Foreign investors battle to reclaim seized Egyptian assets

15 March 2012

Legal action set to be launched against Cairo

The Egyptian government faces a spate of legal action by international investors trying to reclaim assets nationalised by the local courts.

At least three separate cases have been launched, or are in process, related to assets that were acquired by foreign investors as part of Egypt’s strategy of selling off state-owned companies under the regime of former President Hosni Mubarak, ousted in February 2011.

In late 2011, local courts annulled several privatisations that took place under the Mubarak regime. They have not yet offered the private owners any compensation, or entered into any talks with them.

As result, foreign investors are starting to take legal action, in a move that could deter new foreign investment in Egypt. Indonesian conglomerate Indorama has already started arbitration proceedings at the International Centre for the Settlement of Investment Disputes. The Saudi investors behind the Noubaria Seed Production Company, valued at about $250m, are also set to launch international arbitration proceedings soon. A third case, relating to the Tanaa Flax & Oil Company will file an arbitration case in the next few weeks if an offer of talks with the government falls through. That company is worth about $100m. Another handful of firms have also been appropriated by the government, although it is unclear if their private owners are also pursuing legal action.

The cases highlight a tension between Egypt’s hopes of attracting foreign investment, while decisions to allow foreign investment made under the rule of Mubarak are scrutinised. “Generally, the authorities want to get these disputes behind them so they can get foreign money back into the country,” says Simon Kitchen, strategist at the local EFG Hermes.

Lawyers on behalf of the companies taking action against the Egyptian government says they see little sign of this though. “There have been pro-business statements by the Egyptian government, but the situation on the ground is very different,” says Robert Lambert, partner at law firm Clifford Chance, which is acting on the Noubaria case.

The private investors worry that the longer the assets are held by the Egyptian government, the more their value declines. Lawyers at Clyde & Co, which is acting for the Saudi investors in the Tanta Flax case, say the company has lost hundreds of millions of dollars in value as a result of mismanagement by the Egyptian state.

“The problem for Egypt is that these cases say to investors ‘don’t come here’,” says Ben Knowles, a partner at Clyde & Co.

Even if the companies do get returned to their private owners, compensation claims are still expected to be pursued.

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