Dubai-based private equity firm Ithmar Capital will spend around $1.2 billion on international healthcare acquisitions within the next twelve months, according to its founder.
The acquisitions will take place under the banner of Ithmar’s new healthcare platform, Enaya, and are likely to include firms in the US and Europe.
“Enaya’s pipeline assumes deploying around $1.2 billion for healthcare acquisitions, and this is assumed over a 12 month period,” Faisal Belhoul, founder and managing partner of Ithmar Capital, said in an interview with Arabian Business.
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“These acquisitions will be GCC-related opportunities, but outside the GCC.”
“We are looking to acquire one large international healthcare group, and our shortlist of five options includes companies in both the US and Europe,” he added.
“We are very advanced in launching Enaya, and before year end we will be able to make significant announcements on acquisitions.”
Currently managing proprietary investments in excess of $500 million, Ithmar is also planning to launch its third fund (Ithmar Fund III), targeting $1 billion.
Belhoul is also executive chairman of Belhoul Investment Office, a holding company with a portfolio of investments in hospitals, schools, pharmaceutical and medical equipment, travel and tourism agencies, construction and engineering, catering as well as garment manufacturing.
6.11.08
Unicorn Investment Bank earnings, profits jump in nine months to September
Unicorn Investment Bank (Unicorn) reports earnings rose by 121 per cent, from US$84.6 million in the first nine months of 2007 to US$186.7 million in the first nine months of 2008. Net profit increased from US$31.8 million in the first nine months of 2007 to US$53.4 million during the same period in 2008. Return on average equity increased to 21.2 per cent and earnings per share grew to 28.7 US cents per share.
Unicorn’s strong performance comes on the back of a series of high profile transactions closed during the course of the year. In the third quarter, the bank announced the sale of its shares in United Arabe Emirates-based Orimix Concrete Products LLC (Orimix), an investment held by the bank itself and the Unicorn Global Private Equity Fund I. The fund acquired a controlling stake in Orimix in November 2006, and the disposal of its shares in July 2008 resulted in a return on capital of 160 per cent and an Internal Rate of Return (IRR) of 98 per cent.
Unicorn also recently announced that it had reached agreement to acquire Bahrain Financing Company (BFC), the oldest and one of the leading foreign exchange and remittance houses in the GCC. Founded in 1917, BFC was Bahrain’s first foreign exchange company and the first financial services institution to be established in the GCC region. It is the market leader in foreign exchange and money transfer services in Bahrain. The company has an extensive correspondent network comprising leading institutions in over 60 countries worldwide. Unicorn’s acquisition of BFC includes Bahrain Exchange Company in Kuwait and EzRemit in the United Kingdom.
Commenting on the bank’s results, Majid Al-Sayed Bader Al-Refai, Unicorn’s Managing Director and Chief Executive Officer, said, “We are particularly pleased to have achieved such outstanding results in the first nine months of 2008 given the challenging global economic environment. Unicorn is committed to prudent risk management, sound corporate governance and strict Shari’ah compliance, and it is this commitment, and our adherence to these operating principles, that will allow us to achieve further success in the future inshaAllah.”
Unicorn’s strong performance comes on the back of a series of high profile transactions closed during the course of the year. In the third quarter, the bank announced the sale of its shares in United Arabe Emirates-based Orimix Concrete Products LLC (Orimix), an investment held by the bank itself and the Unicorn Global Private Equity Fund I. The fund acquired a controlling stake in Orimix in November 2006, and the disposal of its shares in July 2008 resulted in a return on capital of 160 per cent and an Internal Rate of Return (IRR) of 98 per cent.
Unicorn also recently announced that it had reached agreement to acquire Bahrain Financing Company (BFC), the oldest and one of the leading foreign exchange and remittance houses in the GCC. Founded in 1917, BFC was Bahrain’s first foreign exchange company and the first financial services institution to be established in the GCC region. It is the market leader in foreign exchange and money transfer services in Bahrain. The company has an extensive correspondent network comprising leading institutions in over 60 countries worldwide. Unicorn’s acquisition of BFC includes Bahrain Exchange Company in Kuwait and EzRemit in the United Kingdom.
