CAIRO: Egypt unexpectedly cancelled Wednesday the auction of state-owned Banque du Caire, saying the bids submitted by foreign banks did not meet the reserve price.
“The auction did not reach the price set by the evaluating committee,
Mohamed Barakat, chairman of Banque du Caire and sister state-owned bank Banque Misr, announced Wednesday.
“The intention to sell the bank is still there but no timing has been decided, he was quoted as saying by Reuters.
In what could have been Egypt’s largest privatization process since the sale of Bank of Alexandria in 2006, five regional and international banking players lined up Tuesday for the bidding on 67 percent stake of Banque du Caire.
The five banks cleared to bid were the National Bank of Greece, UK-based Standard Chartered Bank, Saudi Arabia’s Samba Financial Group, Dubai’s Mashreqbank (UAE), and a consortium formed by Jordan’s Arab Bank and the Saudi Watany Arab Bank.
Before the official bidding began, Standard Chartered and Samba Financial Group were disqualified from the race, leaving three bidders remaining.
During the first round of the auction, National Bank of Greece (NBG) reportedly made the highest bid at $1.9 billion for the entire bank (equivalent to $1.3 billion for the 67 percent stake). Mashreqbank came in second at $1.3 billion, followed by Saudi Arabia’s Arab National Bank and its Jordanian affiliate Arab Bank Group consortium at $1.2 billion for the entire bank.
The second round of the auction saw both Mashreqbank and the Saudi-led consortium pull out of the bidding after submitting their maximum bids, leaving only NBG, which later submitted the top bid at $2.025 billion for the entire bank, or $1.4 billion for the 67 percent stake in the bank.
According to Radwa El-Swaify, senior banking analyst at Beltone Financial, the government rejected NBG’s offer because it was $200 million lower than the expected price. “The government expected the bank could [fetch] up to $2.4 billion for the entire bank, which [translates into] $1.6 billion for the 67 percent stake.
Based on Beltone Financial’s records, Banque du Caire had a book value of LE 2.67 billion ($0.499 billion) by Egyptian Accounting Standards at the end of March 2008. This makes NBG’s offer at 4.1 times its book value.
“This was a fair price for the bank, however, it did not meet the government’s expectations, El-Swaify pointed out.
The bank s evaluation committee expected a price of $1.6 billion, equal to the amount paid for the 80 percent stake in Bank of Alexandria, which was sold at 6.1 times its book value at $1.613 billion. The Central Bank of Egypt anticipated revenues from the purchase of Banque du Caire to exceed those of the Bank of Alexandria, as the former was larger with more branches and a more sophisticated electronic database.
Banque du Caire is Egypt s third-largest state-owned bank with total assets of LE 50.1 billion ($9.3 billion) and a six percent market share. The bank has 215 branches across all Egyptian cities and around 180 ATMs.
Despite being larger than Bank of Alexandria, Banque du Caire has not gone through the same radical restructuring and improvements processes prior to its sale, experts explained.
Before selling Bank of Alexandria, the government fully cleaned up its portfolio of non-performing loans by paying off all the public sector loans owed to the bank, trained staff, and renovated the bank s branches.
In contrast, whoever buys Banque du Caire, El-Swaify clarified, will have to pour in money on infrastructure development and refurbishing the bank.
They will have to invest in employees, IT infrastructure, branch renovations and face-lifting the image of the bank. Bank of Alexandria had already gone through these steps before its actual sale.
Another factor that weighed on Banque du Caire was lack of information regarding the size of its non-performing loans compared to provisions. No one really knows if the bank s non-performing loans are completely covered by its provisions, El-Swaify added early Wednesday.
However, the government recently announced it tackled Banque du Caire’s debt and non-performing loans after embarking in 2005 on reform plans that aim to clean up the bank’s portfolio and ultimately sell it at a good price.
Later in the day, Beltone Financial corrected its earlier comment, saying that “Upon further discussion with people close to the deal, we would like to retract our previous opinion, having now confirmed that prior to launching the privatization process, the entire non-performing loan portfolio was cleaned up, resulting in a complete restructuring of the bank s balance sheet, whereby the book value of LE 2.67 billion (US$0.499 billion) stated earlier, is a true reflection of the bank s condition.
“Based on this fact, we believe that the price offered by National Bank of Greece represents a significant discount compared to the multiples valuation of the Bank of Alexandria deal.
Under the management and supervision of Banque Misr, the government announced it succeeded in covering 40 percent of the bank’s stumbled loans portfolio. Banque Misr said it completed the acquisition and sale of almost 95 percent of Banque du Caire’s investment portfolio in preparation for the sale of the bank.
“There is no indication as yet on the course that the government will take with regards to Banque du Caire. However, it will continue to be owned and managed by Bank Misr, the investment bank said.
As the government has currently put the bank s auction on hold until further notice, Beltone Financial expects the government will further improve the bank s financial performance before attempting to offer it once again for sale in order to receive a higher bidding price that could meet its estimated $1.6 billion.