Privatization Status and Performance of Privatized Companies in

Privatization Status and Performance of Privatized Companies in Egypt
June 2002
Dr. Shahira Abdel Shahid
Abstract
The paper defines privatization and cites some reasons for having privatization a phenomenon in the late 80’s and 90’s in both developed
and emerging countries. Next, it gives some examples of privatization deals conducted via the stock market in several developing
countries, in their early stages of privatization. Following, the paper summarizes the achievements of the privatization program in Egypt
since its inception till end of 2001. It mentions that the main method of privatization adopted by the Egyptian government was IPOs (Initial
Public Offerings) via the stock market. It explains that the Egyptian government employed this method to give a boost to its privatization
program and to increase the activity on the stock market. The paper then explains the reasons behind the slow down in privatization
starting 1997 and what have been undertaken by the government to increase the impetus of the program. Finally, the paper assesses the
performance of privatized SOEs, comparing their lastest market prices to their offering prices. The majority of companies had a reduction
in their valuations, mainly due to the overall negative macroeconomic circumstances that Egypt has suffered from since 1997, which were
later intensified due to the 11th September 2001 events, in addition to, firm specific reasons, which were not addressed in this paper but
will be tackled in future research.
Disclaimer:
The findings, interpretation and conclusions expressed in this paper are entirely those of the author. They do not necessarily reflect the
view of Cairo & Alexandria Stock Exchanges.
Privatization Status and Performance of Privatized Companies in Egypt
Privatization entails the strengthening and expansion of the market at the expense of the state and increasing the exposure of the public sector to
market forces1. It is denationalization and liberalization of public enterprise. It is also aid to the private sector as a deliberate policy to attract it
to certain fields of work. Further, it concerns reductions in state provision, state subsidy and regulation.
Privatization is used to describe a range of different policy initiatives designed to alter the balance between the public and private sectors2. The
first and most common usage of the term refers to a change in the ownership of an enterprise from the public to the private sector.
Denationalization or divestiture can proceed in different ways i.e. sale of all/part of privatized enterprise equity to the public, in case of
developed capital markets; sale of the enterprise as a complete entity where capital markets are rudimentary or it can take the form of joint
ventures which introduces a private sector involvement into the public enterprise. A second mode of privatization involves the liberalization or
deregulation of entry into activities previously restricted to State Owned Enterprises (SOEs). This will increase competition between the private
and public sector even though there is no transfer of ownership of assets. A third type of privatization is where the provision of a good/service
is transferred from public to private sector but the government retains the ultimate responsibility for supplying the service eg. franchizing or
contracting out of public services and leasing of public assets to the private sector. A final and extreme type of divestiture is the formal
liquidation of an SOE.
Several reasons were cited for the adoption of privatization by both developed and emerging countries in the 1990’s. Advocates of
privatization emphasized that the public sector serves the bureaucrats' needs rather than its customers. In other words, the public sector is
1
2
Buxton, A. (1992), 'Preparing for privatization', Privatization: Techniques and Benefits. Conference at Cairo Marriott Hotel, January 5-6.
Cook, P. and Kirkpatrick, C. (1988), ‘Privatization: An overview’ in P. Cook and C. Kirkpatrick, (eds.), Privatization in Less Developed Countries, Hertforshire:
Harvester Wheatsheaf.
producer oriented. Hence, it is directed to serving the values and meeting the needs of those who direct and work within it. The legislators
and the bureaucrats make the decisions which determine its outcomes reinforced by more pressure from the workforce which produces its
goods and services rather than from the public which consumes it3. On the other hand, the private sector is characterized by risk taking and
by the allocation of resources towards those who are successful at meeting consumer requirements. Furthermore, privatization was
undertaken due to the failure and losses of the public sector since SOEs in various countries share common characteristics: demands for
continuing subsidies, weak performance, operating losses, huge budgetary deficits and utilizing scarce resources inefficiently. Moreover,
one of the chief goals behind privatization is to improve efficiency. This is because the public sector may not satisfy consumer needs because
there is no notion of bankruptcy in the public sector. The problem is aggravated by the political interference of the government in the decision
making process of its SOEs. Both factors lead to inefficiencies in the SOEs. Further, privatization produces continuing cash benefits to the
Treasury in terms of increased tax payments made by the privatized companies as their profitability increased, interest savings made by the
government on the debt foregone as a result of selling equity and dividends from residual shareholding, sale proceeds from privatization could
be used to reduce the government's deficit by reducing its debt4. Finally, wider share ownership or popular capitalism is one of the important
goals of privatization by selling large amounts of state enterprises to private owners which has eventually led to wider dispersal of wealth both
through the direct encouragement to employees in privatised companies to purchase shares and through selling to the wider investing public. In
specific, privatization in the U.K. provided depth and capacity to the capital market by virtue of the size, importance and market dominance of
the nationalised industries5.
As it is well known, privatization as a concept spread widely from the United Kingdom to many developing economies, though not as an
interest in the ideology itself, but rather due to the external pressures from international donors (World Bank and IMF) in favour of
privatization and their governments' dissatisfaction with the inferior performance of their SOEs. Thus the late 80’s and 90’s witnessed several
structural adjustment and reform programs undertaken by developing countries to improve their ailing economies, one of the main components
of these reforms was privatization. Several countries employed the public offerings method in privatizing their SOEs in order to enhance the
image of privatization in the eyes of the public and change their reluctant behaviour towards it. In other words, to make privatization more
acceptable to the public, several developing countries sold their SOEs via the stock exchanges, even though their stock markets at that time,
were thin, weak and lacked the depth and liquidity of developed markets.
3
Pirie Pirie, M. (1988), Privatization, England: Wildwood House Ltd.
4
Jones, S. (1991), 'The road to privatization', Finance and Development, March, pp.39-41.
5
Grimestone, G. (1988), 'Organizing a privatization programme', in The Mechanics of Privatization Conference, Publ. by the Adam Smith Institute.
