Introduction
The massive increase in oil revenues in most of the six members of the Gulf Cooperation Council (GCC)—Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Oman and Kuwait—has created unprecedented opportunities for the building of infrastructure, the provision of social services and, at the same time, for investments overseas.
These investments have been channeled through two principal pipelines—acquisition of assets and the purchase of shares in high quality financial and industrial firms. According to the London daily al-Sharq al-Awsat of August 13, the Gulf countries have channeled $140 billion into overseas investments in the last three years. In a relatively short time, some of the Gulf countries have become respectable actors on the international financial scene.
At the same time, a hospitable investment environment, the privatization of state-owned entities and the prospects of mutually profitable deals have attracted a massive influx of Western financial services and industry to the Gulf region. The opening of the real estate market for foreign investors, particularly in Dubai, has created a massive construction boom which is fueling economic growth at a rapid rate.
The purpose of this article is to shed light on the investment activities of Dubai, and how an enlightened and entrepreneurial leadership has turned what was a small desert outpost just a few decades ago into a bustling metropolis with a vigorous economy that is subject to both envy and emulation.
Increased Investment Power
Economies in the Middle East and North Africa [MENA] in general have grown by more than 5% in each of the last three years on account of substantial oil revenues. As the main suppliers of oil in the region, the Gulf countries—and, chiefly among them, the United Arab Emirates [UAE]—have experienced unprecedented levels of growth.
In contrast to the earlier oil booms of the 1970’s and 1980’s, however, these countries are not squandering their oil revenues on spending sprees, but rather are focusing on diversifying their assets and buttressing their fiscal solvency through massive investment schemes.
Dubai, one of the seven emirates that make up the UAE, in particular, exemplifies the investment trends of the Middle East, mostly on account of the fact that it is an investment powerhouse out of necessity. The emirate seeks to open itself to and extend its reach within international markets in order to hedge any risk it faces due to the steady decline of its oil and gas reserves, which are expected to reach depletion within twenty years. Dubai currently has a strong penchant for the real-estate sector, but is learning to thoroughly diversify its assets in its search for some high-yielding financial instruments.
Large current account surpluses have allowed much of this investment to take place through sovereign funds, which, in the past, were traditionally held only to protect domestic currencies and banks. Sovereign fund investment is a trend not limited to Gulf countries; the global total of sovereign funds[1] may be $2.5 trillion by the end of this year, and could reach $12 trillion by 2015 on account of capital appreciation.[2] Sovereign wealth funds may soon become the most important buyers of stocks and bonds, and oil countries account for about two-thirds of such assets globally.
[www.memrieconomicblog.org will soon present a more detailed discussion of sovereign fund investment and some possible complications of their proliferation.]
Attracting Western Industries
The current generation of economic and industry ministers in the Gulf region is largely composed of men who began their careers in the private sector. This correlates with efforts in almost all MENA countries to increase the privatization of state-owned entities in an attempt to create an “open market” atmosphere. As the Middle East daily al-Sharq al-Awsat reported on August 8, 2007, an international investment firm in Kuwait noted that privatization trends in Gulf countries—which are competing amongst themselves to become the next global “financial capitol”—are reflected in the flow of private capital into publicly traded stocks and other financial instruments. In 2006 this amount totaled $7.07 billion, which was a 61.6% increase over the previous year.
As regional investment levels skyrocket, from both private and public sources, local private investment funds are scrambling to attain access to European and American markets so that shareholders can enjoy even higher returns on their assets. In the end, this has pulled many Western services and industries, attracted to the copious amount of funds that proximity to potential investors can yield, into the Gulf region.
