Cairo Festival City work to continue

Dubai: Despite a challenging legal environment for investors in Egypt, Al-Futtaim Group will pour in about two billion Egyptian pounds (Dh1.2337 billion) next year to continue construction of its Cairo Festival City project, IKEA and Marks & Spencer stores, a senior company official told Gulf News.

However, any new investments in Egypt will be put on hold until the situation stabilises, said Marwan Shehadeh, Group Director of Corporate Development in the family-owned conglomerate that built Dubai Festival City.

"We are more cautious than in the past because of what's happening, but we're hoping the issues will be settled... But we believe in the long term viability and strength of the market."

The new Egyptian regime is currently investigating former government ministers who facilitated land sales to various investors on charges of corruption and abuse of public funds.

Asked whether Al-Futtaim is under scrutiny for land deals made under the previous regime, Shehadeh said their deals were legal.

"Our legal position is very strong, very clear. We've done absolutely nothing wrong. We have full confidence of that our deal is very clean, very transparent, without any legal or other issues. That's why we're proceeding with spending money more than before. We have more people working onsite than before [the revolution], he said.

"Of course there is this cloud overriding our project and investment in Egypt. We're dealing with this separately and legally. We're not mixing that with progress onsite."

The cloud is all the discussions on all land deals, not just theirs, he clarified. "It's a huge cloud on all real estate projects in Egypt."

The company will seek investor protection with the International Court For Settlement of Investment Dispute if it has to but hopes it will not come to that, he said. "Our case will be settled with reasonable discussions with the right party.

"There's absolutely no argument to say that we brought the land at cheaper prices than the market at that time. Time changes, price goes up, price goes down, the price did go up and there's nothing wrong with that," he added. "They have no argument to ask us to pay more money."

He would not elaborate on claims in the Egyptian media that Al-Futtaim is preparing international litigation against Egypt over this matter, citing political sensitivity and the size of its investments there.

Al-Futtaim has resumed work on the Festival City after a delay of 45 days due to the revolution in Egypt that set it back 200 million pounds, he said. This will delay the mall opening until the end of 2012 rather than the middle of the year.

Its total investments in Egypt to date, mostly in real estate, reached 3.5 billion Egyptian pounds, he estimated.

The projected total investments are expected to exceed 10 billion pounds by 2014.

It plans to open five or six more Marks & Spencer stores in the next two years all over Egypt, one IKEA store in 2012 and another by 2014 in western Cairo, Shehadeh added.

"We believe things would stabilise hopefully soon after the elections by the time we open at the end of next year and for the next 10, 15 years of operations we believe the market will be very, very attractive. The population is young, the middle class is growing."

Regional plans

Al-Futtaim Group is aiming to double its business in the next five years through a series of acquisitions in the Middle East, Africa and Asia, according to Shehadeh.

It is planning acquisitions worth over $100 million in Saudi Arabia by summer to grow its retail and automotive sectors, he said. The company will be either majority or 100 per cent owned, but there are no definite agreements yet as it continues its due diligence at this stage.

Funding for this will come equally from bank loans and self-funding that includes cash flow and acquisition finance, he said.

Next month will be the groundbreaking for the Doha Festival City, a six billion riyal project, starting with construction of an IKEA store.

Al-Futtaim is in negotiations with a "government entity" for plans to build a Festival City in Morocco. This could happen next year if all goes well, he said, adding that Al-Futtaim is looking at other markets in the Middle East to expand its Festival City concept but would not elaborate.

However, the company is exiting a project to develop a large multi-billion dollar master-planned community in Morocco that will house 40,000 residents, Shehadeh said. It did not get government approval for the project because there was a freeze on authorisation for these projects, he said.