Face-to-face: Osama Bishai, Orascom Construction
Orascom Construction's demerger provides it with the chance to invest in more of its projects
The past couple of years have been as eventful for Egyptian construction and fertiliser group Orascom and its founding Sawiris familiy as they have from the country from which it hails.
Orascom had been pursued, mainly during the era in which Muhammad Morsi’s government was in charge, for up to $2.1bn which the Egyptian Tax Authorities claimed was evaded following the sale of Orascom’s cement business to French company Lafarge in a $12.8bn deal in 2007.
At one stage, Orascom Construction Industries’ (OCI) former CEO Nassef Sawiris, whose father Onsi founded the business, was even prevented from leaving the country.
The company itself also moved its corporate headquarters to Amersterdam in a deal that saw a new parent company created and an investment of $2bn from shareholders – $1bn of which came from existing owners including the Sawiris family and Dubai-based Abraaj Capital, but a further $1bn came from a US-based group of investors led by Microsoft co-founder Bill Gates.
However, this deal has just been unwound two years after it was completed. Orascom Construction has just demerged from its Dutch parent, OCI NV (which will retain Orascom’s large fertiliser business) via a pair of separate listings on Nasdaq Dubai and the Egyptian Stock Exchange.
The demerger has allowed Orascom Construction to raise $185.4m of new cash through the issue of almost 13m new shares, which is equivalent to around 11% of the new company.
Perhaps more importantly, according to chief executive, Osama Bishai, it has given the firm a clearer focus and an ability to invest its own resources more flexibly.
“The driver of any action in this group, historically, is value to shareholders,” Bishai told Construction Week.
“So we had a conglomerate effect by having two businesses that are not directly related to each other. Not everybody would appreciate or understand that having a construction entity allows the fertiliser [company] to invest in record time and to grow their business in record time. This is one side.
“The second is that we grew to a level where it became a natural decision to have every entity start its own course and invest their resources and cash to grow that business with real focus. Obviously, as part of a group, the priorities change.
“And last, but not least, we saw there is the potential to grow the construction group not only by being a contractor but also by using that cash and investing it in opportunities such as infrastructure. And we felt that without this split this opportunity will not be achieved.”
Following the demerger, which was finalised on 11 March, its former parent will concentrate on the production of nitrogen fertilisers, methanol and other gas-based chemicals with a capability to produce over 7.5m tons of fertiliser from plants in the Netherlands, Egypt, Algeria and the US. It will continue to be headed by Nassef Sawiris as executive chairman.
Orascom Construction, meanwhile, is set to continue with its core construction activities, which was the basis for the company’s foundations in the 1950s.
It now employs 53,000 people worldwide and in the nine months to September 30, 2014, it declared a net loss of $79.5m on revenues of $2.16bn.
However, it had a project backlog worth $5.6bn – around 51% of which was for government clients, 27% was work for its parent company (including a giant, $1.8bn fertiliser plant under construction in Iowa in the US) and the remaining 22% was for private clients.
In a press briefing to journalists following the Nasdaq Dubai listing on 9 March, Bishai said that Orascom Construcion “is the origin of the whole group”.
“It has been the driver of OCI since its inception ? even prior to our first listing in 1999.”
The construction business spawned the cement company that became the subject of the $12.8bn sale to Lafarge and the huge fertiliser arm set up in 2005.
“I always call it back to the future,” Bishai said. “It’s another fresh start for us.
“It’s also interesting for us because the Middle East has a better grasp of the construction business than other places. And it has the potential of high growth.”
Bishai said the company has a clear plan to focus on infrastructure – and specifically the Arab world’s four most populous nations of Algeria, Egypt, Iraq and Saudi Arabia, which comprise around 50% of its population.
“It’s close to 200m people out of around 360-380m,” he told CW. “It’s also a very young population needing infrastructure (more than 50% are under 25).
“This creates some sustainability in the demand for infrastructure. We have a presence in these four countries and we have done business there before.”