Commenting on the bank’s results, Majid Al-Sayed Bader Al-Refai, Unicorn’s Managing Director and Chief Executive Officer, said, “We are particularly pleased to have achieved such outstanding results in the first nine months of 2008 given the challenging global economic environment. Unicorn is committed to prudent risk management, sound corporate governance and strict Shari’ah compliance, and it is this commitment, and our adherence to these operating principles, that will allow us to achieve further success in the future inshaAllah.”
5.10.08
Dubai mortgage lenders Amlak Finance and Tamweel in merger talks
Dubai lenders Amlak and Tamweel look to combine
DUBAI, United Arab Emirates: Dubai mortgage lenders Amlak Finance and Tamweel say they are considering a merger, but investors appear to have doubts about such a deal.
Shares of both companies sank Sunday despite the companies' assurances that a deal would bring benefits.
Amlak and Tamweel announced that they have begun exploring a tie-up Saturday. They say the combined company would have a balance sheet worth 27 billion dirhams (US$7.35 billion).
The merger talks come as global credit markets tighten amid the financial fallout on Wall Street.
AP
DUBAI, United Arab Emirates: Dubai mortgage lenders Amlak Finance and Tamweel say they are considering a merger, but investors appear to have doubts about such a deal.
Shares of both companies sank Sunday despite the companies' assurances that a deal would bring benefits.
Amlak and Tamweel announced that they have begun exploring a tie-up Saturday. They say the combined company would have a balance sheet worth 27 billion dirhams (US$7.35 billion).
The merger talks come as global credit markets tighten amid the financial fallout on Wall Street.
AP
28.9.08
Foreign Direct Investment in Qatar jumps by 700%
DI in Qatar rises seven-fold; outward flows jump 41 times
DOHA: Qatar saw a more than seven-fold rise in foreign direct investment (FDI) inflows, while the outward FDI jumped 41-fold in 2007, according to the World Investment Report (WDR) 2008 by United Nations Conference on Trade and Development.
In the WDR ranking of 141 world economies, Qatar is placed at 110 for inward FDI performance and 25 for outward FDI in 2007.
Bahrain is ranked 12 in inward FDI performance and ninth in outward FDI; Kuwait (134 and eighth); Oman (48 and 47); Saudi Arabia (51 and 41) and the UAE (34 and 23).
Qatar’s FDI inflows rose to $1.14bn in 2007 from $159mn a year ago, the report said.
In the case of other GCC countries – which come under West Asia in the WDR – Bahrain saw a 39.73% dip in FDI inflows to $1.76bn, while Kuwait saw a marginal rise of 0.82% to $123mn and the UAE’s by 3.43% to $13.25bn.
Oman’s inward FDI rose by 46.91% to $2.38bn and Saudi Arabia’s by 32.97% to $24.32bn.
Qatar’s outward FDI saw a 41-fold jump to $5.26bn; Saudi Arabia’s by 10-fold to $13.14bn; Oman’s by 73.78% to $570mn; Kuwait’s by 72.96% to $14.20bn and Bahrain’s by 70.31% to $1.67bn, while in the case of the UAE, it was 39.12% dip to $6.63bn in 2007.
FDI in the GCC rose by 20% to $43bn in 2007, the WDR said, adding these countries – especially Saudi Arabia, the UAE and Qatar – have seen relatively high inflows in recent years due to a growing number of energy and construction projects as well as notable improvements in the business environment.
“The most significant rise in FDI in the sub region was in Qatar where there was a seven-fold increase from the previous year,” the report said.
Although developed countries continued to be the major sources of FDI flows into the West Asian region, FDI by transnational corporations from developing countries has risen “substantially.”
In 2007, like the previous year, West Asia attracted Greenfield FDI primarily from the US, the UK, France and Germany. Inflows from South, East, South-East Asian countries, particularly China and India, was also significant, followed by intra-regional flows, particularly from the UAE and Saudi Arabia, the report said.
High oil prices have continued to boost economic growth rates in the oil-exporting countries of the West Asian region, WDR said. Rising revenues have encouraged the GCC governments to spend heavily on infrastructure, particularly for revamping water and energy industries and services, often in collaboration with private investors, including foreign ones, it said.
In addition, WDR said, export-oriented economic activity in some West Asian economies, especially in Turkey, benefited from higher demand in European economies. All these factors have contributed to sustaining high FDI inflows to the region.
