Middle East Private Equity Raises Record $6.4 Billion in 2008 Press Release

Middle East Private Equity Raises Record $6.4 Billion in 2008
Press Release

Of the $19.6 billion raised since 2000, $11 billion remains available for acquisitions

Middle East private equity fund managers raised a record $6.4 billion in 2008, up more than 10% over 2007 and more than double the amount raised in 2005, according to Gulf Venture Capital Association's (GVCA) 2008 report on Private Equity & Venture Capital in the Middle East, which was released today at the Dubai International Financial Centre.

Large size funds are primarily responsible for this growth, with the average fund size in 2008 being $258 million, compared with $213 million in 2007 and just $177 million in 2006. This trend is driven by the need for more flexibility in structuring deals and the past success of large buyout transactions, according to the 2008 GVCA report, developed in cooperation with KPMG, and Zawya, and supported by Hawkamah - The Institute for Corporate Governance.

Three regional funds have crossed the $1 billion mark, and as the report notes, the current economic downturn may make it more difficult for all but the most established fund managers to secure the successful closure of these larger funds.

Yet, there is also tremendous liquidity among regional funds, which are cash rich with $11 billion in capital under management yet to be deployed. The report notes that this "dry powder", as it is called, gives private equity a strategic opportunity vis-à-vis target companies, given the limited scope of other funding sources available in the current environment. This liquidity results from both an increase in fundraising and a decrease in deals, with the number of private equity investments dropping by 22% between 2007 and 2008, as well as the total investment size, which fell by 31%.

The report found that over the past four years, Egypt, Saudi Arabia and the United Arab Emirates were the largest recipients of private equity funds, at 33%, 15% and 14% respectively. The majority of funds are Middle East and North Africa (MENA) focused, with Turkey sometimes included as part of that region. Regional players are experiencing an increasing request for funds with a mandate that includes MENA, to expand and include South Asia, Southeast Asia and/or Africa.

The sectors of focus for portfolio acquisitions during 2008 were healthcare, transport, power & utilities and construction. Healthcare likely would remain a top recipient of private equity funds in the next few years.

In terms of fund strategies, more and more funds are seeking controlling stakes. While in 2005, only 3% of transactions were control buyouts, by 2008, some 26% of transactions volume and half of transactions values were control buyouts.

The report was optimistic about the future of private equity in the region, noting that as an asset class, it does not have a short-term investment horizon and so is well placed to weather the current crisis.

Imad Ghandour, Chairman of the GVCA Information & Statistics committee, said, "The economic fundamentals of the region remain strong and are supported by aggressive fiscal policies. Governments' reserves will continue to trickle down to the rest of the economy - sustaining corporate profits and public investments. A sober market will offer better valuations, and hence better returns for private equity. Although the increased attention from international players that the region witnessed in 2007 may be disrupted, we expect the disruption to be temporary. As a matter of fact, we expect the robust economic performance of the region to attract additional allocation from international institutional investors over the medium term."

Although fundraising in the region has been strong, when compared with the total value of announced fund sizes, it is clear there have been delays in reaching target sizes. In fact, after excluding one major fundraising, only 16% of the total amount announced in 2008 was actually raised in the same year, compared with 65% in 2005. Roughly half of the funds announced in 2006 have so far been raised, and approximately $11.7 billion of announced funds in 2006-8 have yet to make a close. The report suggests that this is because fund sizes are much larger, as well as recent constraints on liquidity.

While 2008 saw an increase in the total value of sale activity, which reached $3 billion, most of this was due to one major exit of $2.5 billion; excluding this one-off transaction, sale activity decreased by approximately 60%, as did the number of exits, which dropped from 17 in 2007 to 11 in 2008. The report suggests that there will be fewer exits in the current economic climate, as funds won't be able to achieve the returns traditionally targeted and exit options shrink, particularly with the sharp decline in regional IPOs. Trade sales were named as the most likely exit over the next couple years.

