IMF gives Egyptian economic reforms $2bn ‘stamp of approval’

An Egyptian baker is seen beside a vegetable market in Cairo, Egypt. (Reuters)
Updated 11 November 2017
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IMF gives Egyptian economic reforms $2bn ‘stamp of approval’

LONDON: The International Monetary Fund’s (IMF) agreement to provide $2 billion to Egypt as part of a three-year $12 billion loan agreement is a stamp of approval of economic reforms being pushed through under the terms of the deal, commentators said.
The latest payment, which remains subject to IMF executive board approval, will bring total disbursements under the agreement to $6 billion, Reuters reported.
In a statement released following a recent visit to Egypt the fund said, “Egypt’s economy continues to perform strongly, and reforms that have already been implemented are beginning to pay off in terms of macroeconomic stabilization and the return of confidence.”
“While the reform process has required sacrifices in the short term, seizing the current moment of opportunity to transform Egypt into a dynamic, modern, and fast-growing economy will improve the living standards and increase prosperity for all Egyptians.”
Last year, Egypt floated its currency and reduced energy subsidies as part of an ambitious economic reform program outlined under the terms of the loan.
Since then, the Egyptian pound has approximately halved in value and inflation has soared to record highs in what is widely acknowledged to have been a challenging adjustment period.
During a panel discussion on Egypt at the MENA Britain Trade Expo 2017 in London held Friday, Mohamed Farid Saleh, the executive chairman of the Egyptian Exchange, said resolving the fiscal deficit is “not something that can be achieved with a magic wand” but pointed to short-term gains, including easing in inflation moving forward.
Speaking to Arab News ahead of the session, he said economic performance had proved “resilient,” citing the 4.2 percent growth of the Egyptian economy in the fiscal year ending June 2017, exceeded projections of 3.5 percent.
“The reform measures took place despite difficulties on several fronts and the upcoming benefits and potential gains are evident.”
“The government of Egypt is committed to the reform plan to put Egypt on track when it comes to macro-economic settings and macro-economic balances,” he said.
Karim T. Helal, chairman of ADIB Capital, the investment banking arm of Abu Dhabi Investment Bank in Egypt, said the reforms have been difficult but necessary.
“The immediate-term effect has been very painful for the populace in terms of devaluation and the subsequent inflation,” he said.
“It’s a bitter pill to swallow but we had to do it and we are at least showing signs that things are finally heading the right way.”
He described the IMF’s announcement as a “stamp of approval” for Egypt’s progress under the terms of the agreement.
“The fact that the $2 billion has been released now will indicate to the international investment community that the plan put forward at the outset is actually going according to expectations and that Egypt has indeed delivered what it was supposed to deliver,” he said.
Rana Adawi, managing director of Acumen Asset Management, said that the decision came as no surprise in light of Egypt’s success in implementing the required reforms.
“It’s a vote of confidence from the international community that we are committed to change,” she said.
Despite the disturbance created by the currency devaluation last year, the benefits of the move are starting to be felt as businesses take the opportunity to move into the export market, Adawi said.
“The flotation of the Egyptian pound made the country become very competitive in some sectors,” she said.
“You can see the finances of small businesses in the industrial sector going from loss-making to profit-making as a result of the flotation.”
Speaking during the Egypt panel discussion, Helmy Ghazi, managing director and head of global banking at HSBC, said: “The substance of reforms in Egypt are actually quite impressive and we at HSBC are very confident in the outlook and the economic prospects for Egypt.”


Jet Airways’ survival may rest on founder Goyal leaving the cockpit

Updated 14 December 2018
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Jet Airways’ survival may rest on founder Goyal leaving the cockpit

  • Abu Dhabi’s Etihad injected $600 million in 2013
  • Founder started as an assistant in a travel agency