The Carlyle Group LP says that the Middle East is now the “hot spot” for private equity deals, and HSBC reports that as much as one third of all project finance involves Middle Eastern projects.[3] Dubai is a particular hub of this activity. The chief executive of oil services company Halliburton has recently opted to relocate at least part of the company’s corporate and executive headquarters from Houston to Dubai. Other prospective buyers of property in the emirate include Oracle, Cisco and Microsoft.[4]
Indeed, Dubai has made itself fertile ground for a Western economic presence with its free trade zones, in which companies are not held to the standard UAE requirement that all entities be majority-owned by a UAE national. Various information technology firms, investment banks and media corporations have holed themselves up in these territories, and officials expect finance alone to quadruple its contribution to the emirate’s GDP to $15 billion by 2015.[5]
Low tariffs, low currency risk, the absence of restrictions on repatriation of profits, a small national bureaucracy, and UAE laws that forbid corporate and sales taxes helped the number of Greenfield projects [certain types of investment ventures] within Dubai alone to rise from 88 in 2002 to 215 in 2005. As such, non-oil growth has average 10.6% annually over the past five years. [6] In turn, state-oriented investment facilities such as Dubai International Capital, Istithmar [investment holding company] and DIFC Investments have taken stakes in HSBC, Standard Chartered Bank, Blackstone [private equity fund] and Deutsche Bank.
Qatar is following in Dubai’s footsteps, announcing on July 16, 2007 the unification of its regulatory system, and its intention to rewrite outdated legal codes for commercial and financial transactions that may act as barriers to entry for international firms.
On a smaller scale, many US companies are moving into the region to bolster the sugar industry, which has had to quickly develop after the World Trade Organization capped exports of sugar from the EU in July, 2006. With the Gulf’s large number of transport vessels, it is a magnet for much of the half-billion dollars being invested in sugar output production.
A Mastercard survey also indicated that consumer confidence in the region is at an all time high, and so spending is soaring in Kuwait, Saudi Arabia, Qatar and the UAE. Owing to this and the decline of the dollar, to which all of the Gulf currencies are pegged with the exception of Kuwait’s, some American products are getting a boost. For instance, June was the best month for General Motors in the Persian Gulf because its cars were enjoying an advantage over Japanese and European cars.[7] If the spending trend continues, other Western manufacturing may be pulled into the Gulf’s orbit.
Expanding Horizons
While Western banking, financial and information technology industries are rapidly being drawn to the Gulf countries, Gulf investment is not necessarily giving preferential treatment to the Western hemisphere that has largely responsible for its explosion of financial power.
While it is true that various emirate companies invested $3.5 billion in the US last year[8], many of those same companies are also shifting their interest to Asian markets on account of the falling dollar and for the sake of diversification:
- Dubai International Capital and DIFC Investments are working to extend their reach into Pakistan, India and South Korea.
- Istithmar’s real estate arm, which is part of the Dubai World group of companies, plans to increase the 5% of its assets it has invested in Asia to 30% within five years.[9]
- The Dubai government firm Emaar is responsible for the housing boom taking place across Asia, most recently securing a deal to construct a 1,200-hectare project, set on the pristine Mandalika Beach, estimated at $600 million in worth.[10]
- Remaining oil exports in the Dubai are being used to help launch the Dubai Mercantile Exchange, a joint venture with Nymex that is to create a futures market for Mideast crude oil exported to Asia.
- Dubai Ports World, in its attempt to double its capacity in 10 years, is developing terminals in China, India, Vietnam and Pakistan.
There has also been a trend of increased cross-border investment within the Gulf and larger MENA regions. Part of the reason behind this trend is a post-9/11 sentiment in the Arab world that the West, and especially the US, is unwelcoming of Arab investment. This fear did not seem entirely unfounded in 2006, when the House of Representatives passed legislation forbidding Dubai Ports World from gaining operations of ports in major American cities, citing that al-Qa’ida funding had passed through UAE banks, albeit unbeknownst to the government, prior to 9/11. [This caused a showdown between Congress and the White House, which supported the deal, and much controversy ensued.]
As an example, construction company Emaar’s most recent press releases discuss not Western development, but a $500 million deal to build Samara Dead Sea Golf and Beach resort in Jordan, and a memorandum on understanding with a Saudi energy company on plans for the construction of an open-cycle gas turbine power plant for King Abdullah Economic City in Saudi Arabia.
