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Viewing cable 08CAIRO1370, BANQUE DU CAIRE PRIVATIZATION POSTPONED

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Reference ID Created Released Classification Origin
08CAIRO1370 2008-07-01 13:24 2011-08-24 16:30 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Cairo
VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #1370 1831324
ZNR UUUUU ZZH
R 011324Z JUL 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 9712
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0420
UNCLAS CAIRO 001370 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA AND EEB/IDF 
USAID FOR ANE/MEA MCCLOUD AND RILEY 
USTR FOR FRANCESKI 
TREASURY FOR MATHIASON AND DENNIS 
COMMERCE FOR 4520/ITA/ANESA/OBERG 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN EINV EG
SUBJECT: BANQUE DU CAIRE PRIVATIZATION POSTPONED 
 
Sensitive but Unclassified.  Please protect accordingly. 
 
Ref:  A. Cairo 1352  B. Cairo 1335 
 
1.  (U) The GOE postponed indefinitely the sale of state-owned 
Banque du Caire on June 25, after the highest bid received did not 
meet the minimum asking price of $1.6 billion for 67% of the bank's 
shares.  A GOE evaluation committee set the minimum price based on 
the $1.6 billion that Italy's SanPaolo Intesa Bank paid for 80% of 
Bank of Alexandria (BOA) in late 2006.  Mohamed Ozalp, Vice Chairman 
of Banque Misr, owner of Banque du Caire, told us before the auction 
that Banque du Caire would sell for as much or more than BOA, as 
Banque du Caire has 215 branches (compared to BOA's 180) a 
state-of-the-art IT infrastructure with 180 ATMs, and a larger 
depositor base than BOA.  Banque du Caire's license was also 
considered a selling point, as Egypt's Central Bank has not granted 
new banking licenses for 20 years.  The only way for a new entity to 
enter Egypt's banking market is through purchase of an existing 
bank.  The Egyptian stock market fell by 1.56% on news of the 
postponement, with the banking sector index declining 3.19% on June 
25. 
 
2.  (U) In the first round of the auction on June 25, only three of 
the five short-listed bidders submitted offers.  The National Bank 
of Greece (NBG) submitted the highest offer, $1.3 billion, followed 
by UAE's Mashreqbank ($871 million) and the Saudi-Jordanian Arab 
Bank Group consortium ($804 million).  Neither the UK's Standard 
Chartered, nor the Saudi SAMBA Group submitted bids.  In the second 
round, both Mashreqbank and the Arab Bank Group withdrew.  NGB 
increased its offer to $1.4 billion, for a total valuation of $2.03 
billion, or 3.6 times Banque du Caire's book value of LE 2.67 
billion ($499 million).  Banking analysts noted that the bids seemed 
fair, though the GOE obviously did not agree, possibly because the 
last two banks the GOE has sold, BOA and Al Watany Bank, went for 
6.1 and 5 times book value respectively. 
 
3.  (SBU) Most banking analysts believe using the BOA sale price as 
a benchmark was a mistake.  BOA's management spent years preparing 
that bank for sale, paying off non-performing loans (NPLs), 
re-training staff and renovating branches.  BOA Chairman Mahmoud 
Abdel Latif told us he did not think Banque du Caire would sell for 
as much as BOA because less effort was put into preparing Banque du 
Caire for sale.  Although most of Banque du Caire's NPLs were 
reportedly transferred to Banque Misr, the former's balance sheet 
was still not in good shape.  Analysts contend the bank needs more 
restructuring, better investments, upgraded operations and 
re-capitalization to make it attractive enough to get the GOE asking 
price.  At a press conference after the auction, Mohamed Barakat, 
Chairman of Banque du Caire, said the GOE would further restructure 
the bank and attempt to sell it again, although he declined to set a 
timeframe.  A senior advisor to the Minister of Investment told us 
after the auction that he thinks the bank should be ready for sale 
again soon. 
 
4.  (SBU) Official statistics indicate Banque du Caire has total 
assets of around LE 50 billion ($9.3 billion) and a 6% market share. 
 Per the audit of Banque du Caire by the local office of Deloitte, 
done for purposes of the U.S-Egypt financial sector MOU, the assets 
were only LE 34.5 billion ($6.4 billion) in 2006.  The same Deloitte 
audit, conducted using international auditing standards, indicated 
LE 22 billion ($4 billion) of Banque du Caire's LE 28 billion ($5.2 
billion) in total loans (79% of total loans), were non-performing in 
2006.  The GOE currently claims only LE 10 billion ($1.9 billion) 
NPLs in the entire banking system. 
 
5.  (SBU) Comment:  The GOE's fixation with obtaining $1.6 billion 
for Banque du Caire suggests that postponement of the sale was not 
based on sound economic analysis of the bank's value, but on 
political considerations.  Only the minimum asking price would have 
satisfied elements of the political class skeptical of economic 
reform.  In the context of record levels of foreign investment, the 
sale's postponement, along with the EAgrium investment dispute (ref 
A), suggest that there are some limits to Egypt's openness to 
foreign investment.  Postponement may also be seen as vindication of 
those opposed to privatization of the economy, though in the 
long-run it undermines the opposition's argument that the GOE is 
selling the country "for a song."  In any event, coupled with 
Moody's downgrading of Egypt's long-term local currency bond outlook 
over inflationary and fiscal concerns (ref B), the sale's 
postponement shows that continued economic reform is becoming more 
challenging. 
SCOBEY