One of the most notable examples was the Jamaican case where the Jamican Stock Exchange Report in 1988 mentioned that prior to the
National Commercial Bank (NCB) offering, most people believed that you cannot explain what a share is to people and that the stock market
was a total enigma to most Jamaicans. At that time the Jamaican stock market had less than forty listed companies, had a thin and erratic
volume of trading, was open for trading only twice a week for two hours per session and was dominated by few large institutions such as
pension funds and insurance companies. Thus the government was confronted with a formidable challenge of how to demystify the stock
market. During the four months prior to the public offering of NCB, a coordinated publicity campaign that included T.V., radio, press
conferences, special video briefings was executed. In addition more than 170,000 copies of the prospectus were made available two weeks
before privatization at post offices, supermarkets, local branches of banks and stockbrokers. The prospectus was accompanied by a four page
document "Questions and answers about the share offering". This document posed and answered twenty of the most common questions about
the stock market. It explained in clear terms the function of the prospectus, how to apply, how to pay, how the stock market functions etc.. It
was distributed to 200,000 individuals, nearly 10 percent of the population. After the privatization of NCB, the stock market was boosted by the
substantial increase in capitalization and by the introduction of tens of thousands of first time shareholders. The offer was oversubscribed by
170 percent and demonstrated that liquidity was there and that the scope of the capital market can be significantly increased by sophisticated
privatization even in a developing country. As a result of NCB privatization, the trading volume and value increased by 37 percent and 70
percent respectively, between 1988 and 1990.
Following the same line of argument, Turkey's first privatization, the sale of government stock in the telephone equipment producer Teletas,
was an outstanding success as pointed out by Turkey's Privatization Debut (1988). The Teletas privatization occurred in a time of high
inflation, when the equity market was at its infancy and the business of share ownership was not well understood. In short, the government was
trying to transfer over a century of financial development and experience into Turkey in one shot. In the Teletas privatization, it was the first
time nineteen Turkish institutions have formed a consortium to underwrite an equity issue; it was the first time securities were sold throughout
Turkey's 67 states; and in many places it was the first time shares had ever been sold. The offer was accompanied by creative and massive
distribution and publicity to compensate for the weakness of Turkey's capital market. The results were remarkable since the offer was
oversubscribed by four times and 42,000 investors were shareholders for the first time.
The divestitures of stock of SOEs in Chile which took place in the mid 80's, almost 50 percent were carried out at the stock exchange in the
form of bids on small and medium sized stock packages. As a result the total volume of trading at Santiago Stock Exchange rose from $40
million in 1984 to $650 million in 1988 and the transactions of stocks of privatised companies increased from 21 percent to 61 percent for the
same time period. In addition divestiture of SOEs since the 70's till May 1988 brought 114,000 shareholders i.e. more than double the amount
at the end of 1970. In short, Santiago Stock Exchange became one of the most active in South America in terms of its total value to GDP,
market capitalization to GDP and turnover ratios. This could have happened without large divestitures of SOEs and the policy of spreading
ownership of stock6.
6
Luders, R. (1990), 'Privatization in Chile: Lessons from a massive divestiture programme in a developing country', in International Privatization: Global Trends,
Policies, Processes and Experiences. Proceedings of the 1990 International Privatization Congress, Saskatoon, Saskatchewan, Canada, May 13-16.
It has been argued that privatization was appropriate in India or Thailand, where there were markets, resources and infrastructure, but it will
never work in poor countries. However the example of Honduras, the poorest country in Central America, which sold enterprises at an
accelerated rate, proved that when something was offered for sale and was priced right, money appeared and there were resources even in less
developed countries7. The example of the sale of shares to the public of Barclay's bank in Kenya, which was a sound and profitable private
firm8. The issue was seven times oversubscribed which included first time rural Kenyan purchasers. Further, in Bangladesh the sale of SOEs to
the private sector helped in the growth of its stock market.
The main reason that made privatization widespread and popular was the dissatisfaction of various governments with the inferior performance
of their public sector. Likewise, the Egyptian government faced the same dilemma. In an attempt to enhance the role of the private sector and
reduce the burden of its public sector, the Egyptian government embarked on an aggressive economic reform program in 1990/91, out of
which, privatization, has been opted as one of the solutions for the SOEs Egypt. Primary objectives of the program were to generate higher
productivity, faster and sustainable growth and as a consequence increase returns on assets and equity, while at the same time raise
internal efficiency and improve captial structure. Since 1990s, a number of key programs have been put into place to greatly liberalize
commerce and trade; to re-frame the country’s legal, regulatory, judicial, and tax structures.
The economic reform program was successful up till 1997 where it started showing some signs of slack. Prior to the slow down, several
indicators improved greatly. Real GDP growth in Egypt recorded 4.5 percent in 2000. Average annual inflation stood at 3.0 percent in
2001, down from double digit figures in early 90’s. Total international debt decreased from $ 50 billion in 1991 to $ 26 billion in 2001.
However, the budget deficit reached 4.8 percent of GDP in 2000 up from 1.3 percent in the previous years, which was mainly attributed to
the increase in investment spending by government on mega projects plus noted reductions in revenues from Suez Canal, tourism and oil.
The capital account detoriorated as a result of the delay in the privatization program as well as the recent decline in the stock market,
which resulted in the drop in direct investment by more than 70 percent in the first three quarters of the year 2001 compared to the same
period last year. Foreign exchange reserves amounted to $14.0 billion in December 2001, which covers seven months of imports.
Nevertheless, the reserves were reduced by around $8 billion in the last two years as the government tried to sustain the exchange rate
between the US dollar and Egyptian Pound (LE), but failed. Thus, it abandoned nine years of currency peg at 1$/LE 3.40 pounds and the
Central Bank of Egypt (CBE) introduced a new managed peg exchange rate regime, setting the $ at L.E 3.85 in January 2001. On August
7
Faoro, L. (1990), 'Global trends in privatization', in International Privatization: Global Trends, Policies, Processes and Experiences. Proceedings of the 1990
International Privatization Congress, Saskatoon, Saskatchewan, Canada, May 13-16.
