KKR gets license to operate in Saudi Arabia

Mon, Jun 27 2011

DUBAI, June 27 (Reuters) - Private equity giant KKR & Co LP has received a license from Saudi market regulator Capital Markets Authority (CMA) to conduct business in the oil-rich country, a bourse filing showed.

"The CMA Board of Commissioners issued a resolution today...authorizing KKR Saudi Limited Company to conduct arranging," a statement from the regulator on Sunday said.

The statement did not provide any more details.

A spokesman for the company in London declined to comment.

KKR, co-founded by "buyout king" Henry Kravis, began its operations in the region with an office in Dubai in 2009. Several private equity firms have set up shop in the Gulf Arab region in the last few years, attracted by rapid economic growth and high oil prices.

A spokesman for the company in London declined to comment.

U.S. private equity firm Carlyle Group expects to complete a deal in Saudi Arabia by the end of the year, a senior executive said early this year.

Education in Mena does not meet workplace requirements

By 

• Shuchita Kapur

Published Monday, November 14, 2011

Education imparted in the Mena region often does not meet the workplace requirements, according to a Mena education report released by Markaz.

The findings suggest that education education system in the region, to a large extent, fails to impart the right skills required for a modern workplace. As a result, employers (particularly in GCC) prefer to hire foreigner’s vis-à-vis nationals. Foreign employees are considered to be proficient in terms of productivity as well as accept lower salaries.

Quoting a World Bank report, Education for Employment: Realizing Arab Youth Potential, researchers at Markaz highlight the disconnect between education and workplace requirements. This is largely because factors such as ill-equipped classrooms, untrained teachers and outdated curriculums. Furthermore, the report highlights three main areas for private sector participation – vocational education and training, university education and work readiness programmes that can help improve the system.

The report points out that the region has over 100,000 K-12 schools of which the maximum number are located in Egypt (37%), Saudi Arabia (22%), Algeria (19%), Morocco (8%), and Jordan (5%).

“However, despite having a number of schools, the lack of availability of good schooling ails the education system in the region. PISA results from the OECD (which surveys 15-year-olds on knowledge and skills essential for full participation in society) ranked the UAE at 42nd position, followed by Jordan (55), Tunisia (56) and Qatar (61). Establishment of new world-class schools and/or renovation of existing ones with the help of private equity could be pursued to improve the infrastructure and curriculum,” says the report.

Availability of quality teachers is another key concern. The figure in the report show that the region has 17 students for every one teacher (a pupil-teacher ratio of 17:1) compared to the world average of 24:1. Yet, the knowledge level and skill set among students in the region is far lower compared to the counterparts in the developed countries. One key reason for this is the poor quality of teachers in the region. Moreover, the demand for teachers is expected to go up. A UNESCO report titled Teachers and Educational Quality: Monitoring Global Needs estimates that the Arab world, mainly Saudi Arabia, Egypt, Morocco and the UAE, would need an additional 450,000 teachers by 2015.

“Good teachers are essential in an education system as they are the ones who impart knowledge and values to the future generation. However, countries in the MENA face an acute shortage of teachers. Therefore, those hired to serve as teachers are often not adequately qualified for the position. The result is lower knowledge level and skill sets among students in the MENA region,” the report points out.

“Mena students score lower on Trends in International Mathematics and Science Study (TIMSS4) compared to the average score in developing/developed regions,” it adds further.

The report also focuses on poor quality course curriculum. “The quality of primary education in the MENA region is still below the standards in developed nations such as the UK. A consultancy firm McKinsey and Co recently reported that the majority of schools in the UAE rank between ‘poor’ to ‘fair’ by international standards. Data from World Economic Forum (WEF) suggests that countries like Libya, Egypt, Morocco, and Algeria particularly need to improve their quality of education at the primary level. These countries could learn from Qatar, which now ranks among the top five nations globally in terms of quality of primary education.”

Despite the pitfalls, education is high on growth agenda of governments in the region. “Providing access and imparting quality education is among the top priorities of governments in the region. Significant budgetary allocations for education and related activities undertaken by various governments for several years emphasize the importance given to the sector. Data from the World Bank indicates that public spending on education (as a % of government expenditure) in the MENA stands at 18.6% compared to the world’s average of 14.2%.

