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InterviewsMarch 10 2009

Ahmed El houssieny

The managing director of Cairo based Citadel Capital talks to The Banker about opportunities in the region and the impact of the economic crisis on Egypt’s financial sector. Writer Charlie Corbett.
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Citadel Capital epitomises the new era that dawned in Egypt six years ago, after the government instigated its sweeping reforms of the financial sector. Established in 2004 by former EFG Hermes investment bankers Hisham El-Khazindar and Ahmed Heikal, the company has grown impressively. Now one of the biggest private equity firms in the Middle East and north Africa (MENA), Citadel Capital controls investments worth more than $8.3bn in industries that include mining, oil and gas, cement, transportation and food. It boasts returns to investors of more than $2bn since 2004 and has raised a total of $3.6bn in equity.

Managing director Ahmed El Houssieny joined from Barclays Bank Egypt 18 months after Capital’s foundation, and he has been instrumental in propelling the firm to the front line of MENA private equity. He says Citadel Capital takes a top-down approach to investing and buys Egyptian companies that are export driven, with ambitions across the region.

Not that the firm is doing much buying at the moment. The investment environment for private equity has transformed over the past 18 months. Asset prices might have tumbled, but access to debt and equity has also dried up. Citadel Capital’s last headline-grabbing deal was its sale of Egyptian Fertilizer Company to rival private equity house Abraaj Capital for $1.4bn, the largest secondary buyout in the region’s history.

Preserving war chest

“Since early 2008, we have taken a lot of time to focus on our existing investments,” says Mr El Houssieny. “We believe that later in 2009 there will be opportunities in distressed assets across the region. Right now, times will get more difficult before they get better. We want to make sure our war chest is intact. We are keeping our powder dry for further distressed opportunities.”

It doesn’t seem that long ago that private equity funds were the high priests of the world’s financial system. There was nothing ‘private’ about the mega deals that were taking place, and it wasn’t so much equity but large amounts of cheap debt they relied on. But since then, private equity has retreated into the shadows. Mr El Houssieny says the above description does not apply to Citadel Capital, however. “On the leverage side, we didn’t rely on financial engineering to create our growth. We have never been higher geared than 50/50,” he says.

Liquidity challenge

This conservatism could well be the secret of Citadel’s survival in this market, but it will be some time before the company begins to pursue opportunities in the MENA region again. “Whenever asset prices are attractive, the liquidity dries up – this is the paradox,” says Mr El Houssieny. “This year will be a great vintage year for private equity generally, but liquidity will be a challenge. Both debt and equity are less available.”

Far from being ‘decoupled’ from the US and Europe, the Gulf has been hit hard by the global economic turmoil, in particular by plummeting oil prices. According to Mr El Houssieny, the full extent of the crisis has yet to be felt in the region and he believes it will be at least another 18 months to two years before signs of recovery are seen.

“It’s very hard to call the shots at the moment,” he says.

The Egyptian banking sector has been relatively insulated from the global economic crisis as its lack of sophistication meant that banks were not exposed to the complex structured products that brought down banks in the West. The impact of the crisis on the country’s export-driven economy, however, will doubtless hit the financial sector, making financing deals harder. “The banking sector is still writing cheques but coverage ratios, rates and covenants are now tilting to favour the banks much more so compared with six months ago,” says Mr El Houssieny.

Looking ahead, 2009 will be a tough year for private equity houses across the world. Access to financing is non-existent and once-valuable portfolios of assets have fallen steeply in value. In Egypt, however, the financial system is stable enough to survive.

Mr El Houssieny credits the government’s reform agenda for this. “They have come a long way. They have installed the right systems, hired the right people, regulation has changed and there is new banking law,” he says. “I don’t think there are any more surprises at anyone’s doors.”

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Read more about:  Analysis & opinion , Africa , Egypt , Interviews