Clash of the Titans: Solidere Breaks With SODIC
After years of partnership and mutual benefiting, Lebanese real estate giant Solidere seeks to distance itself from Egyptian counterpart SODIC as it comes under corruption charges linked to its close affiliation with the Mubarak regime.
The partnership between the two real estate giants, Solidere in Lebanon and SODIC in Egypt, dates back to before 2007. Back then, negotiations were underway between the two sides for the signing of a cooperation agreement, which did not come into existence until after Solidere, the parent company in Lebanon, founded the Solidere Holdings Company – which acquired a 38 percent stake in Solidere International. The latter then established Solidere Egypt, which signed the cooperation agreement with SODIC in April 2007.
According to what is known about this agreement, Solidere did not contribute into the capital of the two projects. Yet it collects fees in return for development, management and marketing services at a rate of 7 to 10 percent of the “land added-value,” which is calculated on the basis of annual sales. Solidere was also given the option of buying two plots of land in each project at preferential prices.
According to the minutes of the General Assembly of the parent company Solidere (Lebanon), the agreement includes clauses related to the development of two areas in Egypt, which are the Sheikh Zayed City/ Westown, located west of Cairo, and the Kettameya/Eastown project, east of the Egyptian capital.
The first project spans 1.18 million square meters, with a total cost of $2.6 billion, while the second extends over an area of 850,000 square meters, at a total cost of $1.7 billion.
Solidere confirmed that pursuant to the basic agreement between the two sides, “Solidere International exercised its right to purchase 250,000 square meters of land in Sheikh Zayed City in 2008.”
In 2009, the Egyptian government approved the master plans for the two developments. This is while Solidere had stated that works in the next stage would focus on “infrastructure works in both projects to be undertaken by SODIC, and on developing major projects in partnership between Solidere International and SODIC.”
Although everything about the collaboration between Solidere and SODIC suggests that there is a solid partnership between two real estate giants in Lebanon and Egypt, backed by the authorities in both countries, this entire façade was reduced to a house of a cards practically overnight.
In Lebanon, the way Solidere International was founded was inconsistent with the bylaws of the parent company, which restricts its purpose to the reconstruction of Downtown Beirut. This company, which was founded in 1994 as the Lebanese Company for the Development and Reconstruction of Downtown Beirut, was publicly backed by the late Rafik Hariri.
Today, Hariri’s heirs hold more than 10 percent of the company’s stock. Furthermore, the company is managed by his family and its representatives, who include in their ranks shareholders, and figures within banks, religious institutions, beneficiaries and businessmen who have interests with the family.
In Egypt, the Sixth of October Development and Investment Company, – or SODIC – also enjoyed very favorable conditions. The clearest proof of this lies in the identity of the man at the helm, businessman Mohamed Magdy Rasekh, who was the CEO of the company. Rasekh is the brother in law of Alaa Mubarak, making him very close to the family that was at the center of power and influence at the time.
While this brought prosperity to this company and its management, they are today the very reason for its misery and troubles. Since 2008, i.e. directly after the beginning of its partnership with Solidere, SODIC suffered many blows, which have continued to this day.
In late 2008, the global financial crisis broke out. The real estate sector in most countries around the world was affected. The real estate bubble was burst and prices took a fall (except in Lebanon where the bubble is still very much alive and well.)
Egypt was among the countries where real estate took a hit, with investors in this sector exposed to a severe funding crisis. This prompted SODIC to take action with regard to its two joint projects with Solidere. It started the development of 350,000 square meters in the Westown project, sold 80,000 square meters to a local real estate developer instead of developing the plots itself, and launched two small residential developments dubbed West 40 and a commercial development for office buildings called The Polygon.
The events that followed, particularly in early 2011, had an even bigger impact on the company’s situation and its agreement with Solidere.
Following the ouster of the Mubarak regime, the CEO fled and was tried along with former housing minister Mohammed Ibrahim and a group of state employees in the Urban Communities Authority (UCA) on counts of appropriating state-owned land and willful damage to public funds.
According to Egyptian newspapers, all the defendants from the UCA were charged with profiteering, squandering public funds and the unlawful enrichment of others, after they allocated state-owned land to SODIC at discounted prices.
The UCA officials had agreed to requests by the now fugitive Rasekh to allocate 2.55 million square meters of lands belonging to the housing ministry in Sheikh Zayed City to SODIC’s CEO. They then bought 885,000 square meters back from him, allowing him to make profits of $14.8 million.
In addition, the UCA officials authorized Rasekh to sell one million square meters of these lands to third parties, in violation of established rules, also allowing him to net an additional $13.2 million.
The problem became even more complicated when the UCA in Egypt abolished the allocation of a plot of land given to SODIC in Sheikh Zayed City, but the Egyptian prime minister returned the dossier to the UCA to reconsider its decision. Nevertheless, the UCA’s move to abolish land allocations, which SODIC was accused of unlawfully acquiring through its influence and connections, and the controversy that ensued, had an adverse effect on the company’s share price and the contractual relationship with Solidere.
The Lebanese company had benefited in the past from its relations with groups that had influence over the authorities in Egypt to make huge profits. But it has since become clear that Solidere is convinced of the fact that ending this relationship will bring it more gains, and ward off suspicions of having benefited either directly or indirectly from the Mubarak regime.
This outlook has been reinforced by the fact that real estate issues, where there have been suspicions of squandering public funds and unlawful enrichment, were not settled quickly, and remained the subject of debate in Egypt. Particularly so when there have been several conflicting stances regarding the matter.
While there are some who argue that Magdy Rasekh’s case must be dealt with in isolation from SODIC, in order to protect companies in Egypt and preclude their collapse, there were others who want all stolen public property and unlawful profits under Mubarak to be recovered.
$700 million is the capital of Solidere International. Solidere Lebanon owns a 39 percent stake in this company, while a Saudi investor holds a 23 percent stake.
A group of shareholders control the remaining 37 percent. They are: a Kuwaiti shareholder; the Qatari group Salam International; Emirati businessman Nasser al-Nowais, and a number of European funds.
This article is an edited translation from the Arabic Edition.