The governor of the Central Bank of Egypt (CBE) agreed with about 50 investors to settle debts of about 570 companies that cannot repay their debts as a result of exchange rate fluctuations after the pound flotation. This happened during a meeting held on Monday with the affected companies and banks.
Head of 6th of October City Investors Association Mohamed Khamis Shaaban told Daily News Egypt that the debts scheduling will occur in two phases. The first phase is concerning the companies that have debts of less than $5m, which are 570 companies out of a total of 670 companies.
The crisis of dollar debts started when banks provided US dollars to companies through letters of credit issued to cover imports worth EGP8.88 per $1 before the pound flotation, but after flotation the US dollar rose to about EGP 19, which triggered banks to demand companies to repay their debts at the new dollar price.
Shaaban added that the initial phase of the debt is worth $600m, which will be provided by the CBE to banks in local currency under the condition that indebted companies will repay them to banks within two years at an interest rate of 12%.
He confirmed that the settlement is starting on Wednesday and lasts for 15 days with the price of the dollar during that period.
The average dollar price currently amounts to EGP15.70 in banks, which decreased from its peak of EGP19.60 in mid-December 2016 after the flotation decision in November 2016.
Shaaban said that the second phase will include companies which have debts exceeding $5m, stating that there are about 100 companies with total debts of $1.4bn. He expects that the second phase of the settlement is to be conducted with the same mechanism but according to the dollar exchange rate at the time of the second phase.
The first phase of the settlement includes around 85% of the companies affected by currency price differences after the flotation, totalling 670 companies.
By the end of December 2016, several investor associations criticised the failure of the banks to complete the letters of credit issued to cover imports before floating the pound, which raised the costs of investors in the local currency after the flotation, and threatened their businesses and activities.