Egypt sell off.

Author:Smith, Paul
Position:Survey on Egypt - Privatization program

Egypt's massive privatisation programme will target insurance, banking and telecoms.

Egypt's remarkable privatisation programme is accelerating rapidly with the announcement of government sell-offs in such vital sectors as insurance, banking and telecoms as well as industry, tourism, construction and trade. Foreign investors are also increasing their presence on the Cairo stock exchange in anticipation of new company registrations that are expected to help take turnover up to some $8 billion by the end of this year.


At the end of May, Minister of Economy, Youssef Boutros Ghali announced the appointment of banking and financial services giant, HSBC, to act as adviser on the valuation of the Egyptian American Insurance Company (EAIC). "This is the first step of the privatisation process in the insurance sector," he said at the time. "We are expecting very substantial demand."

Investors are now confident that the government's plans to sell its majority stakes in the country's top four insurance concerns will now go ahead as well. Two US-based investment houses - Merrill Lynch and Morgan Stanley Dean Witter - are lining up to act as financial advisers for the four. Merrill Lynch will handle the National Insurance Company and the Misr Insurance Company, with Morgan advising on Egypt Reinsurance and Al Chark Insurance. The latter two alone account for more than two-thirds of the total insurance premium market in Egypt.

At present, these premiums amount to some $720 million a year, and represent a significant pool of savings which could be mobilised for investments in the stock and bond markets once they are privatised. Ghali is hopeful that the sell-off of the government's shares will help the companies to improve their management and marketing. Given the low penetration of insurance firms in Egypt, the potential exists for premium savings to rise to as much as $4 billion to $6 billion a year, he suggested.

Ghali indicated that he expected HSBC to complete its work on EAIC by the end of July at the latest. "Then," he said, "it's on the block." Progress on the top four has already included the completion of ratings reports by the US firm, AM Best. Misr Insurance was awarded an 'A', while both Al Chark and National were awarded 'A-'. Egypt Reinsurance trailed slightly behind, with a 'B++'.

Potential investors are now awaiting further details on the sell-offs. "It's a good step that everyone has been waiting for," Ghassan Medawar, an analyst with ABN AMRO in London remarked after Ghali's announcement. However, he added, "A lot depends on how much will be privatised." It is also not yet known when the sales will take place, although the first issues are expected to be completed before the end of this...

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