Citadel Capital Joint Investment Fund


Overview

  • Reference: P-Z1-K00-026
  • Approval date: 13/12/1901
  • Start date: 01/01/2002
  • Appraisal Date: 13/06/2009
  • Status: OngoingOnGo
  • Implementing Agency: CITADEL CAPITAL JOINT INVESTMENT FUND LP
  • Location: Cairo, Egypt

Description

The Citadel Capital Joint Investment Fund ("Citadel Capital" or the "Fund") is a second generation fund seeking controlling stakes in industrial consolidations, distressed and turnaround companies, buyouts and selective Greenfield companies. The Fund will focus on various sectors mainly in agribusiness, cement, energy, fertilizer and heavy industry enterprises primarily in North Africa, particularly Egypt, Algeria and Libya with select investments in Sub-Saharan Africa .

The Fund seeks to invest through newly formed Opportunity-Specific Funds, in operating companies or projects based on industry or other investment theme. The Fund will make equity investments alongside Citadel Capital, S.A.E in a fixed ratio of 2:1. Citadel Capital, S.A.E will commit at least 10% of the equity for each Opportunity-Specific Fund. Based upon the target Fund size of USD $500 million, Citadel Capital, S.A.E would therefore match the investments by up to USD $250 million. No more than 25% of the aggregate commitments may be invested in any Platform Company or one group of affiliated companies. The Fund will have industry concentration limits of no more than 40% in a single broadly defined industry and no more than 65% in any two industries. These industry weightings are driven by two core investment themes; capitalizing on the natural advantages of the region, in addition to capitalizing on markets that have suffered from a lack of private investment, where the existing participants lack the necessary scale and sophistication to compete effectively, or where state control and subsidies have left a legacy of inefficiencies. The time horizon for investment is between 2 to 5 years with a minimum targeted gross IRR of 30%.

The initial closing is expected to occur in September 2009. Subsequent closings may be held at the discretion of the General Partner no later than one year after the initial closing. The Fund will have a commitment period of 4 years and a term of 7 years from the first closing which may be extended for two additional years


Objectives

Expand private companies operating in agribusiness, manufacturing, and energy sectors across Africa


Rationale

Country and Regional Priorities By investing in agribusiness, cement, energy, fertilizer and heavy industry enterprises throughout Africa; Citadel Capital will contribute to job creation, income generation and poverty reduction. The agribusiness investments will further help improve food security. The Fund is well aligned with several of the Bank's Country Strategy Papers which seek to promote infrastructure development, growth in manufacturing sectors, agriculture and private sector development.

ADB Priorities As a regional fund, Citadel Capital Joint Investment Fund will help to support regional integration initiatives as well as economic growth. The Bank has a strategic focus to promote private sector development in RMC's. The Fund is consistent with this objective as it seeks to support the development, expansion and consolidation of businesses and industries which are being privatized or reformed.

Private Sector Operations Priorities The Fund is in line with the Private Sector Department's strategy to support sectors which have a strong impact on economic growth and poverty alleviation as well as regional integration. In addition to the inherent risk mitigation benefits, there will be substantial economic and social benefits accruing to RMCs as a result of the Fund's regional diversification.

Overall Assessment of Strategic Fit ?The Fund is consistent with the Bank's objective to promote the establishment of private equity funds to attract capital for the development of agribusiness, infrastructure and manufacturing sectors.


Benefits

Economic Performance With investments across various sectors mainly in agribusiness, cement, energy, fertilizer and heavy industry enterprises; the Fund will contribute to job creation, income generation, poverty reduction and food security. During appraisal, additional information will be obtained to quantify the number of companies likely to be financed over the life of the Fund and the number of jobs likely to be created. At the national level, the Fund will enable portfolio companies to generate tax revenues for their respective countries and in some cases earn foreign exchange through exports.

Environmental Effects ??In view of the Bank's environmental and social policy, the investment proposal falls under category 4 (FI) as it pertains to operations relating to financial intermediaries. The Fund's investment guidelines provides for compliance with internationally acceptable environmental and social standards as well as host country requirements. The Fund has developed a Social and Environmental Management System (SEMS) in cooperation with IFC. Citadel Capital has also appointed an SEMS Coordinator to manage and administer the plan.

Gender and Social Effects ??Given its investments in food processing, packaging and textiles, it is expected that the Fund will reach Small and Medium sized Enterprises (SMEs); increasing linkages and creating job opportunities. The Bank will encourage the Fund Manager to give special consideration to businesses owned and operated by women.

Private Sector Development and Demonstration Effect ?? With investments spanning several sectors, the Fund is deploying capital to the agribusiness, manufacturing and infrastructure sectors. This is particularly advantageous for the agribusiness sector which is typically considered high risk. Attracting capital to this sector and others will support local companies in raising adequate equity capital so they can further attract debt financing from financial institutions. Citadel also focuses on industries on the verge of economic liberalization or reform. The Fund Managers believe that economic reforms provide an opportunity for existing companies to rapidly grow and develop their operations. Citadel Capital is able to provide "smart money" to catalyze, finance and lead such initiatives. Their view is that this capital acts as "change equity", to dramatically restructure companies and spur private sector growth in the region.

Infrastructure ?? The Fund's support of agribusiness, manufacturing, and energy is critical to infrastructure development. These sectors are the key elements to infrastructure growth and development. They are often viewed as the main sources of economic growth and job creation. The Fund will help to demonstrate the impact that private sector development can have in alleviating poverty and diminishing constraints in strategic sectors like agribusiness, energy and manufacturing.

Effects on Governments ?? The portfolio companies will generate tax revenue streams for governments and in some instances will earn foreign exchange, improving the countries' balance of payment positions. Some manufacturing projects such as cement production may also serve as import-substitution, allowing governments to preserve foreign exchange. Also with increased privatization, Citadel Capital believes that governments are increasingly looking to become regulators instead of operators. As a prospective buyer of these assets, Citadel provides governments with the capital they need to meet the growing development needs of their countries and to improve efficiency in their domestic economies.

Effects on Macroeconomic Resilience ??By spreading investments in various sectors across the continent, the Fund will minimize its vulnerability to external shocks such as variations in commodity prices or in-country socio-political crisis. Citadel Capital's investments will contribute to GDP growth to select RMC countries.

Analysis of Additionality and Complementarity Incremental Commercial Viability Given the impact of the financial crisis, the Bank will play a countercyclical role; providing equity during a difficult fundraising period. The Bank's involvement will likely spur the participation of private investors. In addition, the Bank will assist in developing the Funds pipeline in various countries, especially in the SSA region. By participating in the Fund, the Bank will bring in foreign capital and provide strategic guidance in making sound investments, enhancing the overall commercial returns of the Fund.

Incremental Development Outcomes ??The Fund will contribute to job creation, enhancement of food security, income generation, poverty reduction, infrastructure development, private sector development and skills transfer. Participating in the Fund will position the Bank to actively seek a strategic partnership and co-financing relationship with Citadel Capital as the Bank builds its private sector operations portfolio.

Complementarity The Bank will provide input on areas such as, fund governance, compensation, risk management and environmental best practices. Moreover, the Bank's involvement provides strategic advice to the Fund Manager as it seeks to expand into the Sub-Saharan African market. Through the Fund, the Bank will pursue its strategy of collaborating with key partners including EIB and IFC.


Key contacts

AMMAR Tarek Saleh Mostafa - OPSD4


Costs

Finance source Amount
ADBUSD 12,929,753
Co-financierUSD 310,314,064
DeltaUSD 1,184
TotalUSD 323,245,000