Companynote

CitadelCapital
Privateequity|Egypt

MENAresearch

Risksoverdone;maintainOverweight

Overweight
Targetprice(EGP) Currentprice(EGP) Potentialreturn

RightsissueandOPICloanboostlongtermcapitalbyUSD325m, whichshouldhelpmeetpotentialcapitalcommitmentsonthe platformslevel

4.19 3.09 35% CCAP EY CCAP.CA 2,693 449 35% 2.119 N/A N/A

Liquidityconcernsarelargelyoverdoneasthecompanyiscloseto finalizingadebtrefinancingdealandasotheroptionsareavailable

Bloomberg Reuters

Valuationstillhighlycompellingdespiteac39%cutinourTPto EGP4.19/share;wemaintainourOverweightrating

LongtermcapitalboostedbyUSD325m:CitadelCapitalsuccessfully completeditsUSD175mcapitalincreaseinOctober,addingUSD120min newcashtoitsbalancesheetytd.Thecompanyhasalsoreceivedformal boardapprovalforanew10year,USD150mfinancingfacilityfromthe OverseasPrivateInvestmentCorporation(OPIC),which,togetherwiththe capitalincrease,givesthecompanyatotalofUSD325m(EGP2bn)worthof longtermcapital.Inourview,thisshouldprovidetheflexibilityneededto meetpotentialcapitalcommitmentsontheplatformslevel,giventhat USD83mofthefundsfromtheOPIChasnotyetbeenearmarked.

Mcap(EGPm) Mcap(USDm) Freefloat Dailyvolume(USDm) Foreignown.limit Foreignownership

Note:Allpricesasof1December2011

Priceperformance

120 100 80 60 40 20 0 D J F M A M J CCAP J A S O N D EGX30

Fundinggapnotclosed,butconcernsareoverdone:WeestimateCitadel Capitalscashneedsfor4Q112013eatcUSD269m(EGP1.6bn),with USD67mrelatedtoplatforms,USD170mrelatedtodebtrepayment,and USD31minrunningcosts.ThisimpliesafundinggapofcUSD76mfor2013e. Nevertheless,webelievethatliquidityconcernsarelargelyoverdonegiven thenumberoffinancingoptionsavailable.Accordingtomanagement,the companyisclosetofinalizingadebtrefinancingdealthatshouldrollover itsexistingdebtforanother5years.Otheroptionsincludesmall divestitures(USD50m),recoveringloansadvancedtoplatforms,and continuedsupportfromCitadelCapitalPartners(CCP).

Weseelimiteddownsidefromhere;maintainOverweight:WecutourTP forCitadelCapitalc39%toEGP4.19/shareaswetakeamoreconservative approach,valuingthecompanybasedonadiscounttoitsaveragetrading P/Bmultipleandaccountingforpotentialassetimpairments.OurnewTPis atac31%discounttothePNAVpublishedinOctoberandimpliesa potentialreturnof35%.WethereforemaintainourOverweightratingon thestock.Thecurrentvaluationishighlycompelling,inourview,withthe companytradingata37%discounttoits2011ebookvalue.Theequity closureoftheEgyptianRefiningCompany(ERC),atechnicalbreakthrough attheNationalOilProductionCompany(NOPC)/RallyEnergy,andadebt refinancingdealcouldallprovestrongsharepricecatalystsforthestock.

5December2011

AhmedHafez Senioranalyst +20235357384 ahmed.hafez@hcsi.com

Keyindicators
BVPS(EGP) P/B

2010 5.02 0.6x

2011e 4.91 0.6x

2012e 4.82 0.6x

2013e 4.74 0.7x

Source:Companydata,HC

Pleaserefertoimportant disclosuresandanalyst certificationsonpages57 ofthisreport.

