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.

Foreign capital floods back to the Gulf

Foreign capital is flooding back to Gulf equity and debt markets as international investors who fled the region last year reload on local stocks and bonds.

International investors bought shares worth about Dh6.3 billion (US$1.71bn) on the Dubai Financial Market last month, up more than 20 per cent on April, helping the market advance last Wednesday to its highest close since November. Debt markets are also receiving a boost as foreign investors withdraw from other asset classes such as US treasuries and seek higher returns from Gulf corporate and sovereign bond sales, analysts say.
But the rapid gains of the past week could lead to a significant correction across regional stock markets later this month as investors take profits, according to analysts based in Dubai.

“From our side, we’ve seen a marked increase in foreign participation in the local equity and debt markets,” said Ali Khan, the managing director of Arqaam Capital. “There’s been a shift to more positive sentiment for our markets from international investors.”
International investors retreated from Gulf markets in the second half of last year while a global lending squeeze hit regional bond and syndicated loan sales. Emerging markets have risen for the past three weeks on speculation that the worst of the recession is over, encouraging investment flows to return to economies driven by oil and other commodities.

The return of international capital has also triggered activity in the region’s private equity market, where activity has slowed over the past six months. Gulf Capital, a buyout group based in the UAE, last week launched a Dh1.75bn fund that was heavily subscribed by foreign investors.

“It was an eye-opener for us,” said Karim el Solh, the chief executive of Gulf Capital. “If you look at most of the funds launched here, they were raised locally. We were very surprised to see that international money is chasing opportunities in the Gulf. If you put it in perspective, the Gulf is expected to grow by 4.5 per cent over the next two years. It’s not the 6 to 7 per cent we saw over the past five years, but still respectable by any measure.”
But regional companies may need to become more transparent and communicate with potential investors more effectively if markets are to attract further inflows and build on recent gains.

“That’s the area of concern at the moment, there needs to be more progress in terms of reform and development for companies in the GCC in order for us to see more capital inflows,” said Mohieddine Kronfol, the managing director of Algebra Capital.
The GCC’s $100bn debt market almost ground to a halt in the previous two quarters as bond spreads widened and liquidity was unavailable. Analysts say the recent success of sovereign debt issuances helped revive interest in local bond sales. Mubadala Development, Abu Dhabi’s strategic investment arm, launched a $1.75bn bond programme in April and Qatar raised $3bn through a bond issue on April 3.

Qatar Telecom said last week it received $13bn worth of bids for the sale of $1.5bn in debt. Aldar Properties, the largest developer in Abu Dhabi, was also oversubscribed for a $1.25bn bond sale last month. The growing appetite for sovereign and quasi-sovereign debt sales is reflected in narrowing spreads on government credit default swaps, analysts say.
“This is an indication that flows are coming back, perhaps not to the same extent as [last summer], but spreads were very wide and they are narrowing now,” said Florence Pisani, an economist with Dexia Asset Management.

Equity markets are also seeing a revival, especially in Saudi Arabia and Dubai, which became the world’s third-worst performing exchange last year, losing 70 per cent of its value by the end of the year from retreating international investors.
Dubai shares on Wednesday advanced to their highest level since December after Bank of America (BofA) said the stocks offered the best value in the region. The value of shares traded last month reached Dh14.9bn, an increase of 6.9 per cent compared with Dh13.9bn in April, according to data supplied by the DFM.

Net foreign investment in DFM-traded shares more than doubled last month to Dh540.7 million as stocks gained 17 per cent. NASDAQ Dubai also saw trading volumes surge, rising 67 per cent to 331.3 million shares from 198 million shares in April.
Dubai shares are the best in the region to own for a short-term “trade” because the market’s valuation is 56 per cent lower than that of the MSCI Emerging Markets Index, based on the price-to-book ratio, according to a BofA report.

Last week, stocks advanced across the region, gaining 13 per cent in Dubai, 5.4 per cent in Abu Dhabi and 4.5 per cent in Saudi Arabia. Analysts warn that a correction could follow the huge gains of the past month.
“Equity markets have rebounded due to positive fund flows and increasing risk appetite. But our view is that there will be profit-taking in the short-term, resulting in markets in the region erasing a portion of the gains generated so far this year,” said Fahd Iqbal, a research analyst at EFG Hermes.