8
Vulysteke, C. (1988), 'Techniques of privatization of State Owned Enterprises: Methods and Implementation', World Bank Technical Paper No. 88, Washington,
D.C.
5th, 2001, the CBE made the most aggressive devaluation and devalued the Egyptian pound by another 6 percent to reach 1$/LE 4.15 and
has widened the currency trading band to +/- 3 percent of the central rate. This move came in response to market demand, which is a step
in the right direction to have a market-controlled exchange rate, to help alleviate the prevailing liquidity squeeze and restore investor
confidence in the market. In July 2001, Standard and Poor’s (S&Ps) affirmed its BBB- rating to Egypt’s long term foreign currency
obligations. S&Ps, however, was concerned about the level of public debt, weak control over public capital expenditures, sustainability of
the exchange rate regime and the pace of structural reform. The agency was concerned however about the weakening fiscal situation
derived from the heavy investment expenditure on the public mega projects and the sluggish pace of the privatization program. A final
point worth noting is that the Egyptian economy suffered even further after September events where tourism, the government highest
revenue generator, was expected to decline 50 percent in 2002, with further expected reductions in the revenues from Suez Canal and oil.
The positive sign however was that the Congress of 37 Donor countries Meeting held at Sharm El Sheikh on 5th and 6th February 2002,
agreed to pledge a commitment of $10.2 billion to Egypt over 2002-2004, in the form of grants and soft loans. The impact of this recent
decision is yet to be seen.
Regarding privatization, the Ministry of Public Enterprise (MPE) was given the mandate of achieving the long-term goal of complete
implementation of Egypt’s overall privatization plan. It is responsible for all reform aspects of public enterprises including privatization,
restructuring, labor, and legal issues. The government then launched a privatization program with Public Enterprise Law 203 of 1991 and
its executive regulations thus establishing the regulatory framework for the sale of 314 public enterprises.
Other Organizations involved in Egypt’s privatization initiative included the following entities9:
Ministerial Privatization Committee (MPC) established in 1996, coordinates the activities of the ministries involved in the privatization
process, identifying and resolving impediments to privatization and expediting the sales decision-making process.
The Public Enterprise Office (PEO) is an independent body created in 1991 to assist the Minister of Public Enterprise and to act as a
coordinator for the privatization and restructuring programs. Although the PEO has no executive authority, it is the guiding force for the
entire privatization and restructuring program and the link between the Government and the Holding Companies.
The Quatro Committee (QC) is comprised of the PEO, Capital Market Authority, The Central Auditing Committee and the Exchange.
The QC’s responsibilities concerning Initial Public Offerings (IPOs), include suggesting and approving privatization strategies; reviewing
technical valuations; evaluating market values of companies; and suggesting fair prices for IPOs.
The Capital Market Authority (CMA) established in 1979, is a government organization, which reports to the Minister of Foreign
Trade. Pursuant to the Capital Market Law No. 95 of 1992, the CMA was given sole control over supervising the Cairo & Alexandria
9
Web site of Ministry of Public Enterprise: www.mpe-egypt.com
Stock Exchanges (CASE). The CMA is charged with market development, supervision of trading, broker licensing and market
surveillance.
The Holding Companies (HCs) were created in 1991. The ownership and management of 314 public sector companies were transferred
from the various ministries to 17 Holding Companies. The portfolios of these HCs were designed to eliminate sectorial monopolies,
introduce competition, and ensure that each HC had an array of enterprises with differing profitability and sale potential. HCs are primarily
responsible for organizing the sale of their constituent state-owned enterprises known as affiliated companies.
The Share Pricing Committee (SPC) is comprised of the CMA and the CASE and is responsible for reviewing and approving the share
prices offered in the IPO process.
The Central Auditing Agency is an independent governmental body reporting directly to the People’s Assembly. It audits the
performance/evaluation of all companies which are at least 25 percent publicly held and reviews valuation studies prepared by Holding
Companies, Affiliate Companies or their external consultants.
It could be envisaged that the Egyptian government has designed a balanced privatization program, which included the following sales
strategies: public offerings on the Cairo and Alexandria Stock Exchanges, sale assets, sale to anchor investors, leasing, management
contracts, liquidations etc.
In particular, starting 1993/1994 and in order to expand the role of the private sector in the economy, the government earmarked 314 public
sector enterprises as potential candidates for the privatization, offering attractive investment and profit opportunities.
During the period 1991 through 1996, full privatization of 3 companies took namely Coca Cola, Pepsi, and El Nasr Boilers, adopting direct
negotiations technique with strategic investors. Besides, tranches ranging from 5 to 20 percent of the shares of various SOEs were floated
over the stock market and others were sold majority to their employees. Companies offered via the stock market during this period were
profitable and successful ones. They were offered by the government at a discount and in several cases the offerings were oversubscribed
by many times.
Furthermore, in 1996, with the rapid development of capital market systems, practices, institutions and services, the pace of privatization
was accelerated.
However, since late 1997, a group of factors led to difficulties in privatizing SOEs, which in turn threatened the progress of the
privatization program in meeting its set targets. First of which, was the South East Asian crisis that hit first Thailand in July 1997,
spreading later to the economies of Indonesia, Malaysia, Korea then to several other parts of the world including Russia and Brazil. The
impact of the crisis was felt on the Egyptian bourse so valuations were greatly reduced and the index falled sharply. Moreover, the
terrorists attack that took place in Luxor (Upper Egypt) in November 1998 had a negative impact on the Egyptian economy. Both factors
had their negative effects on investment and the capital inflows to Egypt. The net demand from foreigners on Egyptian shares declined. As
a result, in 1997 and 1998, some of the public offerings of privatized companies failed to be fully subscribed reflecting weak market
conditions and a reduced appetite in the international markets for emerging market securities.
In June 1998, the Ministerial Privatization Committee announced the adoption of more market-oriented approaches to privatization and, as
such, allowed syndications and the utilization of underwriters. Underwriters were expected to syndicate the sales, used book-building
methods in placement and price determination. This approach to pricing was more market oriented and ensured the continued success of
the program. It should be mentioned that the majority of the privatized companies over the last two years were sold to strategic investors
rather than offered as IPOs due to either the restructuring required to make them viable or the reduced appetite of investors.