Egypt's Citadel secures $150 mln finance facility

Sun Nov 13, 2011 8:58am GMT

CAIRO Nov 13 (Reuters) - Egyptian private equity firm Citadel Capital secured a $150 million, 10-year financing facility from a U.S. government development finance institution, the company said on Sunday.

The funds from the Overseas Private Investment Corporation (OPIC) take Citadel's long-term capital to $325 million, including a recent rights issue, Citadel said in a statement.

The firm, which focuses on the Middle East and north Africa, reported a net loss for the first half of 2011 and is scaling back investments outside its existing projects until Egypt's political and economic outlook becomes clearer.

The country is gearing up for elections after the overthrow of President Hosni Mubarak in February in a popular uprising that caused a flight of foreign investors and tourists.

The financing "addresses the shortage of credit in Egypt, where investment in important infrastructure sectors has been stymied by political uncertainty", Citadel cited OPIC Chief Executive Elizabeth Littlefield as saying. (Reporting by Tom Pfeiffer; Editing by Robert Birsel)

New index will help GCC firms attract investment and expertise

Gulf 100 will rank fastest growing entrepreneur-led companies

Dubai: The stakes have just gotten higher for Gulf entrepreneurs. A new ranking regime is being created — the Gulf 100 — which will showcase companies where the entrepreneurial light is shining brightest.

A similar ranking has already been created in Saudi Arabia and the new one will cover businesses in the other Gulf states.

"The GCC 100 is not [about] membership — it's a ranking of the fastest growing entrepreneur-led companies in the region," said Atif Abdul Malek, chief executive officer of Arcapita, the Bahrain-based financial institution closely involved in the process.

"The idea behind it is that [the provision of] a credible and well-backed platform to showcase the importance of entrepreneurial companies is a vital step towards attracting more capital and expertise into the region," he said.

"Companies which feature in the rankings — from Saudi Arabia, South Africa and Lebanon — have all reported a rise in interest and other positive dividends as a direct result," Abdul Malek added.

"Arcapita's aim is to support an initiative that we believe will help the GCC to develop a more entrepreneurial culture, which is necessary to prepare for the more developed economies in the future."

So, what do businesses need to have to make it to the final rankings — beyond that of being an entrepreneur-owned enterprise?

According to the promoters, the platform is open to any company that is privately owned with ten or more full-time employees as of end-2010. It should have an operating history of three years or more, and sales should be in the region of $100,000 (Dh367,300) in 2008 and $500,000 as of last year. Franchisee operations as well as government-funded private companies are excluded from the rankings.

"In this region, for early-stage growth companies, capital is often more easily accessible from informal networks of families and contacts than it is elsewhere in the world," Abdul Malek said.

"Probably the biggest challenge is the training of human capital to compete with the highly competitive markets elsewhere around the world, as well as the relative lack of experience available outside the core industries supported by the oil and gas infrastructure."

Much has been said in the recent past of private equity starting to chase possibilities in the private enterprise space. But, going by actual evidence, as of now it's proven to be more of a sentiment than actual practice.

Abdul Malek explains why.

"Private equity as an asset class targets growth capital investments in established companies," he said.

"Typically, entrepreneurs aiming to fund early-stage ventures look to bank finance, venture capital investment or angel investors to secure capital."

Supporting development

Would his bank itself get into the scene at some stage?

"The bank invests in developed companies all over the world; our interest in the GCC 100 is in supporting the development of a more dynamic entrepreneurial environment throughout the region, thereby helping to create the conditions that will one day produce the kinds of companies that Arcapita would like to invest in."

While not in the investment banking space, Arcapita invests on a deal-by-deal basis in private equity, real estate and infrastructure transactions around the world, Abdul Malek said.

These are then syndicated among its pool of investors, many of which are based in the GCC.

"We are beginning to add funds alongside our deal-by-deal model to allow us to attract more of the large institutional pools of capital in the region," he added.

Is a stock market listing the eventual destination that the GCC's privately owned powerhouses should aspire to?

Some of the individual Gulf states are already preparing the groundwork for such a transition. Abdul Malek would not be drawn into the debate. His response: "It entirely depends on the circumstances of the individual case."

Part of wider network

The Gulf 100 is part of the AllWorld Network, set up in 2007 by Deirdre Coyle, Anne Habiby and Harvard Business School's Michael Porter. The stated aim was to find the growth entrepreneurs in the emerging economies, and thus create an information system and network.

The AllWorld network has already compiled country rankings for Saudi Arabia, South Africa, India, Lebanon, Jordan and Turkey. The GCC 100 intends to encourage entrepreneurs from the other five Gulf states.

