The Art of Defensive Investing — Middle Eastern Style

The global recession has forced investors to reformulate their strategies. At the March 2009 Euromoney Egypt Investor Conference in London, Citadel Capital Managing Director Marwan Elaraby identified sectors still laden with profitable private equity investment opportunities.

The developed economies of the West remain embroiled in the worst economic downturn since the Great Depression. Globally, the leverage-dependent private equity business model is under assault. But in Egypt and other areas of the Middle East and North Africa, savvy private equity players who have shied away from financial engineering in recent years can still unearth a number of attractive opportunities.

The key to successful investing in this climate, says a regional private equity leader, is to focus on counter-cyclical and downturn-resistant sectors that have clear earnings visibility. After all, the MENA region will not grow as fast in the coming two years as did in 2008, but it is still on track to grow.

“Egypt is in a different position when it comes to the current global crisis because we were never dependent on leverage like in the West,” said Marwan Elaraby, managing director at Citadel Capital, at a gathering of top investors at Euromoney Egypt in London on March 18.

“Today, our banking sector is intact, we have a large and growing population, a stable currency, declining inflation and reasonable growth prospects,” said Elaraby. Citadel Capital is the leading MENA private equity firm, whose 14 opportunity-specific funds control investments worth more than US$ 8.3 billion in industries ranging from energy and food to transportation and specialty retail.

Among those on hand for the London event were Egyptian government officials including Minister of Communications and Information Technology Tarek Kamel and Egyptian Exchange Chairman Maged Shawky.

With solid fundamentals still in place, Elaraby believes that Egypt offers attractive investments options in sectors including energy, transportation, pharmaceuticals, infrastructure and agriculture.

“TAQA, Citadel Capital’s platform company in the energy distribution sector, is a perfect example of a defensive investment. As a regional distributor of natural gas and electricity, TAQA already has revenue locked-in. No matter how bad the economy gets, people cannot stop using gas and electricity. So utilities are generally a safe bet,” says Elaraby.

Citadel Capital has also invested in the agrifoods and transportation sectors through its regional platforms Gozour and the National River Transportation Company (NRTC), respectively. Both investments maintain steady revenue streams even when markets are down.

At the same time, Gozour benefits from the falling global price of production inputs, yet has a strong built-in domestic market. NRTC, meanwhile, is an environmentally friendly business that could benefit from rising government spending on national transportation infrastructure.

While debt is difficult to obtain, few financial institutions shy away from loaning to well-managed companies with strong earnings visibility, says Elaraby, noting that Citadel Capital is currently finalizing several hundred million Egyptian pounds of new debt to help fund the growth of select platform companies.

“The more earnings visibility you have, the easier it will be to obtain bank financing because banks can see the revenue stream that will support repayment. It all boils down to this: You can create value for your shareholders and co-investors by focusing on building growth incrementally through sound companies. That’s how you create businesses for which others will eventually be willing to pay a premium,” added Elaraby.


Citadel Capital is the leading private equity firm focusing on building regional platform investments throughout the Middle East and Africa in selected industries through acquisitions, turnarounds, and greenfields executed via Opportunity Specific Funds. Citadel Capital’s 19 OSFs now control Platform Companies with investments worth more than US$ 8.3 billion in 14 industries, including mining, cement, transportation, food and energy. Since 2004, the firm has returned more than US$ 2.2 billion in cash to investors, more than any other private equity firm in the region.

For more information, please contact:

Ms. Ghada Hammouda
Head of Corporate Communications,
Qalaa Holdings (S.A.E.)

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