Egypt's Qalaa Holding expects to return to profit by early 2016 as it sells non-cash generating assets and consolidates its grip on key holdings in a turnaround plan aimed at ending years of losses, its chairman and founder said.
Qalaa, one of Egypt's largest investment companies, has some $9.5 billion in assets under management, including stakes in dozens of firms mainly in Egypt, east and north Africa.
Set up in 2004 to follow a private equity model of buying stakes in small firms, growing them to be viable then selling at a profit, Qalaa began transforming itself into a holding company after running into trouble following the 2008 global financial crisis and then being buffeted by the 2011 uprising in Egypt.
As part of that restructuring, it is narrowing its focus to energy, transport, agrifoods, mining and cement and has been gradually divesting holdings outside of that core.
Speaking at his luxury office overlooking the Nile, Ahmed Heikal said Qalaa expected to return to profit in the fourth quarter of 2015 or first quarter of 2016 as it entered the final stages of its transformation.
"This is a program that has been going on for four and a half years and that will probably continue for another four and a half years," he said. "Long-term, we are aiming to push debt to the operating company level as opposed to the holding level."
Qalaa posted a second-quarter loss of 178.7 million Egyptian pounds ($25 million) but Heikal said discontinued businesses, which it plans to offload within 12 months, and other non-operational costs such as foreign exchange rates had weighed on the bottom line.
Formerly known as Citadel Capital, Qalaa announced in April plans to sell its majority stake in the Sudanese Egyptian Bank. In May, it said it had received an offer for its majority stake in Sphinx Glass.
It boosted its capital by about $528 million in Oct. 2013 in a transaction that simultaneously saw it increase its stakes in core holdings. Sources said last month it plans a second capital hike of more than $500 million as it seeks to acquire 100 percent ownership of core assets.
Selling off Algerian Assets
Heikal said Qalaa was also selling non-cash generating assets from its core sectors as it shores up its balance sheet and would offload Algerian cement concerns Djelfa and Zahana.
"We have a number of assets within our core industries that are non-cash generating and that we would like to dispose of, like Djelfa in Algeria ... in which we have invested about $180 million. We would like to sell this license/company," he said.
Heikal has conceded in the past that Qalaa made mistakes in the run up to the credit crunch, when low interest rates led it to become over-involved in start-up or "greenfield" firms.
However, it has identified promising greenfield projects it hopes to bring on stream in a few years, including a $3.7 billion project to upgrade Egyptian Refining Co's (ERC) plant in Cairo and the Mashreq Petroleum project to build a fuel bunkering and logistics facility in the southeast Mediterranean.
"If you look at our asset-base today, probably only 40 percent is cash-generating. ERC is not yet operational and $200 million, a very large amount of our capital, is tied to ERC, which we are aiming to have operational by 2017," he said.
"Our focus is on bringing greenfields into operation in two to three years' time and in some cases rotating out of non-cash generating operations... We are engaged in a long-term reshaping of Qalaa."