Mergers and Acquisitions
Arabic satellite television has allowed Gulf companies to develop strong regional brands, and then take their business to a global level. The substantial revenues produced by this trend have enabled more mergers and acquisitions to take place. For example, Qatar Telecommunications Co. paid $3.7 billion for a 51% stake in Kuwait’s National Mobile Telecommunications Co., while Abraaj Capital, MENA’s largest private equity firm, paid around $1.4 billion for Egypt’s largest private sector fertilizer manufacturer.[11]
The Gulf’s stepped up trans-shipment and trading hub status means that it is also increasing its trading links with Iran. Each year, chemicals, oil production equipment and computer technology enter into Iran via the UAE, and especially the ports of Dubai. This, in theory, assists Iran in its quest to develop its industry and become more economically autonomous. The US also suspects that some equipment transshipped through Dubai ports may have been used by Iran for its nuclear program.
Conclusion
These investment patterns place the Gulf region, and especially Dubai, in a unique position. As relationships increase in number and depth within certain markets, namely Iran and China, diplomatic ties with Washington and Europe will probably occasionally feel a squeeze.
Sovereign wealth funds are set to grow in the short and medium-term at least, and as they do so it is inevitable that the economic sway held by Gulf countries, by nature of their voracious appetite for foreign investment, will increase dramatically. Of course, there will be repercussions to this new scheme of sovereign investment. But one should expect Western industries, especially financial services, to continue to converge upon and cater to the burgeoning market of the Gulf. At the same time, Asian markets—especially real-estate sectors—will be able to count on continued attention from oil-producing asset powerhouses such as Dubai.
[1] Countries with the top-ten largest sovereign wealth funds include, in descending order: UAE, Singapore, Norway, Saudi Arabia, China, Kuwait, Australia, United States, Qatar and Russia.
[2] The Economist. “Sovereign-wealth funds: The world’s most expensive club”. May 26, 2007.
[3] The Wall Street Journal. “Boom in Investment Powers Mideast Growth”. July 19, 2007.
[4] Financial Times. “Drilling minds: Dubai’s ruler has big ideas for his little city-state”. May 4, 2007.
[5] Financial Times. “Emirate sets its sights on trebled GDP by 2015”. July 24, 2007.
[6] The Middle East. “The Success Story Surges Onwards and Upwards”. June, 2007.
[7] al-Riyadh. Saudi Arabia, August 7, 2007.
[8] Financial Times. “Drilling minds: Dubai’s ruler has big ideas for his little city-state”. May 4, 2007.
[9] Financial Times. “’Bubble economy’ defies gravity”. July 24, 2007.
[10] Asia Property Report. “Lombok lifted by Emaar project”. July 23, 2007.
[11] The Wall Street Journal. “Boom in Investment Powers Mideast Growth”. July 19, 2007.
Changing Patterns of Investment in the Gulf Region: The Case of Dubai
Bianca Gersten* - taken from memrieconomicblog
17.10.07
Changing patterns of Investment in the Gulf region:The case of Dubai
Introduction
The massive increase in oil revenues in most of the six members of the Gulf Cooperation Council (GCC)—Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Oman and Kuwait—has created unprecedented opportunities for the building of infrastructure, the provision of social services and, at the same time, for investments overseas.
These investments have been channeled through two principal pipelines—acquisition of assets and the purchase of shares in high quality financial and industrial firms. According to the London daily al-Sharq al-Awsat of August 13, the Gulf countries have channeled $140 billion into overseas investments in the last three years. In a relatively short time, some of the Gulf countries have become respectable actors on the international financial scene.
At the same time, a hospitable investment environment, the privatization of state-owned entities and the prospects of mutually profitable deals have attracted a massive influx of Western financial services and industry to the Gulf region. The opening of the real estate market for foreign investors, particularly in Dubai, has created a massive construction boom which is fueling economic growth at a rapid rate.
The purpose of this article is to shed light on the investment activities of Dubai, and how an enlightened and entrepreneurial leadership has turned what was a small desert outpost just a few decades ago into a bustling metropolis with a vigorous economy that is subject to both envy and emulation.