Sara Hamdan and Asa Fitch

Middle East IPO firms appreciate by 201% in 2007

Middle East IPO firms appreciate by 201% in 2007


INTERNATIONAL. GCC stock markets are poised for a glut of over 80 Initial Public Offerings (IPOs) which could be worth in excess of US$ 10.5 billion over the next three years. Significantly, IPOs measured in 2007, appreciated on average by 201%, even with over-subscription per IPO falling to a more realistic 6.3 times, according to industry reports.

“To realise an average return of 201% despite regional market depreciation of 9% last year, is an extraordinary achievement. Investors, both regional and international will undoubtedly be drawn to the upcoming IPOs over the next three years,” commented Deep Marwaha, Senior Conference Manager of the 3rd Middle East IPO Summit.

Abu Dhabi-based Gulf Capital identified 83 maiden offers in the GCC, for which, managers have been assigned for 42 and another 41 have announced their intention to tap the equity market. The total number of IPOs in the GCC during the 2007-2010 period is expected to exceed 116, including 33 in 2007 and 83 offers in the coming years.

Morgan Stanley estimates a total of 110 IPOs in Saudi Arabia alone by the end of next year. The bank's Saudi unit has mandates to manage seven IPOs this year, including one by Saudi Basic Chemical Industries (SABIC) that may raise US$80 million.

In the UAE, the National Bank of Abu Dhabi (NBAD) has already announced it expects to manage at least eight IPOs this year, with three aiming to raise at least US$1 billion by the end of June. NBAD managed three IPOs last year and one so far this year.

The total raised by IPOs increased by 40% year-on-year to US$10.5 billion during 2007 with the UAE witnessing US$5.1 billion, followed by Saudi Arabia (US$4.81 billion), Qatar (US$389 million), Oman (US$156 million) and Bahrain (US$69 million).

One reason for such a market-bucking performance is widely put down to the pricing strategy of public offerings in the GCC. “Many IPOs last year were sold at a discount to book value and to earnings and appreciated quickly once on the market,” said Marwaha.

The nerves of investors have also been soothed by the sound regional market fundamentals and high levels of liquidity, not to mention GDP growth and record budget surpluses. “The GCC oil revenues are currently US$ 1.2 billion per day. With tensions over Iran and political posturing by Venezuela, any notion of softening prices were dispelled recently when oil prices shot back up towards US$ 100 per barrel,” added Marwaha.

In addition the region’s non-oil sectors are now beginning to make sizeable contributions towards GDP growth. "Most GCC governments have outlined more than US$1 trillion in capital expenditure for oil and non-oil sectors in the next five-to-six years, which will have a multiplier effect for the private sector which will require more funds to be raised in the stock markets," noted Marwaha.

Middle East’s IPO Summit which takes place on 16-19 March 2008 at the Abu Dhabi Intercontinental Hotel, will host investment experts, regulators and market leaders who will examine regulatory issues as well as new products and issues impacting the investment environment and includes a Middle East Investment Day with an Executive Masterclass by contrarian investment guru, Hong Kong-based Dr Marc Faber.

The Middle East IPO Summit Chairman is Mamdoh Al Rouhani, Managing Director of MS&L, Saudi Arabia. "With large IPOs in the pipeline across many Middle Eastern markets, the need for professionals to share information and network with each other is more important than ever," he said.

Among the market movers and shakers taking part in the Summit will be speakers from the Global Investment House, Deutsche Bank, Ithmar Capital, Abraaj Capital, Algebra Capital, AB Capital, The National Investor, NBK Capital, Jeffries, KPMG, Emirates Financial Services, Rasmala Investments, Calyon, UBS, Alpen Capital, Samba Financial Group and Bank of New York Mellon.

For more information on the 3rd Middle East IPO Summit visit www.iposummit.com
Author: Moussa Ahmad
Source: BI-ME
Published: 02 March 2008