Business Gossip 101

Sherine El Madany
9 Min Read

After a roller-coaster year of real estate buzz, spiraling cement prices, a cement anti-trust lawsuit, not to mention the new auction for cement and steel production licenses, 2007 has turned up the heat in the market. With the ongoing surge in construction activity, it is hardly ever quiet on the real estate sector, which has been in the spotlight almost all year round. While news of UAE property giant Emaar’s first development project – Uptown Cairo – spread across the country, a dispute with its Egyptian partner Shafiq Gabr’s Artoc Group managed to steal show in the first few months of the year, grabbing headlines around the region.Disagreements erupted between Emaar and Gabr, with Emaar accusing the group of poor management of the joint venture’s projects. Accusations were flying back and forth; and after lengthy discussions, an agreement was reached by which Emaar would buy out Artoc’s 60 percent stake in Emaar Egypt.By the beginning of April, Emaar had bought Gabr’s share for $141.9 million – considerably lower than the $162 million figure that was originally quoted in the press – as Emaar refused to pay for Emaar Egypt’s latest advertising campaign and “unspecified investments. As the deal was finalized, Gabr agreed to pay the taxes on the transaction amid rumors that Artoc’s next move would be to start up new projects with unnamed partners.Indeed, Gabr set up his own real estate investment company, Artoc Universal Realty (AUR), in cooperation with two US-based companies. The new business has an authorized capital of LE 1.15 billion and an issued capital of LE 57 million. The Egyptian share is 70 percent with the international partners holding the balance. The new company would be building commercial, service and corporate real estate, in addition to some residential projects across the country.Emaar Egypt later raised eyebrows in October when news leaked that the company increased prices of units in their high-profile Marassi development at Sidi Abdel Rahman by up to 90 percent over the original quoted price range. Unit price ranges were originally set in March 2006, and the company began accepting bookings last October.The fiasco in the Marassi resorts put the wrong kind of light on the company, as news spread that those who had already signed contracts and made down payments were heading to the courts in an attempt to recall the price rise. Units overlooking the beach allegedly saw their prices go from $2 million (LE 11 million) to $3.5 million (LE 13.75 million). Emaar Egypt also, reportedly, demanded that property be paid for in Egyptian pounds rather than dollars, looking to benefit from the appreciation of the pound and the ongoing decline of the dollar. However, company officials denied the allegations.Next on the real estate movers and shakers of the year comes Sixth of October Development and Investment Company (Sodic), which opened the year announcing a merger with high-energy niche player Palm Hills Development in a share swap worth LE 3.64 billion that later spread into thin air.Under the deal, Sodic would have purchased 100 percent of Palm Hills’ 3.07 million shares in exchange for 25.37 million new Sodic shares. The deal would have seen Sodic become one of the 15 largest companies listed on the Cairo and Alexandria Stock Exchange at approximately LE 7.5 billion in market capitalization.The widely talked about marriage would have Sodic own 3.74 million square meters in Sixth of October City and Katameya as well as 2.1 million square meters on the North Coast, bringing its total land bank to some 12.54 million square meters. According to Sodic, the share swap deal – which represented a major milestone in the Egyptian corporate landscape marking one of the largest ever consolidations seen in the country – failed due to the fact that Palm Hills did not fully transfer ownership of some of the lands owned by its subsidiaries.Later in April, Sodic made headlines again with the signing of a landmark agreement to co-develop two projects in Cairo with Lebanon’s Solidere real estate giant. Both companies are currently developing two mixed-use city centers in the suburbs of Cairo at a total cost of $4 billion.No doubt, this year’s heat in the real estate sector has touched its supporting cement and steel sectors. Rising local cement prices drove the Ministry of Trade and Industry to introduce an export duty in February that rose to LE 85 a ton in August, in an effort to increase domestic supply and push down local prices. Still, cement prices continued to soar, reaching LE 410-420 per ton last September, with expectations they would reach LE 550 per ton by early 2008.After several months of concern due to the exponential increase in cement prices – which producers justified as the result of supply-demand mechanisms – the Egyptian Competition Authority in October announced the existence of a cartel among cement companies that monopolized the market, raised prices, and at times restricted production of the commodity, leading to a stir in the industry. Consequently, nine companies – constituting all players in the market – were referred to the public prosecutor, awaiting the final verdict. If found guilty, companies will pay fines that start at LE 30,000 and could go up to a crippling LE 10 million with recent news reports threatening even higher fines.In the meantime, research and investigation on steel companies charged with monopolistic and anti-competitive practices are still pending. The current delay caused speculation that there was pressure from iron and steel producers to close the investigation into possible antitrust and competition violations. Minister of Trade and Industry Rachid Mohamed Rachid, however, rejected such allegations and confirmed that the Antitrust and Consumer Protection Commission would continue to investigate practices in the iron and steel sectors, guaranteeing that if laws were broken, action would be taken.In late October, the cement sector was still hot from a new milestone with the country’s first open auction for cement licenses, the first step in what the government hopes will be a boom in local production. The licenses on offer allowed holders to build new greenfield cement plans or expand existing operations. Such permits commanded high prices – the first license went for a staggering LE 251 million – reflecting producers’ confidence in continuing high demand for cement in Egypt and abroad. Following the auction, several skeptics expected prices to skyrocket to unprecedented highs – contrary to the government’s recently announced efforts to reduce cement prices – as license prices were above expectations putting extra costs on producers.Similarly, the ministry announced that new iron and steel production licenses would be auctioned this year, but the auction has still not taken place. Four such licenses will be up for grabs, with 11 license requests currently undergoing technical evaluation. Investments into new factories will reach LE 15 billion, with total investments generated through the licenses projected to hit LE 30 billion. Minister Rachid forecast that the combined output of the four new facilities will reach 8 million tons annually – translating into a 50 percent increase in Egypt’s total annual iron and steel production, bringing the number of factories to 10 nation-wide.

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