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.

Palestinian Venture Fund creates opportunity and optimism

An interesting take from from Jean Case on 18 Mar 2010

Following the Annapolis Israeli-Palestinian talks in 2007, Secretary of State Condoleezza Rice appointed a group of private-sector leaders to help ignite economic development in the West Bank. The idea was that the co-chairs would mobilize private sector resources and investment that could benefit the West Bank and bring new hope and prosperity to the Palestinians – all in an effort to facilitate progress toward a two-state solution to peace. The initiative was called the US-Palestinian Partnership (UPP).



Against the backdrop of recent weeks where diplomatic snafus and territorial disputes have fueled tempers and shone a spotlight on the inherent barriers towards progress, I am at an event today in New York City that signals what is working in the region, instead of what has not, and I am feeling very encouraged. Led by the private sector, UPP is announcing a new Middle East Venture Capital Fund that is in many ways the culmination of the work we began in 2007 and gives me great hope for what the future holds.



In less than three years, the U.S.-Palestinian Partnership has facilitated millions of dollars in new youth programs and initiatives from Intel, Cisco, Microsoft, USAID and others; convened hundreds of investors and corporate executives in Bethlehem and Washington through the investment conferences; and co-hosted G-Pals Days with Google for small business owners and software developers to gather in Ramallah to learn new skills and compete for development prizes. And, today I am smiling ear-to-ear because we are in New York to announce and celebrate multi-million dollar lead commitments from the Skoll Foundation and Soros Foundations Network to a new $50 million fund that will bring hope and opportunity to thousands of men and women in the West Bank. These investments follow the European Investment Bank’s (EIB) significant commitment to the fund. Read EIB's press release about the fund here.



The Middle East Venture Capital Fund will invest in entrepreneurial companies in the Internet, mobile and software sector that are growing out of the substantial community of software and telecom engineers and other entrepreneurs in Ramallah and throughout the West Bank. It will give US and global investors an opportunity to do well while doing good – making meaningful contributions towards creating a viable Palestinian state and getting a valuable financial and social return on investment in the process. And thanks to our partners at the Skoll Foundation, Soros Foundation Network and the European Investment Bank, we are within sight of meeting our investment goals in the fund.



Perhaps I’m so optimistic today because of some history. Many years ago, when I was at AOL, we acquired a young company in Israel called ICQ, which revolutionized instant messaging across the Internet. The investment was not only significant because of the value it added to AOL’s success at the time, and the value it created for the leaders of ICQ, but more importantly because that single transaction with an Israel-based company helped serve as a beacon of the burgeoning innovation and talent in Israel in the early days of that country’s efforts to grow an ICT sector. Since that early investment, a technology boom has taken place in Israel, and today the ICT sector has become a cornerstone of the Israeli economy. I can’t help but see the potential of history repeating itself as this new fund goes forward. In addition to a highly-educated workforce, low infrastructure costs and a burgeoning technology sector, the same entrepreneurial spirit and innovative thinking is alive and booming in the West Bank.



While the private sector can’t do much to address diplomacy or security, it can play an equally important role through the contribution of resources and investment to the region. It has been a complete delight to see the undaunted courage of private sector leaders who’ve stepped up and in the midst of troubles and strife, have made commitments to go forward with this important work in the West Bank. There is a passionate belief that there’s really money to be made here, but these leaders are equally excited about the potential for the prosperity and stability these investments might help enable. These good things only happen when people come together with commitment and passion – I am enormously grateful to those who have stepped up early and to those who are at the table with us now looking at future investments

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

SHUAA sees overwhelming investor interest during GCC Investor Conference in London

SHUAA sees overwhelming investor interest during GCC Investor Conference in London

31 May 2009
Dubai - 31 May 2009: SHUAA Capital (ticker symbol: SHUA.DU), the GCC's leading financial services institution, saw significant interest and renewed optimism towards the Gulf region during its two day GCC Investor Conference in London.
Mr Majid Al Ghurair, Chairman, SHUAA Capital commented:

"The conference was a great success and we saw real optimism amongst international investors towards the GCC. This demonstrates the widespread belief amongst investors that regional markets are likely to recover more quickly from the global crisis than many in the developed world. The strength of the GCC economies lies in the vast hydrocarbon reserves and the initiatives governments have taken to modernise, liberalise and regulate their markets and in the programmes to educate their growing populations. As the hosts of this conference, we are proud to be continuing our longstanding tradition of attracting foreign capital to the GCC."

Conference participants included the senior management of 17 leading GCC companies and over 150 international investors who together discussed each company's investment case and equity story during a series of one on one meetings.

H.H. Sheikh Khaled bin Zayed Al Nahyan, Chairman, Bin Zayed Group commented:

"As Dubai 1.0 witnessed a strong focus on developing its hardware, I believe that we now have in place the financial and economic infrastructure to enable Dubai to develop its software, or knowledge infrastructure, that will help it rebound more quickly than other economies. Dubai 2.0 will symbolise an economic model that can compete globally with its state-of-the-art soft and hard infrastructure, cutting edge technology and an entrepreneurial environment that supports creativity and unrestrained flow of capital. Dubai's solid achievements over the last few years enable it to now consolidate its position as it moves ahead with its recovery."

