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Companynote

CitadelCapitalPrivateequity|Egypt MENAresearch

Risksoverdone;maintainOverweight

RightsissueandOPICloanboostlongtermcapitalbyUSD325m,whichshouldhelpmeetpotentialcapitalcommitmentsonthe

platformslevel

Liquidityconcernsarelargelyoverdoneasthecompanyisclosetofinalizingadebtrefinancingdealandasotheroptionsareavailable

Valuationstillhighlycompellingdespiteac39%cutinourTPtoEGP4.19/share;wemaintainourOverweightrating

Long

term

capital

boosted

by

USD325m:

Citadel

Capital

successfully

completeditsUSD175mcapitalincreaseinOctober,addingUSD120min

newcashtoitsbalancesheetytd.Thecompanyhasalsoreceivedformal

boardapprovalforanew10year,USD150mfinancingfacilityfromthe

OverseasPrivateInvestmentCorporation(OPIC),which,togetherwiththe

capitalincrease,givesthecompanyatotalofUSD325m(EGP2bn)worthof

longtermcapital.Inourview,thisshouldprovidetheflexibilityneededto

meetpotentialcapitalcommitmentsontheplatformslevel,giventhat

USD83mofthefundsfromtheOPIChasnotyetbeenearmarked.

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,valuing

the

company

based

on

adiscount

to

its

average

trading

P/Bmultipleandaccountingforpotentialassetimpairments.OurnewTPis

atac31%discounttothePNAVpublishedinOctoberandimpliesa

potentialreturnof35%.WethereforemaintainourOverweightratingon

thestock.Thecurrentvaluationishighlycompelling,inourview,withthe

companytradingata37%discounttoits2011ebookvalue.Theequity

closureoftheEgyptianRefiningCompany(ERC),atechnicalbreakthrough

attheNationalOilProductionCompany(NOPC)/RallyEnergy,andadebt

refinancingdealcouldallprovestrongsharepricecatalystsforthestock.

Keyindicators 2010 2011e 2012e 2013e

BVPS(EGP) 5.02 4.91 4.82 4.74

P/B 0.6x 0.6x 0.6x 0.7x

Source:Companydata,HC

Overweight

Targetprice(EGP) 4.19

Currentprice(EGP) 3.09

Potentialreturn 35%

Bloomberg CCAP EY

Reuters CCAP.CA

Mcap(EGPm) 2,693

Mcap(USDm) 449

Freefloat 35%

Dailyvolume(USDm) 2.119

Foreignown.

limit

N/A

Foreignownership N/A

Note:Allpricesasof1December2011

Priceperformance

5December2011

AhmedHafez

Senioranalyst

+20235357384

ahmed.hafez@hcsi.com

Pleaserefertoimportant

disclosuresandanalyst

certificationsonpages57

ofthisreport.

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CCAP EGX30

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CitadelCapital

Privateequity|Egypt

5December2011

2

LongtermcapitalboostedbyUSD325m

On19

October,

Citadel

Capital

announced

the

successful

completion

of

its

USD175m

(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

termcapital

by

the

end

of

2011,

which

we

believe

should

provide

the

flexibility

to

both

acceleratethedevelopmentofexistinginvestmentsandtopursuecompellingnew

opportunitiesintheeventofanimprovementinthebusinessclimate,giventhatUSD83m

ofthefundsfromtheOPIChasnotyetbeenearmarked.Managementalsobelievesthis

shouldensurethatall19platformcompaniesweatheranyadditionaleconomicheadwinds.

