Today’s increasing focus on sustainability points to a pressing concern: As governments around the globe advance their efforts to collectively hit net-zero greenhouse gas emissions by 2050, substantial investment in renewable energy is needed. This is particularly essential for emerging markets and developing economies (EMDEs), where capital access remains limited. Vortex Energy, EFG Hermes’ Renewable Energy Investments arm, a leading energy transition investment manager, has been at the forefront of this shift.
In this interview, Karim Moussa, co-CEO of EFG Hermes, an EFG Holding company, the leading Investment Bank in the Middle East and North Africa, and CEO of Vortex Energy, discusses Vortex Energy’s latest initiatives and fundraising efforts. He also highlights how the renewable energy and education sectors are similar and discusses EFG Hermes’ ambitious plans for the Saudi education market.
What are some initiatives that Vortex Energy has when it comes to contributing to the renewable energy landscape in Europe and the MENA region?
Substantial investment in renewable energy is needed to reduce global greenhouse gas emissions to net zero by 2050, especially in emerging markets and developing economies (EMDEs) where they have limited access to capital. Investment needs are expected to increase to about USD 2 trillion per year in EMDEs — about 40 percent of global investment needs. The private sector will have to play a key role in financing climate mitigation investments in EMDEs, given limited fiscal space amid challenging market conditions.
Vortex Energy’s dynamic vision has enabled us to enhance value in the recent energy transition, where we have been creating value and unique competitive advantages from each energy transition wave, driven by net zero.
- Vortex Energy has evolved from targeting operational and regulated assets with government-guaranteed long-term cash flows through FiT to embracing a subsidy-free environment, actively participating in a highly flexible market, and pursuing fully integrated energy platforms.
- We acknowledge the critical need for private capital in accelerating energy transition in EMDEs and we have been working on a new mandate targeting emerging markets as an expansion to our existing OECD mandate. Hence, we are preparing a new strategy, which will target a diversified portfolio of cash-yielding and growth assets with regional diversification across Africa, the Middle East, Asia, and LatAm, targeting large players with sizeable regional presence and smaller-scale assets at attractive prices to be consolidated under one platform.
Can you explain Vortex Energy’s latest fundraising efforts and your goals for the Vortex Energy IV fund? How does Vortex Energy IV plan to achieve strong returns while supporting the global clean energy transition?
The global infrastructure fundraising environment is currently very challenging due to the high interest rate environment, coupled with limited capital allocation. We have successfully raised and deployed substantial capital of c. EUR 360 million in Vortex IV across two portfolio companies: Ignis Energia and EO Charging. This comes as part of our aggregated EUR 1.6 billion of invested capital since the launch of Vortex in 2014.
Vortex IV is a growth fund and the equity invested in the aforementioned portfolio companies was injected to fund the companies’ expansion plans. Since our entry, we have been actively involved with management to ensure our capital is injected into value-added projects and have set KPIs to measure performance. We believe our investments are on the right track to achieve solid results and maximize our shareholders’ equity.
Earlier this year, EFG Hermes announced plans to launch a USD300 million educational platform focused on the Saudi market. What are the main opportunities and goals of this project?
We believe the Saudi education market holds great potential given the continuously improving macro fundamentals and supported by ambitious Vision 2030 targets that are highly motivating private sector investments in the education sector.
The Saudi education market, currently highly fragmented with significant room to improve the quality of education service provided, presents an immense opportunity as it gears toward achieving Saudi Vision 2030 ambitious targets via doubling private enrollment rates and increasing the number of private sector students from the current level of c. 0.9 million to 1.8 million in 2030 (c. 40 thousand new schools to be developed) and adding more than 1.5 thousand new daycare centers on top of the currently available 1.1 thousand centers to meet the growing demand.
Generally, the education market in Saudi Arabia holds many similarities to the Egyptian market. We were able to deliver a unique success story by developing Egypt’s largest pre-K-12 school operator, Egypt Education Platform (EEP), EFG Hermes’ Education Investments arm, in less than five years to become a true market leader in MENA’s largest education market, which houses over 25 million students.
We believe those similarities along with the experience we have developed in a sizeable market like Egypt will help us deliver another success story in the Saudi market, which is still in dire need of high-quality experienced school operators who can meet the changing social patterns and learning needs of the fast-evolving Saudi communities. Our international schools’ provision will be a key cornerstone in building our new Saudi platform as we plan to focus on international schools that offer British, American, and IB curriculums. Our unique differentiation will not just be the quality of the service, but the tuition fees as well. We will aim to focus more on the mid-market needs where we see a huge supply gap and ample demand.
This project draws inspiration from the successful Egypt Education Platform. How did the success of the educational platform in Egypt influence your plans for Saudi Arabia? What will be different?
Our success in Egypt was the key driver for us to launch our second fund in Saudi Arabia, which is the second-largest education market after Egypt. However, our Saudi fund is almost double the size of our first fund because of the immense opportunity we currently see. We are already actively engaged in more than three transactions involving multiple schools spreading across Riyadh, Jeddah, and the eastern province. We believe our Egyptian assets will be quite complimentary to what we are trying to build in Saudi especially when it comes to teacher hiring and training as we have developed a unique track record in such areas over the past years.
Saudi Education Fund will also capitalize on the world-class management team that oversaw the ramp-up and integration of 25 assets with over 4 thousand employees under EEP since 2019 to spearhead our upcoming expansion in the Saudi market. Our team in EEP currently comprises over 60 professionals with diverse multinational backgrounds and fully equipped with a track record of value creation on asset acquisitions, developments, integration, and turnaround capabilities.
We will target acquiring and developing 20 to 30 schools and pre-schools over the coming 3 years across KSA and potentially other GCC markets to build a diversified portfolio that could be merged with EEP in preparation for a public listing of the consolidated platform by 2027/2028 on the Tadawul exchange or other exchanges in the GCC. We aim to provide superior returns to investors on the capital deployed.
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Can you give an insight into the intersection between education and renewable energy? What are the biggest challenges you’re seeing regarding the region’s journey to a more sustainable future?
Education and renewable energy are both defensive industries, and we see ample demand and limited supply, especially in the MENA region. The region’s vision and targets also support its growth over the upcoming period.
The biggest challenges we are facing on the education front are mainly related to the regulatory framework, as well as the fragmentation of the markets. Meanwhile, on the renewable energy side, there are several barriers, including but not limited to high financing costs, sub-investment grade markets, high political risks, legal and institutional uncertainty, and implementation and foreign exchange risk. This — coupled with the lack of well-structured, investable climate project pipelines, which is often an obstacle to the deployment, and the lack of high-quality, reliable, and comparable climate-related data — makes the assessment of risks and opportunities more complex for private investors.
However, we believe that many governments have recently understood these obstacles and are working on new initiatives to improve the overall investment framework and attract private capital to these markets.
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