Sanjay Uppal, Chief Financial Officer, Emirates NBD commented:

"The uncertainties posed by the current global economic downturn have necessitated continued, if not increased, engagement with the market and Emirates NBD have maintained an active dialogue with the regional and international investor community throughout the crisis. The SHUAA Capital GCC Investor Conference in London provided an excellent opportunity to continue this dialogue at a time when sentiment is showing signs of improvement and the outlook is starting to become clearer."

Zeina Al Tabari, Chief Corporate Affairs Officer, Drake & Scull International PJSC said:

"We are very pleased to have been given the opportunity by SHUAA Capital to explain our investment case to such a wide range of leading international investors. Importantly, our discussions also focused on the strong fundamentals supporting GCC economies and equity markets which make the region a very attractive destination for foreign investment.'

The conference also saw keynote speeches and panel sessions with regional business leaders and experts including H.H. Sheikh Khaled bin Zayed Al Nahyan, Chairman, Bin Zayed Group, UAE; H.H. Sheikha Hanadi Al Thani, Chairperson, Amwal Investment Co., Qatar; Mr. Abdulrahman Alsufiyani, VP SAGIA Funds Initiative, Regional Development, Saudi Arabia; Mr. Husam Hourani, Managing Partner, Tamimi & Company; Mr. Tom Healy, Chief Executive Officer, Abu Dhabi Stock Exchange; Mr. Abdullah Bin Saleh Al Suweilmi, Chief Executive Officer, Saudi Stock Exchange (Tadawul); and; Mr. Kito de Boer, Director, Middle East North Africa, McKinsey & Company.

-Ends-

About SHUAA Capital psc:
Since 1979, SHUAA Capital has played a prominent role in shaping the financial services landscape of the GCC and will continue to be at the vanguard of regional integration into global financial markets. www.shuaacapital.com

SHUAA Capital psc maintains a leadership position in Investment Banking, Asset Management, Brokerage, Private Equity, Finance, and Research. Headquartered in Dubai, in the United Arab Emirates, SHUAA Capital has a regional presence with offices in Abu Dhabi, Riyadh, Doha, Cairo, Beirut and Istanbul.

Embedded in the dynamic economic environment of the Gulf Cooperation Council (GCC), SHUAA Capital provides a broad range of financial services to corporations, governments, institutional clients, and high net worth individuals.

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

NBAD to launch GCC equity fund; bullish on Gulf and Mena markets Monday, February 11, 2008

NBAD to launch GCC equity fund; bullish on Gulf and Mena markets
Monday, February 11, 2008

ABU DHABI — The National bank of Abu Dhabi (NBAD) which is bullish on GCC and Mena markets will be launching a GCC equity fund in the first quarter of 2008.


"We are very optimistic on the GCC and Mena region due to accelerating liberalisation of markets and economies, more privatisation, more regional integration, sustainable and strong organic domestic growth. Our newly formed internationally credentialed team will be launching a very exciting GCC equity fund in the first quarter of 2008," revealed Nazem Al Kudsi Chief Investment Officer, Asset Management Group, NBAD.

He expects 2008 and 2009 will be positive years as well but cautioned investors to be patient. "The UAE, GCC and Mena markets are relatively new and are emerging. Hence, just like any growing market there will be huge growth spurts, followed by slowdowns and consolidations. It will not be a straight line up," he said.

But, for the patient, non-emotional investors who can ignore the day-to-day coughs and sneezes of the market the rewards should be plentiful. "We think the outlook for IPOs in 2008 and 2009 is very good, the broad economy is still strong and there is still an appetite from foreign investors for an attractive investment in the region," Al Kudsi concluded.

National Bank of Abu Dhabi (NBAD)'s local funds swept Gold, Silver and Bronze medals as they outperformed the market and other local funds in 2007, according to a study by Zawya-Dow Jones.

"NBAD research and portfolio management team put together outstanding performance numbers in 2007 as NBAD Growth fund, the top performing fund in the UAE, was up almost 63 per cent on a total return basis and beating the market by nearly 18 per cent or 1,800 basis points," he said.

NBAD UAE Trading Fund, the second top performing fund in the UAE, was up 60.31 per cent while NBAD UAE Distribution Fund, the third top performer in 2007, was up 59.23 per cent. NBAD UAE Growth, Trading, and Distribution Funds were the first three in the top 10 list of all funds in the UAE based on their performance in 2007 while NBAD Islamic Fund also featured in the top 10 list. NBAD UAE Growth Fund features in the top 10 list of all funds in Mena as the 6th best fund in the entire region last year.

Daman: IPO flow will be more robust for UAE and GCC

The Dubai International Financial Exchange (DIFX) will list its first United States-based company this week, paving the way for a series of similar public offerings set to come on board from the North American markets.



According to Dubai’s Daman Investments, lead manager of the initial public offering of Buffalo-based Nanodynamics, the move will go some way to cement the emirate’s place as a global exchange.



