Deutsche CEO talks Fed cuts and world market
Henry Azzam, Chief Executive Officer of the Middle East and North Africa division of Deutsche Bank, has been at the forefront of financial innovation in the Middle East for many years, especially the development of the Dubai International Financial Exchange.
Before joining Deutsche Bank on May 1, 2007, Dr Azzam was CEO of Amwal Invest, an investment bank he founded in May 2005 and has guided it through its first two years of operations, and the Chairman of Dubai International Financial Exchange. Before establishing Amwal Invest, Dr Azzam was the CEO of Jordinvest (2001-2004), MD of Middle East Capital Group (1998-2001), AGM and Chief Economist of the National Commercial Bank, Jeddah Saudi Arabia (1990-1998) and Vice-President and Chief Economist of Gulf International Bank, Bahrain (1983-1990). He has five books published in the UK, the last one being The Arab Economies Facing the Challenge of the New Millennium.
Azzam (pictured above) tells Emirates Business of his reaction to the US Federal Reserve’s dramatic move to cut interest rates last week in the wake of global market turbulence, his belief that there will be at least another one per cent cut later this year, and his assessment of how Deutsche Bank is placed in the whirlwind blowing through the world’s financial markets.
What is your reaction to the surprise rate cut by the US Federal Reserve as a response to the recent declines in world stock markets?
Well, it was the biggest cut in 20 years, and the message sent to the markets is that the Fed is worried that the gloomy sentiment on Wall Street and around the world could make recessionary expectations come true. By lowering rates in a surprising way, the Fed wanted to be ahead of market expectation in the hope of changing the sentiment and the mindset of investors, inject liquidity and encourage lending and spending.
Several commentators have argued that big rate cuts bring a deflationary risk, as was the case in Japan in the late 1980s. How do you assess this risk?
I would not go that far. The US economy is more dynamic today than that of Japan in the late 1980s, and policy-makers in the US tend to be more proactive – they tend to take action on the monetary and fiscal stand faster with the aim of shaping future expectations. We also have a more visible phenomenon in the US than elsewhere of “creative destruction” – where the weaker institutions that fail tend to be acquired by stronger ones.
Do you think the Fed has been forced into these measures by Wall Street to rescue the markets?
I don’t think the Fed took these measures to help rescue stock markets. These measures were implemented mainly for economic reasons. Recently, more and more people were raising the spectre of a recession, and if more people talk about it and expect it, then there is a good chance that it will happen. This is why the Fed stepped in at the right time in a big way, hoping that lower rates could eventually work more into the system to help spur capital investments by businesses, provide some relief to home-adjusted mortgages and encourage more consumption. Therefore, the Fed acted in the interest of the broader economy, not just stock markets.
Has the Fed done enough?
I think it is too early to say that. The Fed gave the system an injection in the hope of reviving it, but more needs to be done. In the weeks and months ahead, markets expect Fed funds to drop further to 2.5 per cent, from their current levels of 3.5 per cent, supported by the $150 billion (Dh550bn) fiscal stimulus package.
What is your view of the strength of the American banking system now? Is there still a danger of collapse?
Banks with huge losses need to recapitalise, and they have started to do so. Some are drawing on the capital resources of the sovereign wealth funds. These funds have a historic opportunity to acquire assets in major financial institutions of the world and, therefore, it is expected there will be more capital-raising activities in the months ahead. As such, I don’t think we will see collapses on the US banking scene, but that does not preclude mergers or acquisitions down the road. Some banks may decide to sell assets or businesses, while others may put more emphasis on certain banking activities and downgrade others.
How is Deutsche Bank’s position in all this?
Deutsche Bank is well placed against the competition, and was less affected by the sub-prime market crisis compared to others. Our financial results are due next month, and then the markets will get first-hand information on our overall performance.
Can you summarise the strategy of Deutsche Bank in the Middle East?
Internationally, we are a global investment bank with a strong retail presence in Germany, East Europe, and some other parts of the world. In the Middle East and North Africa we are a wholesale investment bank, not a retail bank. Our emphasis is on investment banking, across the full range of activities – corporate finance, mergers and acquisitions, IPOs, debt issuance, transaction banking, Islamic finance and global markets. We are also strong in asset management, and provide services to sovereign wealth funds, corporations and big family funds. We also have a flourishing private wealth management business in the region, and as more wealth filters down to people in the Gulf we stand ready to provide them with a sophisticated wealth management service.
