Identifier
Created
Classification
Origin
07ALGIERS1748
2007-12-06 10:35:00
CONFIDENTIAL
Embassy Algiers
Cable title:  

MAJOR ALGERIAN BANK PRIVATIZATION SUSPENDED

Tags:  ECON EINV EFIN PREL AG 
pdf how-to read a cable
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PP RUEHTRO
DE RUEHAS #1748/01 3401035
ZNY CCCCC ZZH
P 061035Z DEC 07
FM AMEMBASSY ALGIERS
TO RUEHC/SECSTATE WASHDC PRIORITY 4950
INFO RUEHEG/AMEMBASSY CAIRO 0975
RUEHMD/AMEMBASSY MADRID 8703
RUEHTRO/AMEMBASSY TRIPOLI
RUEHFR/AMEMBASSY PARIS 2434
RUEHRB/AMEMBASSY RABAT 2041
RUEHTU/AMEMBASSY TUNIS 6899
RUEHNK/AMEMBASSY NOUAKCHOTT 6118
RUEHNM/AMEMBASSY NIAMEY 1373
RUEHBP/AMEMBASSY BAMAKO 0323
RUEHCL/AMCONSUL CASABLANCA 3148
RUEATRS/DEPT OF TREASURY WASHDC
RHFJUSC/US CUSTOMS SERVICE WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L SECTION 01 OF 03 ALGIERS 001748 

SIPDIS

SIPDIS

CASABLANCA FOR USFCS RORTIZ
CAIRO FOR TREAS ASEVERENS
COMMERCE PASS TO JREITZE

E.O. 12958: DECL: 12/05/2017
TAGS: ECON EINV EFIN PREL AG
SUBJECT: MAJOR ALGERIAN BANK PRIVATIZATION SUSPENDED
INDEFINITELY

REF: A. ALGIERS 01638

B. ALGIERS 1471

Classified By: Ambassador Robert Ford for reasons 1.4 (d).

C O N F I D E N T I A L SECTION 01 OF 03 ALGIERS 001748

SIPDIS

SIPDIS

CASABLANCA FOR USFCS RORTIZ
CAIRO FOR TREAS ASEVERENS
COMMERCE PASS TO JREITZE

E.O. 12958: DECL: 12/05/2017
TAGS: ECON EINV EFIN PREL AG
SUBJECT: MAJOR ALGERIAN BANK PRIVATIZATION SUSPENDED
INDEFINITELY

REF: A. ALGIERS 01638

B. ALGIERS 1471

Classified By: Ambassador Robert Ford for reasons 1.4 (d).


1. (C) SUMMARY: At the last moment, Algeria suspended
indefinitely the privatization of Credit Populaire d'Algerie
(CPA),which was to have been the flagship privatization
exercise for the Algerian banking sector. Three of the six
foreign banks bidding on the Algerian state bank withdrew
their bids in late November, leading to Algerian worries
about the valuation of the bank. Citibank, the only American
firm in the running, told the finance ministry that it would
not submit a bid on the target date because of its senior
leadership changes. Spain's Banco Santander and France's
Credit Agricole also signaled they would not bid. This would
have left only three French banks in the running, and the
government decided to postpone the bidding at least until a
clearer picture of the international financial markets
develops. The delay may give some of the bidders who
withdrew time to regroup and formulate new bids. It is also
possible that this move actually signals the end of banking
privatization in Algeria for the foreseeable future. The
move has also raised new questions about Algerian serious to
implement deep economic reform, and the abrupt announcement
was viewed by some foreign companies as yet another example
of government capriciousness and an unpredictable investment
environment. END SUMMARY.

FREEZING THE PROCESS
--------------


2. (C) On November 24, two days before Algeria was to have
launched the sale of a 51-percent interest in the state-owned
CPA, the finance ministry abruptly announced that the bidding
process was "frozen" indefinitely. Citing concerns over the
impact of the U.S. subprime mortgage crisis as the reason for
the suspension, the ministry said it needed time to get a
clearer image of the state of world financial markets and
international financial institutions, in keeping with the