Shehab Gargash founded Daman (now Daman Investments) in 2001 and serves as Chief Executive Officer of the Dubai-based private joint stock company.



His company is capitalised at Dh200 million and is a privately held, non-bank financial services group focused on developing capital market opportunities within the UAE and the Middle East.



During his 12 years in the UAE banking industry, Gargash’s previous roles have been in marketing, distribution, trade finance and investment banking, first with Citibank, from 1989 to 1993 and later with the Emirates Bank Group (1993 to 2001).


With an MBA from the George Washington University in the United States, Gargash (pictured above) is also a founding board member of Young Arab Leaders and the Arabian Real Estate Investment Trust, and was appointed to the Dubai Chamber board of directors last March. He is a frequent public speaker and is well known for his popular daily column – now in its 10th year – in the Arabic newspaper Al Ittihad.

Gargash discussed with Emirates Business the regulatory hurdles facing regional stock markets, concerns over fair equity research and valuations, and monitoring front-running.


He gave his forecasts for the regional stock markets this year, and talked about the challenges that could slow down the rise in foreign investment in the UAE.

Gargash also warned the region’s asset managers to have “a sharper knowledge” of events happening beyond their borders, as the correlation gets closer between local and global markets.



What does the listing of the first US firm on the DIFX, announced last week, mean for the exchange?


I think it’s very significant because it’s exactly the reason an exchange such as the DIFX was set up. It was established to attract quality listings from around the world and to create a marketplace for people to be able to trade those securities.



Having a US company come in on the bourse is a fulfillment of that promise. I think it has put the DIFX on the road to a global-quality exchange.



What is the significance of an alternative energy and clean technology company listing on the DIFX and do you see this sector becoming an industry that will see gains in 2008?



Yes, with increased worries about environmental issues – and about the economic logic behind environmental matters – clean technology is becoming an area of increased importance for corporations.



Nanodynamics is a pioneer at utilising nano technology advances that enable companies to have more potent solutions, which are more cost-effective and very friendly for the environment.



Any other companies you are talking to for the UAE or regional stock markets?


We will give more details later but Nanodynamics is one of a chain of similar IPOs we are working to bring into the DIFX from the US markets.

All of them will be very nice IPO stories – very good management behind good business models. We are very selective in picking those companies we believe will be successful and those that show an ability or potential for continued success.



What do you think are the reasons behind the slowdown of the flow of initial public offerings?



I don’t think initial public offerings have been slow, I think they are a function of demand and we have just exited two years of a negative period in our stock markets. So by definition you are going to have fewer IPOs than usual.



But we have not seen them stop and that’s very important. We had some very important local IPOs over the past year and going forward into this year it looks very promising. So I think the IPO flow will be more robust going forward because the markets have sort of picked up now.



At the DIFX specifically we have seen a very successful IPO with Dubai Ports World. This one [IPO of Nanodynamics] hopefully is running very nicely and indications are good for the first US initial public offering on the DIFX.



And 2008 promises to be a very positive year for in terms of getting more companies on board and more activity through the exchange.



In the first half of 2007, foreign investor buying volume on the Dubai Financial Market tripled and foreign investors accounted for about 30 per cent of the total DFM trading, it was reported. It then retreated. Where do you think this figure will stand for the first half of 2008?



I think foreign institutional investors have discovered the UAE markets, both local markets and regional, such as the DIFX. They have discovered the Gulf is a very promising emerging market. The risk-reward proposition makes a lot of sense to them. So I expect to see more participation from them in local and daily activity here.


That will increase the volatility from one side but it will certainly increase the amount of traffic and volume we will see through our local exchanges on a daily basis.

What are other possible hurdles impeding the rise in foreign investment in the UAE?



The foreign investors are going to bring their own processes and logic to the market so we’re going to see a quantum shift in the way the market transacts.


We’ve seen that, if you compare today and five years ago, there is a big difference in that as well. But I think going forward we are going to see a more rigid interpretation of things like profitabilities, of reading the results of the companies, in daily trading volumes, in triggering stops, in short-selling eventually and in margin trading.



All of those will be new concepts coming into our market as it becomes a closer market, a closer reflection of what an international market looks like.



What is your 2008 forecast for regional stock markets?


I think it is a very significant shift we are seeing. We are seeing a natural shift, there is closer correlation than previously between what is happening locally and globally, and I think that’s why it’s very evident in the quick dip and pick up that we saw last week or the week before on the local exchanges.



Approximately 30 per cent of the daily volume is from foreign institutional investors on the DFM. That itself is a telltale sign that the correlation is going to increase and not decrease going forward.



So asset managers in the region today have to have a sharper eye and a sharper knowledge of what happens beyond their borders.



They could get away without that knowledge in the past but not anymore. For 2007, I remember I said 10 to 15 per cent from 2006 and I was proven wrong because until October we were negative. But then we jumped up about 30 per cent so I think quarter four made up for our expectations and exceeded it.


This year I will be anxious because of the volatility of the international markets, which was not as big a factor a few months ago as it is today.

Also, with oil price high it makes things a little more uncertain. I wouldn’t venture a guess but I would be very comfortable that 2008 will be a positive year and will be based on the results we are seeing in terms of the fourth quarter earnings from 2007 and going very early on into 2008.



