UPDATE 2-Egypt approves plan to resolve TMG land row

* State to scrap original contract, reassign land to TMG

* Cabinet wants new land sales mechanism

* Egypt sold land to TMG in 2005, court said illegal

(Adds analyst comment, pricing information)

By Dina Zayed

CAIRO, Sept 26 (Reuters) - The Egyptian government said on Sunday it had approved a plan to resolve a land row involving Egypt's biggest listed developer that raised worries about investing in the real estate business.

The cabinet said it would scrap the original contract for Talaat Moustafa Group's (TMG) (TMGH.CA) estimated $3 billion Madinaty project after a court ruled the deal was illegal but would reallocate it to the firm in a new contract.

"I do feel that this is definitely a very positive sign. For me it shows TMG is well on its to being in the clear," said Beltone Financial analyst Khalid Khalil.

The cabinet said the Housing Ministry would finalise details on the transaction and the revised deal should not value the land at less than 9.98 billion Egyptian pounds ($1.75 billion).

"The pricing floor should be good news at this stage, given that it remains lower than the estimated value under the existing contract which has an implied price of 14-15 billion pounds. We believe that the new contract terms will stay the same," said Jan Pawel Hasman of EFG-Hermes.

The government has said it was not seeking to charge the firm more for the land. Analysts said the Housing Ministry's final price terms were unlikely to mean TMG had to pay more because the row was about the manner of sales not the price.

The government has been under pressure to act swiftly to resolve the row in order to reassure investors as it aims to push economic growth up above 7 percent, the level it was achieving before the global financial crisis.

The government sold land to TMG for Madinaty in 2005, but a court ruled in June the deal was illegal because the land was not publicly auctioned.

A state-appointed legal committee issued recommendations last week saying the government could reassign the land to TMG after scrapping the first contract, citing an legal article the state make direct sales when it was a matter of public interest.

Analysts have been watching how the government resolves the issue to determine the fate of any copycat cases. The engineer who raised the Madinaty suit also lodged another over a Palm Hills (PHDC.CA) deal. [ID:nLDE68E1CI]

NO DATE FOR SIGNING

"The cabinet has approved implementing the recommendations of the legal committee formed by presidential decree," the cabinet said in a statement, adding that the original contract would be annulled and land assigned back to the same firm.

It said the new contract between the Housing Ministry's New Urban Communities Authority and the firm would be made in accordance with the articles and rules of the original contract and would not contradict the court rulings.

"The price will not be less than 9.98 billion Egyptian pounds and on these bases the new contract will be signed," the statement said. The cabinet spokesman said no date for signing a new contract had been set.

An investigation by the country's General Prosecutor found last month the original deal had created a value equal to 13 billion pounds for the government. [ID:nLDE67S04D]

A fresh court ruling this month upholding the order to scrap the contract sent the firm's shares plunging 16 percent in three sessions. They have since recovered.

Cabinet spokesman Magdy Rady earlier told reporters the cabinet was reviewing setting up a new land sales mechanism to ensure greater transparency in the way land was allocated. ($1=5.702 Egyptian Pound) (Writing by Edmund Blair and Alexander Dziadosz; Editing by Louise Heavens)