CAIRO: Visit your nearest Omar Effendi and you will meet staff that behave more like stereotypical civil servants than professional retailers. You ll probably find what you want, more or less; the sheets may not exactly fit your bed and the towel may be too small. And it is clear that a great deal of work is needed to transform this relic government institution into a modern department store that any serious investor would be interested in acquiring.
This is reflected in the government s challenge to sell the country s largest state-owned department store with over 80 outlets and only LE 2 million of profits last year after four consecutive years of losses. The ongoing bid for Omar Effendi follows two others in 1999 and 2001, during which investors were hesitant to take on the payroll of the store s 6,000 employees. Participants in the previous bids also complained of the government s high asking price relative to the reconstruction and overhaul costs they expected.
Hadi Fahmi, chairman of the Holding Company for Trade (HCT) that owns the department store, tells The Daily Star Egypt that the government s policy is to ensure the continuation of Omar Effendi s business and the preservation of the wellbeing of its employees during the selling process. For this reason, Fahmi says that detractors who claim that the latest offer under consideration is too low have made flawed assumptions.
By valuing the company based solely on the liquidation value of its assets, which are largely real estate and buildings, Fahmi explains that critics have failed to take into account the liability of severance pay to employees. This liability amounts to some LE 300 million, according to Fahmi.
The process of the most recent sale was kicked off late last year when a professional third-party was commissioned to value Omar Effendi. The government then issued an information memorandum to interested parties last month. Four investors purchased the information memorandum and of these only one, the Saudi Anwal Group, submitted a bid. This was despite promotional activity by Commercial International Brokerage Company and National Bank of Egypt in Europe and the Gulf.
As a private sale, this whole process is by law supposed to be confidential. The purpose of confidentiality is to protect the government s negotiation position while ensuring that leaks do not sour the deal.
But secrecy was obviously not maintained. Several newspapers reported that the valuation commissioned by the government determined a figure in the range of LE 600 million. Meanwhile, Anwal is believed to have offered LE 504 million. These amounts are less than half the value determined by the Central Auditing Agency in 1999, and are also well below the LE 1.14 billion that was determined by a group of executives from other HCT affiliates that included Yehia Abdel-Hadi, head of Benzione.
Abdel-Hadi has now become a vocal opponent of sale and recently filed a complaint with the prosecutor-general against HCT to block a potential deal. Fahmi nevertheless stresses that the negotiations are still ongoing and that the prosecutor-general has not made any decision or taken any action to interrupt the process.
The economic and planning committees are also due to discuss the sale next week, and Fahmi admits that it is the public s right to scrutinize the sale of state-owned assets in this manner.
Meanwhile, the Ministry of Investment would not comment on the deal, referring questions to HCT instead and stating that the process of selling state property is governed by the public enterprise law of 1991. This law stipulates that a committee that includes representatives from the Ministry of Finance, the Ministry of Investment, the Central Auditing Authority and the judiciary as well as other experts is responsible for the revision and endorsement of valuations.
Minister of Investment Mahmoud Mohieddin approves the valuation based on a review of the procedural aspects that are required by law, rather than the technical details of the valuation. The Ministry of Investment is therefore akin to the government s agent or manager during the privatization process, with nine holding companies which act as owners of public companies.
If the process is not blocked by parliament or the prosecutor general, the committee overseeing the sale of Omar Effendi will make a recommendation to HCT, with the final decision to be made by the general assembly of HCT. The general assembly has 14 members from both the government and the private sector who are appointed by the Minister of Finance in coordination with the Minster of Investment.
