Al Mada: The Moroccan royal holding company’s new clothes
After being transformed five years ago into a pan-African investment fund, Al Mada completed a series of megadeals on the continent, which today accounts for more than one-fourth of its profit.
This year has gotten off to a good start for Al Mada (“outlook” in Arabic), formerly known as SNI, a pan-African private equity fund owned by the Moroccan royal family.
Nareva, its energy subsidiary that has built up a reputation in the kingdom, recently landed its first contract outside Morocco.
In a consortium with French energy player Engie, the company was awarded the international call for tenders to build and operate a 120 MW capacity solar power plant in Gafsa, Tunisia.
Flag-bearer of the Moroccan economy
With this contract, Nareva joins the club of former SNI subsidiaries that have taken on a continental dimension, all while consolidating its parent company’s positioning in Africa and confirming it status as a full-fledged flag-bearer of the Moroccan economy.
“Al Mada has the capital base and expertise required to invest in highly capital-intensive sectors in which other major Moroccan conglomerates don’t dare to venture given the risk inherent to these types of businesses,” said a source familiar with the inner workings of SNI. With 65.5bn dirhams (€6bn) in consolidated shareholders’ equity at end-2018, Al Mada has a solid capital base.
In addition, the extent of its economic footprint is unrivalled, as it reported revenue of 33.9bn dirhams in 2018 and net earnings (group share) of 4.65bn dirhams, amassed across 24 countries by more than 80 subsidiaries and minority interests, including behemoths such as Attijariwafa Bank, mining group Managem, energy provider Nareva, mass retail specialist Marjane, cement firm Lafarge Morocco, steel manufacturer Sonasid, and industrial equipment and automotive distribution player Optorg.
“Al Mada plans to carry out major transactions, whether in Morocco or in other African countries,” added the same source. As it happens, the group has completed quite a few transactions within the past five years.
Notable acquisition of Barclays’ Egypt subsidiary
Via Al Mada’s subsidiary Attijariwafa Bank, headed by Mohammed El Kettani, the pan-African investment fund carried out one of the largest deals in the history of the continent’s banking sector in 2016. The acquisition of the Egyptian subsidiary of UK giant Barclays for 4.9bn dirhams even propelled the kingdom that year to rank as Egypt’s top foreign investor.
According to the Moroccan bank’s management, the first months of operation in 2017 under the name Attijariwafa Egypt “exceeded expectations,” allowing the subsidiary to become one of the main contributors to the group’s consolidated net income, making up 7.4% of the total.
However, the following years turned out to be more difficult for the new subsidiary: in 2018, its income fell by more than one-quarter, coming in at less than 288m dirhams, representing hardly 5.1% of the group’s consolidated net income, i.e., less than its Senegalese, Ivorian and Tunisian subsidiaries. Nevertheless, these losses have not discouraged the bank’s top management and its parent company remains as determined as ever, as it recently decided to shake up the bank’s executive team.
“Attijariwafa still has a strong capital base that allows it to continue its international expansion. The bank has set an objective to continue to position itself in the years ahead in other English-speaking countries, particularly Nigeria and those in East Africa,” said Hassan Ouriagli, CEO of Al Mada.
In recent years, another one of the group’s subsidiaries, Managem, initiated the largest investment ever completed in its history. The mining subsidiary spent $200m to launch the Tri-K gold project in Guinea.
“The production plant is currently under construction and production is scheduled to start up in 2021,” a director of Managem revealed. “Thanks to this plant and an additional plant launched in Sudan, where we produced our first gold bar in 2019, we’ve set our annual gold production target for next year at 200,000 ounces.”
Once it reaches full capacity, Managem’s gold operations are expected to increase its total revenue by 50%, with the subsidiary reporting 4.4bn dirhams in revenue in 2018.
For many observers, another major transaction completed in the past few years demonstrated Al Mada’s bargaining power with international companies. During the global mega-merger of Lafarge and Holcim, the holding company seized the opportunity to strengthen its longstanding partnership with the French cement firm by acquiring Holcim’s former businesses in Morocco as well as those covering Francophone sub-Saharan Africa.
This is how subsidiaries in Côte d’Ivoire, Cameroon, Benin, Guinea as well as those in eight other African countries fell into the hands of LafargeHolcim Morocco, controlled by a subsidiary jointly held by SNI and the Franco-Swiss conglomerate, thereby creating Africa’s second-largest cement firm after Nigeria’s Dangote Group.
