Citadel Capital Narrows Consolidated Losses 3% H1, Reports Healthy Progress In Q2

Citadel Capital (CCAP.CA), the leading private equity firm in the Middle East and Africa, has managed to narrow its consolidated losses during the first half of 2012 by 2.9% to eventually reach EGP 283.5 million, compared to the year earlier losses of EGP 291.8 million.

Citadel Capital further added that the firm’s principal investments in its own transactions rose 14.8% in the first half of the year to US$ 1.1 billion (EGP 6.3 billion), with US$ 138.9 million in new investments this year being driven in large part by US$ 93.4 million in new equity invested in the Egyptian Refining Company (ERC), which reached financial close during the second quarter of 2012 in what stands as the largest single equity raising in Egypt since 2007 and the largest in the MENA region year-to-date.

ERC reached financial close with total equity commitments of US$ 1.1 billion and a US$ 2.6 billion debt package. Participants in the equity component include leading investors from Egypt, the Gulf Cooperation Council (GCC) and international development finance institutions (DFIs).

“Financial close on ERC represents a substantial de-risking for Citadel Capital as we closed one of the largest-ever project finance transactions in Africa,” said Citadel Capital Chairman and Founder Ahmed Heikal. “We now look forward to a busy fall and winter period as we continue a strategic transformation that will see us take on more and more of the characteristics of a traditional investment / holding company. Management is fully committed to driving the growth of core platform and portfolio companies that are increasingly on the right side of macro fundamentals, as recent moves toward subsidy reform and energy deregulation in Egypt suggest.”

Invested AUM (assets under management) accordingly rose US$ 228.8 million in the quarter to US$ 3.6 billion (EGP 21.8 billion).

Total investments under control across the firm’s 15-industry footprint stood US$ 9.5 billion as of Q2/2012. The firm also reported a 6.9% quarter-on-quarter rise in total invested equity as it began drawing down funds following financial close on a US$ 3.7 billion petroleum refining investment.

Furthermore, the firm’s standalone net loss narrowed 69.8% quarter-on-quarter and 63.4% year-on-year to US$ 1.5 million (EGP 9.2 million).

With no exits in the quarter, Citadel Capital registered standalone net loss of US$ 1.5 million (EGP 9.2 million) for Q2/2012 on revenues of US$ 3.2 million (EGP 19.3 million). This represents a substantial narrowing from the previous quarter, where losses were inflated by net one-time up-front fees of US$ 9.0 million (EGP 54.3 million) related to the refinancing of Citadel Capital’s pre-existing US$ 175 million credit facility and the arrangement of new debt backed by the United States Overseas Private Investment Corporation (OPIC). These facilities are being deployed to drive growth at core platform and portfolio companies in view of the value management sees in holding select investments over a longer period.

Citadel Capital revenues from advisory fees eased 20.9% quarter-on-quarter as all AUM related to the Egyptian Refining Company became non-fee-earning at the time of first draw-down, in keeping with the firm’s contractual agreements. Moreover, management again adopted a conservative stance with regard to the outlook on the National Petroleum Company (NPC) and accordingly opted not to record advisory fees related to NPC in Q2/2012.

On a consolidated basis, Citadel Capital reports a net loss of US$ 20.6 million (EGP 124.2 million) on revenues of negative US$ 10.6 million (EGP 63.8 million) in Q2/2012, a 19.2% narrowing from the previous quarter and a 45.4% improvement from 2Q11. On a first-half basis, the firm’s net loss contracted 2.9% year-on-year to US$ 46.9 million (EGP 283.5 million).

The better consolidated performance came as key platform and portfolio companies held as Associates posted improvements in performance. Citadel Capital recorded US$ 11.2 million (EGP 67.6 million) in losses from its Share of Associates’ Results in Q2/2012, a fractional improvement from the previous quarter and a 47.4% narrowing year-on-year. On a first-half basis, Citadel Capital’s Share of Associates’ Losses narrowed 29.6% year-on-year to US$ 22.3 million (EGP 135.2 million), reflecting better performance of the underlying Associates.

Notably, the firm’s Q2/2012 Share of Associates’ Results includes US$ 8.1 million (EGP 49 million) in non-cash foreign exchange losses due to a Al-Takamol Cement Co. in Sudan’s revaluation of its foreign currency obligations to related parties following devaluation of the Sudanese pound. Al-Takamol’s related parties in this instance include Berber for Electrical Power, ASEC Cement, ASEC Engineering and ASCOM. In addition to these forex losses, the firm’s first half results included interest charges booked in 1Q12 from one-time fees related to Citadel Capital’s refinanced US$ 175 million loan and a US$ 150 million OPIC-backed facility.

Setting aside both sets of extraordinary charges, the firm would have recorded a 36.4% narrowing of its consolidated net loss year-on-year in H1/2012.

“The return of our Associates to pre-Revolutionary levels of performance — a time at which the core companies among them were on clear paths toward break-even and profitability — has come through hands-on management during the turbulence of the past year,” said Heikal. “We look forward to accelerated development in the coming 12 months on the back of new equity deployed at key companies via our US$ 150 million OPIC facility. This move is very much in line with our view to both increase our stakes in core investments and to shift toward longer holding periods create maximum value for both our limited partners and our public markets investors.”