Egypt's Qalaa Holdings is considering a share issue worth some 4 billion pounds ($560 million) as part of efforts to tighten control of its core investments and end years of losses, sources with knowledge of the deal said.
The non-cash transaction would involve exchanging shares in the holding company for larger stakes in the firms in which Qalaa has invested. If successful, the move would take Qalaa's capital from 8 billion to 12 billion pounds, one source said.
The share swap comes when confidence in the Egyptian economy and stock market is growing after three years of turmoil in the aftermath of the 2011 uprising that toppled Hosni Mubarak.
The final figure for the capital increase has yet to be confirmed as the transaction has not been finalized. The company, which has moved from being a private equity firm to an investment holding structure, boosted its capital by about $530 million in Oct. 2013.
"It is a capital increase but it is a capital increase that is non-dilutive," said the source, who spoke on condition of anonymity. "The proceeds will be reinvested in proven winners and in reducing debt at the holding level."
A Qalaa spokeswoman declined comment.
The company, formerly known as Citadel Capital, is narrowing its focus on energy, transport, agri-foods, mining and cement and has been divesting holdings outside those sectors. At the same time, it is seeking to take full ownership of core assets.
Billions of dollars in aid have poured into Egypt since then-army chief Abdel Fattah al-Sisi ousted Mohamed Mursi of the Muslim Brotherhood last year.
Egypt's main index has gained 18.6 percent since Sisi's election in May and now stands above its pre-uprising level, suggesting a vote of confidence from local investors.
The Qalaa transaction may help reassure foreign investors who have yet to return in force to the biggest Arab country, and are waiting for more signs that stability is returning.
A capital hike would be Qalaa's second in as many years as the company pushes ahead with a turnaround program begun after the 2008 global financial crisis and Egypt's 2011 uprising threw it into turmoil.
A second source said the previous capital hike had not been sufficient to achieve its target of achieving full ownership in its core firms.
Qalaa might return to the market a third time should the capital increase again proven insufficient, the source said.
Qalaa has some $9.5 billion in assets under management, including stakes in dozens of firms mainly in Egypt and Africa.
First set up as Citadel in 2004, it followed a private equity model of buying stakes in small firms, growing them to be viable quickly then selling them at a profit.
It began restructuring after conceding it had invested too heavily in start-ups that took time to generate cash and became a burden when the financial crisis hit.
Qalaa posted a second-quarter loss of 180 million pounds as discontinued businesses, which it plans to offload within 12 months, and other non-operational costs such as foreign exchange rates weighed on the bottom line.SHOW MORE