Increased Investment Power
Economies in the Middle East and North Africa [MENA] in general have grown by more than 5% in each of the last three years on account of substantial oil revenues. As the main suppliers of oil in the region, the Gulf countries—and, chiefly among them, the United Arab Emirates [UAE]—have experienced unprecedented levels of growth.
In contrast to the earlier oil booms of the 1970’s and 1980’s, however, these countries are not squandering their oil revenues on spending sprees, but rather are focusing on diversifying their assets and buttressing their fiscal solvency through massive investment schemes.
Dubai, one of the seven emirates that make up the UAE, in particular, exemplifies the investment trends of the Middle East, mostly on account of the fact that it is an investment powerhouse out of necessity. The emirate seeks to open itself to and extend its reach within international markets in order to hedge any risk it faces due to the steady decline of its oil and gas reserves, which are expected to reach depletion within twenty years. Dubai currently has a strong penchant for the real-estate sector, but is learning to thoroughly diversify its assets in its search for some high-yielding financial instruments.
Large current account surpluses have allowed much of this investment to take place through sovereign funds, which, in the past, were traditionally held only to protect domestic currencies and banks. Sovereign fund investment is a trend not limited to Gulf countries; the global total of sovereign funds[1] may be $2.5 trillion by the end of this year, and could reach $12 trillion by 2015 on account of capital appreciation.[2] Sovereign wealth funds may soon become the most important buyers of stocks and bonds, and oil countries account for about two-thirds of such assets globally.
[www.memrieconomicblog.org will soon present a more detailed discussion of sovereign fund investment and some possible complications of their proliferation.]
Attracting Western Industries
The current generation of economic and industry ministers in the Gulf region is largely composed of men who began their careers in the private sector. This correlates with efforts in almost all MENA countries to increase the privatization of state-owned entities in an attempt to create an “open market” atmosphere. As the Middle East daily al-Sharq al-Awsat reported on August 8, 2007, an international investment firm in Kuwait noted that privatization trends in Gulf countries—which are competing amongst themselves to become the next global “financial capitol”—are reflected in the flow of private capital into publicly traded stocks and other financial instruments. In 2006 this amount totaled $7.07 billion, which was a 61.6% increase over the previous year.
As regional investment levels skyrocket, from both private and public sources, local private investment funds are scrambling to attain access to European and American markets so that shareholders can enjoy even higher returns on their assets. In the end, this has pulled many Western services and industries, attracted to the copious amount of funds that proximity to potential investors can yield, into the Gulf region.
The Carlyle Group LP says that the Middle East is now the “hot spot” for private equity deals, and HSBC reports that as much as one third of all project finance involves Middle Eastern projects.[3] Dubai is a particular hub of this activity. The chief executive of oil services company Halliburton has recently opted to relocate at least part of the company’s corporate and executive headquarters from Houston to Dubai. Other prospective buyers of property in the emirate include Oracle, Cisco and Microsoft.[4]
Indeed, Dubai has made itself fertile ground for a Western economic presence with its free trade zones, in which companies are not held to the standard UAE requirement that all entities be majority-owned by a UAE national. Various information technology firms, investment banks and media corporations have holed themselves up in these territories, and officials expect finance alone to quadruple its contribution to the emirate’s GDP to $15 billion by 2015.[5]
Low tariffs, low currency risk, the absence of restrictions on repatriation of profits, a small national bureaucracy, and UAE laws that forbid corporate and sales taxes helped the number of Greenfield projects [certain types of investment ventures] within Dubai alone to rise from 88 in 2002 to 215 in 2005. As such, non-oil growth has average 10.6% annually over the past five years. [6] In turn, state-oriented investment facilities such as Dubai International Capital, Istithmar [investment holding company] and DIFC Investments have taken stakes in HSBC, Standard Chartered Bank, Blackstone [private equity fund] and Deutsche Bank.
Qatar is following in Dubai’s footsteps, announcing on July 16, 2007 the unification of its regulatory system, and its intention to rewrite outdated legal codes for commercial and financial transactions that may act as barriers to entry for international firms.
