Citadel turns to agriculture in search of investment

Egyptian private equity firm Citadel Capital is seeking to buy Kenya’s firms and long-term land leases as it seeks agro-based raw materials to feed its food business.

Citadel’s consumer food business, Gazour, is keen to cut reliance on imports to supply its Egyptian plants by controlling the supply chain from farmer to the shop shelf to protect it from global commodity price fluctuations.

This would happen through buying local agro-based firms and entering into contract farming which involves financing farmers and in return reaching an agreement to use the produce in Egypt and sell the excess food in other nations in Eastern Africa and the Middle East.

“Citadel Capital is particularly interested in the opportunity presented by East Africa’s domestic market with a bias for investments in basic needs like food transport,” Mr Karim Sadek, the Citadel’s managing director told the Business Daily in an interview.

Its pursuit of buyout deals in Kenya’s food market comes as the private equity firm works on the finer details that will see its acquire a 51 per cent stake in troubled Rift Valley Railways — the company that runs the Kenya-Uganda railway.

The other shareholders of the rail firm include a Ugandan investor with a 15 per cent stake and local private equity firm TransCentury, which had opposed Citadel’s entry into the firm, but later struck a truce after a boardroom deal.

The rail firm will guarantee the Egyptian firm outsized returns in an East African market that is expected to rev up the movement of bulk cargo across the region.

Most importantly, it gives it access to the region’s logistics corridor that is expected to support its planned investments in the region from Uganda to Southern Sudan and Kenya such as taking food to Egypt and resources including oil from Uganda and Southern Sudan.

“This is the first of several investments we are exploring in East Africa and is a natural extension of our proven interest in the continent’s transportation and logistics sector,” Mr Sadek said in an earlier interview.

“Other priorities include investing in a food growing company with prospects of doing food processing at later stages.”

Its food business is heavy in dairy production and flour milling and they will be keen to tap into local produce to guarantee it cheap raw material from its own production.

Global downturn

The global downturn has driven food prices off all time highs hit in 2008, but they are slowly edging to the peaks with the recovery of the global economy.

This forms the reason Citadel is looking to get a foothold in the East African food business as it continues to close buyout deals in the region.

The Egyptian PE firm bought a majority stake in a Sudanese biscuit and sweet maker in November; it signed a 30-year lease agreement for land in Southern Sudan for rice farming and is set to complete an acquisition of unidentified food firm in Ethiopia.