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    Saturday, February 24, 2024

    Egypt Seals Biggest Deal Ever With UAE Investing $35 Billion

    The plans include developing a premium area on the North African nation’s Mediterranean coast known as Ras El-Hekma — a project Egypt’s Prime Minister Mostafa Madbouly described as the biggest deal in his country’s history.

    Abu Dhabi wealth fund ADQ said it will purchase Ras El-Hekma development rights for $24 billion and invest $11 billion — which will come from the UAE’s money deposited at Egypt’s central bank — in additional real estate and other prime projects in the country.

    ADQ said it will lead a consortium that will develop the Ras El-Hekma region northwest of Cairo and expects to attract more than $150 billion in investment for the projects.

    Speaking on Friday, Madbouly said Egypt is set to get $24 billion in fresh liquidity as a result of the pact. The UAE will also convert its $11 billion of deposits held with the Egyptian central bank to fund the plans, he said.

    The agreement leaves Egypt “very, very few steps” away from reaching a new deal with the International Monetary Fund, Madbouly said at the event in the new administrative capital east of Cairo.

    Egypt’s foreign bonds surged on the news to become the best-performing sovereign debt in emerging markets on Friday. The government’s dollar notes due in 2051 jumped a record 5 cents on the dollar.

    “This deal will be the beginning of correcting the course of the Egyptian economy,” Madbouly said, calling it “a message of confidence” from the UAE.

    The financing may help Egypt move forward with a much-anticipated currency devaluation that would be its fourth since early 2022. Although the IMF has been urging the step for months, authorities were likely waiting for a substantial influx of foreign currency that would allow them to manage an adjustment.

    Madbouly said Egypt expects the UAE to make upfront payments in two tranches. That will include $15 billion within a week — of which a third will come from the UAE’s deposits — and another $20 billion in two months.

    The second tranche will consist of $14 billion in fresh financing and $6 billion from the UAE’s remaining deposits.

    The funds will help unify the local currency’s official exchange rate with its level in the black market, Madbouly said. At domestic banks, the pound is available at about 30.9 per dollar, just over half its street rate of around 60.

    In the non-deliverable forwards market on Friday, the pound’s three-month contract strengthened almost 8% to around 49, signaling expectations of a smaller devaluation.

    ‘Last Opportunity’

    Egyptian billionaire Naguib Sawiris, who recently suggested that authorities should align the pound’s two rates, said the agreement amounts to “extraordinary support and unprecedented generosity” from the UAE.

    In a post on social media platform X, Sawiris said he was hopeful “that the Egyptian leadership realizes that this is a last opportunity to change the current course” and called for it “to listen to its people and open the closed doors of freedom.”

    Egypt is set to receive 35% of profit from the Ras El-Hekma project, with the Gulf state also agreeing to a joint venture that plans to build an international airport in the area.

    The project will include a financial and business district to draw international companies, as well as schools, hospitals, universities, and a marina for yachts and cruise ships, according to the prime minister. Egypt expects to attract 8 million additional tourists after completing the city, he said.

    More funding may be on the way for Egypt. A proposed deal with the IMF could bring in other partners and increase its current $3 billion rescue package, little of which has been distributed, to more than $10 billion.

    The IMF delayed two reviews of Egypt’s existing program as it waited for the country to make good on pledges that included enacting a truly flexible exchange rate.

    The pact will deepen ties between Egypt and the UAE, of which Abu Dhabi is the capital. The energy-rich Gulf country is a key backer of President Abdel-Fattah El-Sisi, pledging support via investments and other assistance for an Egyptian economy mired in almost two years of crisis.

    “The magnitude of the investment is far greater than what we had been expecting, and the timing far sooner,” said Farouk Soussa, an economist at Goldman Sachs Group Inc. It “provides an opportunity for Egypt to restore two-way liquidity in the FX market in the coming days and weeks.”

    The UAE’s latest wave of financing began in 2022 with a $5 billion deposit in Egypt’s central bank and ADQ paying about $2 billion in deals that included buying about 18% of the African nation’s largest listed lender, Commercial International Bank.

    ,Last year, ADQ spent $800 million on minority stakes in Egyptian Ethylene and Derivatives Co., oil firm Egyptian Drilling Co. and Egyptian Linear Alkyl Benzene, a petrochemicals producer.

    A UAE company bought a 30% stake in Egypt’s largest tobacco company for $625 million, while Egypt and the Gulf country in September signed a local-currency swap agreement worth around $1.4 billion.

    ADQ said it expects work to commence in early 2025 in Ras El-Hekma, whose vast territory of over 170 million square meter is roughly three times the size of Manhattan.

    “The size and the time frame really makes this a groundbreaking deal and fundamentally changes Egypt’s outlook,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC. “The inflows will go a long way in covering Egypt’s external funding requirements and clearing the FX backlog.”

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