What role does Islamic finance play in this overall strategy?
We are at the frontiers of Islamic finance, always introducing new structures and products to meet the needs of the sophisticated Shariah-compliant client base. Islamic finance is at the heart of our investment banking and global markets operation, not only out of our regional head office in Dubai but also from our branches and offices in London, Riyadh, Doha and elsewhere.
How important is the Gulf on the world economic scene?
I am sure you have heard the term Bric – the emerging economies of Brazil, Russia, India and China. I like to think of it as Brics, where the S stands for Saudi Arabia, including the rest of the Gulf. With a total GDP of around $800bn, the six Gulf countries have become a sizeable market for goods and services and are experiencing double-digit growth rates in nominal terms and at around an average of six per cent in real terms. They have a huge requirement for infrastructure finance over the coming few years, with the private sector itself implementing its strategy of growth and expansion.
While capital resources are available, what the region needs are financial institutions that can provide sophisticated structures and financing schemes. Both Abu Dhabi and Qatar require complicated project finance structures, and while the local banks can provide the much-needed commercial loans, the international investment banks could come up with financial structures, hedging techniques and international placements of equity and debt, including sukuks. Deutsche Bank has a presence in Egypt and Algeria, where we aim to expand our current offering to include corporate finance, global markets, asset management transaction banking, and private wealth management services.
What about the UAE, and Dubai in particular? What are the financial requirements?
Abu Dhabi and Dubai have varied financial requirements. Abu Dhabi, of course, is rich in oil and gas, and may have less requirements to raise equity capital than Dubai. But the two would require financial structuring, debt raising, hedging, project finance and asset management; services that are offered by international investment banks. Dubai was successful in attracting massive foreign investment and banks today stand ready to provide debt finance that companies and projects in the emirate require. The market is the best indicator of the viability of Dubai as an investment option, and international banks are standing in line to offer their services.
Deutsche Bank has a close relationship with the Dubai International Financial Exchange. Can you tell me about that?
Deutsche Bank was one of the first to come to the DIFC, and we are in full support of their vision and continue to play an active part in their success story. We were one of the earliest supporters of the DIFX and we stand ready to do all that is needed to make it a success. Our regional Middle East hub is in the DIFC, with more than 140 employees and growing. The DIFC has developed into a regional financial centre, and this is only the beginning. Deutsche Bank is well positioned to support future DIFC expansion and we see a promising future for the DIFX as the Region’s international exchange.
Do you think the DIFX has taken off?
Yes, with DP World as an anchor listing, trading volumes are picking up, we expect more companies from the region and around the world seeking primary or secondary listings here. The acquisition the DIFX did with the Nasdaq will add the necessary breadth and depth to the exchange. The listing of DP World has shown that the DIFX could be the market of choice to list for companies operating on the regional and international sphere. DP World was a successful flotation, many times oversubscribed, with the flotation price determined by the market through a book-building exercise. It’s worth pointing out that the flotation of DP World’s shares took place just at the time when the sub-prime market crisis was unfolding, at a time when speculation was rife regarding the possibility of a re-evaluation of regional currencies.
Will the global financial uncertainty affect the flow of investment into DIFX and other regional markets?
The UAE today attracts international portfolios seeking investments in a promising emerging market. However, the local stock markets have become less of a diversification play from what it used to be before. Therefore, if big global investors reduce their exposure to emerging markets because of the current problems then the region’s stock markets will be affected. It is all part of the process of the rebalancing of portfolios that is happening now, which gives more weight to cash and fixed income than it does to equities.
Where will the next round of flotations come from, in your opinion, from government privatisations or from the listing of family businesses?
I think there will be flotations from both. Increasingly, we expect to see more family businesses going public and government institutions being privatised through public flotation. These initial public offerings require the financial sophistication and placement power of an international investment bank, such as Deutsche Bank, to come up with the right market price, provide underwriting, placement and equity research. We bring credibility to the process and an acceptable counter-party risk for regional and international investors and portfolios. With more companies being listed on the DIFX or the DFM or the Tadawul, these exchanges will gain market depth and diversification, contributing to the financial development of the region.
by Frank Kane on Sunday,January 27,2008
28.1.08
19.1.08
Investment choices in 2008 a UAE perspective
The potential for a global economic slowdown and US recession has left UAE investors facing tough choices over where to invest their money in 2008.
