Citadel Capital Reports Narrowing Execution Risk, Strong Fundraising in FY10 Results

Leading private equity firm in Middle East and Africa reports US$ 363.6 million in new assets under management in FY10 and sharp reduction of execution risk as it adopts a conservative position for 2011 in light of recent national and regional developments

(Cairo, Egypt) — Citadel Capital (CCAP.CA on the Egyptian Stock Exchange), the leading private equity firm in the Middle East and Africa, announced today its standalone financial results for the full year and fourth quarter of 2010, reporting a 9.9% rise in total assets under management (AUM) to US$ 4.0 billion (EGP 23.2 billion) in the full year and a sharp narrowing of execution risk. Citadel Capital added US$ 363.6 million in new AUM in FY10, including US$ 97.0 million in new principal investments.

Conditions in Egypt and the broader MENA region arising from recent political and economic developments have since prompted Management to adopt a more conservative outlook on 2011, a factor that underpins a reduced Portfolio Net Asset Valuation Per Share (PNAVPS) of US$ 1.30 (EGP 7.51) and the write-down of two principal investments related to an under-performing upstream oil and gas platform. The firm last reported a PNAVPS of US$ 1.86 (EGP 10.51) at the end of the first half of 2010.

Both oil and gas platforms will continue to operate, and Management is supportive of efforts to reach a technical solution that will allow reserves to be brought into production. Nonetheless, Management has written-down the Firm’s investments and intercompany balances in NOPC / Rally Energy (which faces technical challenges) and in the National Petroleum Company (NPC), by 100% and 50% respectively. Management had consistently impaired both investments on its Portfolio Net Asset Valuation (PNAV). NPC is impaired as a result of its equity stake in NOPC / Rally Management and not due to technical difficulties of its own.

Management notes that while it has impaired these principal investments, it continues to manage LP funds in the OSFs that manage them, which remain locked into the companies’ equity base through contractual agreement. Management will continue to charge advisory but provision for those sums pending a resolution to technical difficulties at both assets.

“As we have proven during past episodes of global and regional turbulence, we know when to take very calculated risks and when a more cautious approach is in order,” said Citadel Capital Chairman and Founder Ahmed Heikal. “The Firm’s focus in 2010 was on nurturing our existing investments as we worked to minimize execution risk across our 14-country, 15-industry footprint. As a result, we began operations at seven greenfield projects while recording substantial new fundraising that accounted for upward of 27.5% of all private equity funds raised for investment in the Middle East and North Africa last year. This emphasis will carry over into 2011 as we take steps to minimize the economic impact of the Egyptian Revolution on our platform investments while remaining watchful for unique investment opportunities in the medium term.

“Part of this process is the frank admission that two of our oil exploration platforms are under-performing. They sit on very substantial reserves, but ongoing technical challenges at NOPC / Rally in particular have so far stalled efforts to bring these reserves into production. Accordingly, we have decided this is an appropriate moment to take a conservative outlook on these two platforms, both of which will continue as operating companies.”

On a standalone basis, Citadel Capital accordingly reports a net loss of US$ 51.5 million (EGP 298.3 million) for FY10 on revenues of US$ 28.5 million (EGP 165.0 million) as a result of non-cash charges associated with write-downs taken as a result of a more conservative outlook.

“That said, the oil and gas investments we are writing down are held by a subsidiary two levels away from Citadel Capital SAE,” noted Chief Financial Officer Ahmed El Shamy. “Writing-down those investments from the lowest level makes the non-cash charges appear fully on the consolidated statements but not on the standalone financials. Audited standalone FY2010 financial statements only reflect write-downs that are based on intercompany accounts and / or investments held directly by Citadel Capital SAE and not held indirectly through subsidiaries. Upstream oil and gas write-downs on the standalone financials accordingly include only advisory fees and interest on convertibles.”

As a result, Citadel Capital reports a net loss of US$ 241.7 million (EGP 1.4 billion) on a consolidated basis.

The portfolio net asset value (PNAV) of Citadel Capital’s principal investments declined 28.6% from 1H10 to US$ 857.8 million (EGP 5.0 billion) on the back of a full impairment on NOPC / Rally Energy, a 50% impairment on the National Petroleum Company (NPC, owing exclusively to its equity investment in NOPC / Rally Energy), and a broadly conservative outlook on the economy. Management has also opted to refrain from providing guidance on the value of Citadel Capital’s asset management business (AMV) as a result of the current lack of visibility on the fundraising and exit climate. Analysts and fund managers may value this component of the business at their own discretion.

“PNAV is a snapshot based on a hypothetical exit today of each of these investments. Our emphasis in the period ahead is on the continued growth of each of our 102 platform and portfolio companies, including those on which we have increased our impairment. The period ahead will be challenging, but it will also carry with it opportunities,” Heikal noted.

Citadel Capital is also pursuing regulatory approval for a US$ 175 million (EGP 1 billion) rights issue at par value (EGP 5 / share), Heikal noted.

“The current climate has prompted us to postpone plans to IPO one or more platform companies this year and has seen us implement cost-control measures at the Citadel Capital and platform / portfolio levels,” Heikal said. “The Firm and our platform investments are solidly on the right side of macro trends including devaluation of the Egyptian pound, rising commodities prices, and an expected medium-term acceleration of the rate at which fuel subsidies are removed and the energy sector is liberalized.”

“Obviously challenges remain. Against that backdrop, we have called the rights issue to secure additional liquidity to support our growth even as we see exits delayed by 12-18 months. Citadel Capital Partners would participate pro-rata in the rights issue, which has already been advanced on Citadel Capital’s books,” Heikal concluded.