CitadelCapital Privateequity|Egypt 5December2011

LongtermcapitalboostedbyUSD325m
On19October,CitadelCapitalannouncedthesuccessfulcompletionofitsUSD175m (cEGP1.1bn)capitalincrease,addingUSD120m(EGP718m)innewcashtoitsbalance sheetytd.Shareholderssubscribedto210mnewshares,including52.5mpreferred shares,ataparvalueofEGP5/share.Accordingtomanagement,longtermGulfinvestors werekeybackersofthecapitalincrease,whichwasinitially42%subscribed,andwere joinedbyleadinginternationalandregionalinstitutionalinvestors.Afterthecapital increase,CCPsstakeinthecompanyisexpectedtodecreasetoc26%fromc33%. Morerecently,CitadelCapitalannouncedthatitreceivedformalboardapprovalforanew 10year,USD150m(EGP900m)financingfacilityfromtheOPIC.This,addedtotheproceeds ofthecapitalincrease,willgivethecompanyatotalofEGP2bn(USD325m)worthoflong termcapitalbytheendof2011,whichwebelieveshouldprovidetheflexibilitytoboth acceleratethedevelopmentofexistinginvestmentsandtopursuecompellingnew opportunitiesintheeventofanimprovementinthebusinessclimate,giventhatUSD83m ofthefundsfromtheOPIChasnotyetbeenearmarked.Managementalsobelievesthis shouldensurethatall19platformcompaniesweatheranyadditionaleconomicheadwinds. CitadelCapitalscashneeds(EGPm)
Netprofit Depreciation Netprovisions Impairments Gainonsaleofassets Other Changeinworkingcapital(1) Operatingcashflow Paymentsforinvestments Proceedsfromsaleofassets Other Investingcashflow Debtrepayment Totalcashneeds 2010 (298) 9 174 116 (28) 8 401 381 (644) 28 46 (570) 0 (189) 2011e (92) 5 (9) 0 0 (2) (240) (339) (257) 0 (3) (261) (227) (827) 2012e (81) 5 0 0 0 0 (34) (111) (300) 0 (1) (301) (227) (639)

2013e (64) 5 0 0 0 0 2 (58) 0 0 (1) (1) (794) (853)

2014e (53) 5 0 0 0 0 2 (47) 0 0 (1) (1) 0 (48)

Source:Companydata,HC Note:(1)IncludesduesfromCCPandloansgiventoplatformcompanies

butfundinggapnottotallyclosed
WeestimateCitadelCapitalscashneedsfor4Q112013eatcUSD269m(EGP1.6bn),with USD67mrelatedtoplatforms,USD170mrelatedtodebtrepayment,andUSD31min runningcosts.GiventhenatureoftheOPICsproject,webelievetheguaranteed USD150mloanfacilityishighlyunlikelytobeusedtofinanceexistinginvestments,thatis toreplaceoutstandingdebt.WeestimateacashpositionofcUSD26masoftheendof 3Q11,whichimpliesafundinggapofcUSD76mfor2013e.Givenboththe macroeconomicandpoliticalchallengesinEgypt,coupledwithturbulentmarketsanda gloomyglobaleconomicoutlook,considerableexitsarehighlyunlikelyinthecoming12 18months,inourview.Nevertheless,webelievethatliquidityconcernsarelargely overdone,giventhenumberoffinancingoptionsavailable.

CitadelCapital Privateequity|Egypt 5December2011

On12November2011,managementstatedinapressreleasethatitexpectstoadda furtherUSD50mtoitscashbalancethroughaseriesofsmalldivestitures(rebalancingits portfolio)overthecomingmonthsatthesametimeasitstartstopartiallyrecoverloans advancedtoplatformandportfoliocompanies.ThecompanyrecoveredUSD22m (EGP133m)worthofloansin2Q11. CitadelCapitalhasalsostatedthatitisclosetofinalizingadebtrefinancingdealthat shouldrolloveritsexistingdebtforanother5years,whichshouldgiveitsbalancesheeta significantboost,inourview.Finally,webelieveCCPwillcontinuetoprovidefullsupport tothecompanywhenneeded.

ValuationCutTPtoEGP4.19/shareandmaintainOverweight
WecutourTPforCitadelCapitaltoEGP4.19/sharefromEGP6.88/shareaswemovetoa moreconservativeP/Bbasedvaluation.Onourcalculations,thestocksP/Bmultiplehas averaged1.3xsinceitstartedtradingonthestockexchange.Givenourviewthat challengingmacroeconomicenvironmentwillcontinueforatleastthecoming12months onboththelocalandglobalfronts,webelievethestockshouldbetradingatadiscount toitshistoricaverage. OtherprivateequitycompaniesaroundtheworldthatweseeassimilartoCitadelCapital tradeatc86%oftheir200911averageP/Bmultiples,withthecurrentmultiples averaging1.1x.Weassumea20%discounttoCitadelCapitalsaveragetradingP/B, bringingthemultipleto1x,which,inourview,isafloorvaluationforthecompany. Wealsoadjustourbookvaluetoreflectpotentialassetimpairments.Wenowexclude 100%ofNOPC/RallyEnergysequityinvestmentsandconvertiblesasthetechnical difficultiesinbringingtheassetssubstantialreservesintoproductioncontinue.Wealso exclude50%ofNationalPetroleumCompanysequityinvestmentsandconvertibleson thebackofitssubstantialequityinvestmentinNOPC/RallyEnergy. CitadelCapitalvaluationsummary(EGPm)
Bookvalue(2011e) Potentialinvestmentimpairments NationalPetroleumCompany NOPC/RallyEnergy Potentialimpairmentsofconvertibles NationalPetroleumCompany NOPC/RallyEnergy Adjustedbookvalue(2011e) 200911averageP/Bmultiple @20%discount Targetprice(EGP/share) Currentprice(EGP/share) Potentialreturn
Source:HC

