Words by Bradley Hope of the National
Last Updated: Apr 11, 2011

In the midst of the popular uprising in Egypt that eventually led to the resignation of Hosni Mubarak, Marianne Ghali thought she might lose an important US$100 million (Dh367.2m) deal that had long been in the works to build a new paper mill.

The financing arrangement was just the type her company Sphinx Private Equity Management had been set up to create: private equity investments in small and medium-size businesses to take advantage of the rapid growth of Egypt's economy.

"There was a gap of one month, where all communication was down," said Ms Ghali, the chairman of Sphinx. "As soon as things started up again, I spoke to the senior management of the groups we were talking to and said 'let's take a macro position on Egypt. Are you still interested in the country'?"

The answer from the likes of International Finance Corporation (IFC), part of the World Bank Group, was "yes". The IFC contributed a $10m equity investment and offered a $15.5m loan for the construction.

The way Ms Ghali sees it, the success of the deal in the country's most turbulent period in decades is a sign that international investors are still bullish on North Africa. Deals may take longer to come to fruition because of due diligence and political uncertainty, but investors looking for strategic opportunities will come out with major profits, she said.

"I think it continues to be extremely exciting," she said. "I think it's a very opportunistic time across some of the key export-based sectors."

The paper mill will be built by El Motaheda, a subsidiary of the family business Modern Shorouk for Printing and Packaging that is majority owned by a subsidiary of Sphinx. Sphinx is a subsidiary of the Egyptian buyout firm Citadel Capital.


The plan is to use the paper mill to lower costs at the packaging company and gain a major market position for sales of corrugated cardboard boxes across the region.

Even those objectives are starting to be tweaked because of the turmoil in the Middle East and North Africa. The most important export destinations for the packaging material Modern Shorouk produces include Libya, Sudan, Syria and Lebanon.

"It isn't easy when your direct markets are also in these very dynamic, changing and revolutionary modes," Ms Ghali said. Now the company is studying its competitors in southern and eastern Europe in the hope of expanding its geographical targets away from its home region.

Sphinx is also narrowing its focus for investments in industries that are export-based or rooted in sectors that are likely to benefit from populist changes in laws and affecting budgets for the likes of healthcare, pharmaceuticals and education.

It is also pitching its Sphinx Turnaround Fund to regional investors. Ms Ghali said she wanted to grow the fund to $150m from its current $80m to take advantage of the difficulty businesses are experiencing as they seek bank loans. Her meetings with Gulf sovereign wealth funds and private family offices have so far shown that investors are still skittish, she said.

While the market may still present opportunities, Ms Ghali said there were some major new risks to the private equity market. To date, Egypt has the record for the single largest deal in the region - the $1.4 billion sale of Egyptian Fertilizers to a consortium led by Abraaj Capital in 2007.

Once considered the new hot spot for property and agricultural deals, Egypt is now seen as a risky place to invest in anything related to land concessions because of major investigations into government officials accused of corruption. Some of the largest developers in Egypt could see their deals reversed and have land taken away from them.

Ms Ghali said she believed that up to 80 per cent of the corruption cases would turn out to be false accusations. She said overzealous prosecutors and protesters were to blame.

"Most of these deals were really very regular proper transactions," she said. "Once the sand will settle, they will realise that most of the business has been done in a very proper way."

Read the rest of the article at The National.