharmaceuticals Company divested. Of this company, 23.3 per cent was sold in an IPO (initial public offering) and 10 per cent to its ESA in 1995 and 1998. For the Egypt for Pharmaceutical Trade company, up to 40 per cent is on offer. Also on sale are 19 hospitality industry assets including hotels, restaurants and floating restaurants.
Publishing an advertisement of the companies up for sale is not the procedure typically followed by the government in announcing privatisations. This method was used once before in late 1998 to call for submission of tenders to promote the companies to be sold. This year's ad is solely for the purpose of promotion. According to Mohamed Hassouna of the public enterprise office, the ad was posted for the purpose of "sounding out the market." He explained that the letters of intent sent by investors are being solicited with the aim of obtaining feedback from the market to determine which companies are in demand. According to this information, the government will decide when to put them on the market.
The number of companies scheduled to be put up for sale this year is more or less the same as in recent years, according to Hassouna. However, the government has not succeeded in selling all of these. According to figures cited by the third quarter review of the privatisation programme published by Carana Corporation's Privatisation Coordination Support Unit, in 1999 only 31 companies were sold, while during the first three quarters of 2000 only 19 companies were sold.
With the exception of the six consumer cooperatives offered as partnerships by the Holding Company for Food Industries and minority stakes in four companies, all the companies are offered to an anchor investor. This is a breakthrough, considering that throughout the past five years only 25 companies were sold to an anchor investor, while majority shares through an IPO were sold in 38 companies.
Hassouna says that one reason the government has reverted to offering these companies to anchor investors is that the stock market has not been dynamic enough. Moreover, according to Ihab El-Dessouqi of the Sadat Academy, selling through the stock market has resulted in the companies' assets being distributed among many investors, a structure of ownership that has made the implementation of thoroughgoing change difficult.
Also analysts believe that the government's shift to seeking anchor investors is based on the fact that many of these companies are in bad shape. The most profitable were the first ones put up for sale at the beginning of the privatisation programme. Those left are the loss-making and debt-burdened companies.
But debt-burdened or not, the companies that will be offered this year do have their good points. El-Dessouqi believes the fact that a company is loss-making should not deter serious investors since the losses could be a result of mismanagement. "The future of the industry is more important than the current valuation of the company," suggested El-Dessouqi.
In fact, as Hassouna put it, "Investors are interested in companies that have an established position in the market and have the potential to succeed and develop with an injection of cash and management by the private sector." He said that although it has been only a week since the ad was published, investors have shown an interest in the companies, especially those in the food, commerce and tourism sectors. "It is more attractive for an investor to buy into an existing company with an established name and market share, than to start from scratch," he said.
Although the companies mentioned in the ad are those which have been prepared to be sold, the government has said that anyone who is interested in any other public sector company should make their interest known.
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