The companies privatized were diversified over a number of sectors including agriculture, real estate and construction, food and beverages,
milling, pharmaceuticals, cement, chemicals and fertilizers, engineering, retail, tourism. Recently, the scope has been widened to
encompass infrastructure, given the fact that the private sector is the lead in all mega projects such as new ports, electricity distribution,
power generation and telecommunication. The program also allowed for the private sector involvement in certain sectors, such as
construction, telecommunications and transportation to take the form of acquisition or Build-Operate-Transfer (BOT) schemes.
As stated earlier, one of the reasons of privatization by the Egyptian government via the stock market was to revive the role of the stock market
and increase its activity.
Historically, Egypt’s Stock Exchange has two locations: Cairo and Alexandria. The same Chairman and Board of Directors govern both
exchanges since 1997. The Alexandria Stock Exchange was officially established in 1888 followed by Cairo in 1903. The two exchanges
were very active in the 1940s and the Egyptian Stock Exchange ranked fifth in the world. Nevertheless, the central planning and socialist
policies adopted in mid 50’s led to a drastic reduction in activity on the Stock Exchange, which remained dormant for three decades. The
move towards a free-market economy has been remarkably swift and the process of deregulation and privatization has stimulated the stock
market activity.
Market capitalization increased from LE 14.5 million or 8 percent of GDP in 1994 to reach LE 112 billion ($ 23.8 billion) as of end of
December 2001, representing 22 percent of GDP in 2001 10. The top 100 listed companies accounted for 91 percent of the value traded and
81 percent of volume traded in 2001. Foreign participants represented approximately 20 percent of the value traded of 2001. Table (1)
gives a summary of the main market indicators of the Egyptian market over the period 1994-2001. As can be viewed from Table (1),
market indicators increased sharply during this period. In particular, between 1997 and 2000, the market capitalization increased by 70
percent. The traded volume increased by more than twofold and traded value increased by 123 percent over the same period. However the
10
Factbook, CASE, September 2001.
situation worsened in 2001 and hence market capitalization, volume and value traded were reduced respectively; by 7 percent, 14 percent
and 41 percent.
Table (2) shows that around 30 percent of the privatized companies were sold either through majority or minority Initial Public Offerings
(IPOs) but accounted for 48 percent of the proceeds from the program. i.e L.E 8 billion. The remaining 70 percent were sold through other
privatization methods including anchor investor, asset sales, sales to Employee Shareholders Associations (ESAs), asset liquidations as
well as long term leases, and accounted for the balance of the proceeds i.e. L.E 8.8 billion. These proceeds were mainly used to reduce the
affiliated companies’ debt, to fund early retirement programs as well as to fund the restructure of the privatized companies.
It is worth noting that the Egyptian privatization program has originally concentrated on offering a minimum of 10 percent tranches of
profitable industrial and manufacturing enterprises. This was later changed to majority sales as witnessed in the case of Nasr City Housing
in June 1996, which set the landmark of the government seriousness of fully privatizing its public sector. Table (3) reveals that the
privatization program has succeeded in privatizing 185 companies with sales proceeds of LE 16.8 billion since its inception up to end of
December 200111. The sales proceeds from privatization amounted to approximately 5 percent of GDP.
A point worth mentioning is that the surge of privatizing via the stock market attracted the private sector and it started in 1997 to tap the
stock market. Accordingly private placement offerings of family companies raised around LE 4 billion 12 via the stock market over the
period 1997-2001.
The next stages of the privatization program starting 2002, include the marketing of mega-issues, which comprise electric utilities,
telecom, financial services, textiles as well as oil &gas companies. The most important and expected deals that will assure investors that
privatization is back on track, is the selling of 10 percent to the public and 30 percent of the state owned Telecom Egypt to a strategic
investor as well as the offering of 20 percent of Greater Cairo and Canal Electricity Companies to the public. These privatizations are
expected in 2003.
In conclusion, the pace of the privatization has been slow over the period 1998-2001 consequent to: global markets have been treachous
since 1997 and worsened after the US September events, political tension in Middle East Peace Process, over valuation of SOEs, weak
promoters, lack of bank financing, lengthy selling procedures, lack of sufficient information from the Holding Companies (HC) to
potential buyers and the prevailing recession in the Egyptian economy.
11
12
Ministry of Public Enterprise, December 2001.
Private Company Offerings, Financial Securities, Monthly Bulletin, CASE, December 2001.
Nevertheless, the Public Enterprise Office (PEO), has confirmed that the government is committed to privatization and still offers
companies for sale but also points out that they cannot guarantee the buy side as the program was negatively affected by the economic
recession in Egypt. Moreover, promoters shy away from problematic companies and concentrate on viable companies to ensure success. It
must also be noted, that the entities yet to be privatized are less attractive and overstaffed public enterprises that are deemed to be difficult
and, hence, not lucrative enough to those promoters, who want a quick turn of their investments.
Accordingly, and in response to recent suggestions/critiques to the privatization program, the PEO has taken the following steps to enhance
the process13:
Based on a Ministerial decree in 2000 and in order to facilitate the privatization process of troubled enterprises , the Minister of
Public Enterprise Office, announced that any investor who acquires “ailing companies”, would be granted a five year tax
exemption. As such, the buyer will be first required to establish a venture capital firm to be granted this tax exemption, which in
turn, will acquire the assets of the ailing companies. The venture capital firm would operate the company for a trial period of two
years after which tax exemption would be granted, only if the venture capital firm has successfully turned around the acquired unit.
Moreover, the holding companies are to assume its affiliates’ debt as well as any idle assets that can be of no benefit to the
investors. The decree would also allow for the sale of the troubled enterprises land, often booked at their balance sheets at very low
prices, in line with the prevalent prices of land in new cities, in order to reduce the financial burden on the buyer.
The financial statements prepared by SOEs must be prepared employing Generally Accepted Accounting Principles (GAAP).
