Reuters | 29 October 2009
by Patrick Werr
Cairo-based Citadel Capital, a private equity fund that manages $8.3 billion, has set up at least two new funds for investment in the Middle East and East Africa, saying the appetite for such funds is accelerating.
Chairman Ahmed Heikal told a Reuters Middle East Investment Summit that Citadel has been seeking finance from regional sources and development organisations after Western commercial banks, the region's traditional financers, largely withdrew from the area.
Citadel has invested $60 million of its own capital into the funds, its first in two years, out of a total $200 million it plans to invest in the coming year.
Eventually it wants to leverage the $200 million into investments of $2 billion, using other equity partners and debt.
"They (the two new funds) will be announced probably within the next couple of months," said Heikal. "You need a period of stealth in there where you establish the company and you go make two or three of the deals."
High-net-worth individuals in the Middle East and Gulf institutions have added about $240 million of additional investments to set up the funds, which are each directed to a special business sector, he said.
Citadel has also set up an Egyptian company for each fund to direct the investments. Asked if Citadel would accelerate its investments as stock markets picked up, he said: "Absolutely."
Citadel was interested for the future in countries with big domestic markets, such as Algeria, Egypt, Sudan, Ethiopia, Syria, Uganda, Kenya and Iraq, he said.
Developmental institutions such as the European Investment Bank and African Development Bank offer a better avenue for debt financing as Western banks have withdrawn from the region and risk appetite has declined across the world, he said.
"A lot of medium and small businesses are not getting finance in the (United) States, so don't tell me that today those big banks are going to come and finance deals in Africa."
"Today the banking sector cannot accommodate the size of deals that we're talking about, or the risk appetite."
Regional private equity has moved towards international development organizations and less traditional forms of financing big projects, particularly in high-risk areas.
"Those of us who will be able to tap on a regular basis big developmental institutions for debts and export credit agencies for debts are going to witness significant growth in this part of the world," he said.
Citadel's recent investments include a big Sudanese agricultural project, with over 200,000 hectares of land allocated in the north and south of Sudan, betting on a continued global rally of soft commodities.
Asked why he was attracted to Sudan, he said: "Almost free land, available water, fantastic climate, fantastic land quality -- why not Sudan?" Investors have historically neglected such opportunities because they could not tolerate the risk, he said."They want the natural resources and they want to take it outside. Period," he said. "That's what was happening with oil, that's what was happening with mining, that's what was happening with agriculture, that was happening with everything." (Reuters)