On the outbound FDI, WDR said “the GCC countries, led by Qatar, accounted for 94% of the region’s outward FDI, with about $41bn in outflows.”
The GCC countries have built up a substantial windfall from oil exports since 2002 when global oil prices started to rise. High prices enabled them to accumulate huge stocks of net foreign assets estimated at around $1.8tn and to implement their diversification strategy, it said.
Sovereign wealth funds based in the sub-region are playing a key role in boosting outward FDI flows, WDR said. Several Islamic private equity firms and other alternative asset management companies from the GCC countries were also investing abroad, particularly in the developed countries, it said.
Although the US has attracted the largest share of investments from the GCC countries, a growing number of GCC investors are now moving to Asia, particularly China and India, to diversify their investment portfolio, WDR said.
“A growing amount of GCC capital is being invested in various sectors such as banking, telecom, real estate and manufacturing in West Asia and North Africa, including export-oriented manufacturing activities to supply to the European and West Asian markets, as a result of accelerating liberalisation, privatisation and the increasing use of Islamic financial instruments,” WDR said.
By Santhosh V Perumal
DOHA: Qatar saw a more than seven-fold rise in foreign direct investment (FDI) inflows, while the outward FDI jumped 41-fold in 2007, according to the World Investment Report (WDR) 2008 by United Nations Conference on Trade and Development.
In the WDR ranking of 141 world economies, Qatar is placed at 110 for inward FDI performance and 25 for outward FDI in 2007.
Bahrain is ranked 12 in inward FDI performance and ninth in outward FDI; Kuwait (134 and eighth); Oman (48 and 47); Saudi Arabia (51 and 41) and the UAE (34 and 23).
Qatar’s FDI inflows rose to $1.14bn in 2007 from $159mn a year ago, the report said.
In the case of other GCC countries – which come under West Asia in the WDR – Bahrain saw a 39.73% dip in FDI inflows to $1.76bn, while Kuwait saw a marginal rise of 0.82% to $123mn and the UAE’s by 3.43% to $13.25bn.
Oman’s inward FDI rose by 46.91% to $2.38bn and Saudi Arabia’s by 32.97% to $24.32bn.
Qatar’s outward FDI saw a 41-fold jump to $5.26bn; Saudi Arabia’s by 10-fold to $13.14bn; Oman’s by 73.78% to $570mn; Kuwait’s by 72.96% to $14.20bn and Bahrain’s by 70.31% to $1.67bn, while in the case of the UAE, it was 39.12% dip to $6.63bn in 2007.
FDI in the GCC rose by 20% to $43bn in 2007, the WDR said, adding these countries – especially Saudi Arabia, the UAE and Qatar – have seen relatively high inflows in recent years due to a growing number of energy and construction projects as well as notable improvements in the business environment.
“The most significant rise in FDI in the sub region was in Qatar where there was a seven-fold increase from the previous year,” the report said.
Although developed countries continued to be the major sources of FDI flows into the West Asian region, FDI by transnational corporations from developing countries has risen “substantially.”
In 2007, like the previous year, West Asia attracted Greenfield FDI primarily from the US, the UK, France and Germany. Inflows from South, East, South-East Asian countries, particularly China and India, was also significant, followed by intra-regional flows, particularly from the UAE and Saudi Arabia, the report said.
High oil prices have continued to boost economic growth rates in the oil-exporting countries of the West Asian region, WDR said. Rising revenues have encouraged the GCC governments to spend heavily on infrastructure, particularly for revamping water and energy industries and services, often in collaboration with private investors, including foreign ones, it said.
In addition, WDR said, export-oriented economic activity in some West Asian economies, especially in Turkey, benefited from higher demand in European economies. All these factors have contributed to sustaining high FDI inflows to the region.
On the outbound FDI, WDR said “the GCC countries, led by Qatar, accounted for 94% of the region’s outward FDI, with about $41bn in outflows.”
The GCC countries have built up a substantial windfall from oil exports since 2002 when global oil prices started to rise. High prices enabled them to accumulate huge stocks of net foreign assets estimated at around $1.8tn and to implement their diversification strategy, it said.
Sovereign wealth funds based in the sub-region are playing a key role in boosting outward FDI flows, WDR said. Several Islamic private equity firms and other alternative asset management companies from the GCC countries were also investing abroad, particularly in the developed countries, it said.