Overvaluation will be minimized by transferring the idle assets to the Holding Company prior to sale in order to reduce the size of
the investment. Valuation of the land will be rationalized and valued according to the nearest industrial community (not like the
previous practice of valuing it as a residential area). New investors are permitted to buy land in new areas at a much cheaper cost
and pay no taxes. As a further safeguard, it is always mentioned in the sales contract articles that the buyer cannot change the
license from industrial land to land destined for other uses.
The Cabinet and Peoples’ Assembly amended in 2001 Article 36 in Law 203, which stipulates that the Holding Company can
accept best bids that are below the valuation done by consultants & Central Accounting Agency.
Prior to the sale of the enterprise, the land on which a factory is built, will be retained by the Holding Company but leased to the
enterprise. Therefore, buyers or investors will pay the lease for a given period to the public enterprise company (seller) instead of
paying the full amount of land, which may be substantial. This option solved the problem of having to pay high amounts for the
price of used land on which factories were built and thus solved the privatization of those companies. This process was clearly
employed in the sale of Al Ahram Beverages Company.
The use of interim contracts via hiring management companies that specialize in turn arounds. This is especially useful for textile
companies as they comprise seventy percent of the yet not privatized companies, that are problematic cases.
Two new
management companies started operations under this scheme. In September 2000, Delpha, an Indian consulting firm, was assigned
13
Factbook, Cairo and Alexandria Stock Exchanges, September 2001.
the management of the Misr Helwan for Spinning and Weaving, whereas a German consulting firm, Roland Berger, was assigned
the management of El Nasr Textiles. The main objectives of the management contracts were to provide the two companies with
new and advanced machinery, human resource training and development. Unfortuantely, in June 2001, the contract with Delpha
was cancelled because the company continued to incur losses and management was not successful in reducing these losses.
Another measure to restructure the losing companies is through write-off of debts, rescheduling of debt as well as early retirement
schemes.
Thus it can be anticipated that the above mentioned measures will help revive the privatization process in the medium term.
Finally, the performance of privatized companies listed on CASE, by comparing their price performance at their offering date and on 31st
of December 2001, is briefly analyzed.
It can be noted from Tables (3) & (4) that only 10 privatized companies had their prices increase compared to their offering date, whereas
50 privatized companies had their prices decrease. The majority of companies witnessed a drop in their prices as of end of 2001 which is
explainable due to the overall decline in prices of the stock market as witnessed in S&Ps/IFC Global Egypt Index which decreased from
100 points on 31/12/1995 (launch date of index) to 42.6 points on 31/12/2001 (a substantial drop of almost 60 percent in a six years
period14).
One of the main reasons for the drop in the S&Ps/IFC Egypt index was the negative macro economic factors that were stated earlier.
Another reason is that some of the SOEs privatized through stock market were over-priced by the government in their second and third
tranches as can be viewed in Tables (5). Moreover, the average percent change in the profitability of the 100 most active companies,
tracked by CASE, which was a positive 15 percent change comparing end of year 1997/1998 profits, changed to a negative 7 percent
change comparing end of year 1999/2000 profits, signifying that the bulk of 100 most active companies realized losses rather that net
profits15. Most of the 50 privatized companies in Table (5) were also part of CASE 100 most active list.
It goes without saying, that there are of course, other firm related reasons that has resulted in the price declines of those 50 privatized
firms, including but not limited to several factors, whether there was a minor or major change in ownership structure of privatized firms,
sales performance, performance of management, more reliance on debt funding, industry factors (eg. recent telecom and dot com bubble)
etc, which were not discussed in this paper, but will addressed in future research.
14
15
S&Ps/IFC Factbook, 2001.
Change in the Profitability of 100 Most Active Companies, Financial Securities, Monthly Bulletin, CASE, December 2001.
Table 1: Main Market Indicators Over The Period 1994-2001
Indicators
1994
1995
1996
1997
1998
1999
2000
2001
Volume of listed securities
Volume of unlisted securities
