VZCZCXYZ0000
RR RUEHWEB
DE RUEHEG #2188/01 1961336
ZNR UUUUU ZZH
R 151336Z JUL 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 6139
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0300
UNCLAS CAIRO 002188
SIPDIS
SENSITIVE
SIPDIS
STATE FOR NEA/ELA, NEA/RA
USAID FOR ANE/MEA MCCLOUD AND DUNN
USTR FOR SAUMS
TREASURY FOR MATHIASON AND HIRSON
COMMERCE FOR 4520/ITA/ANESA/OBERG
E.O. 12958: N/A
TAGS: ECON EFIN EG
SUBJECT: IN SURPRISE MOVE, GOE ANNOUNCES PLANS TO SELL BANQUE DU
CAIRE
Sensitive but Unclassified. Please protect accordingly.
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Summary
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1. (SBU) On July 8, Egypt's Central Bank announced that it would
sell the publicly-owned Banque du Caire, the third largest bank in
the country. The announcement caught many off guard, as the GOE had
previously indicated it would not privatize any other public banks
after last year's sale of Bank of Alexandria (BOA). The Central
Bank indicated that the terms of the sale would be similar to those
of BOA.
While BOA's non-performing loans (NPLs) were paid off before BOA was
put on the block, the disposition of Banque du Caire's NPLs is still
unclear. The Central Bank announced that a committee would be
formed to conduct a valuation of Banque du Caire and a sale advisor
would be chosen in a few weeks. The actual process of valuation and
due diligence could take some time, however, given the complexity of
Banque du Caire's balance sheet. Central Bank officials also voiced
concern over the inevitable opposition to sale of the bank. The IMF
and World Bank support the sale, and believe there will be strong
interest from investors. Overall the sale is an important step in
the ongoing banking sector restructuring and reform process in
Egypt.
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GOE to sell Banque du Caire
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2. (U) In a surprise move, the Central Bank announced plans on July
8 to sell the state-owned Banque du Caire. The Central Bank had
announced plans in September 2005 to merge Banque du Caire with
Banque Misr, but those plans changed when it was determined that
merger would be too difficult. Instead, Banque Misr acquired Banque
du Caire in January 2007 and set about reforming the latter's
management and cleaning up its balance sheet, with its ultimate fate
undetermined. Cabinet Spokesperson Magdi Radi said that the Cabinet
approved the plan to sell off Banque du Caire after deciding that
keeping the entity as part of Banque Misr would result in too many
redundancies. Banque Misr already has 540 branches, and Banque du
Caire 220, many of which are on the same street.
3. (SBU) The Central Bank announced that the terms of the sale
would be similar to those of BOA, with a strategic investor invited
to purchase 80% of the bank's shares, 15% to be sold in an IPO after
sale to the strategic investor, and 5% reserved for bank employees.
The GOE obtained $1.6 billion from Italian-based SanPaolo Bank for
BOA, but only after all of BOA's NPLs were paid off using proceeds
from the GOE's issuance of a third mobile phone license. The
disposition of Banque du Caire's NPLs, however, is still unclear.
Some observers estimate that Banque du Caire still has distressed
assets of LE 12 billion ($2 billion), or approximately 73% of the
bank's total loans. Deputy Central Bank Governor Tarek Amer told
emboff, however, that all of Banque du Caire's NPLs had been
transferred to Banque Misr after the acquisition.
4. (SBU) Regardless of the disposition of Banque du Caire's NPLs,
most observers agree that the GOE is unlikely to obtain as much for
Banque du Caire as it obtained for BOA, given Banque du Caire's
weaker balance sheet. The BOA sale demonstrated, however, the
intense interest of international investors in acquiring banking
assets in Egypt. The Central Bank is expecting some of BOA's 13
bidders to bid again on Banque du Caire. Several of the BOA bidders
were Gulf banks, and many observers believe more Gulf banks will bid
this time around due to excess liquidity in the region. We have
heard that Citi Group and Commercial International Bank (a top
Egyptian bank which has U.S. and IFC ownership) may also be
interested.
