Abraaj May Hire Morgan Stanley to Advise on Citadel Purchase

Abraaj Capital Ltd., the Dubai-based private equity company managing about $6.2 billion, may hire Morgan Stanley as an adviser on the planned acquisition of a stake in Egyptian private equity firm Citadel Capital SAE, two people familiar with the situation said.

Citadel Capital Partners, the main shareholder in Citadel Capital, may hire Citigroup Inc. to advise on the possible sale, the two people said, speaking on condition of anonymity because the talks are private. One person said Abraaj is seeking a controlling stake in Citadel Capital.

One of the hurdles to the sale is that Citadel Capital Partners needs to provide legal representations and warranties before the sale, one of the people familiar said.

“Abraaj Capital is always looking for opportunities to invest in Egypt and expand our reach in the region,” Abraaj Capital said in an e-mailed statement in response to questions from Bloomberg. “We strongly believe that the region continues to have strong economic fundamentals and opportunities to invest. However, Abraaj does not comment on potential transactions that have not been signed.”

Morgan Stanley officials weren’t immediately available to comment. Officials from Citigroup and Citadel Capital declined to comment. None of the officials would be identified, citing internal policy.

Shares of Citadel Capital dropped 1.3 percent to 6.08 Egyptian pounds at the close in Cairo today, valuing the company at 4.02 billion pounds ($676.2 million). Citadel Capital shares have gained 23 percent since May 29 amid speculation the company had received an offer for its shares at 8 Egyptian pounds.

Citadel Capital

Citadel Capital “has not received a direct offer of acquisition from any party, nor has it received information from its shareholders suggesting that a formal offer has been presented to any of them,” Citadel said in a statement on June 8. “We further note in this context that as is the nature of private equity firms, Citadel Capital SAE is frequently in negotiations to divest or acquire investments.”

The company said on May 31 it had a consolidated loss of $241.7 million in 2010 because two oil exploration investments were “underperforming.”

A stake in Citadel would help Abraaj expand into sub-Saharan Africa. The Egyptian firm’s investments in 15 industries include a stake in Rift Valley Railways Ltd., the operator of the Kenya-Uganda rail line. It also has investments in Sudan, according to its website.

Abraaj’s investments in Egypt, according to its 2010 annual report, include Al Borg Laboratories and AgroCorp, an agriculture company focused on the farming and processing of artichokes.

Abraaj and investors such as Egyptian billionaire Naguib Sawiris have said a wave of popular uprisings that has swept the Middle East this year will help create investment opportunities and stronger economic growth prospects in the long term. The revolts have toppled the presidents of Egypt and Tunisia and spread to countries including Yemen, Syria, Libya and Bahrain.

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