FY 2012 Annual Report - Orascom Development

F-81 Orascom Development 2012 Annual Report F-82
47 LITIGATION
Falcon
The financial statements of Falcon Company for Hotels (“Falcon”) were incorporated into ODH’s consolidated financial statements
at 31 December 2008 in accordance with the International Financial Reporting Standards, as a result of the business combination
previously effected through one of ODH’s subsidiaries whereby control had existed over Falcon at that time.
Subsequent to the first time consolidation, but prior to the completion of the transfer of the legal title on the Egyptian Stock
Exchange (EGX), a dispute over the Falcon securities purchase agreement had arisen. At the beginning of October 2009, the Group
ceased consolidating Falcon due to changes in Falcon’s management resulting in a loss of control for the Group which was one of
the reasons of the dispute.
Several arbitration and litigation proceedings involving Falcon, the Group and third parties have been and are still pending.
However, during the 2012 some positive progress has been achieved in one of the major arbitration proceedings involving Falcon’s
original owners and a third party having a direct impact on the whole dispute. This positive progress improves chances for ultimate
recovery of the Group’s investments.
Withdrawals of land by the government
Land withdrawal of 6th of October in Egypt
2000 Acres
With reference to the purchased land in Sixth of October city (2000 acres) in Egypt, the Urban Communities Authority related to
the Ministry of Housing issued its resolution on 11 December 2011 to grant one of the subsidiaries of ODH an area of 1,000 acres
rather than 2,000 acres on the condition of completing the construction works on this area not later than 30 September 2013.
Since it is challenging for the subsidiary to fulfil the construction obligation during that period of time and as it is contrary to the
terms of the initial contract with the Authority, the Group’s entity challenged this decision and filed an administrative complaint
against it. This has resulted in further complications; as the Urban Communities Authority has then decided to withdraw the
allocation of another 380 acres, accordingly the Group’s entity now has just 620 acres. The Group’s subsidiary further challenged
this decision and is in the process of going through several administrative and judicial channels to overturn. No administrative
resolution or decision has been issued as of the date of this report. It is expected that this process will be lengthy.
200 Acres
On 5 May 2008 one of the subsidiaries of ODH signed a contract with the Ministry of Housing for receiving 50 acres and a promise
of sale for another 150 acres to construct a project for low and middle income housing.
On 15 March 2010 the subsidiary received the declaration from the Ministry of Housing in Egypt permitting the subsidiary to apply
for necessary construction licenses; on 13 July 2010 the subsidiary received a letter from the Ministry of Housing cancelling the
project and to withdraw the land. The company has taken legal actions to protect its rights over the land and the court case has
not been finalized yet.
Land withdrawal at Al Fayoum Project:
In addition, Fayoum Governorate, Egypt, issued a resolution on 11 June 2011 to terminate the contract signed 9 June 2007 for the
purchase of a piece of land in Fayoum Governorate, Egypt, taking into consideration that the Group started major construction
work on that land worth EGP 11 million (equals CHF 1.7 million). The subsidiary of ODH requested the cancelation of this decision.
As a result, the Conciliation Commission within the Governorate of Fayoum issued a resolution on 3 October 2011 recommending
the cancelation of the termination decision issued by the Fayoum Governorate. On the basis of this decision, the subsidiary has
raised a law suit to the Egyptian judiciary to cancel the decision and, alternatively, to request compensation for the construction
works. No judgement or decision has been issued as of the date of this report.
Land withdrawal at Royal Azur
In January 2012, Royal Azur for Tourism and Real Estate Development (“Royal”) agreed, as part of an overall settlement with the
Tourism Development Authority (“TDA”), to voluntarily relinquish its legal claims and return the land. As part of the settlement,
Royal would take the land subject of dispute on a leasing basis together with the buildings until an agreement is reached for the
repurchase of the land by Royal. This undoubtedly allows Royal the time to rethink the entire purchasing scheme and avoids a
lengthy litigation with the TDA.
48 OTHER SIGNIFICANT EVENTS THAT OCCURRED DURING THE REPORTING
PERIOD
Political situation in Egypt
The substantial political events that took place in Egypt since January 2011 continue to impact the economic sectors in general and
the tourism sector in particular. A few months after the election of a new president in June 2012, political disputes and violent
street confrontations disrupted regular activities. On top of that, there is currently a highly debated and contested constitution in
place and the newly introduced parliament election law has been rejected by the judges and is subject to further legal
investigation Therefore the low level of economic activities in Egypt and other parts of the middle east region continues to be
substantial. As described in note 7, these political events in Egypt had a significant impact on the Group’s operations in the current
period. Management expects that the situation in Egypt, which is still insecure, may have a further impact on the Group’s
operations in future financial periods.
However, the following should be considered regarding the future of the Group’s performance:
– With Egypt in specific, the Group has endured two challenging years with the current political situation and its inevitable effect
on the economy as security and political uncertainty being the primary issues of concern for tourists and investors alike. This
does not mean that Egypt’s tourism and foreign investment will not recover; in fact, Egypt’s Tourism has suffered a hard blow
in 1997 and almost immediately recovered a year later.
– Additionally, Egypt will remain a hub for foreign investment, whereas, the economic fundamentals are still intact to a large
extent; its attractive location at a crossroad between Europe, the Middle East and Africa as well as the fact that Egypt remains
one of the Arab world’s most diversified economies.
– Oman on the other hand, has been affected by the Arab spring from one end as well as general economic slowdown in the Gulf
Cooperation Council (GCC) area. However, there are optimistic forecasts that the Omani tourism and real estate industry will
continue to witness some recovery in the next year. This recovery has been reflected slowly in the Group’s performance in the
Muriya destinations in 2012.
49 SUBSEQUENT EVENTS
Partial sale of Swiss operations
On 26 March 2013, the Board of Directors of ODH and Mr. Samih Sawiris agreed to improve the capitalization of its Swiss
subsidiary Andermatt Swiss Alps (ASA). As a result of the transaction, Mr. Samih Sawiris becomes the new majority shareholder
with a 51% share by converting his loans to the Group into ASA equity, and will act as new Executive Chairman of ASA. ODH
remains shareholder with a 49% share.
Furthermore, Mr. Samih Sawiris will invest at least CHF 150 million of new equity or subordinated loans into ASA in order to secure
funding of the resort Andermatt until 2017. ASA will be deconsolidated in the first half of 2013. As a consequence of the
transaction existing loans between the Group and Mr. Samih Sawiris will be fully offset and the indebtedness of the Group will be
reduced. The transaction will improve the debt-to-equity ratio of the Group and lower interest expense.
Acquisition of further interest in CMAR and intended disposal of CMAR
On 5 December 2012, European Investment Bank (EIB) served a letter to a subsidiary of the Group notifying EIB’s intention to see
their interest in the shares of Club Méditerranée Albion Resort Ltd. (CMAR) based on the Put option and Call option Agreement
dated April 2006 between International Holding for Hotels Company (IHH), European Investment Bank (EIB), and Société de
Promotion ET De Participation pour la Cooperation Economique (PROPARCO). Subsequently, on 15 January 2013, IHH served to
PROPARCO a letter notifying IHH’s intention to exercise the Call Option, through which the Group will acquire the residual
interests in the share capital of CMAR.
It is the Group’s intention to sell its investment in CMAR within the next few months to a third party. Necessary measures have
been initiated since February 2013.
50 APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the directors and authorized for issue on 10 April 2013.
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