Citadel Capital launched in May 2004 with £2m by two former directors of EFG-Hermes Ahmed Heikal and Hisham El-Khazindar. The idea of the firm was to focus solely on private equity, with no advisory or broking services.
Citadel buys only controlling stakes in companies and makes no minority investments. The directors use their portfolio companies as platforms to launch investments in other countries such as Algeria, Libya, Egypt, Sudan, Ethiopia, Qatar and Iraq.
Citadel does not run a traditional private equity fund but has recently launched a co-investment fund where all parties enter and exit at the same prices.
Citadel Chairman Ahmed Heikal is based in Cairo Egypt but travels extensively and spent four and a half years in California completing a PhD in Industrial Engineering. He says he has lots of fond memories of the US and two of his children were born there. “It was a good learning experience and I want my kids to do that.” Heikal is not only enabling his own children to study abroad at the world’s top universities – he is also empowering others through his scholarship foundation. The deal is that the winners can go away to any top university to study for a Masters Degree or PhD but must return to work in Egypt. Citadel is not only building Greenfield business these days but also the managers to run them.
Ahmed Heikal talks to EVCJ about the region, his business and the future.
EVCJ: What is your outlook for the MENA region?
Heikal: The MENA region is a huge market and extremely underdeveloped but it poses its own set of challenges. Governments in many MENA countries are still finding their ways and are not yet aware of their impact on investment markets and regulatory risk. They are yet to understand new laws on investment. This risk means less competition.
EVCJ: The MENA region is becoming a more and more popular investment destination but what is the exit environment like?
Heikal: So far we have had four exits and have been lucky from four exits.
Our first investment was an unorthodox transaction – a turnaround of cement company ASEC with a huge amount of debt. We committed £2m in capital, personal capital, we had no LPs. The deal was highly leveraged with four layers of debt, operating company debt, holding company debt plus acquisition finance and a layer of £10m for transactions. The four layers of debt ran by the book, luckily. We had eight investments in that company; in one we invested US$300,000 and made US$780m off the transaction.
We saw clearly, the deal ran beautifully and we got lucky. We did something obscene – it will probably never happen again.
Of the eight investments, so far we have exited only three. The remaining value is around US$1.3bn, we will spin off a mining company and a smelting company in three to four months. That will leave us with three additional companies which we may turn into one entity which could be listed on the Cairo Stock Exchange.
Another recent exit was the LBO of EFC, the Egyptian Fertilizer Company. We made an equity investment US$350m and used US$400m debt. The company for sold US$1.4bn making Citadel a 98% return.
Of the 14 investments, I am confident that we will make money from all of them.
EVCJ: What sectors provide the best opportunity for private equity funds?
Heikal: In this region we see a number of strategies coming into fashion. In the next year in North Africa we will see industrial co’s high energy companies and cement.
Transportation companies from Lybia and Algeria could force themselves into Europe and the US. Our second strategy is linked to commodities, raw materials, gold mining, copper, chromites and coal. That is a strategy we have gold concerns in Ethiopia through a mining company. We invest in agriculture, livestock and produce and packing in Sudan.
Energy and distribution and hydrocarbons are large in our part of the world.
EVCJ: You invest in a broad range of countries in the region and in areas of conflict including Sudan and Iraq. What types of opportunities are you finding there?
Heikal: We have a cement licence in Iraq. We own 85% of a Kyrgyz company that operates in Iraq. I have personally visited the country three times. We have to be careful how we invest there now but it will become a fantastic market.
EVCJ: With such a broad market and sector reach – you must operate as generalist investors.
Heikal: Citadel operates with specialized teams in the following areas: National Petroleum, Legal, Finance, Agriculture, Media and Cement. Citadel has 14 different platform companies in a variety of sectors including: cement, mining, oil, gas refining, glass, agriculture, Nile river transportation, publishing, smelting, malls and financials.
EVCJ: Do you always invest in buyouts or greenfields too?
Heikal: Sometimes it is appropriate to start your own company in this region which is not really seen in the west. For example if we want to invest in a refinery – there are no refineries for sale here – so we have to build one. We have as strong team focusing on new greenfield businesses.
EVCJ: Agriculture investments are becoming more and more popular among hedge fund and private equity investors. What is your approach?
Heikal: Citadel invests in agriculture through its platform company Gozour which produces food on a land bank of 4,000 hectares. It has 6,000 cows for milk. Gozuor also backs a company called Haliwa which produces cheese.
EVCJ: You currently run a co-investment SPV. How does it work for investors and who are they?
Heikal: Every investor in the Citadel SPV is invited to take a stake of 10% to15% of 14 different companies. Citadel charges a small management fee 1% and 20/12 per annum. The management fee covers the costs the incentive fee provides a little upside but we are co-investing for returns.
Our investors are high net worth individuals and we retain a high degree of control over those vehicles. Everyone enters the deal at the same valuation and everyone exits at the same. We do have a relationship with several co-investors in the region. One of the co-investors in the Citadel SPV put in US$500m. It tracks the investments of Citadel Capital at double Citadel’s amount.
EVCJ: Can you please tell us about the co-investment fund that you are launching?
Heikal: So far Citadel does not run traditional private equity funds but it has just launched a co-investment fund. The reason that the group avoids traditional LPs is that it likes to pull the trigger fast and there is no time for the investor to do the diligence. We typically take a week to transfer the money. We also like the concept of investing alongside our stakeholders.