Although the US has attracted the largest share of investments from the GCC countries, a growing number of GCC investors are now moving to Asia, particularly China and India, to diversify their investment portfolio, WDR said.
“A growing amount of GCC capital is being invested in various sectors such as banking, telecom, real estate and manufacturing in West Asia and North Africa, including export-oriented manufacturing activities to supply to the European and West Asian markets, as a result of accelerating liberalisation, privatisation and the increasing use of Islamic financial instruments,” WDR said.
By Santhosh V Perumal
3.8.08
Dubai firm buys Egypt bank stake
Dubai firm buys Egypt bank stake
CAIRO: Commercial International Bank yesterday said a firm owned by Dubai's ruler had bought a 5.24 per cent stake in the bank, the emirate's second major investment in a year in Egypt's financial sector.
Dubai Capital Group, part of government-owned Dubai Holding, had accumulated the stake of Egypt's largest publicly traded lender from the Egyptian and London stock exchanges over the past few months, a CIB spokesman said.
Dubai Holding is owned by Dubai's ruler Shaikh Mohammed bin Rashid Al Maktoum.
"This investment (provides) us opportunities in an environment which has been challenged by the changes in the global financial services sector," Dubai Capital Group chief executive Mustafa Farid Geninah said.
Another Dubai government-owned firm bought a 25pc stake in EFG-Hermes in November.
CAIRO: Commercial International Bank yesterday said a firm owned by Dubai's ruler had bought a 5.24 per cent stake in the bank, the emirate's second major investment in a year in Egypt's financial sector.
Dubai Capital Group, part of government-owned Dubai Holding, had accumulated the stake of Egypt's largest publicly traded lender from the Egyptian and London stock exchanges over the past few months, a CIB spokesman said.
Dubai Holding is owned by Dubai's ruler Shaikh Mohammed bin Rashid Al Maktoum.
"This investment (provides) us opportunities in an environment which has been challenged by the changes in the global financial services sector," Dubai Capital Group chief executive Mustafa Farid Geninah said.
Another Dubai government-owned firm bought a 25pc stake in EFG-Hermes in November.
13.7.08
GCC sates may invest $9tr abroad
Several trends have emerged indicating where a mammoth $5 trillion to $9 trillion in oil revenues in GCC states like Qatar will be invested over the next decade.
In 2002, nearly 85 percent of the Gulf's wealth was invested abroad in financial instruments mostly linked to the US dollar. However, by 2007, this had fallen to 75 percent due to the rising investment within the Gulf region itself.
There will be increased investments onshore in the MENA region and in Asia, a shift in allocation to alternative investments and more direct investment strategies, an increased sophistication and institutionalisation of the Gulf region including the growing importance of corporate governance - a soaring demand for Islamic products and greater importance of Sovereign Wealth Funds (SWFs), according to Investcorp, a Bahrain-based investment products provider with over $15bn of assets under management.
Gary Long, Investcorp President and Chief Operating Officer (COO), speaking at the Harvard Club in New York, said the oil boom will translate into an investable asset pool in excess of $10tn by 2020.
Long, who addressed the Club along with Ramzi AbdelJaber, head of Investcorp's Business Development Unit, emphasised the new and increasing tendency of GCC investors to make local investments.
Increasing investment in the MENA region and Asia had in turn led to an increased demand for alternative investments such as private equity and hedge funds.
This shift in strategy has been driven by the need to invest more aggressively in hard and social infrastructure to cater to fast-growing populations following decades of under-investment and the emergence of more attractive onshore investment opportunities buoyed by the strong regional economic growth.
Fueling these trends are predicted record figures for the region's oil revenues which will far outstrip the region's current GDP of $800bn.
(MENAFN - The Peninsula)
In 2002, nearly 85 percent of the Gulf's wealth was invested abroad in financial instruments mostly linked to the US dollar. However, by 2007, this had fallen to 75 percent due to the rising investment within the Gulf region itself.
There will be increased investments onshore in the MENA region and in Asia, a shift in allocation to alternative investments and more direct investment strategies, an increased sophistication and institutionalisation of the Gulf region including the growing importance of corporate governance - a soaring demand for Islamic products and greater importance of Sovereign Wealth Funds (SWFs), according to Investcorp, a Bahrain-based investment products provider with over $15bn of assets under management.
