Egypt: a $3.7bn gleam in the dark

Ahmed Heikal, one of Egypt’s best-known financiers, is pressing ahead with a $3.7bn refinery investment despite the political uncertainty surrounding the country.

But he started five years ago and has already invested considerable time, effort and money into the government-backed project. “It would be more difficult to start now,” he said, in a comment which speaks volumes about Egypt’s investment climate.

Heikal is founder and chairman of the Cairo-listed investment company Citadel Capital, which has seen its shares fall by 63 per cent this year on the stock market, far in excess of the 39 per cent drop in the Cairo 30-share index.

Citadel has already put $80m into the refinery scheme, alongside $200m from other investors. The project is one of 19 investments worth $8.7bn spread across the Middle East and north Africa.

The equity partners in the refinery include the Egyptian state and state enterprises, with 45 per cent, Citadel with 10 per cent, development finance institutions around the world with 15 per cent, and Gulf investors, both state and private, with the remaining 30 per cent.

Heikal put in place a $2.6bn credit package last August, with a big chunk from development banks, only to see the political clouds gather over the project after the Janaury overthrow of ex-president Hosni Mubarak.

The new authorities, which wanted to probe cases of possible financial wrong-doing under the Mubarak administrations, ordered public prosecutors to investigate the refinery project. Heikal said this delayed everything for six months but last month the scheme was cleared. He now expects financial closure by the end of February 2012.

“Obviously when you have this sort of thing [the investigation] people are reluctant to move forward but now it has been cleared the government is moving forward again and we received support from the prime minister,” he said.

Meanwhile “finance hasn’t been affected” by the political turmoil because government-backed development institutions from Japan, South Korea, Europe and the Gulf were “long-term players”.

But the investment climate in Egypt remains poor. “We will see other projects but not of a size that would move macro-economic growth. This will be a very tough period.”