MerchantBridge seeking $200m for Iraq cement plant

20 May 2010

Funds should be secured by the end of July

UK-based investment firm MerchantBridge has begun a targeted campaign in the GCC to secure funds for the $200m renovation of a Karbala cement plant.  

“We’re looking to secure $100m equity and $60m debt, with the remaining $40m cash to be generated by the plant’s operations,” said Abdalah Lahoud, a partner at MerchantBridge.

The firm expects to secure the funds within the next 60 days and then will spend 30 months rehabilitating the plant to increase production from its current 300,000 tonnes per year to in excess of 1.8 million tonnes.  

It is setting up a special purpose vehicle for the investment which will see it hold a 49 per cent interest in the plant, with France’s cement producer Lafarge, who will be operating the plant, owning the remaining 51 per cent.  

MerchantBridge will own 100 per cent of the voting rights in its stake and will invite selected investors to buy non-voting shares of up to 30 per cent of the indirect investment in the plant. In effect, they will be limited partners who only have economic rights.

“We would like to get a mix of both GCC and UK-based investors for the equity part of the project and are going to be visiting specific hedge funds that have invested in emerging markets,” says Lahoud, a partner at MerchantBridge.

“We expect to exceed our $60m debt target and have already seen some interest from local Iraqi banks. The International Finance Corporation (IFC) has also been looking at the project and are considering coming in on both the debt and equity sides.”

The firm is targeting a 40 per cent return on investment based on an exit in five years’ time.

MerchantBridge was awarded the contract under a 15-year lease in the Karbala Governorate, 80 miles south west of Baghdad, by the Iraqi government’s Ministry of Industry and Minerals. By 2013, the renovated plant could contribute approximately 10 per cent of Iraq’s total cement market.

Domestic production currently meets around half of the local demand, a trend which is expected to continue for the coming decade.

This transaction marks the largest privatisation and debt arrangement in Iraq, outside the oil and gas sector, as well as the largest contract in the Middle East region so far this year.

With its latest deal, the firm has now invested and managed deals worth more than $1.5bn in Iraq.

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