Wednesday, October 14, 2009

Citadel Capital to acquire $3bn refinery in North Africa

Citadel Capital, a private equity firm, which controls about $8.3billion (Dh30.46bn) investments, has an unusual style of doing business. It first looks for an opportunity, locks in the deal by putting down 20 per cent of the enterprise value from its own pocket and then raises the remaining 80 per cent from investors, which are usually institutions or high network individuals. This runs in contrast to the common practice of raising funds before deploying the raised amount. The stake it puts in is also more than double of what most companies do.

"We are unusual but being unusual is good," said Hisham El Khazindar, Citadel Capital's Managing Director and Co-Founder. "We found our approach very effective as our interests are aligned with our investors in this region. They appreciate the fact that as a PE firm, we are not simply taking risk with their money, we are also putting our own balance sheet at risk."

Citadel will be closing a $3bn acquisition in the first quarter of next year, and will be looking to deploy up to $400m in 2010 – all these at a time when most firms are still in a wait and see mode.

Are you doing any fund raising this year?

We launched a more traditional fund recently, Mena joint investment fund, which has a target to raise $500m. We have already successfully done a dry close where the International Finance Corporation and European Investment Bank have committed as initial anchor investors. It will be targeted at institutional investors not only in the region but locally as well. This is our first effort towards bringing in investors from outside the region.

When are you expecting to close this fund?

During 2010. How quickly we close this will depend on how market conditions develop, and it also depends on how soon institutions start deploying money again in emerging markets, particularly in Mena. In addition, we expect to deploy about $200m-400m new investments during the course of 2010. Those will take in the form of new opportunity specific funds.

Have you raised this much already?

The way we operate is we find an opportunity that we like, then we go and create funds for that opportunity where we put in 20 per cent and raise 80 per cent from our LPs (limited partners) in the region. The $200m-400m is expectation because we will not raise those opportunity specific funds until we have closed and identified that specific opportunity and committed our own capital first before bringing in other investors.

Is this not a bit unusual?

It is. But this is how fundraising is going to evolve particularly after the crisis. Investors in this region really appreciates the fact that as a PE firm we are not simply taking risks with their money we are also putting our own balance sheet at risk.

Investors, particularly high network individuals, like it when they know the specific industry/opportunity as opposed to simply putting money to a blind pool.

What are the opportunities that you are looking at?

Our focus geographically is Middle East and Africa, in particular we focus on North Africa – Egypt, Algeria, Libya and in the Middle East Syria and Iraq. We have also increased our focus in Sub-Saharan Africa, particularly East African countries such as Sudan, Ethiopia, Uganda and Kenya. In terms of industries, in 2009 one of the opportunities we locked in is the $70m agricultural land in Sudan.

We have acquired 500,000 acres of agricultural land that we are looking to develop in stages. Regional agrifood platform Gozour, established by Citadel Capital, has also acquired Nile Company for Food Industries (Enjoy) in June. The enterprise value of Enjoy was EP320 million (Dh214.28m).

Then we have been looking at the acquisition of Egyptian Refining Company for the last two years. This is a $3bn second-stage refinery and the equity part of investment is expected to be $1bn with about $2.1bn of debt.

We are in the process of closing financial debts during first quarter of 2010.

You are quite optimistic, considering the current reluctance of banks to lend?

It had its up and downs and I think we are almost there.

Is the cost of debt costlier than it was two years ago, when you first planned this project?

Not so much costly but we are looking at getting it from different sources. When we started this project, our focus was on commercial banks and over the past two years, we have shifted to multilateral agencies and exports credit agencies. So we expect to include institutions such as Japan Bank for International Cooperation, Korean Investment Bank, EIB and the African Development Bank. These are the institutions that might have not been the obvious candidates before, but are the most important sources of liquidity and credits for emerging markets such as ours.

How are you placed in the current economic crisis?

We were very active between 2005 and the first half of 2007, but fortunately during the second half of 2007, we decided to stop making new investments and focus on our portfolio. I cannot claim that we saw the crisis coming. We took that decision because valuations had become expensive and because we had done a lot of transactions. We felt that we needed to take some time to make sure our existing portfolio was on the right track before we started making new acquisitions and new investments.

We are very lucky because we took that decision before the crisis started and by the time the crisis hit the region in the middle of 2008, we had already done most of the legwork in terms of strengthening management team, ensuring our business plans for portfolio companies were fully funded, whether it was equity or debt. We are now among the first firms to start investing again.

PROFILE: Hisham ElKhazindar MD and Co-Founder of Citadel Capital

Prior to co-founding Citadel, El Khazindar was Executive Director of Investment Banking at EFG-Hermes where he advised on key, transactions including the IPOs of Orascom Construction, Ezz Steel and Orascom Telecom.

In 1999, he seconded to Goldman Sachs in London. He sits on the boards of several regional companies, including ASEC Holding and El Sewedy Cables. He is chairman of Capital Markets and Investment Committee at the American Chamber of Commerce in Egypt and a board member of the Egyptian Capital Markets Association.

El Khazindar has a BA in Economics from American University in Cairo and an MBA from Harvard Business School.