UAE investors acquire state-owned stake in Eastern Company, dominate 40% of Egypt’s tobacco market

A newly-established Emirati firm acquired a 30 percent stake from the government in Egypt’s biggest tobacco manufacturer, the Eastern Company, for US$625 million, the Cabinet announced on Sunday.

Eastern Company was one of the first companies listed on the government’s privatization program, which aims to increase foreign currency inflows amid Egypt’s economic crisis. With the new acquisition finalized, Emirati investors now control over 40 percent of Egypt’s tobacco market, industry experts told Mada Masr.

Global Investment Holdings, the Emirati firm that completed the stake acquisition on Sunday, was founded in June and is owned by two Emirati businessmen, Abu Bakr al-Husseiny and Mohamed al-Abbar, according to the Dubai International Financial Centre’s database. Both also own shares in Philip Morris International subsidiary United Tobacco Company, which took over the production of tobacco products in Egypt from Eastern Company early last year, Federation of Egyptian Industries Tobacco Division head Ibrahim Imbaby told Mada Masr.

The Eastern Company controls 70 percent of the Egyptian tobacco market. With Global Investment Holdings’ new 30 percent acquisition in the company, the two Emirati businessmen, considering their shares in United Tobacco, have effectively established control over 40 percent of the market, with the rest divided among other international investors. 

These new developments, tobacco division head Ibrahim Imbaby and Eastern Company managing director Hany Aman tell Mada Masr, will likely lead to a significant hike in cigarette prices.

After the deal, the Eastern Company’s ownership structure is as follows: Around 30 percent are owned by Global Investment Holdings, around 20 percent remain with the state-owned Chemical Industries Holding Company, 35 percent are freely traded on the Egyptian Stock Exchange and the remaining 15 percent is owned by several small shareholders.

Philip Morris International’s UAE-based subsidiary, United Tobacco Company, was established after the former obtained a cigarette manufacturing license offered last year, amid objections from other international tobacco manufacturers operating in the Egyptian market, by the Industrial Development Authority for $450 million.

The license conditioned Eastern Company’s acquisition of a 24 percent stake in United Tobacco Company, while also stipulating that if any tobacco manufacturer acquires 10 percent of Eastern Company’s shares, Philip Morris would be entitled to buy back its stake in United Tobacco at a nominal value with an additional payment of $108 million.

But Aman made it clear to Mada Masr that the Eastern Company will not be exiting United Tobacco after the new deal, since the latter company and Global Investment Holdings, the new shareholder in Eastern Company, are owned by the same two Emirati businessmen, Husseiny and Abbar. The new acquisition, therefore, does not contradict the license condition’s objective, which is to protect shareholders in United Tobacco from the addition of any competing parties to its board of directors.

According to the Cabinet’s Sunday statement, the new deal will see Global Investment Holdings deposit $150 million in Eastern Company’s account to rejuvenate its raw material supplies. Aman tells Mada Masr that the latter will not be allowed to use these funds to import tobacco.

The newly-established UAE firm will instead work toward reaching new agreements with different banks to eventually give the Egyptian tobacco manufacturer more facilitated access to foreign currency for imports.

Sunday’s deal sees the state step away from its controlling share in Eastern Company, with the 30 percent share sale taking the Chemical Industries Holding Company’s 51 percent controlling stake down to 21 percent.