NEW DELHI: Jet Airways’ 69-year-old founder Naresh Goyal, who started out as an assistant in a travel agency, wove together charm, persistence and consummate dealmaking to build India’s biggest full-service carrier.
Now, his penchant for control has emerged as a major obstacle as the indebted airline tries to negotiate a rescue deal, several people who have worked closely with him or known him over the years told Reuters on condition of anonymity.
“He was a visionary in his day but those days are behind us,” said a senior aircraft financier who has done deals with Goyal. “This is the moment of truth for Naresh Goyal.”
The rising dominance of low-cost carrier IndiGo in a price sensitive market as well as high oil prices, hefty fuel taxes and a weak rupee have left Jet strapped for cash and unable to pay employees and lessors on time.
The 25-year-old airline, which Goyal set up with his wife at a time when state-run Air India was the only real formidable opponent, has outstanding dues of about $400 million.
Jet, which has a mainly Boeing Co. fleet, has delayed pre-delivery payments to the Seattle-based aircraft maker as well as to Airbus SE, and is overdue on its repair and maintenance contracts, two sources aware of the matter said.
Although the Indian air travel market is the world’s fastest growing, at about 20 percent a year, it is also hobbled by cut-throat competition and chronically low fares. To stay afloat, Jet is cutting flights on some non-profitable routes and trying to raise cash by monetising assets.
It still retains a valuable strategic position as the biggest operator at Mumbai airport, where all of the good slots have been taken and a second airport is years away. It also has lucrative slots at major international airports and code share agreements with more than 20 airlines.
Jet has survived a near-death experience once before; in 2013, Abu Dhabi’s Etihad Airways injected $600 million of capital for a 24 percent stake in the airline, three London Heathrow slots and a majority share in Jet’s frequent flyer program. The infusion helped Jet pare down debt and fight growing domestic competition.
The airline is in talks with Etihad a second time and with Indian conglomerate Tata Sons for fresh funds or a stake sale, but sources have told Reuters that any rescue would require Goyal to step down, or take a less prominent role.
Goyal has rejected seeking funds from Tata if it meant him having to give up his position, two sources aware of the discussions said. Talks with Etihad are continuing.
Goyal did not directly respond to requests for comment but a Jet spokeswoman said the “conjectures being implied with regards to the organization’s ways of working” were misleading.
“The airline management is a fully empowered team ... all strategic, operational and tactical decisions are taken by the management under the advice of the company’s board of directors,” she said.
Will Horton, an independent aviation analyst based in Hong Kong, said it was time for Jet to evolve beyond “one leader or family.”
“A change at the top runs its course down. Freedom to implement a new management plan is critical for strategic and financial partners, existing and potentially new,” he said.
When Goyal launched Jet Airways in 1993, air travel in India was at a nascent stage. He kickstarted the sector’s growth and put the country on the map.
With 124 planes, Jet now flies to places like Hong Kong, Dubai, Paris and London, besides over 45 destinations in India.
Ceding control may not be easy for Goyal. He is Jet’s chairman and holds a 51 percent stake in the airline with his wife Anita still on the board.
“It is a very mom-and-pop kind of operation where nothing happens without the two of them,” said a former Jet employee, who describes the founder as a workaholic.
Goyal is always involved in key decisions and the airline’s CEOs often have little executive power and do not survive for long, according to two other current and former employees.
Jet has had seven CEOs in 10 years with its current chief Vinay Dube taking over in August 2017.
“The airline is his life and he built it from nothing, you have to give him respect for that,” said one of the former employees. “But ... the airline business can be unforgiving.”
In 2012, Kingfisher Airlines, founded by Indian businessman Vijay Mallya, went bust for want of cash, leaving its lessors and creditors with pending dues.
After Kingfisher went down, India ratified the Cape Town convention, an international treaty making it easier for foreign owners to repossess aircraft when airlines default on payments. That means Jet’s lessors could choose to reclaim planes in case of a default.
The airline could also be dragged to court by its creditors under India’s new insolvency laws.
Jet is committed to turning around its business and creating “a competitive cost structure that ensures a sustainable future for the airline and its stakeholders,” the spokeswoman said.
She did not comment on any specific deals but said the airline continues to be in active discussions with various investors to secure “sustainable financing.”
But Jet’s rescue options appear somewhat limited given its poor financial position — it posted losses in the last three quarters and its shares have fallen about 70 percent so far this year, erasing more than $900 million in market value.
Goyal, is knocking on all doors, including that of the government. Jet and Etihad executives also met lenders in India to discuss a rescue deal.
Senior Etihad adviser and former Jet CEO Cramer Ball was in Mumbai last week, just days ahead of a meeting of the Abu Dhabi carrier’s board on Dec. 7 where it was expected to discuss its investment in the Indian airline, two sources said. The outcome of the closed-door meeting remains unknown.
Etihad, in an email to Reuters, said it would not comment on speculation.
However, the Abu Dhabi carrier, which owns 24 percent of Jet, is ready to put in more money only if Goyal dilutes his stake, a source aware of the matter told Reuters.
Even so, Etihad’s stake will be capped at 49 percent due to foreign ownership rules in Indian airlines and if it goes past the 25 percent ownership threshold, it would need to adhere to capital markets regulations and make an open offer to shareholders to buy a further 26 percent stake.
If forced to do this, Etihad would risk breaching the foreign ownership restrictions and so it may have to seek a rare exemption from the markets regulator from making an open offer.
Talks with Tata are on the backburner for now but three people familiar with the conglomerate’s thinking said they may be found waiting in the wings if the Etihad deal falls through.
“There is an expectation that there will be a rescue and Goyal will find a way — he always does — but there is no clarity on how much control he will have after a deal is done,” said one of the people who works with him.