The largest private equity MENA deal of the year to close in Iraq
With its latest deal, MerchantBridge, a direct investment and private equity company focused on Middle East investments, has now invested and managed in excess of US$1.5bn in debt and equity in Iraq.
MerchantBridge has recently been awarded an existing cement plant contract under a 15-year lease in the Kerbala Governerate, 80 miles south west of the capital Baghdad. The contract was awarded by the Government of Iraq’s Ministry of Industry and Minerals. This transaction marks the largest privatization and debt arrangement in Iraq (outside oil and gas), as well as the largest contract in the Middle East region so far this year. The plant will go through a complete rehabilitation program via an investment of US$200m and it is expected the facility will achieve production in excess of 1.8million tons per year. By 2013 the rehabilitated plant could contribute approximately 10% of the total cement market in Iraq. Lafarge, the world leader in cement production, is joint partner and will be operating the plant.
The plant has been damaged by years of underinvestment and lack of spare parts and is operating at 300,000 tons per year, which is well below capacity. Domestic production currently meets around half of the local demand, a trend which is expected to continue for the coming decade.
The current Kerbala project has already attracted investment interest from foreign direct investors, including the International Finance Corporation (“IFC”), the private arm of the World Bank, and France’s Proparco, which is 67% owned by the French Development Agency (“AFD”).
MerchantBridge is now embarking on a targeted campaign in the GCC to highlight the opportunities Iraq offers and actively encourage investment in what it considers the first ‘live’ opportunity for regional investors in the country.
Mr. Basil Al-Rahim, MerchantBridge’s Chief Executive Officer, confirms: “Our strategy is to engage GCC and MENA investors and partner them on entering the Iraq market. The potential there is huge. With projects such as the Kerbala plant, MerchantBridge is at the forefront of creating unique investment opportunities, from their inception, identification of partners, deal development and on right through to the end. “
MerchantBridge with its extensive experience and knowledge of Iraq, has generated substantial returns for its investors, as well as establishing a number of partnerships with international companies in Iraq. In 2003 and 2004, it advised the Iraqi government on the leasing of 35 state-owned enterprises in several economic sectors.
Mr. Ameen Killidar, Managing Director, explains: “Iraq represents a unique opportunity for early investors given the expected economic growth to be generated by the massive investments announced by the IOCs and the large government reconstruction plan”
The Iraqi government has estimated US$180bn of investment is needed over four years to fulfil its reconstruction and infrastructure programme, targeting sectors that will create a heavy demand for cement.
Mr. Killidar added: “The Kerbala cement plant is strategically located to serve the needs of the entire south of Iraq and is one of the few plants which can produce specialised cement for dams, bridges, ports, airports, oil installations and any other
construction where ordinary cement cannot be used. Our market potential is enormous, especially when you consider the needs of the international oil companies which have recently signed contracts with Iraq. The plant is already operating albeit at a much reduced rate due to lack of investments since the early 1990’s. The qualified workforce is already present and the new capital will ensure that the plant is brought up to the latest standards.”
Construction and infrastructure are expected to remain the driving force in Iraq over the coming decade, with over US$140bn of projects already announced, of which US$60bn is from GCC investors.