CitadelCapitalscashneeds(EGPm)

2010 2011e 2012e 2013e 2014e

Netprofit (298) (92) (81) (64) (53)

Depreciation 9 5 5 5 5

Netprovisions 174 (9) 0 0 0

Impairments 116 0 0 0 0Gainonsaleofassets (28) 0 0 0 0

Other 8 (2) 0 0 0

Changeinworkingcapital(1)

401 (240) (34) 2 2

Operatingcashflow 381 (339) (111) (58) (47)

Paymentsforinvestments (644) (257) (300) 0 0

Proceedsfromsaleofassets 28 0 0 0 0

Other 46 (3) (1) (1) (1)

Investingcashflow (570) (261) (301) (1) (1)

Debtrepayment 0 (227) (227) (794) 0

Totalcashneeds (189) (827) (639) (853) (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,

in

our

view.

Nevertheless,

we

believe

that

liquidity

concerns

are

largely

overdone,giventhenumberoffinancingoptionsavailable.

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CitadelCapital

Privateequity|Egypt

5December2011

3

On12November2011,managementstatedinapressreleasethatitexpectstoadda

furtherUSD50mtoitscashbalancethroughaseriesofsmalldivestitures(rebalancingits

portfolio)over

the

coming

months

at

the

same

time

as

it

starts

to

partially

recover

loans

advancedtoplatformandportfoliocompanies.ThecompanyrecoveredUSD22m

(EGP133m)worthofloansin2Q11.

CitadelCapitalhasalsostatedthatitisclosetofinalizingadebtrefinancingdealthat

shouldrolloveritsexistingdebtforanother5years,whichshouldgiveitsbalancesheeta

significantboost,inourview.Finally,webelieveCCPwillcontinuetoprovidefullsupport

tothecompanywhenneeded.

ValuationCutTPtoEGP4.19/shareandmaintainOverweight

Wecut

our

TP

for

Citadel

Capital

to

EGP4.19/share

from

EGP6.88/share

as

we

move

to

a

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) 4,280

Potentialinvestmentimpairments (580)

NationalPetroleumCompany (190)

NOPC/RallyEnergy

(390)

Potentialimpairmentsofconvertibles (108)

NationalPetroleumCompany (29)

NOPC/RallyEnergy (79)

Adjustedbookvalue(2011e) 3,592

200911averageP/Bmultiple 1.3x

@20%discount 1.0x

Targetprice(EGP/share) 4.19

Currentprice(EGP/share) 3.09

Potentialreturn 35%

Source:HC

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CitadelCapital

Privateequity|Egypt

5December2011

4

OurnewTPimpliesa2011eP/Bmultipleof0.85xandapotentialreturnof35%over1

DecembersclosingpriceofEGP3.09/share.WethereforemaintainourOverweightrating

onthe

stock.

The

current

valuation

is

highly

compelling

despite

current

difficulties,

in

our

view,withthecompanyssharesunderperformingthemarketbyc36%overthepast6

months.TheequityclosureofERC,atechnicalbreakthroughatNOPC/RallyEnergy,anda

debtrefinancingdealcouldallprovestrongsharepricecatalystsforthestock.OurTPis

atac31%discounttothePNAVguidancepublishedbythecompanyinOctober2011.

Risks

Downsideriskstoourvaluationinclude(1)higherthanexpectedassetimpairments,(2)

failuretosecurenecessaryfinancing,(3)theweakmacroeconomicenvironmentand

politicalinstabilitycontinuingbeyond2013,and(4)higherthanexpectedoperatingcosts.

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CitadelCapital

Privateequity|Egypt

5December2011

5

Disclaimer

HCBrokerage,whichisanaffiliateofHCSecurities&Investment(referredtohereinasHC)afullfledgedinvestmentbankprovidinginvestmentbanking,

assetmanagement,

securities

brokerage,

research,

and

custody

services

is

exclusively

responsible

for

the

content

of

this

report.

The

information

used

to

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,

effectively

assume

currency

risk.

Neither

HC

nor

any

officer

or

employee

of

HC

accepts

liability

for

any

direct,

indirect,

or

consequential

damagesorlossesarisingfromanyuseofthisreportoritscontents.