Ihsan Jawad, CEO of Zawya and board member of GVCA, said "Private Equity in the region is developing in many ways that are unique in comparison to the developed world. Transparency remains a major barrier that hinders this mode of investment from becoming a strong component in the GCC financial system. More research efforts and collaboration is needed by all practitioners to elevate the current opacity of the private equity market."

Of the 18 private equity fund managers interviewed for the report, most said they were established in the last five years. They expressed an expectation of consolidation in the industry, a decrease in investment, and lower portfolio company growth. This means portfolio companies will be held longer and fund managers will be increasingly active in managing their companies in order to add the maximum value.

These efforts should include corporate governance, according to Dr Nasser Saidi, Director of Hawkamah. "MENA private equity can, and should, play a critical role in diffusing good corporate governance practices across portfolio companies, in terms of board structures, executive compensation better aligned with long term shareholder interest and underlying risk, improved risk management, transparency and disclosure requirements and minority interest protection. This benefits all parties, as empirical evidence shows that investors are willing to pay a premium for companies with good corporate governance. The current global financial crisis has reinforced the view that improved corporate governance practices lead to sustainable growth and value of companies, with a focus on the medium and long-term and away from short-termism. This is why Hawkamah has launched a Private Equity Task Force to develop corporate governance guidelines for private equity firms and portfolio companies in the MENA region."

Elaborating on the role of fund managers toward their portfolio companies given the current environment, Vikas Papriwal, Partner in KPMG's Private Equity and Sovereign Wealth Funds practice, said, "With attractive exit options scarce at present, the focus for many private equity firms is now the workout of their existing portfolio - with operational improvements, debt restructuring and working capital management at the core. Discretionary spending is being restricted, including expansionary capital expenditures, and business plan timelines are being reassessed, as entities look to weather the storm. However, no one doubts that opportunities will exist once we are over the worst."

The GVCA report compiles comprehensive information and statistics about private equity funds and investments across the Middle East, and contains nine articles on current topics in the industry. The 125-page report also provides a detailed survey of 18 private equity fund managers regarding their views looking back at 2008 and ahead to 2009. There also is a special section dedicated to sovereign wealth fund strategies and investments.


About GVCA
Gulf Venture Capital Association ("GVCA") is the non-profit trade and industry association for Venture Capital (VC) and Private Equity (PE) in the Gulf Cooperation Council. GVCA organizes conferences, industry forums, training and workshops. In addition, GVCA periodically publishes information and statistics about the regional activity of VC and PE. GVCA is based in Bahrain.

Trump and Nakheel - Dubai Developments

Nakheel, developer of more than US$30 billion in real estate in Dubai, and The Trump Organization have unveiled a new design for the Trump International Hotel & Tower, the centerpiece of The Palm Jumeirah.

Donald J. Trump, Jr., son of Donald J. Trump, and Executive Vice President of Development and Acquisitions, The Trump Organization, is in Dubai this week to reveal details about the new design and discuss The Trump Organization’s increased involvement in the UAE. Speaking at the Arabian Hotel and Investment Conference (29th April to 1st May), he will discuss mixed use developments & condo hotels and feature in a round table discussion on private equity in the Middle East. On the 2nd May, he will be present on the Nakheel stand at the Arabian Travel Market.
Trump Dubai

Trump Dubai

Trump International Hotel & Tower, The Palm Jumeirah is the initial development in Nakheel and The Trump Organization’s joint-venture in the Middle East, which includes exclusive rights for 19 countries in the Middle East region and 17 major brands. It is also the first UAE property in the portfolio of Nakheel Hotels & Resorts, Nakheel’s hotel and resort investment company, which was launched in February this year.

On announcing the partnership in October 2005, Donald J. Trump, Chairman and President of The Trump Organization, who is known throughout the world for his luxurious real estate developments, stated that the organization’s architects and designers would engage closely with Nakheel Hotels & Resorts on the design. The results of the partnership have now been released.

The US$600 million Trump International Hotel & Tower, The Palm Jumeirah is a stunning 48 storey mixed-use hotel and residential building, anchoring the trunk of the 5 by 5km man made palm tree shaped island which lies off the coast of Dubai. The first of three such islands to be built in Dubai, The Palm Jumeirah will be one of the world’s premier resorts, offering a wealth of beachfront hotels, residences, retail and leisure.