I think the growth will remain healthy for the companies. Also, we can’t forget a new factor in 2008, which is the listing of private companies.



We have a whole batch of two-year-old companies on the local markets that are going to be listed. For instance Al Qudra announced it would list this year.



So you’ve got several of the similarly aged, two-year-old companies that are due for listing and will create a whole new cycle of momentum, at least on the speculative side that will be positive for the stock market indices.



So I will not give a number this time but I think 2008 will be a positive year and I think it’s going to be interesting. It won’t be for the faint-hearted because I think it’s going to be a roller coaster in terms of the dealings with short-term volatilities.



What do you think are some of the regulatory challenges facing the stock markets here?



I think the main thing is to successfully regulate the shift from a small, fairly quiet local market into the next emerging market.



You have to put in place proper guidance and enforce proper regulations to enable you to successfully do that so you don’t have a chaotic situation.


What do you think about the Securities and Commodities Authority’s recent concerns about equity research and the way some analysts are reaching their valuations? Do you think this type of research should be regulated?



I think the SCA has a reason to worry because while some research we see out there is very good, some other leaves a lot to be desired.



I think it will be important that we don’t put in place too many guidelines that stifle research, which get researchers worried about what they say so they end up saying nothing.



Because I think research is an important component of the environment and it gives good guidance to the investors in making their final investment decisions.



Do you think the SCA should monitor front-running?


The SCA needs to put in place a lot more practical and convenient guidelines for investors in general. It has done a lot since it was set up, but there is a lot more to do. I think it is on the right track.



How do you deal with front-running at Daman?



We comply [laughs]. We are regulated by the SCA or by the Central Bank, and by the Dubai Financial Services Authority. So we are regulated in three environments depending on which business it is.



We are in constant and very constructive discussions with the regulators because it’s very important for the regulators to also positively interact with the companies in the market to come up with an environment that is protected from one side, but that is also conducive to business.



How do you ensure that your brokerage research that is provided to clients is not mixed with the buy side?


We do not publish our research; it is done for our internal purposes now. In the future we will be publishing research but for now we do not have published research.

KSE trading seen surging after 8.4% growth in Jan

KSE trading seen surging after 8.4% growth in Jan

GCC markets witnessed mixed trends as four out of six regional indices recorded monthly gains in Jan-08. However, the biggest bourse in the region in terms of market capitalization , Saudi Arabia, witnessed strong selling pressure as it benchmark index reported monthly decline of 13.4% in Jan-08. However, buying interest was seen in the Kuwait markets as its index recorded 8.4% growth during the month. We believe that the trading activity is likely to increase in the coming month as the investors take positions after analyzing annual results and corporate announcements.

Kuwait Budget 2008/09
Kuwait’s Cabinet has approved the country’s budget for the fiscal year 2008/09 (Apr’08 to Mar’09) which still needs to be sanctioned by Kuwait’s Parliament. The revenues estimated for 2008/09 is KD12.68bn, around 52.4% up from KD8.32bn estimated in the 2007/08 budget. As expected, a majority of Kuwait’s estimated revenues for 2008/09 will be on account of oil revenues. The oil revenue is projected to comprise around 92% of the total revenues for 2008/09. The oil revenues for 2008/09 is estimated at KD11.65bn, up 56.4% from KD7.45bn estimated for 2007/08. The non-oil revenues for 2008/09 is estimated at KD1.03bn, up only 17.9% from KD0.87bn estimated for 2007/08. The rise in non-oil revenue is attributed to an increase in taxes on net income and earnings for non-oil companies and fees on goods and services.

Similarly the total expenditures for 2008/09 is estimated at KD17.80bn, up 57.5% from KD11.30bn estimated in the 2007/08 budget. The higher expenditure projected for 2008/09 is due to the cabinet decree targeting the settlement of the KD5.47bn deficit to be paid in installments to the Public Institute For Social Security (PIFSS), which is Kuwait’s social security system. As per IMF Article IV report published in April 2006, PIFSS has accumulated a substantial actuarial deficit, which amounted to around KD7bn in 2004 and this move appears to be an attempt at recapitalization. However it is important to note that this expenditure of KD5.47bn is non-recurrent in nature. On account of this significant increase in the expenditure, Kuwait’s Cabinet has estimated a deficit of KD5.12bn for 2008/09. And considering the fact that around KD1.27bn of national revenue will be contributed to Reserve Fund for Future Generations (RFFG), the overall deficit for 2008/09 is estimated at KD6.39bn.


Without considering the transfer of KD5.47bn to PIFSS (which is non-recurrent in nature), the total expenditure projected for 2008/09 is KD12.33bn, which is 9.1% higher than the previous year. Though the break-up of this expenditure is not available at this point of time, we expect to see higher allocation of capital expenditure. Increase in capital expenditure has positive impact on the overall economy with maximum impact on sectors like construction, cement and real estate. This will have a trickle-down effect on other areas of economy as well by contributing to achievement of targeted rates of growth and creation of new jobs.
It is important to note that historically Kuwait has projected the budget on a conservative basis. This is illustrated from the fact that for the fiscal year 2006/07, Kuwait achieved an actual budget surplus of KD5.20bn as against an estimated budget deficit of KD2.60bn. For the fiscal year 2007/08, Kuwait has estimated a deficit of KD2.98bn. However during the first six months of current fiscal, the country has already recorded a revenue surplus of KD5.75bn.