With the shockwaves of the sub-prime crisis still being felt in markets around the world, and the US economy expected to be weak through the first half of 2008 – and possibly for most of the year – investors would be forgiven for being somewhat defensive.
Those who have stakes in global markets must assess which regions will best insulate their investments from the fallout of a possible recession, and on a local level, decide if the construction and oil boom in the UAE still provide a safe haven against a global economic tumble.
Over the past year UAE-based investors have been exposed to an increasing number of attractive investment opportunities, including a host of initial public offerings, and Gulf markets, which have generated arguably the highest profitability rates of all emerging markets.
Investors are now faced with the challenge of picking sectors and stocks that are likely to perform well in the region, and at the same time side-stepping the effects of a tumbling dollar and a weak US economy.
EXISTING INVESTORS
The advise to those with existing global investments is to shift money to a place where the US economy cannot hurt your returns, and seriously consider emerging markets, especially the Middle East and Africa (MEA).
Corporate earnings in 2008 in the GCC are likely to be higher than that of MEA, with the aggregate profit for GCC establishments expected to grow by 12 per cent in 2008, up from five per cent in 2007.
Among the four largest GCC countries, Qatar is expected to maintain its attractiveness as the fastest growing country in the region in 2008, with an estimated earnings per share (EPS) growth of 29 per cent.
Aalaeddine Chahbi, a hedge fund manager for Evolvence Capital, said: “Globally there are only a couple of regions with growth rates of more than 15-20 per cent, and they are usually in the Middle East or Africa. For example, Angola has an expected GDP growth of around 25 per cent, which is outstanding by any standards historically.
“From a risk-management point of view, I would definitely avoid the US market, and all the markets that are correlated with it because whether the talk about a recession is justified or not, there is still the general feeling there, which is enough to cause a recession.
In Europe, earlier in the week, fears of a recession hit shares of companies such as metals producers, technology providers and construction firms. The losses offset strong gains for companies in sectors that are less attuned to economic cycles, including healthcare, utilities and telecommunications.
The expectations for 2008 “are too high in our view, and we advise to start the year with a defensive portfolio structure”, said Societe Generale’s European equity strategists.
They prefer consumer staples, including pharmaceutical and utility firms.
Investment veteran Jim Rogers pointed this week to agricultural commodities as a possible tool to immunise global investments against markets shifts. Rogers said the US economy is headed for its roughest recession in years, counselling investors to opt for commodities and to avoid a dollar he expects will be under pressure for “years to come”.
Commodities, a traditional inflation-sensitive investment, are a good play for 2008, and in the event of a global recession, agricultural commodities would be an outstanding defensive investment, he said.
Christopher Wyke, commodity product manager at Schroders, said strong demand for natural resources – particularly from developing economies – will remain a key support of rising energy, metals and agriculture prices in 2008.
“On the supply side, many inventories are at, or close to, record lows. Furthermore, the quantity of the world’s arable land continues to decline steadily due to issues such as desertification and urbanisation in developing countries.
“In sharp contrast to the turbulence witnessed in the equity and bond markets, many commodities performed strongly when the sub-prime mortgage market woes were at their peak during the summer,” Wyke added.
On a local level, investors in the UAE and other GCC states can take solace in reports that economies in the Middle East are set for sustained growth, and will outstrip other emerging markets in 2008.
A recent Goldman Sachs report said: “The GCC economy by 2050 could be comparable in size to Germany or Italy using relatively conservative assumptions. Under more aggressive assumptions of high population growth, better use of technology and improving education, the region’s economy could overtake that of the United Kingdom, and GDP could equal that of the G7 over the same period.”
Evolvence Capital’s Chahbi, however, issued a note of caution for those looking for gains in the UAE property market. “With local property you can’t be naive anymore; at one point of time all you had to do was buy any kind of property and the price would appreciate.
“Now you have to do your due diligence and consider prime locations in Dubai, which you know will appreciate for offer and demand reasons,” he said.
“In the UAE there will be a balance between offer and demand during 2008 and 2009, which will then turn in favour of demand – which means the prices are likely to go up again.
The message, therefore, is keep investing in local property but you should be more careful and selective and look at prime locations or particular properties such as commercial property in the DIFC or in growing cities such as Abu Dhabi.”