Total volume of listed & unlisted securities (million)
29.3
30.5
59.8
43.7
28.5
72.2
170.5
37.2
207.7
286.7
85.8
372.5
440.3
130.5
570.8
841.1
233.0
1,074.0
1,029.3
78.7
1,108.0
1,183.8
76.0
1,259.8
1,214.0
1,343.2
2,557.2
2,294.2
1,555.2
3,849.4
8,769.2
2,198.3
10,967.5
20,282.4
3,937.4
24,219.8
18,500.6
4,863.4
23,364.0
32,851.0
6,235.1
39,086.1
45,789.1
8,223.3
54,012.4
24,659.9
7,136.1
31,796.0
Average monthly value traded (listed securities)
Average monthly value traded (unlisted securities)
Total (LE million)
101.2
111.9
213.1
191.2
129.6
320.8
730.8
183.2
914.0
1,690.2
328.1
2,018.3
1,541.7
405.3
1,947.0
2,737.6
519.6
3,257.2
3,815.8
685.3
4,501.0
2,055.0
594.7
2,649.7
Number of transactions (Listed securities)
Number of transactions (unlisted securities)
Total number of transactions
51,862
42,880
94,742
260,964
208,651
469,615
2,279,521
36,843
2,316,364
1,142,510
82,841
1,225,351
672,649
14,564
687,213
892,291
12,909
905,200
Number of listed companies
700
746
649
654
870
1033
1,076
1,110
Number of traded companies
300
352
354
416
551
663
659
643
Average monthly traded companies
91
113
129
168
218
243
232
250
Market capitalization end of year (LE billion)
14.5
27.4
48.1
70.8
82.2
112.3
120.9
112.3
Turnover Ratio (%)
8.38
8.37
18.24
28.62
22.50
29.24
37.85
21.97
Value traded (listed securities)
Value traded (unlisted securities)
Total value traded (LE million)
1,276,209 1,142,410
10,102
5,521
1,286,311 1,147,931
Securities include stocks, bonds and mutual funds listed on the exchange
Market Capitalization= No. of listed shares * market price (end of year)
Turnover ratio (%) = value traded of listed securities / market capitalization
Source: Cairo and Alexandria Stock Exchanges
Table 2: Privatization Status, Dec.2001
Privatization Achievements
Number of Privatized Companies
from inception of Privatization Program up to 31/12/2001
Sales
Total
2001 Number of Proceeds
Companies LE Million
1993
1994
1995
1996
Year
1997
Majority through Public Offering
Minority through Public Offering
Asset Sale
Anchor Investor
ESA
Factories & Production Lines Sale
0
0
6
0
0
0
0
1
2
3
7
0
1
6
2
0
3
0
14
6
1
3
0
1
14
2
3
3
3
1
8
1
6
2
12
3
0
0
7
9
5
4
1
0
3
5
0
6
0
0
2
4
2
3
38
16
32
29
32
18
6,312
1,755
840
6,968
939
-
Leasing
0
0
0
0
2
0
6
10
2
20
-
Total
6
13
12
25
28
32
31
25
13
185
16,814
Method of Privatization
Source: Ministry of Public Enterprise
1998
1999
2000
Table 3: Egyptian Privatization Program
Companies Privatized &/or Liquidated
From 1994 till 31/12/2001
No. Company Name
Majority IPOs
1 Medinet Nasr Housing
2 Egyptian Financial & Industrial Company
3 United Housing
4 Abou Kir Fertilizers
5 Egyptian Starch & Glucose
6 Kafr El Zayat Insecticides
7 Misr Oil & Soap
8 El Nasr for Dehydrating Agricultural Products
9 Nile Matches
10 Middle & West Delta Flour Mills
11 Development & Engineering Consultants
12 Upper Egypt Flour Mills
13 Telemisr
14 Arab Cotton Ginning
15 East Delta Flour Mills
16 Ameriyah Cement
17 Helwan Portland Cement
18 Misr Free Shops
19 Unirab Spinning & Weaving
20 Nile Cotton Ginning
21 Cairo Housing
22 Nobareya Agricultural Engineering
23 Upper Egypt Contracting
24 El Nasr Clothes & Textiles KABO
25 El Nasr Casting
26 Middle East Paper Simo
27 El Giza Contracting
28 Egyptian Electrical Cables
29 Paints & Chemicals Industries Pachin
30 Industrial & Engineering Projects
31 El Shams Housing
32 Mahmoudia Contracting
33 Alexandria Spinning & Weaving
34 Extracted Oils
35 El Nasr Civil Works
36 Bisco Misr
37 United Arab Shipping & Stevedoring
38 Cairo Oil & Soap
Sub-total of Majority IPOs
Sale Proceeds
L.E. million
% Sold
190
70
5
20
68
60
73
24
34
177
104
165
59
87
110
768
1202
133
226
295
118
27
15
197
48
55
33
321
836
299
31
54
82
85
105
89
17
33
6,312
75
75
10
3
61
90
61
100
65
61
98
61
100
100
61
71
52
97
67
100
79
99
85
63
33
85
80
100
62
90
55
80
100
51
81
63
51
61
Minority IPOs
39 Misr Chemical Industries
40 Eastern Tobacco
41 Nile Pharmaceuticals
42 Heliopolis Housing
43 Misr Aluminum
44 Egyptian Contracting (Mokhtar Ibrahim)
45 North Cairo Flour Mills
46 Middle Egypt Flour Mills
47 South Cairo & Giza Flour Mills
48 Memphis Pharmaceuticals
49 Arab Pharmaceuticals
50 Cairo Pharmaceuticals
51 Alexandria Pharmaceuticals
52 General Silos & Storage
53 Alexandria Flour Mills
54 Arab Design Office
Sub-total for Minority IPOs
Anchor Investor
55 Coca Cola
56 Pepsi Cola
57 El Nasr Boilers
58 El Nasr Transformers Elmaco
59 El Nasr Utilities
60 Al Ahram Beverages
61 Delta Industries IDEAL
62 Misr Mechanical & Electrical Projects
63 Kaha
64 Assiut Cement
65 El Wadi for Exporting Agricultural Products
66 NobaSeed
67 Geneklis
68 Modern Textiles Bolivara
69 Delta Sand Bricks
70 Beni Suef Cement
71 Industrial Gases
72 Arabia Foreign Trade
73 Alexandria Cement
74 Telephone Equipment
75 Plastic & Electricity Industries
76 Torah Cement
77 Ramsis Agricultural
78 Micar
79 Alexandria Sweets & Chocolates (Corona)
Ameriyah Cement (remaining stake)