For the budget for the fiscal year 2008/09, sources at the Ministry of Finance have quoted that the oil revenue was estimated on the basis of a daily production of 2.2 million barrels of crude. We believe the Kuwait has again projected the budget revenues on a conservative basis. The actual average production for the first nine months of current fiscal was 2.48mb/day and we do not foresee a substantial reduction in view of higher prevailing oil prices. On the expenditure side, Kuwait has also historically spent less than budgeted figure. This is illustrated from the fact that for the fiscal year 2006/07, Kuwait’s actual expenditure was KD10.31bn as against an estimated expenditure of KD11.12bn.
However the fiscal year 2008/09 might be different than the previous years. We might see an actual deficit in 2008/09 (unlike the previous years) in case the entire amount of KD5.47bn is paid during the year to PIFSS. As per our estimates, the actual deficit for 2008/09 will be lower than the projections by Kuwait’s Cabinet.


IPO frenzy in 2007
The number of new companies which offered parts of its shares to public (IPOs) reached 41 during the year 2007. Out of these 41 companies, 38 have been listed at the time of writing of this report and three are yet to be listed. Out of these, 36 issues were listed in 2007. Out of the 41 companies which floated their shares in 2007, 28 companies were from Saudi Arabia, six from UAE and two each from Oman, Qatar and Kuwait and one from Bahrain.
Out of 41 issues, maximum number (16) were from insurance sector, followed by services (9) and Industrial (8). Alahli Takaful Co has been the biggest gainer since float, gaining 1,017.5%, followed by Al Ahlia Cooperative Insurance Co. and Malath Cooperative Insurance and Reinsurance gaining 915% and 825% respectively. It is notable that we have found a negative correlation between the price change (on listing and after one month of float) and oversubscription. It means that appreciation in the price of any offering in secondary market is heavily determined by its fundamentals rather than just frenzy.
Improved capital market conditions have been driving the IPOs in the GCC region which have resulted in investors’ growing interest in the regional equity markets. Private companies and family businesses are opening up to the prospects of a public listing. There is also tremendous rise in disposable income and savings on the back of increasing oil prices has enabled investors to lap up the offerings made by the companies. This is also attracting corporate to go for listing as can be seen from the fact that more than 50 companies are looking to tap the market in the medium term.


Market activity
GCC bourses saw 39.9bn shares being traded in the month of Jan-08 as compared to 27.5bn in the previous month. Also, the value of shares traded on the bourses increased to US$136.7bn in Jan-08 as compared to US$100.5bn reported in the previous month.
The breadth of GCC stock markets was skewed towards decliners in Jan-08 as 280 stocks registered monthly decline as compared to 249 advancers. The strong sell-off seen in the Saudi market can be seen from the fact that the Saudi bourse saw only 13 advancers as compared to 97 decliners in Jan-08.

Middle East on Front Lines of Global Talent War

Middle East on Front Lines of Global Talent War

Middle Eastern markets are booming, unlike those in Europe and the U.S. Now, the Gulf is attracting investors seeking to tap into the vast resources of the region. Wall Street banks are also expanding overseas in search of high-growth markets with the potential to boost revenue and offset volatility at home. Goldman Sachs, Morgan Stanley and other investment banks have already secured banking licenses and set up shop there. Meanwhile, Islamic finance is shaping up to be one of the fastest-growing sectors in global finance. A recent Lipper Hedge World report notes that demand is soaring for alternative investments that comply with Shariah law to take off in the second half of 2008.

Amid the trend, the need for talent in the Middle East is surging. A new study conducted by international communications consultancy, Hill and Knowlton, shows that the demand for talent has never been greater. According to executive search firm, A.E. Feldman, there is a lot of investment in the Gulf and with that comes increasing demand for talent. The firm reports that salaries are skyrocketing as banks seek to lure top candidates. Investment bankers as well as risk, private equity and real estate professionals are among those in short supply. Those able to demonstrate strong modeling skills, transaction experience and excellent communication skills are in a prime position to gain from the trend.

Soaring oil prices have made the Gulf not only one of the fastest-growing regions in the world, but also a pool of great wealth. The sovereign investment arms of Saudi Arabia, Bahrain, Qatar, United Arab Emirates (UAE), Oman and Kuwait have an estimated $1.5 trillion at their disposal, according to Reuters. The Dubai International Financial Centre (DIFC) is creating new infrastructure as part of its efforts to become a global Islamic finance hub, according to a Gulf News report.

As investors flock to the Middle East, job opportunities in the region are exploding. The Middle East is on the front line of the global war for talent, according to the results of the 8th Annual Corporate Reputation Watch study by international communications consultancy, Hill and Knowlton. Dave Robinson of Hill and Knowlton Middle East, says the report has highlighted a critical issue for the region. “With governments and companies in the Middle East adopting aggressive growth strategies and with the move towards international business practices, the need for the best graduate talent has never been greater.”