NEW INVESTORS
For those without current investments in the UAE or the wider GCC region, the challenge in 2008 will be whether to bet on one of the IPOs likely to be launched.
Countries such as Saudi Arabia have tight capital controls on its markets, limiting the reach of foreign investors, and therefore insulating the economy from a possible recession to some extent. IPOs in the UAE will be able to ward off side effects from foreign market turbulence since the majority of the seed money is from local sources.
“Markets in this region have low correlations with global markets and economies, so I don’t think this potential recession will impact equity and IPO markets here. Saudi Arabia has a capital control system in place, so if you want to purchase a pitch in Saudi you have to be a national, giving the market insulation – especially in the IPO market – from international investors,” said Chahbi.
“The UAE is less insulated. But for the types of markets that are more or less open, so far most of the IPO money is local. Most of the money going into the equity markets is from the GCC region. And they are offering less risk in this case,” he added.
Investors looking at global markets would be wise to be aware of Goldman Sachs recent move to change its rating and price targets on several US retailers. The recent weakening in the labour market and further slowing in consumption could send the US into a mild recession during mid-fiscal 2008.
The brokerage said a second half-margin recovery could be at risk if retailers do not plan inventory levels prudently enough.
“The department stores’ sales and margins get hit the hardest due to their highly discretionary sales mix and season-driven inventory positions, and apparel manufacturers are second in line,” said Goldman.
With consumer trends set to soften further, Goldman said it would continue to advise investors to maintain a defensive investing posture through the first half of fiscal 2008 at a minimum.
Meanwhile, property markets in Eastern Europe look like a safe bet and are seen as a chance to generate sturdy returns throughout the year.
Chahbi: “Markets such as Croatia and Bulgaria and countries on the Mediterranean will not necessarily be hit by what’s happening in the global economy in the real estate sector because of high local demand.”
Gold: the great insulator
Historically, gold has always been a good bet against inflation, or a hedge against inflation. So whenever you start to see inflation the hedging instrument is typically gold. People start buying gold because they no longer trust their currency and, therefore, the price of gold appreciates. Gold will not only be somewhat immune to a recession but it will also profit from it because it has a hedge value – all the more if the dollar keeps depreciating.
This is evidenced in recent news that gold futures rose above $900 an ounce for the first time. High oil prices, a weak dollar and fears of a US recession led uneasy investors to keep buying the metal.
An ounce of gold for February delivery on the New York Mercantile Exchange jumped $6.50 to $900.1 in early trading, an all-time high and a psychologically important milestone. Gold later slipped to $898.70 an ounce but remained in record territory.
“It’s a reflection of market sentiment: gold is a hedge against uncertainty and right now it’s the best bet,” said Carlos Sanchez, a precious metals analyst at CPM Group in New York. “None of the other investment options look that great and gold does.”
With the shockwaves of the sub-prime crisis still being felt in markets around the world, and the US economy expected to be weak through the first half of 2008 – and possibly for most of the year – investors would be forgiven for being somewhat defensive.
Those who have stakes in global markets must assess which regions will best insulate their investments from the fallout of a possible recession, and on a local level, decide if the construction and oil boom in the UAE still provide a safe haven against a global economic tumble.
Over the past year UAE-based investors have been exposed to an increasing number of attractive investment opportunities, including a host of initial public offerings, and Gulf markets, which have generated arguably the highest profitability rates of all emerging markets.
Investors are now faced with the challenge of picking sectors and stocks that are likely to perform well in the region, and at the same time side-stepping the effects of a tumbling dollar and a weak US economy.
EXISTING INVESTORS
The advise to those with existing global investments is to shift money to a place where the US economy cannot hurt your returns, and seriously consider emerging markets, especially the Middle East and Africa (MEA).
Corporate earnings in 2008 in the GCC are likely to be higher than that of MEA, with the aggregate profit for GCC establishments expected to grow by 12 per cent in 2008, up from five per cent in 2007.
Among the four largest GCC countries, Qatar is expected to maintain its attractiveness as the fastest growing country in the region in 2008, with an estimated earnings per share (EPS) growth of 29 per cent.
Aalaeddine Chahbi, a hedge fund manager for Evolvence Capital, said: “Globally there are only a couple of regions with growth rates of more than 15-20 per cent, and they are usually in the Middle East or Africa. For example, Angola has an expected GDP growth of around 25 per cent, which is outstanding by any standards historically.