80 Egyptian Gypsum
81 Arab Carpets & Upholstery
82 Alex Cooling
83 Abou Zaabal Fertilizers
Sub-total of Anchor Investor
65
549
55
135
221
76
136
32
30
48
18
62
52
148
125
4
51
34
33
27
8
13
42
40
40
40
40
40
40
40
40
45
1,755
286
131
16
115
40
298
311
103
154
1380
122
103
32
33
62
527
60
15
670
100
94
1226
161
25
28
527
83
50
33
183
6,967
100
100
100
90
100
100
100
71
100
100
95
100
100
100
100
100
100
100
90
100
81
100
100
90
29
90
100
90
-
Employee Shareholder Association
84 Irrigation Consulting Office
85 Wadi Kom Ombo for Land Reclamation
86 General Company for Land Reclamation
87 Egyptian Real Estate Co.
88 General Mechanical Excavation
89 Upper Egypt Dredging
90 Egyptian Dredging
91 Arab Co. for Land Reclamation
92 Riegwa
93 Societe Anonyme De Behera
94 Nile Inland Transport
95 Nile Heavy Transport
96 Nile Goods Transport
97 Nile Direct Transport
98 Nile Transport Operations
99 Egyptian Maritime Supply
100 Kafr El Sheikh Rice Mills
101 El Sharkia Rice Mills
102 Amoun Shipping Agencies
103 Tiba & Abou Simbel Shipping Agencies
104 Memphis Shipping Agencies
105 Dakahliya Rice Mills
106 Alexandria Rice Mills
107 Damietta Rice Mills
108 Rosetta Rice Mills
109 Suez Shipping & Stevedoring
110 El Behera Rice Mills
111 Egyptian Irrigation and Drainage
112 San El Hagar Agricultural
113 Egyptian Maritime Works- Mary Trans
114 Gharbiyah Rice Mills
115 Misr Import & Export
Sub-total for Employee Shareholder Association
1
70
60
46
23
8
19
61
28
49
27
27
24
18
12
16
13
39
26
26
43
37
27
49
12
22
22
5
18
43
51
18
939
99
100
100
100
100
100
99
100
100
98
95
95
95
95
95
51
90
90
88
88
88
90
90
90
90
62
90
90
95
95
90
100
Liquidations
116 North Tahrir Agricultural Co.
117 General Agricultural Co.
118 General Agricultural Products & Services
119 Egyptian Meat & Dairy Products
120 Al Ama Contracting & Sanitary Works
121 El Nahda Agricultural Co.
122 Middle Delta Agricultural Co.
123 Nile Agricultural Products Export
124 South Tahrir Agricultural Co.
125 West Nobareya Agricultural Co.
126 High Dam Civil Works
127 Mariout Agricultural Co.
128 Farascour Wood & Building
129 General Co. Mineral Wealth
130 Prefabricated Houses
131 Cairo General Building & Prefabricated Houses
132 General Co. for Foundations
133 Installations & Industrial Services
134 Upper Egypt Agricultural Company
135 Cairo Silk
136 Sand Bricks
137 El Nasr Refractories
138 Graphite Co.
139 Kanaltex
140 Egyptian for Leather Manufacturing
141 General Co. for Batteries
142 Gimco
143 El Masreyah Refractories
144 General Engineering Works
145 United Poultry
146 Shaher & Romney
147 Segal
Sub-total for Liquidations
Sub-total for Asset Sale (18 Companies)
Sub-total for Leasing (20 Companies)
Grand Total
Source: Public Enterprise Office (31/12/2001)
0
840
0
16,814
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Table 4: Privatized Companies Whose Market Prices on 31/12/2001 were Higher than Offering Prices
No. Name of the company
Egyptian Company for Mobile Services
1 (MobiNil)
2 Al Ahram Beverages (ABC) * 1st tranche
3 Al Ahram Beverages (ABC) * 2nd tranche
4 El Nasr Clothes & Textiles (Kabo) *#
5 Egyptian Financial & Industrial *
6 Medinet Nasr Housing *
7 Arab Cotton Ginning
8 Alexandria Pharmaceuticals 1st tranche
9 Alexandria Pharmaceuticals 2nd tranche
10 Arab Pharmaceuticals
11 Bisco Misr
12 Ameriyah Cement
Offering Date
1-Feb-98
1-Jul-96
1-Feb-97
17-Jun-05
1-May-96
1-May-96
1-Sep-96
1-May-95
1-Jun-96
1-Sep-96
25-Jun-98
1-Apr-95
Offering Price
LE
10.00
16.75
17.13
10.50
15.00
16.25
27.00
66.15
68.00
40.00
14.00
27.00
Market Price
LE
31-Dec-2001
33.36
34.67
34.67
17.10
23.51
21.72
34.23
81.46
81.46
45.54
15.49
28.04
High
Low 52
52
weeks weeks
LE
LE
30.90
27.75
27.75
16.25
19.05
17.25
25.00
90.00
90.00
31.31
11.00
23.00
Percent
Change
83.00
59.72
59.72
16.25
29.40
34.98
34.23
94.00
94.00
48.00
15.49
33.50
234%
107%
102%
63%
57%
34%
27%
23%
20%
14%
11%
4%
Notes:
* Adjusted According to Corporate Actions
# As a result of merger, Kabo has changed its par value from LE1 to LE35 per
share
Percent Change is the difference between current market price and price on
offering day
18
Table 5: Privatized Companies Whose Market Prices on 31/12/2001 were Lower than Offering Prices
Name of the company
1 United Arab Shipping
2 Alexandria Flour Mills
3 Egyptian Electrical Cables * 1st tranche
4 Mahmoudia Contracting
5 Egyptian Electrical Cables * 2nd tranche
6 Extracted Oils 1st tranche
7 Extracted Oils 2nd tranche
Alexandria Spinning & Weaving
8 (SPINALEX) *#
9 Egypt Aluminum
10 El Nasr Clothes & Textiles (Kabo) ##
11 General Silos & Storage
Development & Engineering Consultants *
12 1st tranche
13 Egyptian Contracting (Mokhtar Ibrahim)
United Arab Bolivara Spinning ,Weaving,