Meanwhile, interest in the Middle East as a market for alternative investments is at an all time high, according to a recent Hedge Week report. The report states, “The development of the Dubai International Financial Center and the growth of the financial industry in Qatar and Bahrain have focused attention on opportunities for asset managers in a region characterized by rapidly growing wealth and increasing investor sophistication.”

Islamic finance in the Gulf is gaining popularity and assets of banks in the sector are growing faster than their counterparts in conventional banking, reports Gulf News. Globally, assets of Islamic financial institutions are estimated to be more than $500 billion.

The main principle of Islamic finance is that all forms of interest are forbidden. All money must also be invested in purely ethical industries. And the Islamic financial model works on the basis of risk sharing. Banks and individuals share the risk of any investment on agreed terms, and divide any profits between them.

Though Shariah law obviously poses certain challenges for the hedge fund industry, financial engineers are examining how to create structures that provide attractive levels of performance while conforming to Shariah principles, according to Hedge Week. In fact, Lipper Hedge World reports that Deutsche Bank’s regional head of Middle East structuring said he expects demand for hedge funds that comply with Shariah law to take off in the second half if the year.

Deutsche CEO talks fed cuts and world market-especially the development of the DIFX

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

PE funds tap into new group of Asian investors

India-focused private equity (PE) funds have historically sourced money from so-called limited partners, or LPs, (institutions and individuals who invest in such funds) in the US and Europe.
But, the singular dependence on these markets may now be on the wane, albeit slowly, as Asian LPs begin to make inroads into the Indian PE market.
PE investors say that the interest from LPs in the region has consistently grown during the last two-three years. Some of these institutions have deployed money as part of global or pan-Asia funds, with a mandate to also invest in India. Some have invested directly in India-specific funds.
For instance, Asian LPs composed 70% of IDFC Private Equity Co. Ltd’s second fund, which raised $440 million (about Rs1,747 crore); the firm is a subsidiary of Infrastructure Development Finance Co. Other instances include Beacon India Advisors Pvt. Ltd (sponsored by Dubai-based Baer Capital Partners), Helion Venture Partners and Baring Private Equity Partners (I) Pvt. Ltd.
According to industry estimates, Asian LPs account for upwards of 10% of the PE money currently raised or allocated to India. In 2006, the total PE money raised for India was $2.88 billion, according to the Emerging Markets Private Equity Association (Empea). For 2007, the estimate is $663 million through June; this not factoring in the surge of billion-dollar and half-billion-dollar funds announced later in the year. There is no publicly available data on the region-wise sources of LP money flowing into India, and consultants to LPs such as US-based Cambridge Associates Llc. do not release their data.The Asian LPs most often named by PE investors include Abu Dhabi Investment Co., Asian Development Bank, Dubai International Capital Llc. and Government of Singapore Investment Corp. But LPs scoping out India run across the region.
As Asian LPs expand their footprint in India, fund managers have an opportunity to diversify their investor portfolio and protect themselves from the ripple effects of foreign economic slumps. Fund managers felt the need for a diversified investor base acutely after the US Internet bust that started in 2001 and led to a three-year slump in investing activity. With more than 90% of India’s PE money inflows dependent on the US at the time, fund managers often found themselves unable to close deals because the money committed by their US LPs never came through.
Deepak Shahdadpuri, founder and managing director at Beacon, says there should be a mix of investors—endowments, fund-of-funds, family offices, corporates, etc.—and geographical diversity so that there is a mix of LPs from across the US, Europe, Asia and Western Asia. “The ideal mix and geographical diversity depends on each fund,” he says. “At Beacon, we are looking at 40% from Europe, 40% from West Asia and 20% from the rest of the world.” The factors that pull any LP to India have been simple and universal: a chance for returns upward of 30%. But the difference in Asia is that, besides the most prominent investors mentioned, its LPs have been late to recognize or prioritize the India story. Their interest in India is picking up now as this market has shown profitable exits. “All along it was a notional mark to market,” says Luis Miranda, president and CEO of IDFC Private Equity. “Today people are seeing cash returns.”
India might also have some advantages over its Bric (Brazil, Russia, India and China) peers in having a more open way of conducting business.
“The biggest single source of increased interest in fund-of-fund investment in recent times is from the Middle East,” says Somak Ghosh, president of corporate finance at Yes Bank Ltd. This shift seems to come as various factors push those economies to look to new places for investment like never before.
But, most importantly, “the Middle East interest will increase because of oil prices creating a huge surplus there,” says Jayanta Banerjee, managing director and head of PE and growth capital at Lehman Brothers. “There are relatively less questions about India than other emerging markets from a risk-return profile.”
Meanwhile, Mizuho Bank Ltd, Sumitomo Trust and Japan Alternative Investment Co. have made investments, according to industry sources who did not want to be named. The sources added that Japan has great untapped potential as a source of LPs.
Varun Sood, managing partner at LP Capvent India Advisors Pvt. Ltd, said: “Normally, they (the Japanese) are the last to come in.” The investment level from any of Asia’s LPs will largely depend on how much extra cash they have and how they allocate to PE as an asset class. Says Sood: “You can’t just invest in PE when you don’t have a surplus.”

