Citadel Capital reports healthy progress in 2Q12

Invested AUM accordingly rose $228.8m in the quarter to $3.6bn (LE21.8bn).

Total investments under control across the firm's 15-industry footprint stood $9.5bn as of 2Q12, while the firm's standalone net loss narrowed 69.8% quarter-on-quarter and 63.4% year-on-year to $1.5m (LE9.2m).

The firm's principal investments in its own transactions rose 14.8% in the first half of the year to $1.1bn (LE6.3bn), with $138.9m in new investments this year being driven in large part by $93.4m in new equity invested in the Egyptian Refining Company (ERC), which reached financial close during 2Q12 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 $1.1bn and a $2.6bn 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," he added.

With no exits in the quarter, Citadel Capital registered standalone net loss of $1.5m (LE9.2m) for 2Q12 on revenues of $3.2m (LE19.3m). This represents a substantial narrowing from the previous quarter, where losses were inflated by net one-time up-front fees of $9.0m (LE54.3m) related to the refinancing of Citadel Capital's pre-existing $175m 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.

Net losses of $6.6m (LE39.7m) in 1H12 represent a 23.2% contraction from the same period last year despite the impact of the up-front fees, reflecting the impact of a sustained reduction in OPEX spending.

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 2Q12.

On a consolidated basis, Citadel Capital reports a net loss of $20.6m (LE124.2m) on revenues of negative $10.6m (LE63.8m) in 2Q12, 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 $46.9m (LE283.5m).

The better consolidated performance came as key platform and portfolio companies held as Associates posted improvements in performance. Citadel Capital recorded $11.2m (LE67.6m) in losses from its Share of Associates' Results in 2Q12, 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 $22.3m (LE135.2m), reflecting better performance of the underlying Associates.

Notably, the firm's 2Q12 Share of Associates' Results includes $8.1m (LE49m) 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 $175m loan and a $150m 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 1H12.

"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 $150m 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."