PARIS — Egypt is seeking a bank loan to partially finance a prospective order for the Rafale fighter jet, a multimission frigate and missiles, an unusual financing deal likely to require high-level political support, two analysts said.
A deal with Egypt would enable a speedy export order seen as needed to relieve severe budgetary pressure on France, which is in a pressing search for foreign clients for Dassault and DCNS.
Egyptian officials have been in "discussions with banks" to find commercial lending that would allow paying France a 15 percent down payment for the military equipment, a market analyst said.
Bank lending for arms purchases is not new, but the Egyptian search for funds is remarkable for the size and the speed in which the loan is sought.
Egypt wants to close the deal in time for a frigate and three Rafales to be present when a new stretch of waterway by the Suez Canal is opened in August, newsletter TTU has reported.
Coface would sign up on an Egyptian contract if the Treasury Department, which reports to the Economy Ministry, agreed to the deal. But there is reluctance in the Economy Ministry as Egypt is seen as a fragile economy, the first analyst said.
If Egypt fell behind on payment, the insurance from Coface would repay from the public purse the makers of the Rafale, frigate and missiles, which are Dassault Aviation, DCNS and MBDA, respectively.
A DCNS executive confirmed talks were being held with Egypt. Dassault, MBDA, Treasury and the Egyptian embassy declined comment.
Egypt's talks with the bankers slowed due to the accession of King Salman in Saudi Arabia after the death of his brother King Abdullah last month.
Saudi Arabia, Kuwait and the United Arab Emirates will deposit $10 billion in Egypt before the latter nation holds an investment conference next month, according to news website Al-Youm Al-Sabea, Reuters reported Feb. 5.
That financial support from the Arabian Gulf powers is fueled by a political determination to resist the Islamic fundamentalist movement threatening Egypt and those partner countries.
The bank talks on the Egyptian deal also include whether there is a "global contract" or specific contracts tied to the fighter jet, frigate and missiles, the first analyst said.
The Economy Ministry may be against the deal because of the financial risk, but defense officials would be in favor, as an export order would help maintain the domestic industrial base, said Jean-Pierre Maulny, deputy director at think tank Institut des Relations Internationales et Stratégiques.
"This is a major choice," he said. "If this is not done, there is an industrial risk."
The deal would likely be handled at the highest political level in France, in view of the financial stakes, he said.
The Egyptian economy has been fragile as tourism fell sharply and there has been unrest since the military overthrow of the elected government under the Muslim Brotherhood.
Egyptian President Abdel Fattah el-Sisi met his French counterpart François Hollande in September at the UN General Assembly meeting in New York, and there was an expression of interest and willingness in acquiring armaments, a diplomatic source said.
DCNS is set to declare a €300 million (US $343 million) net loss for 2014, and France has stretched out production of the frégate multimission (FREMM), or multimission frigate, under budgetary pressure.
Paris has been in talks with India and Qatar for the Rafale, but a deal has yet to be signed with either.
"Key drivers for the outlook change to stable from negative are the stabilized political and security situation, the launch of government initiatives toward fiscal consolidation, signs of a growth recovery and an improvement in macroeconomic stability, and strong support from external donors," Moody's said in a statement.
On the Rafale, the total program cost is €45.9 billion, excluding the development cost, with a unit price of €74 million for the B twin-seater, €68.8 million the C single-seater, and €79 million for the M naval version, based on 2013 prices, a French Senate report said.