Signs US$ 25.5 Million Agreement to Finance Completion of Shorouk's New Paper Mill

03 April 2011
The IFC joins Sphinx Private Equity Management and Grandview, Citadel Capital's small and mid-cap investment portfolio company, to finalize the debt and equity financing for the completion of environmentally-friendly paper mill that will create 850 jobs and ease Egypt's reliance on imports

Grandview Investment Holdings, a company managed by Sphinx Private Equity Management, announced today that the International Finance Corporation (IFC) is supporting job creation and reducing greenhouse gas emissions in Egypt by investing to complete the construction of a new paper mill, a project initiated by El Motaheda S.A.E., a subsidiary of Modern Shorouk for Printing and Packaging.

The IFC will contribute an equity investment of up to $10 million and a loan of up to $15.5 million to complete the building of the facility, which began two years ago. The mill, to be located 60 kilometers outside Cairo in the Sadat City industrial zone, will use recycled fiber from local waste paper to produce duplex board, which is used to make boxes for retail products.

"Sphinx has worked diligently with the IFC over a period of one year to finance the debt and equity for this project, which will satisfy regional demand for a critical product in the paper packaging industry," says Sphinx Private Equity Management Chairman Marianne Ghali. "We are extremely pleased that the IFC continues to support SMEs in Egypt. We view this as a very positive step as the SME sector will be of critical importance to the country at this unique moment in its economic development."

El Motaheda will create an estimated 300 direct manufacturing jobs and a further 550 indirect jobs through the collection and transport of wastepaper. In addition, availability of high-quality locally produced duplex will help replace imports, benefiting domestic and regional consumer goods companies and, ultimately, individual consumers.

"Our goal is to transform Egypt into a regional hub for the packaging industry, becoming the primary provider of high-quality packaging materials for multinationals and exporters alike," said Ibrahim El Moallem, Chairman of Modern Shorouk for Printing and Packaging.

"Central to our business proposition is leveraging Egypt's skilled labour force and key geographical locations," noted El Moallem. "We have grown remarkably in the past five years in part through the development and continuous training of our staff. On completion of the duplex project, we will be a fully-integrated packaging solutions provider for the region."

Grandview, which invests in small- and mid-cap opportunities in Egypt, joined forces in 2006 with Modern Shorouk for Printing and Packaging, one of the leading players in the field of paper, to create the National Printing Company, El Motaheda's parent company.

National Printing Company stands today as one of the largest converting and consumer-products printing houses in Egypt. Through key subsidiaries Modern Shorouk for Printing and El Baddar for Packages, the National Printing Company produces books, folded board boxes, corrugated boxes and sheets, laminated packaging, and paper cups and bags.

The expansion into the manufacturing of duplex paper comes as part Shorouk Group's vertical integration strategy.

Egypt produces an estimated 60,000 tons of solid waste each day, of which around 12,000 tons is paper, yet the country imports wastepaper and pulp for its paper-product industries. El-Motaheda mill and its domestic supply chain promise to significantly reduce the volume of discarded wastepaper and help eliminate carbon emissions from its decay.

"Grandview has pursued a strategy of investing in growth sectors where Egypt enjoys considerable competitive advantages. The fund's participation in this important project aims to provide value-added services to support regional expansion, financial structuring and improved corporate governance," added Ghali.

GCC outbound investments fall Mena’s investment inflows down 12 per cent

Saudi Arabia is the only country to grow its outbound investments by a notable 350 per cent from $1.45 billion in 2008 to $6.5 billion in 2009. 

GCC’s outbound investments dropped 40 per cent while other Middle East and North African countries suffered from steep decline in inbound investments.

According to World Bank estimates, the Mena region saw a 12 per cent decline in foreign direct investment (FDI) inflows last year. And the GCC, which has had a history of substantial FDI outflows in the past, saw more than 40 per cent dive in 2009.

While there are signs of economic recovery, going back to boom levels in 2007-2008 is small, the World Bank said.

Mena’s FDI established an average growth of 32 percent between 2000 and 2005 and reached $35.3 billion, or 3.7 percent of GDP in 2008, with Egypt, Lebanon, Iran and Jordan as key recipients.

