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Egypt: Race to Privatise

The race for the privatisation of Banque du Caire (BdC) is heating up, with major foreign banks looking to make bids on the country's third-largest state bank. However the deal has not been without controversy, with the central bank preventing Egyptian businessmen from outside the sector to bid.

On September 17, it was announced that JP Morgan had been chosen by the government as financial advisor for BdC . JP Morgan 's role will be to value the bank and analyse the options for the privatisation. The sale is expected to be finalised in six to eight months.

The 80% share of the bank, with 230 branches and a 6.3% market share in terms of assets, being put up for sale is projected to fetch a price of more than $1.6bn at auction. A further 15% share in BdC is likely to be floated on the Cairo and Alexandria Stock Exchanges as a public offering.

Steady privatisation of the state's banking assets is in keeping with the government's ongoing liberalisation programme. In October last year, Bank of Alexandria , Egypt's fourth largest, was sold to Italy's Sanpaolo Bank for an unprecedented $1.613bn.

Questions have been raised about whether BdC 's privatisation can be as successful, given its recent past. The bank was subject to an abortive merger with state-owned Banque Misr last year, which drew attention to the bank's shortcomings in overstaffing and non-performing loans (NPLs), which are estimated at 73% of extant loans.

Nonetheless, there is a great deal of enthusiasm for the privatisation. Despite BdC 's serious issues, it offers foreign banks a ready-made, extensive branch network, instant name recognition and the chance to move into a fast-growing banking market.

Banks known to have shown interest in purchasing BdC include Mashreqbank , the third largest in Dubai, and the National Bank of Greece (NBG).

Mashreqbank is looking to increase its foothold in Egypt, after an on-off relationship with the country's banking sector in recent years. The bank withdrew from Egypt five years ago, only to make an unsuccessful bid to re-enter the market with Bank of Alexandria stock last year. Earlier this year, Mashreqbank finalised an agreement with the Egyptian authorities to open ten branches in the country, which it considers "a key growth market".

Omar Bouhadiba, head of corporate and investment banking at Mashreqbank , told Dubai press that "when [the BdC privatisation] happens, we will certainly be bidding."

NBG has also announced ambitions to expand its presence in Egypt - it currently has only one branch in the country.

It was not just banks that have been drawn to the BdC stock. Several high-profile individuals have also shown interest.

Orascom chairman Naguib Sawiris, Egypt's best-known businessman, had expressed the possibility of a bid and has asserted that he has the capital and know-how to buy and run it. Other individuals include Mohamed Shafiq Gabr, chairman of Artoc Group , Mohamed M Abu El Enein, chairman of Ceramica Cleopatra and Mohamed Farid Khamis, chairman of Oriental Weavers .

However, their ambitions may have been thwarted by the Central Bank of Egypt (CBE) , which has said that a law forbidding any individual from holding more than a 10% stake in a bank must be upheld. The law is designed to prevent individual businessmen from dominating a bank and effectively means that banks can only be taken over by other banks and financial institutions.

Sawiris has contested the legislation, arguing that the law favours foreign banks over Egyptian investors and asserting that some private banks should be owned by nationals.

"Will the government's current banking privatisation scheme go into effect without creating an Egyptian-owned private bank?" he told local press. "It makes no sense why a bank should not be owned by Egyptian investors."

The CBE may be wary due to the lessons of history. In the past, banks owned by Egyptian families new to the banking sector have not always been successful. Several of the state-owned banks have incorporated former Egyptian-owned private banks that went bust.

Market analysts have also questioned whether it would be wise for individuals and companies without the technical financial expertise of running a bank to acquire BdC .

"Owning a bank is completely different from owning a company," Hatem Alaa, banking analyst at HC Securities brokerage firm, told local press. "You could be a successful businessman but not a successful banker."

However, all may not be lost for Sawiris and the other individual investors eyeing BdC , as they still have the option of forming a consortium with a bank.

© Oxford Business Group 2007