Highlights of FY10 include:

  • Total assets under management Total AUM rose 9.9% year-on-year to US$ 4.0 billion (EGP 23.2 billion) on the back of US$ 363.6 million (EGP 2.1 billion) in new AUM.
  • Fee-Earning assets under management Fee-earning AUM totaled US$ 2.1 billion (EGP 12.2 billion) at the end of FY10, a rise of 3.0% quarter-on-quarter and 9.7% year-on-year. Management notes that commitments to the MENA and Africa Joint Investment Funds (JIFs) are fee-earning from the time of commitment, and that the fee-earning AUM base now includes c.US$ 740.8 million in third-party equity investments related to platform companies on which the Firm has written down part or all of its principal investments. While those funds remain under management as part of the equity of companies that continue operations — and while those portfolio companies have contractual commitments to pay advisory fees on that equity — Management will continue to charge advisory but provision for those sums pending a resolution to technical difficulties at both assets.
  • Citadel Capital accounted for c.27.5% of all private equity funds raised for investment in MENA in FY10, according to figures from the Emerging Markets Private Equity Association. Funds raised included US$ 140 million from leading global institutional investors (including development finance institutions) for the joint first close of the MENA and Africa JIFs; US$ 100 million in equity committed to the Egyptian Refining Company by the International Finance Corporation, and US$ 100 million in financing from the US Overseas Private Investment Corporation.
  • Delivery of seven greenfield investments as part of a concerted effort to narrow execution risk. Operations delivered included:
    • Sphinx Glass (EGP 1.1 billion float glass plant).
    • Tanash Port (unique river transportation and logistics center).
    • Designopolis (the Middle East and Africa’s first home furnishings destination under Platform Company Bonyan).
    • Berber for Electrical Power (a power-generation plant in Sudan under Platform Company TAQA Arabia).
    • ASEC Ready Mix (concrete production and distribution in Upper Egypt under Platform Company ASEC Holding).
    • Al-Takamol Cement (cement production in Sudan, also under ASEC Holding).
  • Platform Company Nile Logistics received two custom-designed 100-meter river barges in August 2010 and a further two in March 2011. Nile Logistics will ultimately take receipt of up to 100 environmentally friendly barges to augment its existing fleet of 31 reconditioned vessels.
  • Expansion into East Africa through the acquisition of majority control of Rift Valley Railways (RVRI), the national railway of Kenya and Uganda. The Firm has opened a permanent office in Nairobi staffed by a Managing Director and private equity professionals and has begun implementing a US$ 287 million rehabilitation plan for RVRI. On a related note, the Firm also obtained in 2010 a right-of-way agreement for newly-established Nile Valley Railways in Sudan. Also in Sudan, Citadel Capital has pressed forward with new investments in Wafra (agriculture), Berber (electricity generation) and Al-Takamol (cement manufacturing). Investments in Sudan and East Africa now account for c.18% of total equity invested by Citadel Capital and its limited partners.
  • Enhancement of management talent: Citadel Capital has implemented changes in staff where appropriate (including new chief executives for ASEC Holding and Gozour and a new chairman for Gozour) as well as acquired top global talent for previously-vacant positions at platform companies including Finance Unlimited.
  • Cleaning house: As noted, in view of the substantial economic fallout from the Egyptian Revolution of January 25 and ongoing regional turmoil, Management has adopted a conservative outlook that has prompted a full write-down on NOPC / Rally Energy and a 50% write-down on NPC (the write down on NPC is a result of its equity investment in NOPC / Rally) in addition to other non-reimbursable expenses. This decision marks down equity investments, convertibles, loans and advisory fees on a consolidated basis. On a standalone basis, the write-down is reflected only on advisory fees and interest on convertibles as well as investments classified as “Others” which are not related to NPC or NOPC / Rally. Both companies remain operational — Management is hopeful that a technical solution will allow reserves to be brought into production, but would prefer to enjoy the benefits of upside risk.
  • Fine-tuning balance sheet: Citadel Capital has recovered significant bridge financing extended to platform investments during the financial crisis of 2008-09 to compensate for timing differences in drawdown on LP commitments. Loans to platform and portfolio companies fell 30.2% to US$ 56.2 million (EGP 307.4 million) as at 31 December 2010 compared with the same date the previous year, while convertibles eased 11.9% to US$ 84.5 million (EGP 509.1 million) in the same period.

Management’s discussion of operational performance as well as details of Citadel Capital’s FY10 standalone and consolidated financials are to be found in the full Business Review, available at


Citadel Capital (CCAP.CA on the Egyptian Stock Exchange) is the leading private equity firm in the Middle East and Africa. Citadel Capital focuses on building regional platforms in select industries through acquisitions, turnarounds, and greenfields executed via Opportunity-Specific Funds. The firm’s OSFs control 19 Platform Companies with investments worth more than US$ 8.7 billion in 14 countries spanning 15 industries, including mining, cement, transportation, food and energy. Since 2004, Citadel Capital has generated more than US$ 2.5 billion in cash returns to its co-investors and shareholders (on investments of US$ 650 million), more than any other private equity firm in the region. Citadel Capital is the largest private equity firm in Africa by PE assets under management (2006-2011, as ranked by Private Equity International). For more information, please visit

For more information, please contact:

Ms. Ghada Hammouda
Head of Corporate Communications
Citadel Capital (S.A.E.) (click to reveal this email)

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