Gary Long, Investcorp President and Chief Operating Officer (COO), speaking at the Harvard Club in New York, said the oil boom will translate into an investable asset pool in excess of $10tn by 2020.
Long, who addressed the Club along with Ramzi AbdelJaber, head of Investcorp's Business Development Unit, emphasised the new and increasing tendency of GCC investors to make local investments.
Increasing investment in the MENA region and Asia had in turn led to an increased demand for alternative investments such as private equity and hedge funds.
This shift in strategy has been driven by the need to invest more aggressively in hard and social infrastructure to cater to fast-growing populations following decades of under-investment and the emergence of more attractive onshore investment opportunities buoyed by the strong regional economic growth.
Fueling these trends are predicted record figures for the region's oil revenues which will far outstrip the region's current GDP of $800bn.
(MENAFN - The Peninsula)
3.7.08
More foreign players flocking to region as private equity industry witnesses growth
More foreign players flocking to region as private equity industry witnesses growth
The private equity (PE) industry in the Middle East and North Africa (Mena) region has been under the spotlight over the last few years with more and more foreign players flocking to the region, said Professor Dr Rasim Kaan Aytogu, Executive Director of Tanmiyat Group.
He said the PE industry in the GCC in particular and the Mena region in general ended 2005 with a record number of funds launched and announcements made.
More than 12 funds with a total of around $3 billion (Dh11bn) of commitments started their operations in that year. International PE funds, including The Carlyle Group, 3i, and CVC, for the first time started to look for deal flow from the Middle East after having considered the region solely as a source of limited partners in the past.
Since then, the industry never looked backed. By the end of 2007, funds under management in Mena increased to 76 funds under managing $13bn. This sudden take-off can be attributed to many factors within the context of the global prominence of PE as an investment class. Economic growth, high oil prices, increasing economic liberalisation, reduced restrictions on foreign investment, privatisation of state-owned assets, and greater liquidity of regional stock markets have all been put forward as stimuli for the impressive growth of PE in the GCC.
Starting from 2002, oil prices began their continuous climb from $20/barrel, rising around 30-40 per cent annually. Liquidity from petrodollars was compounded by the repatriation of capital from the West following the 9/11 events. The excess capital was first directed towards the capital markets, which appreciated 100 per cent annually between 2003 and 2005. Liquidity then filtered into real estate, which in the past few years witnessed a flood of announced mega real-estate projects (for example, the Palm, DubaiLand and Kind Abdullah Economic City). In 2005 some of the excess liquidity moved into private equity, jump starting the industry.
Fuelled by the increasing oil prices and production, GCC economics have witnessed stellar growth in the past three years. Future economic growth is expected to be maintained in the short and medium terms and to surpass global economic growth of five per cent. Aggressive financial policies and economic restructuring by the GCC governments will ensure that growth in the non-oil sector will be over five per cent and relatively isolated from the volatility of oil prices.
Despite the windfall from higher oil revenues, the GCC governments have started selling state-owned assets at an increasing rate. This is in light of the increasing economic benefits from private sector management which have led the governments to restructure their economies during a period in which a favorable environment exists.
Airlines, power stations, desalination plants, industrial assets, postal services, banks, stock exchanges, telecom operators, and ports are some of the assets that have been or will be sold to the private sector either partially or fully. The value of the assets in all GCC privatisation programmes is estimated at as high as $1 trillion.
Within this positive environment, the PE industry has risen quickly in the GCC. Not only it is viewed as an out-performing investment class, but also more importantly, governments and economist are preaching its positive role in developing the private sector and creating strong, globally competitive local corporations. Whenever an investment in PE fund is announced, the local media has consistently praised the announcement.
Industry experts keep on reiterating whether the industry has grown too fast on the back of the excess liquidity. Although the value of investments has increased considerably in 2007, the number of transactions has staggered to an extent. Moreover, the largest three transactions have been all in Egypt, whilst the GCC has only witnessed transactions mostly smaller that $100 million, as the flow of privatisation transactions in the GCC has not yet materialised.
