CAIRO: In Part I of this interview with Ahmed El-Housseiny, Managing Director of Citadel Capital, the $7 billion-worth private equity firm, the MD narrated the company’s story of success.
He spoke in depth about how, when Suez Cement acquired 100 percent of Helwan Cement at LE 30 a share for a total $600 million, ASEC took a 70 percent cut worth almost $400 million. Citadel Capital garnered 60 percent of that, which came to roughly $250 million on an investment worth $12 million, he said.
In Part II, El-Housseiny continues talking about Citadel Capital’s second transaction and the broad outlines of the firm’s policies. In July 2005, the company outbid international giants and bought the Egyptian Fertilizers Company (EFC) for $740 million – making it the largest private equity transaction at the time.
“EFC was a great company with a success story, who had a stable management team that were adequately capitalized, but its development required more input on the board level. EFC suffered from fragmented ownership, obviously with several owners having various interests in various objectives, he said.
Citadel doubled EFC’s capacity to 1.3 million tons of fertilizers, making it both the nation’s largest private sector producer and largest overall exporter of fertilizers. Seeking regional expansion, it acquired a fertilizer plant in Nigeria and agreeing with the Algerian government to build a green field plant there.
“We like to expand our companies regionally, said El-Housseiny, “If we like an industry, we acquire platform companies in Egypt and make sure they have the adequate capital and management capabilities to grow in the region. We [then] use our network in the region to help companies expand.
EFC was a textbook case: They had adequate capital and a management team who had the vision, but did not have a sponsor to support them. “A lot of the value added . in EFC was a result of us listening to the management team and not the other way around, he said.
Citadel then sold EFC to Dubai’s Abraaj Capital for almost $1.4 billion.Citadel’s investment categories include setting up new green field projects, such as the National Petroleum Company (NPC).
“The way Citadel operates is that we like an industry and we start to look at the potential companies, not the other way around. The way we like an industry is complex, obviously each of us has expertise in a certain industry, but we rely extensively on world class consultants, he said.
“With NPC we liked the upstream oil and gas sector but any acquisition in this industry would put a lot of value at risk. We preferred to take it one step at a time and make a small acquisition for a small amount of money, he said.
NPC was formed at a value of $250 million and began operations by acquiring a small local operator with good management and a small oil field. Citadel continued to build strength around its latest creation and bought more existing fields, including a small field from British Petroleum.
Moreover, NPC bought many fields in bid rounds from the Egyptian government, and is also getting concessions in Sudan and looking at other places in the region including Iraq and Nigeria.
When it launched, NPC was producing 600 barrels a day, and it is projected that by the end of 2008 NPC will be producing 30,000 barrels per day. NPC’s capital was increased last summer, and for $900 million it bought Canadian company Rally, which owns four fields in Egypt and Pakistan.
Although to date Citadel’s investments have been in labor-intensive industries, El-Housseiny says the company is “open minded to other industry potentials. “We’ve eyed hotels and tourism but the right opportunity didn’t come by, he said.
Citadel, however, prefers not to venture into a deal that constitutes an initial investment lower than $100 million. “In terms of size, it matters because it takes as much time and effort to close a $100 million deal that it does to close a $30 million deal. Because of our profit structure we prefer not to go lower than $100 million for our initial investment, but then we allow our platform companies and subsidiaries to invest in any opportunity, he explains.
In February, Al Kateb Publishing Company, of which Citadel owns 49 percent, had acquired 61 percent of the Egyptian Company for Marketing and Distribution, which owns the financial daily newspaper Al Mal.
To continue their growth spree, Citadel increased its capital twice in the last quarter of 2007. “We did not want to be constrained by our own capital base from growing and efficiently deploying our investment funds. When we felt it was constraining our growth, we proactively raised our capital to make sure that whenever an opportunity came by it was not passed because of insufficient capital, he said.
Citadel has also recently announced the debut of the Citadel Capital Joint Investment Fund that collects funds for new projects from institutional investors.
Traditionally Citadel raises funds from co-investors – high-networked corporate individuals in Egypt and the region who, given a limited window to come back with an answer, reacted rapidly to investment decisions, either positively or negatively.
“We sent you a proposal, you had one to three weeks to get back to us, which implicitly meant that we excluded any institutional investments because they need to go back to their corporate investors and various committees and boards for approval to allow them to contribute, he said.
Citadel targets “Western institutional investors from university endowments, pension funds and insurance companies in Europe and the US and sovereign wealth funds from the region.
Despite their indulgence in several million-dollar transactions at a time, Citadel managers have not neglected their corporate social responsibility agenda. “Living in a country like Egypt and having benefited from the environment around us, you would like to see that a broader circle of people are touched with that positivity, he said.
Through the Citadel Capital Scholarships, the firm helps people “pursue a proper education that will help them lead a better life, he said. The scholarships are endowed with $10 million annually in addition to other contributions made by the company to help accident victims in tragedies such as the sinking of the Al-Salam Ferry.
Meanwhile, specifically in 2008, they have been vigorously growing the company’s portfolio and extensively hiring high profile, world class management to make sure each portfolio is managed adequately.
“We are focusing on the food sector, refinery, cement and upstream oil and gas sectors, but there won’t be anything major in terms of acquisitions till the third quarter of 2008, he said.
While Citadel has benefited from the reemergence of middle class, increased purchase power and the shifting from an export driven economy towards a balance between tourism, exports and consumer production, it still has challenges to meet.
“On the challenges side the surge in international prices is going to trickle to Egypt and we’ve already seen increases in subsidy bills and inflation and accordingly budget deficit. It affects every single one of us, he said.
Being a top equity firm does not mean the company is prone to competition.
“It is there and will evolve, but we have the opportunities to stand up to it, we are from the region and in the region, we are not doing business with a remote control from abroad, he said.
