x Abu Dhabi, UAEWednesday 17 January 2018

Buyout executives remain upbeat on Egypt interests

Executives at Gulf-based buyout firms with interests in Egypt say they remain optimistic about the country's prospects.

Political turmoil in Egypt is likely to hit revenues at companies owned by buyout firms based in the Gulf. But executives say they remain optimistic about the prospects for the country as a destination for investment.

"There are bumps along the road, and this is definitely affecting the short-term performance of our companies in Egypt in terms of productivity and revenues," said Dr Karim el Solh, the chief executive of Gulf Capital in Abu Dhabi. "So we'll definitely miss one or two quarters."

At the same time, Dr el Solh said private equity players - companies that raise funds from investors and buy stakes in private companies - had the luxury of taking a long-term view on the rapidly evolving situation in Egypt.

He said the protests and upheaval, which the UN says have claimed 300 lives and which have fractured the country's economy and society, did not change the fact that Egypt is the largest Arab country and has a fast-growing economy. "We have a very long-term outlook and we look at the macro trends," Dr el Solh said. "Gulf Capital's investments in Egypt include a medical diagnostics imaging company and a regional water desalination and treatment company with facilities in the country.


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Ammar AlKhudairy, the managing director of Amwal AlKhaleej in Saudi Arabia and the chairman of Egypt's Arab Cotton Ginning, said his immediate focus was on ensuring people and assets in Egypt were protected and safe.

But in the longer term, Mr AlKhudairy said he hoped policies that were adopted by Hosni Mubarak's government to liberalise the country's economy and make it increasingly open to foreign investment would continue in the new political environment.

"Obviously we're going through a time of uncertainty and one would hope that this will be short-lived," he said.

"I think going forward … the economic policies that have been implemented over the past few years have yielded some positive results, so we would hope they will continue with the same philosophy of open markets."

Private equity executives in the Gulf have for years pointed to Egypt as ripe for investment in the Middle East, alongside Turkey and Saudi Arabia.

The rise in consumer spending power, an underdeveloped banking system and a dearth of manufacturing and services businesses are often cited as good reasons to buy companies in Egypt.


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Many private equity companies have piled into the country as a result. All of the region's biggest buyout firms, including Gulf Capital in Abu Dhabi, Amwal AlKhaleej based in Suadi Arabia, and Abraaj Capital in Dubai, have exposures to the country.

Citadel Capital, one of Egypt's largest domestic private equity companies, reopened its offices on Sunday after closing last week during the protests.

Analysts say the industries most likely to feel the brunt of the political crisis are the ones that rely on foreign involvement - sectors such as tourism and property.

But most private equity companies in the Gulf that have exposure to Egypt have concentrated on industries stimulated by domestic demand such as food, agriculture and health care.

"All we can do now is wait and see and hope that pragmatism and realism prevail," said one private equity executive in Dubai, who declined to be named.

As street protests in Egypt continue, the longer-term impact of political change in the country remains difficult to assess.

But private equity companies, given their familiarity with companies in the region and its prospects for growth, could benefit if part of the fallout is lower valuations on well-run companies in Egypt.

"I think this could lead to more investments with bigger stakes and hopefully more sensible pricing," Dr el Solh said. "It could be fertile ground for investors who are comfortable with the region and know the local dynamics and the local culture."

Citadel Capital said last week that it believed the turmoil would "result in a more stable and faster-growing Egypt and region.

"In the coming period, we see very compelling opportunities for long-term private equity investors in Egypt and beyond."