Aytogu believes that the quality of deal flow continues to improve, influenced by favourable macroeconomic factors. Corporate Arabia profitability is increasing steadily, and this will create bigger companies that will sooner or later need serious capital injection to maintain their growth trajectory. Banks reluctance to extend additional lending against a backdrop of a global credit crunch will also increase the chances of opening capital to private equity funds.
Egypt has emerged as the leading destination for private equity money in 2006-07. The size of the Egyptian economy, its need for capital, and the government's liberal policies have all contributed to Egypt's attractiveness. The UAE, traditionally the leading destination, remained at No2. Saudi Arabia is rapidly increasing its share, albeit from a lower base. Jordan has also maintained its attractiveness at the fourth position, despite the small size of its economy.
It is interesting to note how sensitive private equity money is to macroeconomic policies. Countries like Kuwait – third largest economy in the GCC – attracted less investment than Jordan – fifth the size of Kuwait's economy. Saudi Arabia's share of private equity investments increased only after government policies became more investment-friendly. The PE industry quickly completed the investment cycle, and the number of exits soared in value in 2007 to more that $1.5bn. The internal rate of returns (IRRs) achieved by these exits have ranged between 31 per cent and 348 per cent, very healthy returns for a nascent industry.
Exits were split between IPOs, trade sale, and financial sales. Despite the robust activity in the IPO market, IPOs as an exit route are decreasing in importance as trade and financial buyers are becoming more active. Naturally, private equity players find trade and financial sales less complicated, and hence, are exploring such exit routes more aggressively than before.
With new plans sprouting up to develop Saudi Arabia's infrastructure, particularly in the transport and communication sectors, as well as down-market industries in the supply chain of goods and services, Saudi Arabia is a slow giant ripe for the introduction of management efficiency.
A slow relaxation of regulations on private equity firms is just one of the series of measures – along building the social infrastructure of education and healthcare – where the kingdom is thoughtfully giving a thumbs-up to private equity groups looking to enter the market. This is done through obvious contacts with regulatory and other government authorities, but also with the country's major family firms.
The noticeable difference between the Saudi market and those of its neighbouring economies are the following:
• Both the UAE and Bahrain have been leaders in creating regulatory and economic environments that have been inviting and welcoming to foreign investment, particularly the development of the banking and financial sector.
• Because Saudi Arabia is the biggest market in the Gulf Co-operation Council (GCC) and its economic powerhouse, the economy is slower, more deliberate and has a regulatory scheme that is changing on a more deliberate basis.
• But the kingdom has already made significant changes, for instance the Saudi government shifted from its traditional policy to spend 60-70 per cent of GDP on defence and infrastructure to the new plan whereby more than 50 per cent of the GDP is being spent on housing, education and healthcare. To prepare the country for an era of declining demand for oil and the possible price drops associated with it.
In addition, the Saudi regulators are in need of having to set criteria, they have to be careful, then they have to make a move attributing the caution to the relative size of the country and the potential for grave errors from a regulatory or economic missteps.
Culturally, however, entry into the Saudi market is a new frontier for private equity firms. They must understand how to navigate policies by deciphering them.
There is a need for liquidity and a formal capital structure in an increasingly competitive free-market economic environment, which will result in significant merger, acquisition and divestiture activity. Many companies have capitalised on these opportunities.
The numbers
$13bn: worth of funds, which increased to 76, were under management in Mena by 2007-end
$1trn: is the estimated value of total assets involved in all GCC privatisation programmes
Challenges and trends
Robustness of economic growth: As the subprime crisis snowballs in 2008 into a global economic slowdown, the impact of such a negative turn-around in the world's economy on growth in the GCC cannot be clearly assessed. However, it is expected that the GCC will be one of the least affected regions.
Entry of international players: The previously timid interest of international players in the region was suddenly emboldened when The Carlyle Group announced its plans to raise a MENA fund for up to $750 million by 2008. The Carlyle Group is following the footsteps of many international players like 3i, TPG, Duetsche Bank, Credit Suisse, CVC, Ripplewood, HSBC, and EMP. The entry of The Carlyle Group will definitely entice many other global heavy-weights to establish funds for the region.
Larger funds: The PE industry surpassed the $100m per fund milestone in 2003, the $500m in 2005, and the $1 billion in 2006.
