Johannesburg-based Vantage Capital, which describes itself as Africa’s largest mezzanine-debt fund manager, has fully exited from its financial involvement with Egypt-based Pickalbatros Hotels & Resorts.
The South African firm said it became involved with the hotel group in December 2020 when it provided $18.4 million in debt to aid Pickalbatros during the COVID-19 pandemic. Vantage Capital announced in June that it would begin the exit process.
According to a news release issued Wednesday, Vantage Capital said: “The funds were used to cover working capital requirements, as well as renovation work, on some newly acquired hotels, enabling the group to continue operating smoothly despite a sharp reduction in tourist numbers.”
According to Macrotrends, Egypt’s tourism revenue hit a record mark of $14.26 billion for full-year 2019, up 12.2% from the year before. In 2020, Egypt’s tourism revenue fell by 65.81% to approximately $4.9 billion.
Tourism demand to Egypt has since recovered, according to the Egyptian Ministry of Tourism & Antiquities. For full-year 2023, Egypt welcomed 14.9 million inbound travelers, which set a new record.
David Kornik, partner at Vantage Capital, said his firm took an educated bet on tourism returning to Egypt following the pandemic.
“Our investment in Pickalbatros Hotels is a model story for the value proposition of mezzanine debt. … [We] were willing to support a strong underlying business at a time when banks were too risk-averse," he said. "It worked well for the hotel group, with Pickalbatros accessing the funding it needed in a difficult period, and it was then able to repay us in an orderly manner once the hospitality sector recovered.”
Kornik told Hotel News Now that "Vantage advanced a mezzanine loan to the company, and as part of the deal structure we were provided with collateral over one of the hotels."
He added Vantage did not own any assets or shares in Pickalbatros, and he was not permitted to disclose its returns on exiting the arrangement.
Owner-operator Pickalbatros has 28 resorts in Egypt, with an emphasis on the Red Sea destinations of Hurghada, Marsa Alam/Port Ghalib and Sharm el-Sheikh.
It also has three resorts in Morocco, one in Agadir and two urban assets in Marrakesh.
“Our investment into the group has been a resounding success, with room capacity having expanded from 10,000 to 14,000 keys over the past three years,” Vantage’s associate partner Omar Gharbawi said in the news release.
On the economic front, the Egyptian pound went through a devaluation process in March when the Central Bank of Egypt raised its official interest rate by 600 basis points and the Egyptian government delayed infrastructure projects in return for an increase in International Monetary Fund debt.
While business website Middle East Eye estimates the Egyptian pound lost 35% of its value, currency devaluation can act as a demand driver as more international visitors book stays at Egypt’s hotels. However, there are concerns that a wider war in the Middle East might diminish tourism demand in the region.
Egypt recently received $35 billion from United Arab Emirates sovereign wealth fund ADQ to help fund real estate and land development projects, notably in Egyptian destination Ras El-Hekma on the Mediterranean Sea west of Alexandria.
Vantage Capital was founded in 2001 and has raised more than $1.6 billion in debt. Its mezzanine-debt division has made 39 investments across four successive funds into 11 African countries.
In 2016, Vantage Capital provided $4.5 million of mezzanine debt to Namibian hotel firm United Africa Group to fund construction of new hotels, but its funds are not mostly focused on hotels. Recently, the firm invested in water security and bilingual educational facilities across Africa.