4,280 (580) (190) (390) (108) (29) (79) 3,592 1.3x 1.0x 4.19 3.09 35%

CitadelCapital Privateequity|Egypt 5December2011

OurnewTPimpliesa2011eP/Bmultipleof0.85xandapotentialreturnof35%over1 DecembersclosingpriceofEGP3.09/share.WethereforemaintainourOverweightrating onthestock.Thecurrentvaluationishighlycompellingdespitecurrentdifficulties,inour view,withthecompanyssharesunderperformingthemarketbyc36%overthepast6 months.TheequityclosureofERC,atechnicalbreakthroughatNOPC/RallyEnergy,anda debtrefinancingdealcouldallprovestrongsharepricecatalystsforthestock.OurTPis atac31%discounttothePNAVguidancepublishedbythecompanyinOctober2011. Risks Downsideriskstoourvaluationinclude(1)higherthanexpectedassetimpairments,(2) failuretosecurenecessaryfinancing,(3)theweakmacroeconomicenvironmentand politicalinstabilitycontinuingbeyond2013,and(4)higherthanexpectedoperatingcosts.

CitadelCapital Privateequity|Egypt 5December2011

Disclaimer HCBrokerage,whichisanaffiliateofHCSecurities&Investment(referredtohereinasHC)afullfledgedinvestmentbankprovidinginvestmentbanking, assetmanagement,securitiesbrokerage,research,andcustodyservicesisexclusivelyresponsibleforthecontentofthisreport.Theinformationusedto producethisdocumentisbasedonsourcesthatHCbelievestobereliableandaccurate.Thisinformationhasnotbeenindependentlyverifiedandmaybe condensedorincomplete.HCdoesnotmakeanyguarantee,representation,orwarrantyandacceptsnoresponsibilityorliabilityfortheaccuracyand completenessofsuchinformation.Expressionofopinioncontainedhereinisbasedoncertainassumptionsandtheuseofspecificfinancialtechniquesthat reflectthepersonalopinionoftheauthorsofthecommentaryandissubjecttochangewithoutnotice. TheinformationinthesematerialsreflectsHCsequityratingonaparticularstock.HC,itsaffiliates,and/ortheiremployeesmaypublishorotherwiseexpress otherviewpointsortradingstrategiesthatmayconflictwiththeviewsincludedinthisreport.PleasebeawarethatHCand/oritsaffiliates,andthe investmentfundsandmanagedaccountstheymanage,maytakepositionscontrarytotheincludedequityrating. Thismaterialisforinformationalpurposesonlyandisnotanoffertosellorthesolicitationofanoffertobuy.Ratingsandgeneralguidancearenotpersonal recommendationsforanyparticularinvestororclientanddonottakeintoaccountthefinancial,investment,orotherobjectivesorneedsof,andmaynotbe suitablefor,anyparticularinvestororclient.Investorsandclientsshouldconsiderthisonlyasinglefactorinmakingtheirinvestmentdecision,whiletaking intoaccountthecurrentmarketenvironment.Foreigncurrencydenominatedsecuritiesaresubjecttofluctuationsinexchangerates,whichcouldhavean adverseeffectonthevalueorpriceof,orincomederivedfrom,theinvestment.InvestorsinsecuritiessuchasADRs,thevaluesofwhichareinfluencedby foreigncurrencies,effectivelyassumecurrencyrisk.NeitherHCnoranyofficeroremployeeofHCacceptsliabilityforanydirect,indirect,orconsequential damagesorlossesarisingfromanyuseofthisreportoritscontents. Copyright Nopartorexcerptofthisresearchreportscontentmayberedistributed,reproduced,orconveyedinanyform,writtenororal,toanythirdpartywithout priorwrittenconsentofthefirm.TheinformationwithinthisresearchreportmustnotbedisclosedtoanyotherpersonuntilHChasmadeitsinformation publiclyavailable. Issuerofreport: HCBrokerage BuildingF15B224,SmartVillage KM28CairoAlexandriaDesertRoad 6October12577,Egypt Telephone:+20235357666 Fax:+20235357665 Website:www.hcsi.com IMPORTANTDISCLOSURES Analystcertification: I,AhmedHafez,certifythattheviewsexpressedinthisdocumentaccuratelyreflectmypersonalviewsaboutthesubjectsecuritiesandcompanies.Ialso certifythatIdonotholdabeneficialinterestinthesecuritiestraded. Analystdisclosures: Theanalystoramemberoftheanalystshouseholddoesnothaveafinancialinterestinthesecuritiesofthesubjectcompany(including,without limitation,anyoption,right,warrant,future,longorshortposition). Theanalystoramemberoftheanalystshouseholddoesnotserveasanofficer,director,oradvisoryboardmemberofthesubjectcompany. TheanalystscompensationisnotbaseduponHCsinvestmentbankingrevenueandisalsonotfromthesubjectcompanyinthepast12months.

