- The largest private equity firm in Africa is transforming into an investment company;
- Subject to shareholder approval, the capital increase will result in the firm acquiring majority control of most of its platform companies, particularly in its 5 core focus industries.
Citadel Capital (CCAP.CA on the Egyptian Exchange), the leading investment company in Africa and the Middle East with US$ 9.5 billion in investments under control, has received regulatory clearance from the Egyptian Financial Supervisory Authority (EFSA) to convene a general meeting at which shareholders will be asked to approve the launch of a USD 529 million capital increase.
The proposed share issuance would be at par value (USD 0.73) and would see the firm’s paid-in capital rise to USD 1,145 million from USD 615 million.
Citadel Capital’s proposed share issuance is part of the firm’s transformation from the largest private equity firm in Africa into the leading investment company in the region. The proposed capital increase will be used by Citadel Capital to reach 51-100% ownership in most of its platform companies, in particular the firm’s subsidiaries in its five core industries: energy, transportation, agrifoods, mining and cement.
The firm plans to exit non-core investments over the coming few years as it transforms its business model to become an investment company.
Focus and Growth in Five Core Industries
Citadel Capital will maintain a focus on five core industries with its present emphasis on large-scale investments across Egypt, East Africa and North Africa, the heart of its current investment footprint.
“Economic fallout from the Arab Spring has generally depressed asset values and put liquidity at a premium, making this an opportune moment to increase our holding in core investments,” said Citadel Capital Chairman and Founder Ahmed Heikal. “At the same time, that fallout has also accelerated and brought into sharp relief a number of macro trends that are very favorable to our core investments.”
“Capturing the upside presented by these macro trends is demanding transformation in our DNA that will allow a more concentrated focus on a limited number of investments,” noted Heikal. “We believe we will be creating outstanding value for our shareholders by holding investments in our five core industries for the long-term. We are increasing our investment in proven management teams and in businesses that are clearly on the right side of these macro trends — all at very attractive valuations.”
The long-term holding periods permitted by the new model will allow Citadel Capital to maximize value creation through a balanced portfolio that includes a healthy mix of both assets that provide stable dividend streams and that are cash generative, and others that are in high-growth phases.
“Moreover, the investment company model will allow management to maintain a sharp focus on the companies it knows best while simultaneously making Citadel Capital easier for analysts and investors to value,” added Citadel Capital Co-Founder and Managing Director Hisham. “The new model would further provide Citadel Capital with an expanded balance sheet, allowing for improved financing options.”
Funding the Capital Increase
At the upcoming general meeting, shareholders will be asked to vote on a USD 529 million capital increase at par (USD 0.73 per share) that would see Citadel Capital’s total paid-in capital rise to USD 1,145 million from USD 615 million today through the issuance of 728,375,000 new shares, of which 182,093,750 would be preferred shares and 546,281,250 common shares.
The firm’s total number of shares post-capital increase would stand at 1.6 billion shares, of which 1.2 billion would be common shares and a further 400 million preferred.
The proposed capital increase will be a key step in a process that will see co-investors and limited partners (LPs) in the firm’s platform companies given the opportunity to become shareholders in Citadel Capital.
Valuations of the underlying platform companies have been completed by HC Securities (an independent financial consultant certified by EFSA), accepted by participating LPs, and ratified by shareholders at an ordinary general meeting (OGM) held on 2 June 2013. At the OGM, shareholders also voted to allow Citadel Capital’s Board of Directors to execute the acquisition of the additional stakes in the company’s subsidiaries. These purchases will be settled through the proposed issuance of shares to which participating LPs have undertaken to subscribe.
Orderly Exits of Non-Core Investments
As it begins divesting non-core investments, Citadel Capital will call on proven expertise in exit management that has seen it generate US$ 2.2 billion in cash returns on investments of US$ 650 million, more than any other private equity firm in the MENA region.
“The exit process will be orderly and primarily through trade sales, and we will continue to drive growth at select non-core investments prior to exit through the deployment of long-term funding,” said El-Khazindar.
The process of divestiture of non-core business is expected to take place over a minimum of three years.
Clear Support from Key Stakeholders
In addition to Citadel Capital Partners and co-investors, Heikal noted, “our board of directors is very supportive of our new model and we look forward to receiving shareholder approval for the capital increase.
“This transformation into an investment company will give Citadel Capital a significant competitive edge region-wide in our core industries: We will be among only a handful of investors who are deploying the financial and intellectual capital our investments demand at a time when a great many others are sidelined,” added Heikal.
“As one of the few large-scale firms actively investing in Egypt, East and North Africa in industries that are of vital importance to regional governments, we expect to continue receiving widespread regional and international financial support for our planned new investments, which generally help governments tackle pressing national problems,” concluded El-Khazindar.