However, the Dubai financial crisis disrupted these flows. Outbound FDI from the GCC halved from 2007 levels by 2009. As a result, developing Mena countries such as Egypt, Lebanon, Iran, Jordan, Algeria, Tunisia and Morocco saw 12 per cent decrease in FDI inflows to $28.3 billion in 2010 from $32 billion in 2009.

Meanwhile, FDI outflows from the GCC in 2009 registered $20.3 billion, a 40.6 per cent decrease from $34.3 billion a year earlier. Outflows peaked in 2007 with $26 billion. There are no available estimates for 2010.

FDI is a foreign investment that establishes a lasting interest in or effective management control over an enterprise. It can include buying shares of an enterprise in another country, reinvesting earnings of a foreign- owned enterprise in the country where it is located, and parent firms extending loans to their foreign affiliates.

International Monetary Fund (IMF) guidelines consider an investment to be a foreign direct investment if it accounts for at least 10 percent of the foreign firm's voting stock of shares.

However, many countries set a higher threshold because 10 percent is often not enough to establish effective management control of a company or demonstrate an investor's lasting interest.

World Bank data shows the UAE recorded the steepest decline in FDI outflow (83 per cent) from $15.8 in 2008 to $2.7 billion in 2009. Qatar suffered a 37 per cent drop from $6 billion to $3.8 billion. Kuwait saw a modest slow down from $8.8 billion to $8.7 billion while Oman and Bahrain saw significant slump in FDI outflow.

Saudi Arabia is the only country to grow its outbound investments by a notable 350 per cent from $1.45 billion in 2008 to $6.5 billion in 2009.

“Developments among GCC economies suggest that the likelihood of a quick return to the halcyon days of 2007-08 is small, though signs of economic recovery and financial improvement are emerging,” the report said.

The World Bank said flows may nonetheless begin to take place across developing countries of the region, as trade and production agreements among Middle East and North Africa countries, and between Middle East and North Africa and the European Union begin to gather momentum.

“Even at reduced levels, FDI continues to dominate overall financial flows to the region,” it said.

Looking forward, the World Bank anticipates a resumption of growth in FDI over the period through 2012, with a continued—albeit more moderate— pickup in portfolio equity and private debt.

In terms of private capital flows, the developing Middle East and North Africa region saw a modest growth of 1.2 per cent, or $320 million to $25.8 billion during 2010. This in contrast with the sharp pick-up in flows into East and South Asia.

On an upside note, World Bank expects the region’s net private inflows - which comprise equity and debt - to grow 26 per cent next year to $32.4 billion.

Moderate gains in portfolio equity and medium-term debt flows were almost wholly offset by the decline in FDI noted for 2010. Equity flows increased for a second year in succession favoring the bourses of Egypt and the UAE.

“For the UAE market, improvements were centered in fall 2010 as the Dubai World restructuring was settled and banking results improved,” the report said.

Medium and long-term private debt flows increased by $6.7 billion, with issuance of $2.3 billion in international bonds and the undertaking of syndicated bank borrowing of some $2.7 billion.

Net flows from official creditors increased by $620 million to $2.9 billion in the year. But the decline in FDI by 15 percent to $20.8 billion dominates the flow of capital to the region.

The World Bank expects FDI growth to resume over the period through 2012, with moderate but continued pickup in portfolio equity and private debt.

by Sam Smith

Standard Chartered Private Equity has closed a $75m Mezzanine Investment

Standard Chartered Private Equity has closed a $75m mezzanine investment in Hassan Mohammed Jawad & Sons (Jawad Business Group or 'JBG'), a family-owned private company based in Bahrain.

This is Standard Chartered Private Equity's (SCPEL) first proprietary investment in the Middle East.

SCPEL managing director and regional head of MENA private equity Taimoor Labib said they believe this to be the largest MENA corporate mezzanine investment to date and is a strong indication of their belief in the JBG senior management team.

"As the proprietary investor for Standard Chartered Bank, we are one of the few organizations in the MENA private equity space capable of executing large ticket transactions across asset classes," Labib said.

JBG is a diversified mid-market retailer in the GCC with approximately 660 stores in Bahrain, UAE, Qatar, Kuwait, Saudi Arabia, Oman, and India with distribution centers in Bahrain and Dubai.

JBG's main franchises include Accessorize, Monsoon, The White Company, Mango, Bhs, Pumpkin Patch, Hush Puppies, Chili's, Lakeland, Dairy Queen, Costa Coffee, Burger King and Papa John's Pizza in several GCC countries.