The Big Bank Buyout

ABDALLA F. HASSAN | Business Today | July 1999

In a major private sector acquisition of a joint venture public bank, U.K.-based Barclays increased its shareholder stake to from 49 to 60 percent, and assumed management control of Banque du Caire Barclays International for a purchase price of LE 77 million. A subsidiary of Barclays Bank, which operates in 64 countries worldwide, the bank will be renamed Cairo Barclays. 

 

“To maximize the benefit from the bank, we had to have full control to be able to offer various products,” explains Alex Jablonowski, Barclays’ managing director of international services. “The Banque du Caire partnership has been very useful but, basically, it outlived its time.” 

 

Why all the interest? “It has one of the highest returns on capital,” replies Jablonowski, who spent five years in Egypt, first in 1975 in setting up Barclays’ joint venture with Banque du Caire then returning in 1985 as joint managing director. “It has a good name in the market. It’s a professional, well-managed bank.” Banking has long been dominated by the big four state-owned institutions: the National Bank of Egypt, Banque Misr, Banque du Caire and Bank of Alexandria.

 

“Over the next two years there will be a consolidation of the Egyptian banking system,” predicts Shayne Elliott, Citibank’s country head. By refusing to issue more licenses, the Central Bank has limited the number of banks. Thus, foreign financial institutions wishing to gain a foothold in the domestic banking sector can do so only if they buy anchor shareholdings in existing banks. 

 

Moreover, interest in the banking sector has grown due to public sector privatization and the transformation of family-owned companies into publicly traded holdings. These companies require financial services ranging from loans and insurance to underwriting bond issues, mergers and acquisitions advice and asset management. 

 

International corporate clients seek project financing as well as access to capital market investments. “What we won’t be doing is lending lots and lots of money to the agricultural sector or the building sector in direct competition with the local Egyptian banks,” adds Jablonowski.

 

Founded more than 300 years ago in London’s financial district, Barclays opened an office in Alexandria in 1864. Its operations had grown to a total of 44 offices and 74 branches by the time it was nationalized and taken over by the Bank of Alexandria in 1956. Barclays returned to Egypt in 1975, forging a joint venture with Banque du Caire.

 

“Historically, we would not normally have gone into a joint venture but that was the only way in Egypt at the time to come into this important market,” explains Jablonowski. “So when the opportunity came with privatization to buy in, we wanted to move from a minority to a majority position.”

 

Barclays and other foreign banks were first established under the terms of Law No. 43 of 1974, which required them to operate through joint ventures where their holdings could not exceed 49 percent. Since the provision was abolished in June 1996, negotiations to assume a controlling share of Banque du Caire Barclays International have spanned another three years. “Some delays were due to bureaucracy,” acknowledges Elie Khouri, chief executive for Barclays in the Middle East, North Africa, Turkey and Central Asia.

 

“The economy has proved, to a very considerable extent, immune to the pressures that have affected other emerging markets,” remarks Jablonowski, who considers Egypt’s banking system more sound than that of other emerging markets, including Korea, Thailand, Indonesia and Mexico. “We also expect to benefit even further from the wave of financial reform following Egypt’s agreement with the World Trade Organization last January to liberalize financial services.”