ministry's long-standing concerns about the proper valuation
of CPA by bidders (reftel). Reports indicated that, in the
days leading up to the suspension, two of the contenders
(Citibank and the French Credit Agricole) had informed the
ministry that they would not be submitting bids as expected.
The Spanish bank Santander had already withdrawn, press
reports and financial contacts told us. This apparently
raised alarms that the three remaining bidders, the French
banks Societe General, Natexis and BNP Paribas, would
subsequently lower their bids for CPA. Central Bank Governor
Lakcasi told Ambassador December 4 that the withdrawal of the
Citibank and Credit Agricole had been a shock to the Algerian
financial authorities and left them unsure whether the bank
would get a fair price. (NOTE: The government has had at
least one bad experience in this regard. In the run-up to a
tender for the construction of a power-generating plant
earlier this year, two of the three leading bidders dropped
out in advance of the bid opening. The remaining European
company, knowing that it was the sole bidder, nearly doubled
the price of its bid, causing the government to cancel the
contract and re-bundle it in order to save face and attract
new bidders. END NOTE).

CITIBANK: KEY TO IT ALL?
--------------


3. (C) Kamel Driss, President of Citibank Algeria, told us on
December 4 that he and two Citigroup executives personally
informed the finance minister and his chief in charge of
financial sector reform that Citibank would not offer a bid
for CPA because Citigroup's corporate leadership remained in
a state of flux (reftel). Driss said that neither the
subprime crisis nor Citigroup's resulting financial troubles

ALGIERS 00001748 002 OF 003


were the leading factors; rather, the company simply could
not go forward with a major acquisition without a permanent
CEO in place. According to Driss, Finance Minister Djoudi
said that he would have to notify the prime minister
immediately. Driss also said that days before Citibank's
decision to withdraw, he was told by someone close to Djoudi
that the government wanted Citibank to win in order to add
American influence and expertise to the financial sector.
Based on that information and the minister's statement that
he would need to consult the PM upon hearing Citibank's news,
Driss assumes that the decision to postpone the privatization
was made within the inner circle of the presidency.

THE END OF BANK PRIVATIZATION?
--------------


4. (C) Central Bank Governor Mohammed Laksaci told us on
December 4 that he expected the CPA privatization to be put
back on the table in 2008. However, while Driss also told us
that the CPA privatization process might resume once Citibank
and others signal that they were again ready to bid, he
believed it more likely that bank privatization in Algeria
was dead for the foreseeable future. Driss said the
government was extremely wary of bank privatization,
particularly since five years ago the government failed in
its attempt to negotiate a no-bid sale of CPA to BNP. When
Driss heard last year that the finance ministry was again
interested in selling off CPA, his request to make a private
offer was refused. He was told that the BNP experience left
the government leery of such deals; instead it wanted to
pursue a transparent, multiple-bid contract round. Now that
the privatization has again failed, Driss was concerned that
the government might abandon the reform altogether. CPA
administrator Djellab told the Ambassador December 4 that the
bank itself would maintain its normal operations and he
planned to see if the World Bank's International Finance
Corporation would resume a staff-training program suspended
due to the bank's pending privatization.

INVESTMENT IMAGE TARNISHED
--------------


5. (C) Commentators and businesspeople have lamented the move
by the finance ministry to suspend the CPA privatization as
further proof that the investment climate in Algeria remains
unpredictable and the government continues to act
arbitrarily. At a November 27 Overseas Security Advisory
Committee (OSAC) meeting held at the Embassy, several U.S.
company representatives voiced their belief that the decision
to freeze the CPA privatization would do more harm to
discourage foreign investment in Algeria than the terrorist
attacks since December 2006.

COMMENT
--------------


6. (C) This was only the latest in a series of delays
involving the CPA privatization (reftel),but its impact on
Algeria's investment climate is greater as most observers
believed CPA would be sold by the end of 2007. Given
Algerian government concern with maximizing the value of its
resources, be it through sales of state-owned organs or
through the negotiation of contract prices, freezing the CPA
privatization does not come as a complete surprise. We have
urged the Algerian authorities to explain in great detail the
criteria they used to stop the privatization and to explain
as well the criteria they will use in deciding when to
restart it, thus helping to address the credibility issue.
Lakcasi and Djellab both took the point, but such openness is
not an Algerian custom. The mediocre Algerian banking sector
is one of the biggest impediments restraining private-sector
growth here (see ref B). Revamping the CPA with modern
banking know-how would be a big step forward in helping

ALGIERS 00001748 003 OF 003


improve business conditions in Algeria and we will,
therefore, keep urging the GoA to figure out how to move the
privatization forward again.
FORD