Private Equity Shows Robust Growth - KSA Kingdom of Saudi Arabia

Private Equity Shows Robust Growth - KSA


Private equity in the MENA region in general and the GCC in particular has continued its robust growth in 2006 and 2007 on the fund raising front, as well as fund sizes, according to Kuwait-based Global Investment House (Global).

This growth was made possible due to a lot of factors, mainly the increase in liquidity in the GCC region on the back of the recent surge in high oil prices. Other factors that contributed to the private equity rise relates to the governments' initiatives to foster this sector through privatizations, also the efforts exerted by fund managers and investment firms to encourage private equity as means of financing.

The GCC countries have also realized the importance of involving the private sector in this restructuring, so privatization has also played a pivotal part in the process. The diversification of their economic bases has most importantly led the GCC countries on a race toward the "financial capital of the GCC," thus easing regulations in terms of foreign interests in the regional financial sector. This has provided the right catalysts for the GCC economies to embark on restructuring their financial sectors, hence new regulations were imposed, financial systems were upgraded to allow for new financial instruments, and a myriad of financial companies have launched their products in the region. These recent trends in the GCC, had a positive spill-over effects on the Middle East and North Africa (MENA) regions. MENA countries have adopted "openness" to their economic and financial sectors, which gave cash rich private equity managers the incentive to seek investment opportunities within the region. To that end, private equity funds that invest in the MENA region have increased tremendously in numbers and sizes, whereby $13 billion in private equity capital are currently under management in the region and has been raised in 2005 and 2006.

As per a recent report produced by the Gulf Venture Capital Association in collaboration with KPMG, data extracted from Zawya, a leading source for financial data in the MENA, on private equity indicates that the total capital raised by private equity funds in 2006 reached $7.075 billion. This has increased by 61.6 percent from its level in 2005 of $4.379 billion.

Sizes of private equity funds in the MENA region have also exhibited an increase, where total fund sizes have reached the $14 billion mark, and as of June 2007 the fund size is at $9 billion. These are significant developments in the MENA private equity sector given that the total fund size was at $78 million in 2001, an increase of 121 folds. Two important reasons for this surge in fund sizes, the first relates to the increase in the number of private equity funds in the region, and the other relates to the increase in the sizes of the funds in the MENA region.

Throughout the period of 1994-2007, the majority of the private equity funds in the MENA region are in the "Investing" phase, where 55 funds with a total size value of $12.717 billion, 40.6 percent of total value, are classified as part of the group. Funds that are in the "fund raising" stage throughout the same period in the MENA region constituted 28.3 percent of total value of funds. Fully vested private equity funds in the MENA have a combined total of $629 million, two percent of total fund sizes, while funds that are in the liquidation process are only two, and they have a combined value of $58 million. Announced private equity funds in the MENA region through 1994-2006 are concentrated in the years 2006 and 2007, and they have a combined size of $3.842 billion, which constitutes 12.3 percent of the total fund sizes of private equity funds in the region. Closed funds, on the other hand, constitute a mere 1.8 percent of the total size of private equity funds in the MENA region with a combined value of $554 million.

selected from (MENAFN - Arab News) KUWAIT, 23 July 2007

Global Venture Capital Investment on Track in 2006 to Top $32billion, Leading to Most Capital Invested Since 2001

Global Venture Capital Investment on Track in 2006 to Top $32billion, Leading to Most Capital Invested Since 2001

Dow Jones VentureOne and Ernst & Young Global Year End Analysis Also Finds Significant Growth in “CleanTech” and Other Emerging Industries

San Francisco, London, Shanghai, 11 December 2006 — With $25.39billion invested after the first three quarters of the year, venture capital activity in the US, Europe, China and Israel in 2006 is poised to hit a five-year high and register the highest annual investments since 2001, according to a global year end analysis by Dow Jones VentureOne and Ernst & Young. In 2001, investment reached $51.22billion. This year, investment is expected to top $32billion after the fourth quarter. Global deal flow, however, remains constrained and is expected to fall slightly short of the 3,931 deals completed in 2005.

Along with the strong investment growth, the venture capital market has shown considerable interest in new markets such as China, where deal flow is poised to reach an all time high, and in emerging industries including the burgeoning "cleantech" segment and Web 2.0. For example, a new analysis prepared by VentureOne and Ernst & Young has found that $761.4million has been invested in clean technology on a worldwide basis so far this year, up 50% from $504.1million invested after the first three quarters of 2005.

"The new wave of venture capital investments around the globe, particularly at the early stage, has been driven by a number of factors. First, demand for innovation in sectors such as Web 2.0, cleantech and biotechnology is increasing in both mature and emerging markets. The positive exit environment and the end of the fund raising cycle in most markets is spurring investments. Venture-backed companies also have higher capital requirements today as the median time from initial VC financing to exit lengthens and the need to establish global operations comes earlier in their life cycles in the face of growing global competition. Finally, venture capitalists are responding to the need of large multinationals to get closer to the innovation pipeline, whether through partnerships with promising start-ups or acquisitions of innovative companies," said Gil Forer, global director of Ernst & Young's Venture Capital Advisory Group.

