Heikal: MENA investors should pursue phased projects

Citadel Capital CEO Ahmed Heikal believes phased investments in greenfield projects in the Middle East and North Africa can help private equity firms lock-in large, attractive opportunities while conserving cash in a difficult operating environment. The Cairo-based private equity firm is raising its first institutional fund of $500m.

Greenfield investors in the Middle East and North Africa (MENA) region hoping to adapt their strategies to the economic crisis should look for larger deals that can be executed in multiple phases as a way to conserve cash, Ahmed Heikal, chairman and founder of Cairo-based Citadel Capital, told InfrastructureInvestor.

“We will have to adjust the model a bit, meaning we do very, very large deals that require very, very little capital commitments upfront, i.e. projects that you can phase,” Heikal said.

He discussed Citadel’s development of an inland freight transportation business on the Nile River as an example of such a project. The National River Transportation Company will invest in cargo transportation, river ports and sea-ports connected to inland waterways on the Nile. Citadel is making phased investments in the business.

“A water transportation business on the Nile is modular. You can start with three barges and extend to five barges instead of doing 50 barges in a single gulp,” Heikal said.

Heikal believes that phased greenfield developments in the MENA region are a good strategy since they lock-in large, attractive deals while conserving cash in the difficult operating environment caused by the global economic crisis.

Greenfield projects are one of four types of investments considered by Citadel. The firm also invests in distressed companies, industry consolidation opportunities, and leveraged buyout opportunities across the MENA region, with a specific focus on Egypt, Algeria and Libya.

The firm invests its own permanent capital of EGY£2.75 billion (€400 million; $500 million) in its platform investments alongside regional co-investors. To date, its platform investments have been financed individually through sector-specific or opportunity-specific funds. Last year, Citadel began to raise its debut institutional fund targeting $500 million to increase international institutional participation in its investments and to have capital ready to deploy at all times, Heikal said.

“One of the paradoxes of raising money is that it is very difficult to raise money when the time is exactly right,” Heikal added.

Heikal expects the fund to have its first close in the second quarter of 2009.

“No doubt about it, this is an extremely, extremely difficult time to raise money, which should also tell you something about why it is exactly the right time to be investing,” Heikal said.