“From a risk-management point of view, I would definitely avoid the US market, and all the markets that are correlated with it because whether the talk about a recession is justified or not, there is still the general feeling there, which is enough to cause a recession.
In Europe, earlier in the week, fears of a recession hit shares of companies such as metals producers, technology providers and construction firms. The losses offset strong gains for companies in sectors that are less attuned to economic cycles, including healthcare, utilities and telecommunications.
The expectations for 2008 “are too high in our view, and we advise to start the year with a defensive portfolio structure”, said Societe Generale’s European equity strategists.
They prefer consumer staples, including pharmaceutical and utility firms.
Investment veteran Jim Rogers pointed this week to agricultural commodities as a possible tool to immunise global investments against markets shifts. Rogers said the US economy is headed for its roughest recession in years, counselling investors to opt for commodities and to avoid a dollar he expects will be under pressure for “years to come”.
Commodities, a traditional inflation-sensitive investment, are a good play for 2008, and in the event of a global recession, agricultural commodities would be an outstanding defensive investment, he said.
Christopher Wyke, commodity product manager at Schroders, said strong demand for natural resources – particularly from developing economies – will remain a key support of rising energy, metals and agriculture prices in 2008.
“On the supply side, many inventories are at, or close to, record lows. Furthermore, the quantity of the world’s arable land continues to decline steadily due to issues such as desertification and urbanisation in developing countries.
“In sharp contrast to the turbulence witnessed in the equity and bond markets, many commodities performed strongly when the sub-prime mortgage market woes were at their peak during the summer,” Wyke added.
On a local level, investors in the UAE and other GCC states can take solace in reports that economies in the Middle East are set for sustained growth, and will outstrip other emerging markets in 2008.
A recent Goldman Sachs report said: “The GCC economy by 2050 could be comparable in size to Germany or Italy using relatively conservative assumptions. Under more aggressive assumptions of high population growth, better use of technology and improving education, the region’s economy could overtake that of the United Kingdom, and GDP could equal that of the G7 over the same period.”
Evolvence Capital’s Chahbi, however, issued a note of caution for those looking for gains in the UAE property market. “With local property you can’t be naive anymore; at one point of time all you had to do was buy any kind of property and the price would appreciate.
“Now you have to do your due diligence and consider prime locations in Dubai, which you know will appreciate for offer and demand reasons,” he said.
“In the UAE there will be a balance between offer and demand during 2008 and 2009, which will then turn in favour of demand – which means the prices are likely to go up again.
The message, therefore, is keep investing in local property but you should be more careful and selective and look at prime locations or particular properties such as commercial property in the DIFC or in growing cities such as Abu Dhabi.”
NEW INVESTORS
For those without current investments in the UAE or the wider GCC region, the challenge in 2008 will be whether to bet on one of the IPOs likely to be launched.
Countries such as Saudi Arabia have tight capital controls on its markets, limiting the reach of foreign investors, and therefore insulating the economy from a possible recession to some extent. IPOs in the UAE will be able to ward off side effects from foreign market turbulence since the majority of the seed money is from local sources.
“Markets in this region have low correlations with global markets and economies, so I don’t think this potential recession will impact equity and IPO markets here. Saudi Arabia has a capital control system in place, so if you want to purchase a pitch in Saudi you have to be a national, giving the market insulation – especially in the IPO market – from international investors,” said Chahbi.
“The UAE is less insulated. But for the types of markets that are more or less open, so far most of the IPO money is local. Most of the money going into the equity markets is from the GCC region. And they are offering less risk in this case,” he added.
Investors looking at global markets would be wise to be aware of Goldman Sachs recent move to change its rating and price targets on several US retailers. The recent weakening in the labour market and further slowing in consumption could send the US into a mild recession during mid-fiscal 2008.
The brokerage said a second half-margin recovery could be at risk if retailers do not plan inventory levels prudently enough.
“The department stores’ sales and margins get hit the hardest due to their highly discretionary sales mix and season-driven inventory positions, and apparel manufacturers are second in line,” said Goldman.
With consumer trends set to soften further, Goldman said it would continue to advise investors to maintain a defensive investing posture through the first half of fiscal 2008 at a minimum.
Meanwhile, property markets in Eastern Europe look like a safe bet and are seen as a chance to generate sturdy returns throughout the year.
Chahbi: “Markets such as Croatia and Bulgaria and countries on the Mediterranean will not necessarily be hit by what’s happening in the global economy in the real estate sector because of high local demand.”
