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Private Equity Firms Poised To Profit From The East Africa Regional Integration

Private equity firms are setting up shop in east Africa attracted by a growing young and urban population, but also by better political stability and sounder macroeconomic management, the manager of one fund said.

Regional integration by at least five east Africa nations, natural gas production in Tanzania, an oil find in Uganda and the hydro-electric potential in Ethiopia were also beckoning, said Paul Kavuma, head of Catalyst Principal Partners.

"In the last two years, there's been a lot more activity. We are beginning to see a number of international or pan-African players beginning to take a real interest in East Africa," Kavuma told Reuters in Nairobi.

"And its not a coincidence. There are a lot of positive trends we are seeing in east Africa."

There were only two players in the market when Kavuma joined the private equity industry in Nairobi six years ago.

African Venture Capital Association now lists 26 private equity venture capital fund managers investing in east Africa.

The firm will launch a $100 million Catalyst Fund I in January for opportunities in Kenya, Uganda, Tanzania, Rwanda, Democratic Republic of Congo, Ethiopia and Zambia with a core focus on the consumer, services and industrial sectors.

It has 70 percent of the amount and Kavuma said the remaining amount would be in place in the first quarter of 2011.

The fund will have a life of five years and Catalyst will offload by either listing or trading its stake to any interested parties. It has a target of a 20-25 percent return.

"We are seeing increasing trade interest -- multinationals, Indian, South African, West African corporates all looking for acquisitions in financial services, communications and other sectors, which provides further confidence about exit by private equity investors," he said.

"It is a virtuous circle of positive things which is making it a much more attractive proposition."

Twenty percent of the fund will have been raised locally from high net worth individuals, pension schemes and insurers.

The firm will make its first investment soon after the fund's launch, in a consumer goods company, Kavuma said.

Catalyst Principal will be injecting around $7 million for the deal in excess $50 million that it has with two other institutions.

"We have got a strong pipeline of investors across multiple sectors," Kavuma said.

The fund will be deployed within three to four years and diversified so that not more than 25 percent will go into one sector, and only up to 15 percent for any one company.

"There's limits on countries just to make sure that we have a fully diversified portfolio of 10 or so investments," he said.

Kavuma said there is always some anxiety on the issue of political succession in each of the country the fund will invest in but that things had improved over the last two decades.

"Forget the latest newspaper headlines today, let's go back 10 years ago. Has the political environment improved or has it regressed in the last 10 years?" he said.

"The changes are actually fundamental and irreversible in my view. One cannot help but be generally bullish on the long term prospects for the region. The facts speak volumes."


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