Not your average PPP investor

At a time when it’s fashionable to question the wisdom of applying the private equity model to infrastructure investing, it’s interesting to hear Marwan Elaraby, managing director at Egyptian investment firm Citadel Capital, assert the following:

“We don’t see ourselves as an infrastructure fund at all. We are a private equity firm and we approach infrastructure investments as private equity,” Elaraby states.

He was talking after Citadel had successfully raised $2.6 billion in debt to back the construction of one of Africa’s largest project finance deals to date.

The story behind the conclusion of the deal to build a $3.7 billion state-of-the-art-second-stage oil refinery in the Greater Cairo district of Mostorod illustrates Citadel’s approach to infrastructure neatly and is, in many ways, a classic private equity play.

It all begun in 2007, when the firm “started looking at the refining sector, which is totally public in Egypt,” Elaraby explains. “After doing our analysis of the sector, we concluded that it was heavily geared towards the production of heavy fuel, with little light fuel coming out of it,” he continues.

“So we approached the government with the idea of building a refinery that would produce more light fuel. Since that would require a significant investment in new technology, the government handed the project out to the private sector,” Elaraby says.

This led to the creation of the Egyptian Refinery Company (ERC), the majority of which is owned b y the private sector (85 percent) with the state holding a minority stake in the firm (15 percent). Citadel then created an Opportunity Specific Fund to control the ERC – in which it owns a 10 percent equity stake – inviting other investors to become limited partners (LPs) in the fund. Through shareholder agreements with the fund’s LPs, it has obtained management control of the refinery.

With a 25-year offtake agreement to sell the plant’s product – estimated at 4 million tons of refined product per year – at international prices to the government, ERC did not have difficulty in attracting equity and debt investors for the project. In fact, the deal came close to reaching financial close in 2008.

But then, as Elaraby puts it: “The market died and we had to restructure the deal. We had to go back to our equity investors and find new banks. In 2008, there were more commercial banks in the deal.” Of the six banks that backed the project recently, only one is a commercial entity, although Elaraby emphasises that the deal was “oversubscribed on all facilities”.


Citadel’s approach of “rolling up our sleeves and creating solutions that don’t exist” – like the Cairo refinery or the freight transportation service it operates across the river Nile – is not simply born of a desire to be creative. It’s also a pragmatic imperative if it wants to remain competitive in the infrastructure space. After all, you won’t catch Citadel investing in vanilla public-private partnerships (PPPs) anytime soon.

“It doesn’t make sense for us to invest in your average PPP because we wouldn’t be able to compete with the developers, which have a much lower cost of capital,” Elaraby explains. “We are a value-creating type of investor and we have great pride in our ability to return cash to our investors,” he adds.

Since 2004, Citadel Capital has returned more than $2.5 billion in cash to co-investors and shareholders, more than any other private equity firm in the region, it says. But to maintain that high level of return, it needs to continue to create opportunities that don’t already exist.

“There is no exposure to refinery projects in Egypt. That’s very important in terms of our exit strategy and creates a huge opportunity for monetisation. That’s how we create value,” Elaraby concludes.