Metito Utilities goes mezzanine to invest in ME
Investment company secures US$40 million for MidEast spending spree.
IFC, a World Bank subsidiary, and a Kuwait National Bank (KNB) fund have invested a total of US$40 million into preferred shares of Metito Utilities, the investment arm of Metito Holdings.
Metito Utilities are looking to invest the money in water reuse projects in the MENA region, and have already invested some of the funds in China.
The deal, structured by the NBK Capital GSC Mezzanine Fund I, is the first of its kind in the water industry in the Middle East, said Rami Ghandour, executive director at Metito Utilities.
Under the arrangement, Metito Utilities receives $20 million from both the IFC, a member of the World Bank Group that promotes private investment in developing countries, and from the Kuwaiti Bank.
The funds will have to be repaid in five years, with Metito Utilities paying an undisclosed coupon rate during that time. The investors have the option of converting the preferred equity into straight equity, with the $40 million amounting to 12 percent of ordinary stock.
“The deal contains certain features of mezzanine debt, and is well structured to our needs” said Ghandour, who believes that the arrangement gives his company more flexibility than a senior debt instrument. “If you invest in built build, own and transfer projects, the repayment only sets in after a while.”
“Mezzanine financing in the region quite rare, the NKB fund is the only such fund in the region, and we are the first regional investment they have made, to my knowledge, certainly in the water sector,” he added.
Metito Utilities has already invested $10 million of the capital injection, taking over a wastewater treatment plant with a capacity of 100 cubic meters in Panjin, China, Ghandour revealed.
The company has several other projects in the pipeline in the MENA region, the executive director said, which include taking over assets owned by government utilities. Metito Utilities is looking both at build, operate and transfer (BOT), and transfer, operate and transfer (TOT) investments.
Before the acquisition in China, Metito Utilities was already active in seventeen build, own and operate (BOO) and BOT water projects in the UAE, Bahrain, Egypt and Indonesia.
Mezzanine capital is typically an expensive form of debt, as a creditor’s claim on a borrower’s assets in case of default is subordinated to that of senior debt, such as standard bonds. Mezzanine financing is often used for leveraged buyouts.