Fawaz Alhokair allocates 8.9% of affiliate to subsidiary against SAR 84.4 mln receivables

Logo of Fawaz A. Alhokair Co.

Fawaz Abdulaziz Alhokair Co.’s board of directors on March 30, 2021, approved an arrangement to allocate 8.9% of the share capital of Egyptian Company for Real Estate Development (ECRED), an affiliate, to the benefit of Retail Group Egypt Co., a subsidiary, in consideration of outstanding receivables of EGP 354.7 million (SAR 84.4 million), the firm said in a statement to Tadawul.

The agreement was signed by all parties on April 8, 2021.

The deal was based on ECRED’s fair market valuation of EGP 3.983 billion (SAR 948 million) conducted by an external financial advisor.

The external financial advisor provided a valuation for ECRED ranging from EGP 3.892 billion (SAR 926 million) and EGP 4.212 billion (SAR 1.002 billion) and Retail Group elected the lower end of the range at EGP 3.983 billion (SAR 948 million). 

Accordingly, the receivables will be reclassified as an investment on the Fawaz Alhokair’s consolidated balance sheet, providing the opportunity for future capital appreciation.

The arrangement is a related party transaction, whereby three of Alhokair’s largest shareholders, two of whom are board members, are also shareholders and board members in ECRED.

The transaction does not require funding as it is balance sheet reclassification, where Fawaz Alhokair will reclassify the receivables due from ECRED as an equity investment in ECRED.

Founded in 2007, Egypt-based ECRED was established to own properties, develop and operate shopping centers, malls, and residential units in Egypt.

ECRED owns the Mall of Arabia, which is located in 6th of October City in Egypt, with a total area of 621,000 square meters (sqm), tenanted by over 500 shops including restaurants, cinema showrooms, kids play areas, and retail shopping stores. The mall is currently in its second expansion phase, which will include IKEA as an anchor tenant.

ECRED is also developing serviced luxurious high-rise residential buildings, AEON Towers, in West Cairo.

The balance sheet reclassification will not impact Fawaz Alhokair’s operations, but will be reflected in the consolidated financial statements as of March 31, 2021, as an investment.

The investment provides the opportunity for Fawaz Alhokair to realize future value from its holdings in ECRED, while at the same time materially reducing its related party receivables, the statement said.

Related parties include:

- Fawaz Abdulaziz Alhokair, who holds 6.14% stake in Fawaz Alhokair and is chairman of the board. He owns 34% stake in ECRED and is a board member.

- Abdulmajid Abdulaziz Alhokair, who holds 7% stake in Fawaz Alhokair and is a board member. He owns 33% stake in ECRED and is board member.

- Salman Abdulaziz Alhokair, who holds 7% stake in Fawaz Alhokair. He owns 33% stake in ECRED and is a board member.

Retail Group’s investment in ECRED will be registered through a contractual arrangement, where the ownership will be registered under the name of the current shareholders for the benefit of and on behalf of Retail Group until the ownership becomes registered under its name.

Retail Group will reserve all the rights to benefit from the shares.

The current shareholders are related parties, namely Fawaz Abdulaziz Alhokair and Abdulmajid Abdulaziz Alhokair, and Salman Abdulaziz Alhokair, for which they will own 3%, 2.9%, and 2.9% of the ECRED shares, respectively, on behalf of Retail Group.