By Steve Mbogo
In Summary
- Citadel Capital’s 19 Opportunity-Specific Funds control platform companies with investments of more than $9.5 billion.
- These companies are in 15 countries and industries including energy distribution, solid waste management, agrifoods, cement, refining, transportation and glass manufacturing.
- Since it began operations in 2004, the firm has invested equity of more than $4.9 billion, including $1.1 billion of its own capital. In the same period, Citadel Capital has generated more than $2.2 billion in cash proceeds from five successful exits — three full and two partial — on investments of $650 million.
- Development finance institutions have committed the lion’s share of the more than $761 million in equity and debt committed to Citadel Capital’s platform and portfolio companies in 2011.
- The private equity fund is seeking a bigger role of being a regional investment holding company. The transformation has been necessitated by the growing opportunities in Africa presented by better managed economies, resources exploitation and a growing middle class.
Citadel Capital, the pan-African investment
company that manages $9.5 billion worth of assets, is transforming from a
private equity fund with short term outlook into a regional investment
holding company with an outlook of up to 15 years before exit.
Steve Mbogo spoke to the managing director Karim Sadek on the company’s future investment plans in the EAC.
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Citadel Capital’s investment in Rift Valley Railways (RVR) was expected to result in a quick turnaround but there are still complaints that the railway cannot handle enough cargo and are too slow.
We have arranged full financing for a $287
million, five-year turnaround programme of RVR that will overhaul
rolling stock, replace tracks and infuse best practices that will allow
us to better serve both passengers and freight clients.
RVR has replaced 140 kilometre of unsafe track and
completed installation of a state-of-the-art GPS-based central control
and signalling system to replace a more than 100-year-old operations and
signalling infrastructure.
Key turnaround times have improved more than 30
per cent, while accidents per million train kilometres are down more
than 30 per cent. The company is rehabilitating and overhauling more
than 90 wagons on average per month at its Nairobi and Kampala
workshops.
Kenya is reforming its pension regulations to allow pension managers to invest in private equity. What impact will this have on the private equity industry?
Giving managers the flexibility to invest in
long-term asset classes such as private equity is a net positive for
both the pension funds and the private equity industry.
Pension fund managers will be able to lock in more
stable long-term returns by choosing to invest with partners who have
on-the-ground experience in Africa, while private equity funds will have
a new pool of liquidity to make a concerted pitch to.
It hardly seems fair that Western pension funds
have long been able to consider private equity opportunities, while
pension funds on our own continent often face obstacles to investing in
high-potential private businesses as long-term investors.
There is a lot of interest by PEs across the globe in investing in Africa. Is this interest sustainable?
If there is one thing both private equity general
partners and more sophisticated limited partners now understand, it is
that Africa is open for business.
The continent, as our chairman is fond of saying,
is “rocking with opportunities.” This is not going to change soon: Seven
of the 10 fastest growing economies in the world are in Africa, and
Africa’s governance framework is sufficiently robust to give confidence
to long-term investors.
Moreover, investors are heartened by a new
generation of young African leaders who by and large speak the language
of the private sector and are opening previously hands-off sectors of
the economy to private investment. This is definitely the African
century, and those who get in on the ground floor today will reap
dividends.
Do you think Africa’s private sector has the capacity to absorb all this money from PEs?
The biggest obstacle to investing in Africa is the
question of exits, and International Monetary Fund research on private
equity has proven conclusively that whether through listing on a
regional exchange — I’m thinking here of Kenya, Egypt, Nigeria, South
Africa — or through a strategic sale, exits are possible.
Having accepted that, the question becomes one of
“Are deals available?” And the answer is an emphatic yes. Governments
are realising they have overstretched balance sheets and are allowing
private players into new sectors.
Rollup and consolidation plays are very much on
the menu. What it comes down to is having a private equity general
partner who is African — who has the right mix of local insights and the
global skill-set needed to structure compelling opportunities.
Throughout the process, though, I think we’ll see
much more flexibility on the part of private equity general partners in
terms of how they raise funds. It’s not going to be blind pools of
capital, but an increasing preference for opportunity-specific funds or
some of the more non-traditional fundraising strategies that Brait used
with considerable success in South Africa.
How did the Arab Spring affect the performance of your investments?
2011 was challenging for some of our investments
that lost the better part of the first quarter to unrest and the more
than two-week shutdown of Egypt. And there were, of course, headwinds
for the rest of the year.
But 2012 and the first quarter of this year, we’re
seeing increasingly strong margins and better performances at the
revenue and earnings before interest, taxes, depreciation and
amortization (EBITA) levels, which is a function of our being biased
toward companies that are export plays; that benefit from deregulation
of energy and subsidy regimes; and that have hard-currency revenues but
local debt. Our portfolio is designed to thrive in just these
challenging macroeconomic conditions.
In 2010, Citadel said it will invest $400 million
in EAC but not much has been seen apart from the RVR deal. We continue
to look for new opportunities to complete the first stage of our
investment programme in East Africa beyond RVR.
Concentrated attention on RVR and the interruption
by the Arab Spring has seen us begin screening opportunities again in
2012. We don’t discuss future investments until we have something to
announce. Anything we pursue would be in energy; agriculture and
consumer foods; transportation and logistics; mining; and cement
manufacturing and construction.
What legal and taxation issues would you like reformed to enable countries become stronger magnets of private equity funds?
There’s no “one thing” that private equity
investors would like to see changed — just a continued commitment to
transparency, fairness, consistency and clarity. Those are the keys
across the legal and tax universe
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