Alwaleed-backed fund to invest $500m in Africa

Filed on December 20, 2007

JOHANNESBURG —A private equity fund whose biggest investor is Saudi billionaire Prince Alwaleed bin Talal is raising funds to invest $500 million throughout Africa.

The fund — Pan-African Investment Partners II — aims to ride on the back of strong economic growth on a continent where private equity has made much fewer inroads than in Europe and the United States, a top official of the fund said yesterday.

“We find there is a transforming landscape in Africa, a lot of improvements in governance, economic liberalisation and a significant privatisation pipeline,” Nathan Mintah, a partner in the firm that manages the fund, told Reuters in an interview.

The management firm, Kingdom Zephyr Africa Management Company, is a joint venture of Alwaleed’s Kingdom Holding Company and U.S.-based private equity firm Zephyr Management LP.

“If you add to that the fact that you’ve got this large and growing GDP (gross domestic product), unmet consumer demand in several sectors and buoyant stock markets increasingly more suitable for exits, you’ll find a context that’s throwing up quite a lot of opportunities for private equity funds.”

The continent has a combined GDP of about $1.1 trillion with growth expected at more than 6 percent over the next few years.

Alwaleed has already committed $250 million to the fund, which is seeking to raise a similar amount from institutional investors.

The fund will have a 10-year life and is targeting around 10 investments ranging from $20 million to $75 million per target in sectors benefiting from strong growth in incomes and consumer spending, such as telecoms, financial services, retail, as well as in manufacturing, mining and energy services.

The fund aims for its “first closing”, the conclusion of its first round of fund raising, in February and plans to immediately start making investments.

“We already have quite a few investments on which we’re conducting due diligence, with the hope we would actually be in a position to invest in those opportunities at closing,” said Mintah, based in Johannesburg.

Pan African potential

The fund is seeking to inject funds in Pan-African companies that either have a presence in multiple countries or have the potential to be expanded into other parts of the continent.

Companies with that kind of scale will make it easier to attract top management talent and to exit after about three to five years through a sale to a trade or strategic buyer or through a listing, he added.

The fund sees huge scope on a continent where private equity has only recently gained momentum.

There is around $400 billion worth of private equity funds focused on the United States and Europe compared to only $2.5 billion to $3 billion on Sub-Sahara Africa, according to an industry association.

Most of the large African private equity funds so far have focused on buyouts of publicly-listed firms in South Africa, the continent’s biggest economy.

“For us, all of Africa is our core business and our investment style is more expansion capital and less on buyouts,” Mintah said.

Alwaleed was also the biggest investor in a previous fund run by the same management firm, which has offices in Johannesburg, Accra, London, and New York.

That previous fund, launched in 2003 with $123 million, made five investments and has so far sold two of them at a combined exit multiple of 3.3 over an investment period of less than three years, he said.

Prince Alwaleed has amassed a huge fortune from investing in shares, property and recently the Arab music and entertainment industry, all under the Kingdom Holding Company.

Dubbed the Arabian Warren Buffett by Time magazine, he has a fortune estimated at more than $20.3 billion, according to Forbes magazine.

Alwaleed, who has focused on investing in underperforming assets, is one of the biggest shareholders in Citigroup Inc.

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