Track record: As regional fund managers start exhibiting their investments, their track record is being established – in most cases showing 30 per cent plus net returns. The window of opportunity for new fund managers is starting to close, and 2007 has seen some fund managers is starting to close, and 2007 has seen some fund raising efforts being aborted.
Deal flow: Business and social habits, limited opportunities in the private sector, and delayed privatisation programmes have made good deals hard to come by. Proprietary access and extensive deep business networks are essential for succeeding in the region. Regional dynamics have not allowed intermediaries to play a significant role in maturing deal flow, and hence made deal sourcing process a competitive edge for some and frustrating issue for others.
The private equity (PE) industry in the Middle East and North Africa (Mena) region has been under the spotlight over the last few years with more and more foreign players flocking to the region, said Professor Dr Rasim Kaan Aytogu, Executive Director of Tanmiyat Group.
He said the PE industry in the GCC in particular and the Mena region in general ended 2005 with a record number of funds launched and announcements made.
More than 12 funds with a total of around $3 billion (Dh11bn) of commitments started their operations in that year. International PE funds, including The Carlyle Group, 3i, and CVC, for the first time started to look for deal flow from the Middle East after having considered the region solely as a source of limited partners in the past.
Since then, the industry never looked backed. By the end of 2007, funds under management in Mena increased to 76 funds under managing $13bn. This sudden take-off can be attributed to many factors within the context of the global prominence of PE as an investment class. Economic growth, high oil prices, increasing economic liberalisation, reduced restrictions on foreign investment, privatisation of state-owned assets, and greater liquidity of regional stock markets have all been put forward as stimuli for the impressive growth of PE in the GCC.
Starting from 2002, oil prices began their continuous climb from $20/barrel, rising around 30-40 per cent annually. Liquidity from petrodollars was compounded by the repatriation of capital from the West following the 9/11 events. The excess capital was first directed towards the capital markets, which appreciated 100 per cent annually between 2003 and 2005. Liquidity then filtered into real estate, which in the past few years witnessed a flood of announced mega real-estate projects (for example, the Palm, DubaiLand and Kind Abdullah Economic City). In 2005 some of the excess liquidity moved into private equity, jump starting the industry.
Fuelled by the increasing oil prices and production, GCC economics have witnessed stellar growth in the past three years. Future economic growth is expected to be maintained in the short and medium terms and to surpass global economic growth of five per cent. Aggressive financial policies and economic restructuring by the GCC governments will ensure that growth in the non-oil sector will be over five per cent and relatively isolated from the volatility of oil prices.
Despite the windfall from higher oil revenues, the GCC governments have started selling state-owned assets at an increasing rate. This is in light of the increasing economic benefits from private sector management which have led the governments to restructure their economies during a period in which a favorable environment exists.
Airlines, power stations, desalination plants, industrial assets, postal services, banks, stock exchanges, telecom operators, and ports are some of the assets that have been or will be sold to the private sector either partially or fully. The value of the assets in all GCC privatisation programmes is estimated at as high as $1 trillion.
Within this positive environment, the PE industry has risen quickly in the GCC. Not only it is viewed as an out-performing investment class, but also more importantly, governments and economist are preaching its positive role in developing the private sector and creating strong, globally competitive local corporations. Whenever an investment in PE fund is announced, the local media has consistently praised the announcement.
Industry experts keep on reiterating whether the industry has grown too fast on the back of the excess liquidity. Although the value of investments has increased considerably in 2007, the number of transactions has staggered to an extent. Moreover, the largest three transactions have been all in Egypt, whilst the GCC has only witnessed transactions mostly smaller that $100 million, as the flow of privatisation transactions in the GCC has not yet materialised.
Aytogu believes that the quality of deal flow continues to improve, influenced by favourable macroeconomic factors. Corporate Arabia profitability is increasing steadily, and this will create bigger companies that will sooner or later need serious capital injection to maintain their growth trajectory. Banks reluctance to extend additional lending against a backdrop of a global credit crunch will also increase the chances of opening capital to private equity funds.
Egypt has emerged as the leading destination for private equity money in 2006-07. The size of the Egyptian economy, its need for capital, and the government's liberal policies have all contributed to Egypt's attractiveness. The UAE, traditionally the leading destination, remained at No2. Saudi Arabia is rapidly increasing its share, albeit from a lower base. Jordan has also maintained its attractiveness at the fourth position, despite the small size of its economy.
