September 14, 2010 / 11:31 AM / 9 years ago

UPDATE 2-Egypt court rejects TMG appeals in land case

* Court upholds lower court verdict

* TMG shares fall 7 pct, index flat

(Adds background, more detail, outlook, analyst’s quotes)

By Dina Zayed and Alexander Dziadosz

CAIRO, Sept 14 (Reuters) - A Cairo court on Tuesday upheld a ruling that could threaten Talaat Moustafa Group’s (TMG) (TMGH.CA) estimated $3 billion flagship project, sending shares in Egypt’s biggest listed developer sharply lower.

Building has already started on the 8,000 feddan (8,300 acre) Madinaty development on the outskirts of Cairo, which is meant to include homes, schools, hotels and a golf course.

Egypt’s High Administrative Court upheld a June ruling that the New Urban Communities Authority (NUCA), a housing ministry body, broke the law by selling the land without putting it up for public auction. The court rejected TMG and ministry appeals.

TMG shares tumbled 7 percent on fears the ruling could slow Madinaty home sales, but executives and legal experts said the government was likely to adjust the deal’s terms without affecting customers who already hold contracts there.

“This is the end of the line, the court’s decision is final,” said Ahmed Mekky, a judge and vice chairman of a Cairo appeals court. “There can be legal procedures to handle the matter but they will not take place inside a court room.”

The court said in its verdict that the Madinaty contract appeared to be “surrounded by secrecy” and would be nullified, but the decision would not alter the legal rights of customers.

Chief Financial Officer Jihad Sawaftah told Reuters that the ruling “will not cause any harm to (land) holders in the project, and their rights will not be touched”, and Cabinet spokesman Magdy Rady echoed the comments in official media.

Housing ministry officials were not available to comment.

A legal adviser to TMG, Shawky el-Sayed, told al-Arabiya television that the company would try to contest the decision through legal and other means, but did not say how.

EFFECTS

Brokers and bankers have worried the Madinaty case could deter potential homebuyers, slowing sales at a project the company has described as the backbone of its strategy.

“The verdict will have a negative effect on Talaat Moustafa sales in general, adding more pressure on the company’s financial statements,” said Amr El Feky, head of the technical analysis desk at Cairo Capital Securities.

Feky added the ruling could benefit Talaat Moustafa’s major competitors on the high end of the Egyptian real estate market, SODIC (OCDI.CA) and Palm Hills (PHDC.CA).

The Madinaty land sale was made during the tenure of former TMG chairman Hesham Talaat Moustafa, now on retrial over allegations he hired a security man to kill a Lebanese singer, and former housing minister Ibrahim Suliman.

Last month, Egypt’s general prosecutor dropped a separate investigation filed by parliament members that had accused NUCA of wasting state money when it sold the Madinaty land. [ID:nLDE67S04D]

A 2008 valuation report by CB Richard Ellis estimated the Madinaty project was worth about 17.8 billion Egyptian pounds ($3.1 billion). An investigation showed the deal brought the state a value of 13 billion pounds. ($1=5.706 Egyptian Pound) (Additional Reporting by Marwa Rashad and Mohamed Abdellah; Editing by David Cowell)

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