"Once again, this year has shown that venture capital follows a cyclical pattern with the cycle ramping back up in 2006 in conjunction with a new wave of global activity. This is particularly evident at the early stage, where a plethora of emerging venture-backed companies is aiming to improve the health of the planet and evolve the way we communicate with each other. In addition, the burgeoning consumer technology market and the rapid pace at which these advancements spread to consumers around the world, is providing much of the impetus for the solid growth of the global venture capital industry," added Steve Harmston, director of global research at VentureOne.

Key Venture Capital Metrics
Among the key venture capital metrics, the year has seen relatively robust levels of liquidity in the major geographic areas. That includes strong merger and acquisition activity for venture-backed companies in the US and Israel. The US has posted 311 venture-backed M&As at the third quarter, and Israel has posted 32, both up from last year’s levels. Plus, the median amount being paid for those companies — $50million in both the US and Israel — has topped 2005 amounts in both countries. Year 2006 also has posted relatively steady venture-backed initial public offering (IPO) activity around the globe. In Europe, in particular, 56 have been completed through the third quarter, making it likely that Europe will complete the most venture-backed IPOs this year since 2000, thus potentially freeing up venture capital portfolios for further investment. But the size of IPOs, particularly in Europe, are at much smaller levels with only $1.22billion cumulative raised in the European public offerings so far. The US has had some success in the public markets as well, with 37 IPOs so far this year and $2.47billion raised, putting it on path to exceed last year’s level. The amount being directed to worldwide venture capital investing has been on an upward trend since 2003 and this year has continued to build on that momentum with $25.39billion invested after the third quarter. But global venture capital fund raising — at $24.22billion, remains off the pace of last year, when it topped $33.18billion due to particularly strong private equity funds in Europe.

"In India, venture capital investment activity has accelerated in the first three quarters of 2006 by both US and local venture capital funds. We’ve seen as much as $178million invested in 48 deals in India this year," said Mr. Forer. Among those deals were a $10million investment by Sequoia Capital in AppLabs Technologies, a provider of software testing with offices in Hyderabad, and Travelguru of Mumbai, which was also funded by Sequoia Capital along with Battery Ventures this year.

Along with robust global investment, there was a striking amount of early-stage activity in 2006, particularly in the more established venture capital markets. For example, 42% of the completed rounds in Europe so far this year have been seed and first rounds, the most proportionally since 2001. In the US 36% of the rounds have been seed and first rounds, the same percentage as last year, but the most since 2001.

“Overall, this infusion of early-stage activity is a positive sign for these established markets, indicating investors are finally able to venture past their existing portfolio companies and are seeing the significant potential in emerging areas and technologies,” said Mr. Harmston.

Other evidence of the current status of the market is the median size of venture capital deals, which grew considerably in 2006, reaching $7 million in the US, $5.5 million in Israel, $5 million in China and $3 million in Europe after the third quarter.

"We have seen median deal sizes at their highest levels in at least six years, demonstrating that investors are placing bigger bets on selectively fewer companies to sustain the most promising emerging market leaders as they compete worldwide to become the next global market leaders," said Mr. Forer.

Emerging Interest in CleanTech
Among the most positive signs in the venture capital market in 2006 is the considerable attention being focused on clean technology. For the purposes of the VentureOne and Ernst & Young analysis, clean technology was defined as a company that directly enables the efficient use of natural resources and reduces the ecological impact of production. Areas of focus include energy, water, agriculture, transportation, and manufacturing where the technology creates less waste or toxicity. The impact of "cleantech" can be either to provide superior performance at lower costs or to limit the amount of resources needed while maintaining comparable productivity levels.

In the US alone, $585.6million has been invested to 60 companies focused on the area so far this year, already 30% more than was invested in all of 2005. Investors also are seeing strong potential, ramping up the size of deals to support these companies. The median investment so far this year in the US is $7.5million, compared to $4.5million last year for "cleantech" companies. European investment in "cleantech" is already 26% higher than was invested in all of 2005, at $102.4million. Even China venture capital investment is following this trend, with nine deals and $74million invested to date this year. China is also posting significantly larger deals in "cleantech" with a median size of $6.3million, up from $1.3million last year.

Looking Forward
Looking forward to 2007, the improving liquidity landscape is likely to continue in the next year on a global basis, thus improving the overall level of investing along with it. The year will also likely see even more strengthening of new venture capital markets in Asia, along with additional investment focused on emerging areas of the Internet and the environment.

Ends

The investment figures included in this release are based on aggregate findings of VentureOne’s proprietary European research and are contained in VentureSource. This data was collected by surveying professional venture capital firms, through in-depth interviews with company CEOs and CFOs, and from secondary sources. These venture capital statistics are for equity investments into early-stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors. No statement herein is to be construed as a recommendation to buy or sell securities or to provide investment advice.
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