Cairo-based private equity firm Citadel Capital has received regulatory approval from the Egyptian Financial Supervisory Authority to launch an £E3.64bn ($530m) share capital increase.

Under the rights issue co-investors and limited partners (LPs) in the firm’s subsidairy companies will be able to swap their stakes for shares in Citadel Capital. This will allow the firm to become majority or full owner in most of its platform companies, including core industry subsidiaries in energy, transportation, agrifoods, mining and cement.

The new shares will be priced at £E5 per share. That marks a premium of 53 per cent to market price, which is unlikely to result in much participation from retail investors. Shareholders will be asked to vote on the proposed paid-in capital rise to £E8bn, through the issuance of 728,375,000 new shares, in an upcoming general meeting.

The planned share capital increase raises questions on earnings dilution for existing shareholders who do not participate in the issue, although a proportion of this could get off-set by the consolidation of larger assets into Citadel Capital’s books, such as Taqa Arabia, ASEC Holding, said a statement by Giza-based investment company Naeem Holding.

“However, for us to confirm the exact extent of dilution and the impacts of additional asset consolidation, we wait to see the complete fallouts of this capital increase, along with the detailed terms of asset pricing,” it added.

The proposed share issuance is one of the steps Citadel Capital is taking to become an investment company. The firm, which manages $9.5bn in investments in the Middle East and North Africa region, also plans to divest in non-core businesses in the coming years.

“Economic fallout from the Arab Spring has generally depressed asset values and put liquidity at a premium, making this an opportune moment to increase our holding in core investments,” says Citadel Capital chairman and founder Ahmed Heikal. “At the same time, that fallout has also accelerated and brought into sharp relief a number of macro trends that are very favourable to our core investments.”

Co-founder and managing director Hisham el-Khazindar adds: “The exit process will be orderly and primarily through trade sales, and we will continue to drive growth at select non-core investments prior to exit through the deployment of long-term funding.”