Which is better... Evaluating the state's assets in Egyptian pounds or dollars?

Cairo -

The current month of March is witnessing one of the most important economic measures in Egypt, as the Egyptian government pledged to offer shares in 32 companies until the end of the same month of next year, with the escalation of the financial crisis in the country.

The first shares are scheduled to be offered at the end of this month, according to what Egyptian Prime Minister Mustafa Madbouly said last month, while about a quarter of these companies will be offered by the end of next June.

The sale includes 18 sectors and economic activities, and includes stakes in 3 prominent banks, namely Banque du Caire, The United Bank, and Arab African International Bank, as well as insurance, electricity, energy, hotels, and industrial and agricultural companies.

There are also stakes in at least two companies affiliated with the National Service Projects Authority of the Armed Forces, namely the National Petroleum Products Company, which operates a series of gas stations, and the National Production and Bottling of Natural Water (Safi).

Why does Egypt sell its assets?

The Egyptian government says that offerings, through the local stock exchange or a strategic investor, come in light of the outputs of the state ownership policy document and in line with the structural reforms that are being taken.

Gulf states have pledged to pump billions of dollars in investments by buying stakes in those companies to be offered by Egypt's sovereign fund, to support the Egyptian economy and relieve pressure on the local currency, which is facing great pressure.

Will it be sold in dollars or pounds?

With the preparation for the implementation of the offering program, the issue of selling in pounds or dollars arose, and which is better, whether for the Egyptian government or the strategic investor, especially after negotiations between a Gulf wealth fund and the Egyptian government regarding the acquisition of the state-owned United Bank were halted, due to a dispute over the bank’s valuation, according to Bloomberg and Reuters reported earlier, citing informed sources.

Choosing the evaluation currency constitutes a real test of the parties’ ability to reach an agreement, but the Chairman of the Board of Directors of the Sovereign Fund of Egypt and the Egyptian Minister of Planning, Hala Al-Saeed, settled the argument that the agreement with investors to value assets in US dollars or Egyptian pounds will be on a case-by-case basis, according to the agency. bloomberg.

This controversy over the valuation currency was explained by economist Ibrahim Nawar that it is due to the desire of each party to achieve the greatest amount of gains, because the valuation in pounds is in favor of the buyer, while the valuation in dollars is in favor of the seller.

Nawar explained in his speech to Al-Jazeera Net, that "those who carry out the process of evaluating assets are usually specialized institutions in this field, and that the issue is not an auction like the auctions of other markets. Asset valuation is a profession in which specialists work, and assets are usually valued in dollars, euros, or convertible currency." ".

Does the path of the pound impede deals?

The valuation of assets has turned into a controversial point due to the reality of the Egyptian pound, which is facing a series of continuous declines without being able to reach a point of stability that reflects its real value.

The pound fell by about 100% of its value in one year, from the level of 15.7 pounds per dollar to about 31 pounds per dollar, while the price rose by about two pounds in the black market, which has been active since the start of the local currency devaluation stations and the scarcity of hard currency.

Several banks set negative expectations for the future of the pound in front of potential investors, and their prediction for the future of the pound in the near term was pessimistic and indicated almost certain possibilities of a new devaluation of the Egyptian pound, which is already declining by several piasters every day or two in the Central Bank of Egypt and local banks.

Societe Generale Bank expected a decline in the exchange rate of the Egyptian pound by the end of March, to an average of 34 pounds per dollar, and HSBC estimates of the dollar price came at a level of 30-35 pounds in the short term, while a bank drew Credit Suisse set a course for the pound towards a ceiling of 35 pounds per dollar.

How big is the financial crisis?

The financing gap that Egypt suffers from, estimated at about $17 billion, is the main driver of the privatization program that international partners are looking forward to and urged by the IMF and the World Bank as the best options to address the current economic crisis.

According to Egyptian President Abdel Fattah El-Sisi, the country needs $100 billion over 7 years to bridge the import gap, which amounts to about $30 billion annually.

The downgrade of Egypt's credit rating by Moody's complicated its already precarious situation, because it negatively affects the value of the pound on the one hand, and the value of assets on the other hand, but it makes it easier for buyers to obtain a better price.

Last month, Moody's downgraded Egypt's rating from "B2" (B2) to "B3" (B3) with a stable outlook, for the first time in 10 years, due to its fear of a decline in foreign exchange reserves in the country.

Do you lose Egypt from the sale?

Sherif Othman, head of the investment consulting company "Boise Investment", believes that "the problem does not lie in the valuation process as much as it is a step in the wrong direction, because the sale will not compensate the revenues of those companies that enter the state treasury, in addition to the difficulty of compensating such profitable companies and assets." .

Othman added, in statements to Al-Jazeera Net, that "any investor will try to benefit from the depreciation of the pound before completing any deal, while Egypt wants to link to the dollar so as not to lose with the depreciation of the pound, but it will lose in both cases."

What is the status of net foreign assets?

The hard currency shortage crisis caused a decline in net foreign assets, according to Central Bank data, and it amounted to negative 654.43 billion pounds from negative 494.3 billion at the end of December (approximately 160.2 billion pounds, or about $1.7 billion) as a result of debt maturity and the liquidation of importers. Backlogs in ports.

In anticipation of the start of privatization, which some view with suspicion, Egypt offered, for the first time in its history, at the end of last month, Islamic sukuk worth $1.5 billion, with a return of 11%, to finance investment and development projects included in the general budget.