Big changes are coming to Citadel Capital.
The Cairo-listed firm and largest private equity fund manager in Africa is pursuing a strategic initiative that will see it exit the private equity asset class entirely over the next few years by transforming into an investment holding company. Citadel will ask its shareholders to approve a share issuance of EGP 3.64 billion (€396 million; $528 million), proceeds for which will be used to increase the firm’s stakes in certain portfolio companies to between 51 percent and 100 percent. While increasing its position in businesses in its five core industries of energy, transportation, agrifoods, mining and cement, Citadel will exit non-core investments and transition into an investment company.
“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,” Ahmed Heikal, Citadel’s chairman and founder, said in a statement.
“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” he said.
If approved, Citadel’s share issuance will bring the firm’s total paid in capital from EGP 4.3 billion to EGP 8 billion. The proposed increase is one of the first steps in a process that will allow co-investors and limited partners in Citadel’s portfolio companies to become shareholders in the firm. The process of divesting non-core businesses is expected to take at least three years.
“The exit process will be orderly and primarily through trade sales,” Citadel co-founder and managing director Hisham El-Khazindar said in the statement. “We will continue to drive growth at select non-core investments prior to exit through the deployment of long-term funding.”
The strategy overhaul comes following two consecutive years of losses at the firm. Citadel generated losses of EGP 702.4 million in 2012 and EGP 800.5 million in 2011.
Citadel was established in 2004 and has always raised capital for specific platform deals in addition to raising limited partner-style funds. The firm’s 19 opportunity-specific funds have invested $9.5 billion in 15 countries.