On a smaller scale, many US companies are moving into the region to bolster the sugar industry, which has had to quickly develop after the World Trade Organization capped exports of sugar from the EU in July, 2006. With the Gulf’s large number of transport vessels, it is a magnet for much of the half-billion dollars being invested in sugar output production.
A Mastercard survey also indicated that consumer confidence in the region is at an all time high, and so spending is soaring in Kuwait, Saudi Arabia, Qatar and the UAE. Owing to this and the decline of the dollar, to which all of the Gulf currencies are pegged with the exception of Kuwait’s, some American products are getting a boost. For instance, June was the best month for General Motors in the Persian Gulf because its cars were enjoying an advantage over Japanese and European cars.[7] If the spending trend continues, other Western manufacturing may be pulled into the Gulf’s orbit.
Expanding Horizons
While Western banking, financial and information technology industries are rapidly being drawn to the Gulf countries, Gulf investment is not necessarily giving preferential treatment to the Western hemisphere that has largely responsible for its explosion of financial power.
While it is true that various emirate companies invested $3.5 billion in the US last year[8], many of those same companies are also shifting their interest to Asian markets on account of the falling dollar and for the sake of diversification:
- Dubai International Capital and DIFC Investments are working to extend their reach into Pakistan, India and South Korea.
- Istithmar’s real estate arm, which is part of the Dubai World group of companies, plans to increase the 5% of its assets it has invested in Asia to 30% within five years.[9]
- The Dubai government firm Emaar is responsible for the housing boom taking place across Asia, most recently securing a deal to construct a 1,200-hectare project, set on the pristine Mandalika Beach, estimated at $600 million in worth.[10]
- Remaining oil exports in the Dubai are being used to help launch the Dubai Mercantile Exchange, a joint venture with Nymex that is to create a futures market for Mideast crude oil exported to Asia.
- Dubai Ports World, in its attempt to double its capacity in 10 years, is developing terminals in China, India, Vietnam and Pakistan.
There has also been a trend of increased cross-border investment within the Gulf and larger MENA regions. Part of the reason behind this trend is a post-9/11 sentiment in the Arab world that the West, and especially the US, is unwelcoming of Arab investment. This fear did not seem entirely unfounded in 2006, when the House of Representatives passed legislation forbidding Dubai Ports World from gaining operations of ports in major American cities, citing that al-Qa’ida funding had passed through UAE banks, albeit unbeknownst to the government, prior to 9/11. [This caused a showdown between Congress and the White House, which supported the deal, and much controversy ensued.]
As an example, construction company Emaar’s most recent press releases discuss not Western development, but a $500 million deal to build Samara Dead Sea Golf and Beach resort in Jordan, and a memorandum on understanding with a Saudi energy company on plans for the construction of an open-cycle gas turbine power plant for King Abdullah Economic City in Saudi Arabia.
Mergers and Acquisitions
Arabic satellite television has allowed Gulf companies to develop strong regional brands, and then take their business to a global level. The substantial revenues produced by this trend have enabled more mergers and acquisitions to take place. For example, Qatar Telecommunications Co. paid $3.7 billion for a 51% stake in Kuwait’s National Mobile Telecommunications Co., while Abraaj Capital, MENA’s largest private equity firm, paid around $1.4 billion for Egypt’s largest private sector fertilizer manufacturer.[11]
The Gulf’s stepped up trans-shipment and trading hub status means that it is also increasing its trading links with Iran. Each year, chemicals, oil production equipment and computer technology enter into Iran via the UAE, and especially the ports of Dubai. This, in theory, assists Iran in its quest to develop its industry and become more economically autonomous. The US also suspects that some equipment transshipped through Dubai ports may have been used by Iran for its nuclear program.
Conclusion
These investment patterns place the Gulf region, and especially Dubai, in a unique position. As relationships increase in number and depth within certain markets, namely Iran and China, diplomatic ties with Washington and Europe will probably occasionally feel a squeeze.