It is interesting to note how sensitive private equity money is to macroeconomic policies. Countries like Kuwait – third largest economy in the GCC – attracted less investment than Jordan – fifth the size of Kuwait's economy. Saudi Arabia's share of private equity investments increased only after government policies became more investment-friendly. The PE industry quickly completed the investment cycle, and the number of exits soared in value in 2007 to more that $1.5bn. The internal rate of returns (IRRs) achieved by these exits have ranged between 31 per cent and 348 per cent, very healthy returns for a nascent industry.
Exits were split between IPOs, trade sale, and financial sales. Despite the robust activity in the IPO market, IPOs as an exit route are decreasing in importance as trade and financial buyers are becoming more active. Naturally, private equity players find trade and financial sales less complicated, and hence, are exploring such exit routes more aggressively than before.
With new plans sprouting up to develop Saudi Arabia's infrastructure, particularly in the transport and communication sectors, as well as down-market industries in the supply chain of goods and services, Saudi Arabia is a slow giant ripe for the introduction of management efficiency.
A slow relaxation of regulations on private equity firms is just one of the series of measures – along building the social infrastructure of education and healthcare – where the kingdom is thoughtfully giving a thumbs-up to private equity groups looking to enter the market. This is done through obvious contacts with regulatory and other government authorities, but also with the country's major family firms.
The noticeable difference between the Saudi market and those of its neighbouring economies are the following:
• Both the UAE and Bahrain have been leaders in creating regulatory and economic environments that have been inviting and welcoming to foreign investment, particularly the development of the banking and financial sector.
• Because Saudi Arabia is the biggest market in the Gulf Co-operation Council (GCC) and its economic powerhouse, the economy is slower, more deliberate and has a regulatory scheme that is changing on a more deliberate basis.
• But the kingdom has already made significant changes, for instance the Saudi government shifted from its traditional policy to spend 60-70 per cent of GDP on defence and infrastructure to the new plan whereby more than 50 per cent of the GDP is being spent on housing, education and healthcare. To prepare the country for an era of declining demand for oil and the possible price drops associated with it.
In addition, the Saudi regulators are in need of having to set criteria, they have to be careful, then they have to make a move attributing the caution to the relative size of the country and the potential for grave errors from a regulatory or economic missteps.
Culturally, however, entry into the Saudi market is a new frontier for private equity firms. They must understand how to navigate policies by deciphering them.
There is a need for liquidity and a formal capital structure in an increasingly competitive free-market economic environment, which will result in significant merger, acquisition and divestiture activity. Many companies have capitalised on these opportunities.
The numbers
$13bn: worth of funds, which increased to 76, were under management in Mena by 2007-end
$1trn: is the estimated value of total assets involved in all GCC privatisation programmes
Challenges and trends
Robustness of economic growth: As the subprime crisis snowballs in 2008 into a global economic slowdown, the impact of such a negative turn-around in the world's economy on growth in the GCC cannot be clearly assessed. However, it is expected that the GCC will be one of the least affected regions.
Entry of international players: The previously timid interest of international players in the region was suddenly emboldened when The Carlyle Group announced its plans to raise a MENA fund for up to $750 million by 2008. The Carlyle Group is following the footsteps of many international players like 3i, TPG, Duetsche Bank, Credit Suisse, CVC, Ripplewood, HSBC, and EMP. The entry of The Carlyle Group will definitely entice many other global heavy-weights to establish funds for the region.
Larger funds: The PE industry surpassed the $100m per fund milestone in 2003, the $500m in 2005, and the $1 billion in 2006.
Track record: As regional fund managers start exhibiting their investments, their track record is being established – in most cases showing 30 per cent plus net returns. The window of opportunity for new fund managers is starting to close, and 2007 has seen some fund managers is starting to close, and 2007 has seen some fund raising efforts being aborted.
Deal flow: Business and social habits, limited opportunities in the private sector, and delayed privatisation programmes have made good deals hard to come by. Proprietary access and extensive deep business networks are essential for succeeding in the region. Regional dynamics have not allowed intermediaries to play a significant role in maturing deal flow, and hence made deal sourcing process a competitive edge for some and frustrating issue for others.
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