Since September, the company has added a further $1bn to its project pipeline and Bishai said that currently around 43% of its work by project value was in the US, with the remainder in the Middle East. Recent turmoil in Iraq and ongoing strife in Algeria means that its regional work is mainly split between Egypt (27%) and the Kingdom of Saudi Arabia (21%).
“I remember in 2007, Algeria was taking the leadership role as far as our backlog goes, so I wouldn’t be surprised if this musical chairs between the four countries changes again in a couple of years,” he says.
He expects big things from Orascom’s domestic market in Egypt, though ? not only in terms of construction but also the chance to be an investor in infrastructure projects through private finance deals.
In November, it signed a Memorandum of Understanding with Abu Dhabi’s state-owned International Petroleum Investment Corporation (IPIC) that gave it an 18-month option over a 2,000-3,000MW clean coal power plant project next to El Hamarawein port on the Red Sea coast.
Last week, it took this a step further by signing a development agreement, which has put the cost of building the first two phases of a plant capable of producing 3,000MW at $3bn. After the listing, Bishai said he expected the plant’s total cost to be $5bn.
Orascom and IPIC are currently 50/50 joint venture partners and are currently in the process of raising project finance, which Bishai expects to achieve by the first quarter of 2016. The first phase of the plant will take between 30-38 months to build.
Elsewhere in Egypt, it was awarded a contract alongside US-based General Electric to build two new plants as part of an emergency power generation programme. Its share of the deal is worth $642m.
It also landed a $1.6bn contract to build three tunnels at the New Suez Canal mega-project in Port Said, which is part of Egypt’s plan to massively increase its shipping trade and overhaul its ports.
He said that although it is difficult to make too many long-term predictions about Egypt’s future, he is optimistic.
“For us as a contractor, we’re seeing a clear path for infrastructure growth. The government is pushing a stimulus, they are encouraging local contractors.
“This is a great sign for contractors like ourselves to take our fair share of the business. Also, they have allowed initiatives to invest in private power initiatives, in renewables and in PPPs which is exactly the model that Orascom has started with.
We like to use cash to either create an industry or an infrastructure project where we do the business, we create the equity value and do some O&M (operations and maintenance). This has been our model – if you look at cement, it’s exactly what we did.”
It has also previously invested in both projects and other companies, buying the Contrack EPC and Weitz Company businesses in the US in recent years, to add to its 10 year-old stake in Belgium-headquartered Besix.
The company owns a 50% stake in Besix, which is a prominent player in the Middle East ? 55% of its current backlog is in MENA projects. In 2013, Besix made a profit of around $200m on sales of $2.1bn and in the last 12 months it has completed a range of prestigious projects including the Dubai Tram, Yas Mall and King Abdullah Sports City in Jeddah.
Bishai’s attitude to Besix is perhaps one indicator of the benefits of the demerger. Under the bigger, combined parent it was considered non-core and its stake had been up for sale. However, Bishai said that Orascom Construction’s priorities are different. In a presentation made to investors, Orascom’s holding in Besix was described as “strategic”, particularly as it gives the company exposure to speciality work such as high-rise and marine projects.
“Besix is part of this group,” he said. “We believe Besix has been always a strategic partner for us as a contractor. We have been in joint ventures together since 1992.
We are looking at great value that we can create together.”
Bishai concluded by saying he was “very much upbeat” about Orascom Construction’s prospects, particularly with such a sizeable backlog to deliver.
“So, basically our focus for the next few months and the next few quarters [is] to enhance our profitability. We want also to focus on our business model, which is using some of our cashflow to take equities in further construction projects.”
Orascom in numbers
- 59,000 number of employees
- $5.6bn project backlog at Sep 30, 2014
- $1bn amount added in new work since
- 57% amount of workload generated in Middle East
- $5bn value of its power plant JV with IPIC
- $2.16bn – revenue for nine months to Sep 30, 2014