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Timetable for sale
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5. (U) The GOE will form a committee to evaluate Banque du Caire
and determine an asking price per share. The committee will include
representatives from the Capital Market Authority, the
Administrative Control Authority, the Central Auditing Agency and
the Ministries of Investment and Finance. The Central Bank
announced that a sale advisor would be selected within the next two
weeks and an international tender issued by September, thus setting
a relatively short deadline for completing the valuation. (Comment:
The deadline may be unrealistic, given the complexity of Banque du
Caire's balance sheet).
6. (SBU) The GOE has not announced how it will use proceeds from
the sale, but many analysts believe it will be either to resolve the
remaining NPLs of the other public banks or to pay down the budget
deficit. Some press reports speculate that net capital gains from
the sale will be used to further recapitalize Banque Misr.
(Comment: If Deputy Governor Amer's comments are accurate, Banque
Misr's balance sheet is no doubt weaker as a result of absorbing
Banque du Caire's NPLs. However, the GOE is likely relying on the
strong management at Banque Misr to handle a larger portfolio of
distressed assets).
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Opposition to the Sale
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7. (SBU) Deputy Governor Amer told emboff he was very concerned
about the inevitable opposition to selling of Banque du Caire.
Indeed, within days of announcement of the sale, Yehia Hussein Abdel
Hadi, an Undersecretary at the GOE Institute of Leaders Training and
former chairman of the publicly-owned department store "Benzione,"
established "The Social Movement in Opposition to Selling Banque du
Caire," with himself as Coordinator. Abdel Hadi told the press that
the sale demonstrated the duplicity of the GOE, which had indicated
that no other public banks would be sold after BOA. He further
called on all depositors to withdraw their savings and transfer
their pensions from Banque du Caire to Banque Misr or NBE. He added
that anyone who purchases shares of Banque du Caire should be
considered an enemy of the Egyptian people. Abdel Hadi spearheaded
the failed opposition to the GOE's sale of Egypt's flagship
department store "Omar Effendi" and is also the Economic Expert of
the Kefaya Movement, leading that organization's "No to Selling
Egypt" anti-privatization campaign.
8. (U) Some private sector bankers also question the feasibility
and benefit of selling Banque du Caire. Overall, bankers are most
critical of the GOE's lack of transparency in banking sector policy,
evidenced by this sudden shift in policy regarding further sales of
public sector banks. Some parliamentarians have floated the notion
that the IMF's recent mission to Egypt for Article IV consultations
had an undue influence on the decision to sell Banque du Caire.
These parliamentarians have argued that the GOE should not succumb
to the IMF's demands, as doing so increases foreign control of the
banking sector in Egypt.
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IMF, World Bank Views
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9. (SBU) The IMF, and particularly the recent Financial Sector
Assessment Program (FSAP) mission, certainly pressed the GOE and
Central Bank to better define the disposition of the state-owned
banks. The IMF Resident Representative had indicated to Embassy
officials several weeks ago that he would not be surprised if Banque
du Caire was sold in the coming years, but when asked about last
week's sudden announcement, he admitted to being quite surprised.
Sahar Nasr, Senior Financial Economist at the World Bank's office in
Cairo, was less surprised by the decision. She told emboff that
several months ago the World Bank wrote an aide memoire, seen by
Prime Minister Nazif, which indicated that Banque du Caire had to be
privatized. She expected strong interest from international
bidders, and believed that Banque du Caire was a worthwhile
purchase, if only for the extensive branch network. Given that the
Central Bank will not issue banking licenses for new banks in Egypt
and that the Board of Governors of the Central Bank must approve the
opening of every new branch in Egypt, the purchase of Banque du
Caire would allow any bank which with growth aspirations to quickly
become a national player.
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Comment
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10. (SBU) The GOE apparently hopes that bringing another private
bank, likely a foreign entity, into Egypt's banking sector will
improve the sector's image and the quality of financial services in
Egypt, while providing the GOE with additional revenue. The
international community has supported the GOE's banking sector
reform program for the past several years, but the GOE has not
provided clarity about what the end-game was for the three remaining
state-owned banks. The announcement of the sale of Banque du Caire
is a step in that direction. Assuming this sale goes through, this
move should further improve the efficiency of the Egyptian banking
sector and help contribute to better allocation of financial
resources. Obviously, putting in place proper risk management tools
and strong management will be needed as well.
RICCIARDONE