Gold: the great insulator
Historically, gold has always been a good bet against inflation, or a hedge against inflation. So whenever you start to see inflation the hedging instrument is typically gold. People start buying gold because they no longer trust their currency and, therefore, the price of gold appreciates. Gold will not only be somewhat immune to a recession but it will also profit from it because it has a hedge value – all the more if the dollar keeps depreciating.
This is evidenced in recent news that gold futures rose above $900 an ounce for the first time. High oil prices, a weak dollar and fears of a US recession led uneasy investors to keep buying the metal.
An ounce of gold for February delivery on the New York Mercantile Exchange jumped $6.50 to $900.1 in early trading, an all-time high and a psychologically important milestone. Gold later slipped to $898.70 an ounce but remained in record territory.
“It’s a reflection of market sentiment: gold is a hedge against uncertainty and right now it’s the best bet,” said Carlos Sanchez, a precious metals analyst at CPM Group in New York. “None of the other investment options look that great and gold does.”
Western pension funds eye Mena equity
Western pension funds eye Mena equity
Private equity funds based in the Middle East and North Africa (Mena) region will be the next target for Western pension funds and endowments, top industry executives have said.
"The Mena region is becoming the fourth centre [after the US, Europe and Asia] of global private equity investing globally out of the region, and attracting global funds to invest locally," said Dr Karim El Sohl, chief executive officer of Gulf Capital, a UAE-based investment firm.
Speaking to Emirates Business on the sidelines of the Meed Private Equity Conference in Dubai yesterday, Dr El Sohl said the average fund size in the region had witnessed a huge leap in the last four years.
"Larger private equity funds have been set up from the region and for the region, targeting larger transactions. Last year saw the launch of a fund in excess of $1bn and the closing of a $1bn transaction," said Michael Lee, CEO of Bahrain-based Ithmar Bank.
The Carlyle Group said last year it plans to invest around $1bn in the Mena region in the next three to five years. Deutsche Bank partnered with Abraaj Capital for its $1.4bn 'Infrastructure and Growth Capital Fund' for providing acquisition finance launched in 2006.
The fund will have a holding period of 10 years. Intel Capital raised $50m for its Middle East and Turkey Fund in 2005. The UK's 3i set up a partnership with Dubai-based Ithmar Capital for its Fund II portfolio launched in 2005. "The growing size of funds and transaction deals over the last five years means private equity in the region has become an established asset class," Dr El Sohl said.
"Funds from the region are now well and truly plugged into the global network and there's increased sophistication from regional players who are attracting global funds for regional investment," said Faisal Belhoul, Founder and Managing Partner of Dubai-based Ithmar Capital, which will launch its $1bn Fund III portfolio in the fourth quarter of this year.
Funds in the GCC region can deliver a IRR, or internal rate of return - the interest rate at which a certain amount of capital today would have to be invested in order to grow to a specific value at a time in the future - of 30 to 40 per cent to investors, which makes it significantly better than investment vehicles investing in some other regions, according to Dr El Sohl. Belhoul agreed that with current dynamics as strong as they are, funds can look to achieve an IRR of 30 to 40 per cent.
According to Zawya.com and Gulf Capital data, control buy-outs accounted for 43 per cent private equity deals in the Mena region last year, followed by strategic minority stake acquisition (26 per cent) and minority financial investment, which accounted for 17 per cent of total private equity investments in the Mena region last year. Private equity returns from the Mena are expected to outperform global returns this year, executives said.
According to a survey by the Emerging Markets Private Equity Association last year, the average net IRR for private equity commitments in the Middle East stood at 22.8 per cent. The average IRR for commitments in the US was 17.2 per cent and 23.1 per cent in Asia.
by Nitin Nambiar on Wednesday,January 16,2008
Private equity funds based in the Middle East and North Africa (Mena) region will be the next target for Western pension funds and endowments, top industry executives have said.
"The Mena region is becoming the fourth centre [after the US, Europe and Asia] of global private equity investing globally out of the region, and attracting global funds to invest locally," said Dr Karim El Sohl, chief executive officer of Gulf Capital, a UAE-based investment firm.
Speaking to Emirates Business on the sidelines of the Meed Private Equity Conference in Dubai yesterday, Dr El Sohl said the average fund size in the region had witnessed a huge leap in the last four years.
