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Algeria may tighten rules on foreigners’ asset sales
Draft law says experts, not market, to set sale price.
July 21, 2010 11:11 by Reuters
Algeria is considering tightening its rules on how the price is set when the state buys a foreign-owned firm, a step which could cost Egypt’s Orascom Telecom billions of dollars.
A draft law being discussed by the government states that an expert valuation, not a market value, would be used when foreigners sell stakes in Algerian firms to the state, according to a copy of the draft obtained by Reuters.
It was not clear from the draft if the rule would apply to Orascom Telecom, which is currently negotiating the sale of its Algerian unit Djezzy to the Algerian state after the government exercised its right of first refusal to buy the asset, blocking the unit’s sale to South Africa’s.
Orascom Telecom Chairman Naguib Sawiris told Reuters in June MTN had offered $7.8 billion for the unit, which is OT’s biggest source of revenue. The Algerian government is likely to offer substantially less.
Analysts said if it becomes law, the government will get even greater scope in dictating the price it pays when it takes over private assets.
“There is no doubt that the price fixed by the expert will be the price that Algeria wants,” said an Algerian finance industry executive, who did not want to be identified.
The document obtained by Reuters said the measure would apply to foreign shareholders selling stakes in Algerian firms where the state has exercised its right of first refusal, and to the sale of stakes in Algerian firms to foreigners.
“In the case of the exercise of the right of pre-emption, the price is determined on the basis of a valuation,” said the document, which is a draft of the supplementary budget law for 2010.
The draft also said the government would issue a separate order to determine how the evaluation is conducted.
A finance ministry official told Reuters he could not confirm the content of the document but said ministers were meeting on Tuesday to discuss the draft supplementary budget.
Orascom and the Algerian government have been locked in a long dispute, which has driven down the price of its shares and further unsettled investors already concerned about growing economic nationalism in the energy exporter country.
Asked about the draft measure, Mike Millar, a Cairo-based telecoms analyst at Naeem brokerage, said: “The big question is how independent will the ‘experts’ the Algerians appoint be?”
“Would they look to comparables or even cashflow-based valuations or could they take a very hard-line approach and, say, look at the historic cost book value of the assets?” he said.
Most analysts say Djezzy is worth more than OT’s current market capitalisation of about $4.5 billion.
The draft document, in an appendix explaining the measure, said it was needed to protect the national economy.
“The use of the right of pre-emption will enable the state to implement its policy to fight against speculation, facilitate access for domestic companies to international investment, and, as a consequence, to protect the national economy from the negative effects of the global financial crisis,” it said. ‘
(Additional reporting by Alastair Sharp in Cairo; writing by Christian Lowe; editing by Karen Foster)