Distortion of competition risk due to its wide sectoral presence
Al Mada’s success, scope of operations and the leading position of several of its subsidiaries have stoked a certain amount of controversy regarding distortion of competition.
Taking note of the strong presence of government and “politically connected” players in the telecom sector, a report published in June 2019 by the World Bank Group highlighted that the sector “suffered from a lack of competition, ineffective regulation and underinvestment in infrastructure” and called on it to “optimise the use of existing digital infrastructure by sharing infrastructure owned by state-owned companies.”
Maroc Telecom was recently fined a record 3.3bn dirhams and its competitor, Inwi, on Al Mada’s initiative, abandoned its lawsuit demanding that the Moroccan operator pay more than 5bn dirhams in damages. Other observers view Al Mada in a less negative light, pointing out the holding company’s strictly private status and even its subsidiaries’ positive contributions to the development of several industries.
Fitch Ratings reiterated that “Al Mada, an investment holding company controlled by the Moroccan royal family, owns a 46% stake in Attijariwafa. Its shareholders have no influence over our assessment of the support the state provides the bank.”
While a report issued by the Oxford Business Group found that “the local banking sector is highly concentrated,” their team nonetheless came to the following conclusion: “We have not observed a distortion of the competitive balance and instead have seen gains in the matter as demonstrated by the growing capacity of the banking offer, the development of bank account holding rate at 70% and the penetration rate of bank credit at 80%.”
Growing debt but healthy improvement in profitability
Another source of concern for certain observers involves the debt the holding company has taken out to finance the series of major transactions it has completed over the past five years. Its debt began a downward trend in 2011, but in recent years it has been on the rise again: it stood at under 10bn dirhams in 2015 and, at end-2018, totalled 13.3bn dirhams. However, Al Mada’s management is not overly worried by the increase.
“The rise needs to be looked at in context,” Mr Ouriagli said. “Our current net debt-to-equity ratio is still at a very moderate level – below 20%. So, we have the muscle to finance new investment and/or acquisition projects.” The holding company’s financing includes a mix of capital raising on the market and bank credit. For example, in 2018, Al Mada completed a private bond issue of 2bn dirhams with an expected redemption the following year of two outstanding listed bond issues totalling 1.5bn dirhams.
The group’s profitability saw a healthy improvement during this period. Beyond the fantastic capital gains made on the disposal of food industry subsidiaries, the pan-African fund’s consolidated net income increased at an annual average rate of 9.2% between 2014 and 2018, reaching 4.65bn dirhams. Profit from operations outside Morocco certainly had a part to play in the rise.
“Our international operations accounted for 26% of consolidated net income in 2018, compared to 11% in 2013. We expect this percentage to go up substantially in the years ahead, as Managem continues to expand its gold operations and Attijariwafa Bank Egypt completes its strategic plan. Our objective is for international operations to represent 30% of the total in the very near future,” said Mr Ouriagli, who is determined to intensify the group’s growth over the coming years, with current subsidiaries set to fuel much of this growth.
“Al Mada wants to continue to expand on the continent over the next few years, mainly in financial services, energy and mining,” Mr Ouriagli said. In addition to transforming some of its interests into leading African firms, the holding company keeps a close eye on potential external growth opportunities. “But we have to admit that quality targets are few and far between,” an Al Mada executive commented. What’s more, an investment committee is held once a month to review potential targets with a price tag exceeding 500m dirhams, which gives the company a way to remain on the lookout for good deals and new growth drivers.
Betting on innovation in Morocco
As it pursues its expansion strategy on the continent, Al Mada remains very active in Morocco, particularly in innovation, an area in which it has carried out several projects. For example, its telecom subsidiary created the first 100% digital operator, Win by Inwi, and it is developing Morocco’s first sovereign cloud offering, which includes a complete range of cybersecurity and hosting services for businesses.
“Inwi and Attijari are also at the forefront in mobile payments, a sector forecasted to grow in Morocco,” a group executive said. In addition, Attijariwafa launched the Dar Moukawil network throughout Morocco. It provides an innovative service for micro-enterprises that covers, on top of financing, an internet platform, a comprehensive training package and free personalised assistance.
Lastly, the Al Mada Foundation is working on a project aimed at supporting start-ups. “Other innovative projects will be rolled out in the months to come,” a source said.