"Larger private equity funds have been set up from the region and for the region, targeting larger transactions. Last year saw the launch of a fund in excess of $1bn and the closing of a $1bn transaction," said Michael Lee, CEO of Bahrain-based Ithmar Bank.
The Carlyle Group said last year it plans to invest around $1bn in the Mena region in the next three to five years. Deutsche Bank partnered with Abraaj Capital for its $1.4bn 'Infrastructure and Growth Capital Fund' for providing acquisition finance launched in 2006.
The fund will have a holding period of 10 years. Intel Capital raised $50m for its Middle East and Turkey Fund in 2005. The UK's 3i set up a partnership with Dubai-based Ithmar Capital for its Fund II portfolio launched in 2005. "The growing size of funds and transaction deals over the last five years means private equity in the region has become an established asset class," Dr El Sohl said.
"Funds from the region are now well and truly plugged into the global network and there's increased sophistication from regional players who are attracting global funds for regional investment," said Faisal Belhoul, Founder and Managing Partner of Dubai-based Ithmar Capital, which will launch its $1bn Fund III portfolio in the fourth quarter of this year.
Funds in the GCC region can deliver a IRR, or internal rate of return - the interest rate at which a certain amount of capital today would have to be invested in order to grow to a specific value at a time in the future - of 30 to 40 per cent to investors, which makes it significantly better than investment vehicles investing in some other regions, according to Dr El Sohl. Belhoul agreed that with current dynamics as strong as they are, funds can look to achieve an IRR of 30 to 40 per cent.
According to Zawya.com and Gulf Capital data, control buy-outs accounted for 43 per cent private equity deals in the Mena region last year, followed by strategic minority stake acquisition (26 per cent) and minority financial investment, which accounted for 17 per cent of total private equity investments in the Mena region last year. Private equity returns from the Mena are expected to outperform global returns this year, executives said.
According to a survey by the Emerging Markets Private Equity Association last year, the average net IRR for private equity commitments in the Middle East stood at 22.8 per cent. The average IRR for commitments in the US was 17.2 per cent and 23.1 per cent in Asia.
by Nitin Nambiar on Wednesday,January 16,2008
1.1.08
Gulf Capital to list shares on ADSM in 2009
Abu Dhabi: Regional private equity firm Gulf Capital plans to list its shares on the Abu Dhabi Securities Market (ADSM) by the middle of 2009, its chief executive officer said on Monday.
"It's mandatory for a private joint stock company to have an average 10 per cent return on equity in the first two years of operations preceding an initial public offering," Karim Al Solh told Gulf News.
Immediate measures
"We will have to meet this ADSM requirement before we file our prospectus for listing. We should be able to meet the requirement before the middle of 2009," Al Solh said.
The source of Gulf Capital's funding is from pension funds, banks, insurance companies, family businesses and from an array of leading businessmen across the Gulf region.
Oil and gas, water, construction, telecommunications, education, financial services, logistics and healthcare are among the areas the company has identified for investment for its business growth. Abu Dhabi-based Gulf Capital's current assets include a controlling 60 per cent stake in Sharjah-based Metito, a water desalination and water treatment company. Metito has operations in 20 countries.
Gulf Capital was established in May 2006 with a capital base of Dh1.225 million from 300 shareholders in the Gulf.
By Himendra Mohan Kumar, Staff Reporter
Published: January 01, 2008, 00:37
"It's mandatory for a private joint stock company to have an average 10 per cent return on equity in the first two years of operations preceding an initial public offering," Karim Al Solh told Gulf News.
Immediate measures
"We will have to meet this ADSM requirement before we file our prospectus for listing. We should be able to meet the requirement before the middle of 2009," Al Solh said.
The source of Gulf Capital's funding is from pension funds, banks, insurance companies, family businesses and from an array of leading businessmen across the Gulf region.
Oil and gas, water, construction, telecommunications, education, financial services, logistics and healthcare are among the areas the company has identified for investment for its business growth. Abu Dhabi-based Gulf Capital's current assets include a controlling 60 per cent stake in Sharjah-based Metito, a water desalination and water treatment company. Metito has operations in 20 countries.
Gulf Capital was established in May 2006 with a capital base of Dh1.225 million from 300 shareholders in the Gulf.
By Himendra Mohan Kumar, Staff Reporter
Published: January 01, 2008, 00:37
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