Egypt signed deals worth $1.9 billion with private sector firms and a United Arab Emirates wealth fund as part of its plan to sell state assets, officials said on Tuesday, looking to send a clear signal of progress in efforts to revive an economy crippled by a foreign-currency crunch.
(Bloomberg) — Egypt signed deals worth $1.9 billion with private sector firms and a United Arab Emirates wealth fund as part of its plan to sell state assets, officials said on Tuesday, looking to send a clear signal of progress in efforts to revive an economy crippled by a foreign-currency crunch.
The divestments mark the most significant step in making good on broad plan announced in February to list new or additional stakes on the Egyptian stock exchange — or offer them to strategic investors. The program is a key part of the efforts to replenish coffers that suffered from the economic fallout of Russia’s invasion of Ukraine.
Among the deals was a $700 million investment by a unit of real estate developer Talaat Moustafa in a holding company that grouped several state-run hotels. In addition, the government sold $800 million in minority stakes in Egyptian Ethylene and Derivatives Company, National Drilling and Egyptian Linear Alkyl Benzene to ADQ, an Abu Dhabi fund, Planning Minister Hala Elsaeed said in a press conference.
In addition, the state sold a 31% stake in Ezz Aldekhela Steel for around $230 million, in a move that would have the company de-listed from the Egyptian stock exchange. Those deals were binding.
Of the total $1.9 billion in contracts, $1.65 billion were in foreign currency while the rest were in Egyptian pounds, Prime Minister Mostafa Madbouly said in the same event. Another $1 billion in deals would be announced later, he said.
The measures, including amendments of investment laws and other steps to boost private sector growth, are evidence of Egypt’s commitment to building its future, Madbouly said, adding that authorities were working on boosting revenue to $191 billion by 2026 compared to current levels of $70 billion.
Egypt needs to unlock more financing from abroad as the economy remains starved of dollars and faces a backlog of foreign-currency requests from importers and other companies.
Part of that could come from the issuance of new yuan bonds, which Finance Minister Mohamed Maait said was proceeding. In addition, the government was working on issuing new yen bonds worth around $250 million, he said. Maait said the government was aiming to cut the debt-to-GDP ratio to between 75%-80% in five years and was continuing efforts to boost tax revenues.
Read also: Egypt Puts State Assets Up for Sale to Hunt Foreign Exchange
The announcements were clearly aimed at allaying concerns about whether the government would truly move ahead with its broader program to revive the economy.
Wealthy Gulf nations had initially pledged billions of dollars in assistance, mainly through investments. But that money has been slow to materialize.
Cairo’s traditional backers are wary of pumping in new cash ahead of what they expect would be another devaluation if the government were to fully commit to an earlier pledge of a flexible exchange rate. Egypt already allowed its currency to weaken sharply in three separate rounds since last year to help clinch a $3 billion deal with the International Monetary Fund.
Read also: IMF Awaits More Egyptian Reforms Before First Review
Breakthrough deals could open the door for more cash to a government sorely in need of funding. It now faces the risk of a possible downgrade by Moody’s Investors Service that would lower its sovereign rating deeper into junk territory.
Authorities had initially unveiled a list of around 32 state-held firms, including banks and military-affiliated companies, that could go on the block. Until the latest announcement, however, they’ve only managed to sell an additional stake in the nation’s state-run telecommunications operator and a paint manufacturer.
A build-up of price pressures is among reasons why Egypt has waited to secure more hard currency before devaluing the pound again. Inflation soared to a record past 35% in June, further squeezing a population of over 100 million at a time when preparations of presidential elections are ramping up.
Fitch Solutions’ unit BMI said in a report it expects the Egyptian pound to weaken nearly 20% to around 38 pounds per dollar by the end of 2023.
“We think the Central Bank of Egypt will allow the currency to weaken at the same time as securing capital inflows, largely through the divestment program,” it said. “This combination will allow the official rate to converge to the parallel market rate.”
–With assistance from Souhail Karam.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.