The Egyptian General Petroleum Corporation (EGPC) has signed an MoU to take a 10 per cent stake in the Saudi Egyptian Petrochemical Company (Sepco), which is setting up the region's largest polyester manufacturing facility near Alexandria. The deal, facilitated by Sigma Capital, will enable the factory to receive its energy requirements and help the Egyptian garment industry reduce dependence on raw material imports and expand exports.

EGPC chairman Mohamed Taweila and Sepco chairman Ahmed M. Badeeb signed the agreement in the presence of top officials from the Ministry of Petroleum and Sigma Capital, which is a leading provider in the region of financial services including security brokerage, research, investment banking and venture capital. With a total investment cost of $550 million and a production capacity of 300,000 tonnes per annum, the Saudi Egyptian Petrochemical Company, will be the largest polyester production complex in the region. EGPC will invest $22 million, being 10 per cent of Sepco's paid-up capital.

"The textile market is an important driver for the Egyptian economy. We are proud that the country has been so successful in attracting such large scale projects able to compete on a world scale", said Egyptian Minister of Petroleum Samh Fahmi. The Egyptian textile industry employs

approximately one third of Egypt's total labour force, but the garment

industry still relies heavily on imported fabrics. Sepco is expected to

significantly reduce this dependency on foreign imports.

Sigma Capital, Sepco's lead placement agent, has worked closely with EGPC to clinch the deal, which includes EGPC's supplying gas on a long-term basis to Sepco making the complex fully autonomous in terms of its energy requirements.

"Sigma Capital has helped EGPC and Sepco reach the most favourable agreement, one that positions both companies as long-term strategic partners," said Mustafa Abdel-Wadood, Sigma Capital managing director and co-lead manager for the equity, and advisor to Sepco in its dealing with EGPC. "Sigma Capital is focused on providing the investment community in Egypt and the region with the highest standard of financial and investment banking services to facilitate strategic business deals such as this across the region."

Added Abdel-Wadood: "The Egyptian Government has shown a great interest in Sepco, through EGPC's investment in the project. The state-of-the-art, cost-efficient and high-quality production facility will reduce polyester imports, help drive Egyptian exports and provide new job opportunities for Egyptian workers. Sepco is expected to approach the international debt market this summer. The company's import-substitution strategy and export capability is a very important element of its funding strategy."

Based in Al Amerya in the Governorate of Alexandria, Sepco is co-developed by Jehan Holding Group, a leading Saudi investment group and Midroc. It is expected to commence commercial production in the first quarter of the year 2003. Its production includes: 150,000 tonnes per year (tpy) of partially oriented yarn (POY) and textile chips used in apparel, home textile, rugs and various industrial operations; 50,000tpy of staple fibres used as cotton blend and wool for textile manufacture and 100,000tpy of polyester resin used in packaging, especially for the bottled-water, soft drinks and edible oil industries.

Sepco chairman Badeeb said: "EGPC was selected as our local strategic partner, because of its strong presence in the local market and the operating talent it would provide the company. We see EGPC having an important long-term role the in the company". He said the Egyptian market showed a huge potential, particularly with estimates indicating that 90 per cent of knits and woven products used imported fabrics.

"It is the tremendous potential of the Egyptian textile industry that attracted us to Egypt in the first place" said Badeeb.

"SEPCO is expected to generate average annual sales and net cash follows of $400 million and $80 million, respectively, while generating around 6,000 new direct and indirect job opportunities", said Hazem Badran, associate Investment banking, Sigma Capital. With the opening of world markets under World Trade Organisation (WTO) agreements, the quota system for the textile trade will be eliminated and the country will have to compete more effectively on cost and quality.

Analysts believe that for polyester companies to compete on a global basis they have to attract large-scale investments. Sepco is considered an important project because in addition to generating foreign currency through exports to repay the company debt it will face daily competition with the best polyester manufacturers in the world, thereby increasing its competitiveness and better supporting in the long run the Egyptian textile industry.

"Sepco's business model creates an exciting and potentially high-return investment opportunity; it also supports the Egyptian textile industry in its export ambitions while strengthening the garment sector which today exports items worth more than $800 million per annum," says Fawzi Farah, Capital Trust managing director and Sepco Equity Advisor.

Deutsche Bank has been retained by Sepco as its global financial advisor and is responsible for structuring the company financial structure and debt package.