Cityscape 2021: Egypt's Orascom Development plans part sale of assets to boost growth

Exclusive: Developer is looking to sell assets including hotels, retail complexes, marinas, golf courses, schools and hospitals in various markets, chief executive says

Egypt’s Orascom Development Holding (ODH) is exploring options such as joint ventures to develop large parts of its undeveloped land bank, its chief executive said.

The real estate and hospitality company is also looking to sale part of its assets to generate additional funds required to deleverage its balance sheet, Omar El Hamamsy told The National in an interview on the sidelines of Cityscape in Dubai.

ODH plans to sell stakes in assets including hotels, retail complexes, marinas, golf courses, hospitals and infrastructure related to integrated destinations it builds, and is “constantly” in talks with investors, he said.

“Many of our hotels are owned by us … and co-owned by strategic investors, and we will be looking over the course of the next couple of years to further divest and deleverage our ownership,” he said.

“Same logic applies to many of our assets that we have.”

The company owns and operates assets in England, Switzerland and Montenegro, and in four Middle Eastern markets – Egypt, the UAE, Oman and Morocco.

Developments that are mature and are ready for joint ventures and investments include El Gouna in Egypt and Andermatt in Switzerland.

The company’s two projects in Oman – Jebel Sifah, which is in the suburbs of Muscat, and Salah – as well its developments in Montenegro and the UK, where it is seeking investors, are also on “the cusp of maturity”.

“Once you reach a certain tipping point”, such as the company has reached in El Gouna and is approaching in Montenegro and Oman, “it becomes a lot more palatable for low-risk investors to come in”, Mr El Hamamsy said.

“Where the hotels already exists, we will be more than happy to sell you the asset itself … and we can manage it for them,” he said.

ODH’s hotel management division is already managing 25 out of its 33 hotels, with 7,000 rooms, he said.

The Zurich-listed developer is also open to talks with other sub-developers who would be interested in taking “large tracts of land and co-develop with us”, Mr El Hamamsy said.

The company has a land bank of about 100 million square metres across its developments, half of which is still undeveloped.

Revenue from part sales will generate liquidity, which ODH intends to use to launch new projects and deleverage the company’s balance sheet.

Its total debt stood at 450 million Swiss francs ($492.93m) at the end of the first half of this year.

ODH has recovered well from the pandemic despite a massive hit to its hospitality division, which has historically contributed about 40 per cent to the company’s revenue and half of its profit.

Revenue from the hotels unit dropped by about 90 per cent during the pandemic but has since bounced back this year as economies recover and travel restriction are eased globally.

Mr El Hamamsy expects the company’s hospitality division to deliver a “slight” profit this year and rebound to pre-pandemic levels in 2023.

ODH’s property sales have also made a strong rebound from the coronavirus-induced headwinds that pushed the global economy last year into its worst recession since the 1930s.

It is on track to close the year “just south of $1bn worth of real estate sales”, which will make it a “banner year” for the company.

“We are well above whatever we had hoped for”, despite pandemic uncertainties, Mr El Hamamsy said.

The company’s property sales for the first nine months of this year stood at 445m Swiss francs, slightly below the 490m francs achieved in 2019, the highest on record.

The developer, which is expected to release its third-quarter earnings in a week’s time, swung to first-half net profit of 5.2m francs, from a loss of 19m francs in the same period last year.

Revenue for the reporting period jumped 37 per cent to 226m francs.

“This will be a record year for us, not only in terms of sales. It will also be the first time in 32 years that this company is actually profitable,” Mr El Hamamsy said.

Quote
Many of our hotels are owned by us … and co-owned by strategic investors and we will be looking over the course of the next couple of years to further divest and deleverage our ownership
Omar El Hamamsy, group chief executive, ODH

However, the focus has now shifted from long-term growth to profitability and return to shareholders.

While ODH has yet to set financial targets for the next year, it is on a “very aggressive” growth path over the next five years, Mr El Hamamsy said.

“Our goal ultimately, over the five-year period, is to at least quadruple or quintuple the market capitalisation of this company,” he said.

The current market value of ODH is between $400m and $500m. At the peak, it touched $4 billion after its initial public offering, shortly before the global financial crisis, Mr El Hamamsy said.

Currently, the biggest market for ODH is Egypt, where it owns and operates developments such as El Gouna, Makadi Heights on the Red Sea coast and O West in the suburbs of Cairo.

ODH plans to expand into other but this is not a priority, Mr El Hamamsy said.

The company has been approached by different governments, including Saudi Arabia, as result of its experience in developing virgin areas. It has already looked at some of the kingdom's Red Sea assets.

“It is one of the many different opportunities that we are looking at, but that is not necessarily a big point of focus right now,” said Mr El Hamamsy.

Generating value from the company's current assets and strengthening its balance sheet is a priority, he said.

Updated: November 11th 2021, 4:30 AM
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