Govt halts sale of Telecom Egypt shares to UAE amid concerns over ceding of strategic assets, expectations of further pound devaluation

The government backed out on March 20 from a deal to sell 10 percent of Telecom Egypt’s shares to a strategic investor from the Gulf, despite the deal being on the brink of completion just days prior.

Eighty percent of Telecom Egypt is state-owned and 20 percent of its shares are listed for public trading on the Egyptian Exchange (EGX).

The government was initially planning on selling 10 percent of the company to investors, alongside a privatization program it launched earlier in the year to attract foreign currency investment to service its national financing gap and abide by the International Monetary Fund’s loan requirements amid the ongoing economic crisis.

But the Cabinet took a last-minute decision to halt the deal, according to informed government sources speaking to Mada Masr on condition of anonymity, due to higher-level concerns about relinquishing shares in a company that is of strategic value to the state, as well as complications within the deal regarding the Egyptian pound’s exchange value.

At the outset of March, reports claimed that the government intended on selling shares in the majority state-owned company to investors, and Telecom Egypt later confirmed that it was considering a share sale as well.

The telecommunications company, which owns 9 percent of the market share as well as almost 45 percent of market leader Vodafone Egypt’s shares, was not listed among the 32 companies in the state privatization program. But the government’s state ownership policy document, a roadmap for the expansion of the country’s notoriously diminutive private sector, stated that the telecoms sector could be one of the economic areas from which the state will partially exit. Accordingly, sources have told Mada Masr that the government’s shares in Vodafone Egypt have been brought up in investment talks with Qatar.

Though news of the deal breaking early in March stated that Telecom Egypt’s shares would be offered to both Egyptian and foreign investors, government sources speaking to Mada Masr on March 19 ruled out the possibility that the shares would be sold to domestic investors, given that the country is in need of dollar liquidity to service its US$5.04 billion financing gap before the end of June.

Another source from last week said that private Egyptian institutions were reluctant to buy the shares out of fear of entering into partnership with the government, which led the state to target Gulf Cooperation Council investors instead. Government sources also confirmed to Mada Masr that the primary potential buyer was an investor from the United Arab Emirates.

But the UAE was holding off on closing the deal, according to sources in financial and consulting firms familiar with the proceedings of the state’s offerings program, until the central bank decreased the Egyptian pound’s value to somewhere between LE34 and LE36 to the dollar — a devaluation that some banks expect to see unfold in the coming weeks. Pending deals that are yet to be finalized would be postponed until August 2024, when the pound is expected to have fallen to between LE43 and LE47 to the dollar, the sources said.

Several sources who spoke to Mada Masr on March 18 said the deal to sell part of Telecom Egypt was on the brink of execution, with a source from the Finance Ministry, who requested to remain anonymous, confirming that the deal was on its way to the Cabinet for final approval “within hours.”

However, the Cabinet decided to halt the deal last week.

At the heart of the sudden change is a concern about the impact of another devaluation of the Egyptian pound, which has lost 50 percent of its value against the dollar since March 2022. While the state is aware that another currency devaluation is unavoidable, government sources said that it is still trying to postpone the inevitable to buy itself time to roll out a slew of new pension and salary increases that were announced earlier in March and are expected by the end of Ramadan.

The first week of March also saw President Abdel Fattah al-Sisi announce that the public sector’s minimum wage will be raised to LE3,500, that pensions will be raised by 15 percent and that the Takaful and Karama social support program’s allocations will be increased by 25 percent, with the decisions to come into effect in April.

Some parties within the state objected to the government’s surrendering of its stake in Telecom Egypt, according to an investment company source who spoke to Mada Masr on condition of anonymity. The completion of the deal would have been followed by widespread objections from higher-level state actors due to Telecom Egypt being the most important telecommunications company in the country, the source said with no follow-up comments.

Similar concerns and disputes around value, strategic losses and the size of the shares up for grabs have also obstructed another large deal — the sale of Telecom Egypt’s shares in Vodafone Egypt — with the Qatar Investment Authority.

The QIA was previously offered the shares in Telecom Egypt, according to the government sources, but the negotiations did not amount to anything concrete before talks proceeded with the buyer from the UAE.

Writing by Ahmed Bakr and Salma Hindy.