Copyright

Nopartorexcerptofthisresearchreportscontentmayberedistributed,reproduced,orconveyedinanyform,writtenororal,toanythirdpartywithout

priorwrittenconsentofthefirm.TheinformationwithinthisresearchreportmustnotbedisclosedtoanyotherpersonuntilHChasmadeitsinformation

publiclyavailable.

Issuerofreport:

HCBrokerage

BuildingF15B224,SmartVillage

KM28CairoAlexandriaDesertRoad

6October12577,Egypt

Telephone:+202

3535

7666

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.

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CitadelCapital

Privateequity|Egypt

5December2011

6

HCdisclosures:

Companyname:CitadelCapital Disclosure:3,4,6,8,9

1. HCoritsaffiliatesbeneficiallyown1%ormoreofanyclassofcommonequitysecuritiesofthesubjectcompany.

2. HCoritsaffiliateshavemanagedorcomanagedapublicofferingofsecuritiesforthesubjectcompanyinthepast12months.

3. HCoritsaffiliateshavereceivedcompensationforinvestmentbankingservicesfromthesubjectcompanyinthepast12months.

4. HCoritsaffiliatesexpecttoreceiveorintendtoseekcompensationforinvestmentbankingservicesfromthesubjectcompanyinthenext3

months.

5. HChasreceivedcompensationforproductsorservicesotherthaninvestmentbankingservicesfromthesubjectcompanyinthepast12months.

6. Thesubjectcompanycurrentlyis,orduringthe12monthperiodprecedingthedateofdistributionofthisresearchreportwas,aclientofHC.

7. HCmakesamarketinthesubjectcompanyssecuritiesatthetimethisreportwaspublished.

8. HChasreceivedcompensationforproductsorservicesotherthaninvestmentbankingservicesfromaffiliatesofthesubjectcompanyinthepast

12months.

9. Affiliatesofthesubjectcompanycurrentlyare,orduringthe12monthperiodprecedingthedateofdistributionofthisresearchreportwere,

clientsofHC.

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 Count Percent Percentprovidedinvestmentbankingservicesinpast12months

Overweight(OW) 38 52.78 0.00

Neutral(N) 27 37.50 0.00

Underweight(UW) 7 9.72 0.00

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CitadelCapital

Privateequity|Egypt

5December2011

7

CitadelCapitalasof01/12/2011

Date Recommendation Targetprice

16/11/2009 NotRated EGP18.83

09/12/2009 Overweight EGP14.83

19/04/2010 Overweight EGP13.14

28/02/2011 Overweight EGP9.86

06/07/2011 Overweight EGP6.88

16/11/2011(1)

Overweight EGP6.88

05/12/2011 Overweight EGP4.19

Note:(1)Changeofanalyst

AllHCemployeesanditsassociatepersons,includingtheanalyst(s)responsibleforpreparingthisresearchreport,maybeeligibletoreceivenonproductor

servicespecificmonetarybonuscompensationthatisbaseduponvariousfactors,includingtotalrevenuesofHCanditsaffiliates,aswellasaportionofthe

proceedsfromabroadpoolofinvestmentvehiclesconsistingofcomponentsofthecompensationgeneratedbydirectors,analysts,oremployeesandmay

affecttransactionsinandhavelongorshortpositionsinthesecurities(optionsorwarrantswithrespectthereto)mentionedherein.

Althoughthestatementsoffactinthisreporthavebeenobtainedfromandarebaseduponrecognizedstatisticalservices,issuerreportsor

communications,orothersourcesthatHCbelievestobereliable,wecannotguaranteetheiraccuracy.

Allopinionsandestimatesincludedconstitutetheanalystsjudgmentasofthedateofthisreportandaresubjecttochangewithoutnotice.HCmayaffect

transactionsasagentinthesecuritiesmentionedherein.

Thisreportisofferedforinformationpurposesonlyanddoesnotconstituteanofferorsolicitationtobuyorsellanysecuritiesdiscussedhereininany

jurisdictionwheresuchwouldbeprohibited.

Additionalinformationavailableuponrequest.

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