CitadelCapital Privateequity|Egypt 5December2011

HCdisclosures: Companyname:CitadelCapital 1. 2. 3. 4. 5. 6. 7. 8. 9. HCoritsaffiliatesbeneficiallyown1%ormoreofanyclassofcommonequitysecuritiesofthesubjectcompany. HCoritsaffiliateshavemanagedorcomanagedapublicofferingofsecuritiesforthesubjectcompanyinthepast12months. HCoritsaffiliateshavereceivedcompensationforinvestmentbankingservicesfromthesubjectcompanyinthepast12months. HCoritsaffiliatesexpecttoreceiveorintendtoseekcompensationforinvestmentbankingservicesfromthesubjectcompanyinthenext3 months. HChasreceivedcompensationforproductsorservicesotherthaninvestmentbankingservicesfromthesubjectcompanyinthepast12months. Thesubjectcompanycurrentlyis,orduringthe12monthperiodprecedingthedateofdistributionofthisresearchreportwas,aclientofHC. HCmakesamarketinthesubjectcompanyssecuritiesatthetimethisreportwaspublished. HChasreceivedcompensationforproductsorservicesotherthaninvestmentbankingservicesfromaffiliatesofthesubjectcompanyinthepast 12months. Affiliatesofthesubjectcompanycurrentlyare,orduringthe12monthperiodprecedingthedateofdistributionofthisresearchreportwere, clientsofHC. Disclosure:3,4,6,8,9

TheHCratingsystemconsistsof3separateratings:Overweight,Neutral,andUnderweight. Theappropriateratingisdeterminedbasedontheestimatedtotalreturnofthestockoveraforward12monthperiod,includingbothshareappreciation andanticipateddividends. Overweightratedstocksincludeapublished12monthtargetprice.Thetargetpricerepresentstheanalystsbestestimateofthemarketpriceina12 monthperiod.HCcautionsthattargetpricesarebasedonassumptionsrelatedtothecompany,industry,andinvestorclimate.Assuch,targetprices remainhighlysubjective. Thedefinitionofeachratingisasfollows: Overweight(OW):Estimatedtotalpotentialreturngreaterthanorequalto20% Neutral(N):Estimatedtotalpotentialreturngreaterthanorequalto0%andlessthan20% Underweight(UW):Estimatedtotalpotentialreturnlessthan0% NR:NotRated SP:Suspended StocksratedOverweightarerequiredtohaveapublished12monthtargetprice,whileitisnotrequiredonstocksratedNeutralandUnderweight. DistributionofHCratings
Rating Overweight(OW) Neutral(N) Underweight(UW) Count 38 27 7 Percent 52.78 37.50 9.72 Percentprovidedinvestmentbankingservicesinpast12months 0.00 0.00 0.00

CitadelCapital Privateequity|Egypt 5December2011

CitadelCapitalasof01/12/2011
16 14 12 10 8 6 4 2 0

Date
16/11/2009 09/12/2009 19/04/2010 28/02/2011 06/07/2011 16/11/2011(1) 05/12/2011 Note:(1)Changeofanalyst

Recommendation
NotRated Overweight Overweight Overweight Overweight Overweight Overweight

Targetprice
EGP18.83 EGP14.83 EGP13.14 EGP9.86 EGP6.88 EGP6.88 EGP4.19

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