MAGHREB ON THE MOVE

The Maghreb region may not spring immediately to mind as a private equity destination, but its attractiveness was underlined by the recent closing of Tuninvest's Maghreb Private Equity Fund II on €125 million ($193 million) – beating an initial target of between €80 million and €100 million.

Tuninvest general manager Ziad Oueslati said the fundraising had taken “some time” between the first closing in June 2006 and the final close due to “legal constraints” affecting some investors. As well as existing LPs such as the International Finance Corporation (IFC) and the European Investment Bank, the fund also drew support from new investors such as the African Development Bank and CDC Group, the UK Government-linked fund of funds.

Known as Marocinvest in Morocco and Maghrebinvest in Algeria, Tuninvest will use the fund to target small and medium sized enterprises worth between €10 million and €50 million in a wide range of sectors including manufacturing/agribusiness and packaging. Oueslati said the fund, which is already 50 percent invested, is considering opportunities in neighbouring Libya in addition to its three core markets.

Founded in 1994, Tuninvest was focused solely on the Tunisian market until 2000 when it was encouraged by the IFC to broaden its geographic remit. In the same year, it closed its Maghreb I fund on $24 million. In 2005, it broadened its reach further when closing the Africinvest fund, focused on Sub-Saharan Africa, on €34 million.

Speaking of the rationale for a Maghreb fund, Oueslati said: “Investors like our specificity. The Maghreb countries share legal systems, tradition, culture and dialect.”

What they didn't share, some years ago, was an appreciation of the merits of working with private equity. This, however, has changed. Said Oueslati: “In 1994, gaining acceptance was difficult but now things are a lot more positive. You are seeing generational change with businesses passing into the hands of people who have attained diplomas in Europe and the US. What is more, they see other companies being sold to international buyers and the owners making a lot of money in the process.”

STEADY GROWTH
Oueslati adds that the improving perception of the asset class is taking place against a backdrop of better economic prospects. “The region has seen steady economic growth over the last five to seven years. In addition, there is a greater likelihood of securing exits. Big industrial players have come into the region from Europe and also now from the Gulf. Plus, the bourses in Casablanca and Tunis have been performing well.”

One of Tuninvest's portfolio companies provided evidence of the potential for lucrative IPOs within the region when Moroccan computer hardware distributor Matel listed on the Casablanca stock market in February 2007. The listing delivered Tuninvest a return of four times its initial investment.

According to Oueslati, there is an opportunity to grow local companies throughout the Maghreb and Mediterranean area and says he would like Tuninvest to be recognised as a “regional consolidator”. He adds that there are good opportunities for buyouts in Tunisia and Morocco, while in the less developed Algerian market, where “entrepreneurs want to grow their business”, the opportunity is more focused on development capital.

According to its website, Tuninvest currently has around 35 companies its portfolio – an indication that the message of beneficial private equity ownership is getting through. Being a nascent market, however, it's no surprise to learn that not everything is entirely straightforward. According to Oueslati: “The hardest part is the lack of transparency – and part of our due diligence is whether owners will be open to change.”

EGYPTIAN GLASSWORKS LAUNCHED BY CITADEL
Citadel Capital, the Cairo-based private equity firm, has launched Sphinx Glass, a Greenfield float-glass project which will export high-quality speciality glass when production begins in 2010. A 210,000 square-metre state-of-the-art factory, located near Cairo, will have the capacity to produce up to 220,000 tons of glass per annum. GlassWorks, a platform company created by Citadel and a group of regional investors to pursue opportunities in the MENA glass industry, owns 51 percent of Sphinx Glass. Dubai Capital Group, the regional investment management arm of Dubai Group, holds 49 percent. “GlassWorks' EG£1.1 billion investment in the Sphinx Glass plant reflects our belief in Egypt's strong competitive advantage in the regional glass industry,” said Hisham El-Khazindar, Citadel managing director and co-founder.

SOUTH AFRICAN PRIVATE EQUITY BUOYANT IN 2007
A new survey shows the South African private equity industry in good health and predicting only minor speed bumps ahead. The KPMG/Savca Venture Capital and Private Equity Industry Performance Survey 2008 found that in spite of the credit crisis, economic downturn and higher interest rates, the industry saw a 46 percent increase in private equity funds under management in 2007 to R86.6 billion (€7 billion; $10.8 billion). The largest fundraising during the year was the R15.3 billion raised by Pamodzi Holdings for its Pamodzi Resources Fund I. Excluding the Pamodzi fund, in which 64 percent of the total capital was committed by US investors, some 92 percent of funds raised came from South African sources. The survey said this demonstrated “a deeper appreciation of the asset class by South African pension funds and private investors”. The equity portion of deals in South Africa during 2007 increased 270 percent. The largest deal completion was Edcon, the retailer acquired by Bain Capital for R27.1 billion including debt.

AGC INCREASES STAKE IN COAL OF AFRICA
Coal of Africa, a listed South African coal development company, has agreed to sell shares and options which, if exercised, will result in African Global Capital (AGC I) holding more than 26 percent of the company. AGC I is the first fund managed by the recently formed private equity initiative involving Mvelaphanda Holdings, OZ Management, an operating entity of Och-Ziff Capital Management, and Palladino Holdings. Prior to the latest agreement, AGC I already held approximately 9.1 percent of Coal of Africa's issued share capital. Coal of Africa, AGC I and affiliates will transfer their shares and options into a black empowered entity to ensure that the company is fully compliant with black empowerment requirements. Coal of Africa, whose key projects are in South Africa, is listed on the Johannesburg Stock Exchange, the Australian Stock Exchange and London's Alternative Investment Market. It focuses on the acquisition, exploration and development of thermal and metallurgical coal projects.

ECP BACKS MICROFINANCE LENDER
Emerging Capital Partners has purchased $15 million (€9.7 million) in convertible bonds and common shares of Blue Financial, a microfinance lender in Sub-Saharan Africa. The investment was made from ECP's second fund, closed in 2005 on $523 million, and is part of the lender's ongoing capital raising programme to expand operations. Blue Financial, listed on the Alternative Exchange Index of the JSE Securities Exchange, has $140 million in assets and 190 branches throughout South Africa, Botswana, Namibia, Zambia, Malawi, Uganda, Tanzania, Kenya, Cameroon and Lesotho. “We have studied the success of microfinance institutions throughout Africa, and we believe that Blue Financial is well poised to expand upon its position as a leading multinational micro lender,” Genevieve Sangudi, managing director of ECP, said in a statement. ECP targets sectors throughout Africa including telecom, natural resources, financial services, agribusiness, transportation and infrastructure. Its second fund was roughly 80 percent committed as of October 2007.