The new ultra-modern design, features a split linked tower – an innovative open core design that minimizes shadows – constructed with stainless steel, glass and stone.

Regarding the new design, Donald J. Trump, Jr. said: “In redesigning the property, we focused on creating a magnet for tourists and residents and a landmark icon on the Dubai skyline. Trump International Hotel & Tower, The Palm Jumeirah will soar into the sky, its twin sets of glazed diamond shaped structures at the top of each tower creating a sense of infinity as the glazed elements blur building and sky”.

Sultan Ahmed bin Sulayem, Executive Chairman, Nakheel stated: “The new design ensures that the property will be a striking landmark – a bold monument at the heart of the island. The property’s taller, more slender design allows for a linear view through the building to the top of the island and provides spectacular panoramas of the island, Dubai and the Arabian Gulf, with all rooms benefiting from a sea view.”

“In building the vision of Dubai, Nakheel is committed to creating genuinely unique projects which are at the forefront of innovation”, Sultan Ahmed bin Sulayem continued. “The new design of the Trump International Hotel and Tower lives up to this commitment and will provide a fitting landmark centerpiece for The Palm Jumeirah, our flagship development.

“As the world’s fastest growing city, it is important that Dubai forms progressive partnerships with prominent international organizations. Our alliance with The Trump Organization is a fantastic example of how such partnerships can operate successfully. The Trump International Hotel and Tower is the first example of this success”

KSA Economy Offers Highly Attractive Landscape for Private Equity Investors

KSA Economy Offers Highly Attractive Landscape for Private Equity Investors


4 November 2008

JEDDAH - Saudi economy offers a highly attractive economic landscape for private equity investors.

The nominal GDP of the economy has grown at a compound annual growth rate (CAGR) of 15 per cent during the period from 2002 to 2007 while the real GDP increased at a GAGR of 5 per cent for the same period, according to a Global report.

The private equity deal volume as a percentage of GDP is still among the lowest and is estimated to around 0.1 per cent, compared to around 1.5 per cent in the UAE, the Kuwait-based Global Investment House (GIH) states.

Sectors of high potential include sectors subject to privatisation and regulatory reforms such as air travel, telecom, financial services and services such as education, retail, healthcare, food and beverage, consumer goods, and transportation, it said in information made available to Khaleej Times here on Sunday.

“All the above offer a unique opportunity to tap this high potential market. However, a number of obstacles stand in the way of effective access to this attractive market,” it added.

According to a World Bank report, Saudi Arabia is the seventh fastest reformer globally, and second fastest within the Middle East and North Africa (MENA) region.

Also, the kingdom’s surge in ranking to 16th in the world and as the best in the MENA region in regards to ease of doing business is a reflection of the reformatory action taken by the government to de-risk its economy from oil.

With around 50 per cent of the population less than the 20 years age bracket and another 33 per cent in between the 20 to 40 age group, demographics remain attractive and this, coupled with high oil prices have ensured governments thrust on infrastructure and social spending remained high, it added.

“A physical presence with right contacts in the kingdom along with a deep understanding of the social and regulatory setting becomes the key to success for private equity players to benefit from the private equity boom that the kingdom is on the verge of witnessing,” states the report.

It added that with relatively cheap valuations of Saudi listed companies due to the current meltdown, coupled with an increasingly progressive regulatory environment, Global believes long-term institutional money will be attracted to the region.

It noted that the geographic focus of regional funds is changing and becoming more diverse as mandates and operations broaden to include other regions with many regional players opening offices in regions like Saudi Arabia, Turkey, Egypt and North Africa region.

The report states Egypt emerged as the preferred destination for investment in the Middle East and North Africa region, with $2.4 billion being invested in the last decade.


(Habib Shaikh)

Ithmar Capital focusing on healthcare-related acquisitions worth $1.2 billion

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.

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.”

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

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