14 Silk (UNIRAB) *
15 Paper Middle East (Simo)
16 Telemisr *
17 Giza General Contracting
Paint & Chemicals Industries (Pachin) 1st
18 tranche
19 El Shams Housing & Urbanization
Paint & Chemicals Industries (Pachin)
20 2nd tranche
21 Industrial & Engineering Projects
Development & Engineering Consultants *
22 2nd tranche
23 North Cairo Mills 1st tranche
24 Nile Matches
25 Misr Duty Free Shops
26 Heliopolis Housing 1st tranche
27 El Nobareyah Agricultural Engineering
28 Middle Egypt Flour Mills 1st tranche
29 Egyptian Starch & Glucose
30 Nasr Company for Civil Works
31 El Nasr Dried Agricultural Products
32 Ameriyah Cement 1st tranche
33 El Wadi for Exporting Agricultural
Offering
Date
Offering
Lowest 52
Price Market Price
weeks
LE
LE
LE
31-Dec-2001
High 52
%
weeks Change
LE
13-May-98
01-Jul-97
01-Oct-97
01-Jan-98
01-Mar-95
01-Apr-95
01-Dec-96
31.00
82.50
23.33
35.00
18.18
45.00
45.00
1.88
7.10
2.10
3.15
2.10
5.66
5.66
1.68
6.83
1.70
1.51
1.70
4.50
4.50
4.62
12.63
6.13
9.22
6.13
8.50
8.50
-93.94%
-91.39%
-91.00%
-91.00%
-88.45%
-87.42%
-87.42%
01-Jan-98
01-Feb-98
01-Jun-97
01-Nov-96
37.00
71.25
102.00
39.00
5.48
11.71
17.10
6.59
3.90
11.70
16.25
5.96
8.89
21.79
16.25
9.60
-85.19%
-83.56%
-83.24%
-83.10%
01-Apr-97
24-Jun-98
33.18
55.00
5.64
9.40
2.62
8.79
8.12 -83.00%
17.81 -82.91%
01-Jan-97
01-Jun-97
01-Sep-96
01-Sep-97
18.75
22.00
20.00
47.25
3.30
4.10
3.80
9.05
1.48
4.00
3.61
6.57
4.42
5.00
12.15
16.27
01-Oct-97
01-Nov-97
60.13
15.00
12.17
3.07
13.88
2.67
20.00 -79.76%
5.30 -79.53%
01-Jan-97
01-Oct-97
58.00
56.70
12.17
11.96
13.88
10.00
20.00 -79.02%
19.65 -78.91%
01-Sep-96
01-Dec-96
01-Aug-96
01-Jan-97
01-Dec-96
01-May-97
01-Dec-96
01-Jun-96
20-May-98
01-Aug-96
01-Sep-97
01-Oct-97
26.36
87.00
27.00
40.00
155.00
27.00
24.81
35.00
33.25
38.00
86.97
31.00
5.64
18.80
6.26
10.96
42.52
7.45
7.02
10.36
10.00
11.43
28.04
11.29
2.62
18.41
4.84
7.04
34.00
6.71
6.67
10.03
9.20
7.96
23.00
11.29
8.12
32.54
9.40
29.28
53.40
11.55
9.06
17.30
15.73
16.25
33.50
13.10
-82.40%
-81.36%
-81.00%
-80.85%
-78.61%
-78.39%
-76.81%
-72.60%
-72.57%
-72.41%
-71.70%
-70.40%
-69.92%
-69.92%
-67.76%
-63.58%
19
Products
34 South Cairo & Giza Mills & Bakeries
35 Middle Egypt Flour Mills 2nd tranche
36 Ameriyah Cement 2nd tranche
37 Upper Egypt Flour Mills
38 Eastern Tobacco 1st tranche
39 North Cairo Mills 2nd tranche
40 East Delta Flour Mills
41 Middle & West Delta Flour Mills
42 Helwan Portland Cement 1st tranche
43 Delta Industries (IDEAL) *
44 El Kahera Housing * 1st tranche
45 Arab Cotton Ginning
46 Alexandria Cement *
47 El Kahera Housing * 2nd tranche
48 Misr Chemical Industries
49 Ameriyah Cement 3rd tranche
50 Kafr El Zayat Pesticides *
51 Abou Kir Fertilizers
52 Torah Cement
53 Cairo Pharmaceuticals
54 Misr Oils & Soap 1st tranche
55 United Housing & Development
56 Heliopolis Housing 2nd tranche
57 Nile Cotton Ginning
58 Nile Pharmaceuticals
59 Helwan Portland Cement 2nd tranche
60 Memphis Pharmaceuticals
61 Eastern Tobacco 2nd tranche
Paint & Chemicals Industries (Pachin) 3rd
62 tranche
63 El Nasr Transformers (El Maco)
01-Jun-96
01-Apr-96
01-Dec-96
01-Sep-96
01-Mar-97
01-Jun-95
01-Sep-96
01-Sep-96
01-Dec-96
01-Dec-97
01-Mar-97
01-Jul-97
01-Apr-95
01-Nov-97
16-Jun-95
01-Jun-96
01-Aug-96
01-May-96
01-May-95
01-Nov-96
01-Aug-96
01-May-96
01-Jul-95
01-Feb-97
01-May-95
17-Jun-95
01-Sep-96
01-Jul-95
26.00
18.00
68.00
40.00
96.00
42.00
31.00
40.00
58.00
33.08
3.09
60.00
32.00
2.91
5.00
46.00
23.20
34.60
42.25
46.00
31.00
4.34
52.50
43.00
56.70
34.00
50.00
45.00
10.07
7.02
28.04
16.80
41.57
18.80
14.73
19.09
30.47
17.49
1.72
34.23
18.33
1.72
3.04
28.04
16.69
25.00
31.08
35.87
24.22
3.43
42.52
35.97
48.00
30.47
45.42
41.57
9.50
6.67
23.00
15.91
38.00
18.41
14.02
18.52
51.10
17.00
0.76
25.00
18.07
0.76
1.92
23.00
16.00
25.02
20.13
27.30
28.24
3.49
34.00
35.97
44.39
51.10
46.57
38.00
13.30
9.06
33.50
23.00
68.00
32.54
20.00
25.44
51.11
41.00
2.57
34.23
26.99
2.57
4.95
33.50
37.50
29.50
41.89
39.49
29.72
4.90
53.40
44.99
53.00
51.11
58.55
68.00
-61.27%
-61.00%
-58.76%
-58.00%
-56.70%
-55.24%
-52.48%
-52.28%
-47.47%
-47.12%
-44.34%
-42.95%
-42.72%
-40.94%
-39.20%
-39.04%
-28.06%
-27.75%
-26.44%
-22.02%
-21.87%
-20.88%
-19.01%
-16.35%
-15.34%
-10.38%
-9.16%
-7.62%
01-Sep-94
01-Jun-96
12.50
16.18
12.17
16.00
13.88
16.00
20.00
17.00
-2.64%
-1.11%
Notes:
• Adjusted According to Corporate Actions
•
##As a result of a merger, Alexandria Spinning & Weaving has changed its par value to LE1 per share on 22/12/99. On 31/5/2000,
par value increased
increased from LE 1 to LE 40
•
#As a result of merger, Kabo has changed its par value from LE1 to LE5 per share
• Percent Change is the difference between current market price and price on offering day
20