Sovereign wealth funds are set to grow in the short and medium-term at least, and as they do so it is inevitable that the economic sway held by Gulf countries, by nature of their voracious appetite for foreign investment, will increase dramatically. Of course, there will be repercussions to this new scheme of sovereign investment. But one should expect Western industries, especially financial services, to continue to converge upon and cater to the burgeoning market of the Gulf. At the same time, Asian markets—especially real-estate sectors—will be able to count on continued attention from oil-producing asset powerhouses such as Dubai.
[1] Countries with the top-ten largest sovereign wealth funds include, in descending order: UAE, Singapore, Norway, Saudi Arabia, China, Kuwait, Australia, United States, Qatar and Russia.
[2] The Economist. “Sovereign-wealth funds: The world’s most expensive club”. May 26, 2007.
[3] The Wall Street Journal. “Boom in Investment Powers Mideast Growth”. July 19, 2007.
[4] Financial Times. “Drilling minds: Dubai’s ruler has big ideas for his little city-state”. May 4, 2007.
[5] Financial Times. “Emirate sets its sights on trebled GDP by 2015”. July 24, 2007.
[6] The Middle East. “The Success Story Surges Onwards and Upwards”. June, 2007.
[7] al-Riyadh. Saudi Arabia, August 7, 2007.
[8] Financial Times. “Drilling minds: Dubai’s ruler has big ideas for his little city-state”. May 4, 2007.
[9] Financial Times. “’Bubble economy’ defies gravity”. July 24, 2007.
[10] Asia Property Report. “Lombok lifted by Emaar project”. July 23, 2007.
[11] The Wall Street Journal. “Boom in Investment Powers Mideast Growth”. July 19, 2007.
Changing Patterns of Investment in the Gulf Region: The Case of Dubai
Bianca Gersten* - taken from memrieconomicblog
The massive increase in oil revenues in most of the six members of the Gulf Cooperation Council (GCC)—Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Oman and Kuwait—has created unprecedented opportunities for the building of infrastructure, the provision of social services and, at the same time, for investments overseas.
These investments have been channeled through two principal pipelines—acquisition of assets and the purchase of shares in high quality financial and industrial firms. According to the London daily al-Sharq al-Awsat of August 13, the Gulf countries have channeled $140 billion into overseas investments in the last three years. In a relatively short time, some of the Gulf countries have become respectable actors on the international financial scene.
At the same time, a hospitable investment environment, the privatization of state-owned entities and the prospects of mutually profitable deals have attracted a massive influx of Western financial services and industry to the Gulf region. The opening of the real estate market for foreign investors, particularly in Dubai, has created a massive construction boom which is fueling economic growth at a rapid rate.
The purpose of this article is to shed light on the investment activities of Dubai, and how an enlightened and entrepreneurial leadership has turned what was a small desert outpost just a few decades ago into a bustling metropolis with a vigorous economy that is subject to both envy and emulation.
Increased Investment Power
Economies in the Middle East and North Africa [MENA] in general have grown by more than 5% in each of the last three years on account of substantial oil revenues. As the main suppliers of oil in the region, the Gulf countries—and, chiefly among them, the United Arab Emirates [UAE]—have experienced unprecedented levels of growth.
In contrast to the earlier oil booms of the 1970’s and 1980’s, however, these countries are not squandering their oil revenues on spending sprees, but rather are focusing on diversifying their assets and buttressing their fiscal solvency through massive investment schemes.
Dubai, one of the seven emirates that make up the UAE, in particular, exemplifies the investment trends of the Middle East, mostly on account of the fact that it is an investment powerhouse out of necessity. The emirate seeks to open itself to and extend its reach within international markets in order to hedge any risk it faces due to the steady decline of its oil and gas reserves, which are expected to reach depletion within twenty years. Dubai currently has a strong penchant for the real-estate sector, but is learning to thoroughly diversify its assets in its search for some high-yielding financial instruments.
Large current account surpluses have allowed much of this investment to take place through sovereign funds, which, in the past, were traditionally held only to protect domestic currencies and banks. Sovereign fund investment is a trend not limited to Gulf countries; the global total of sovereign funds[1] may be $2.5 trillion by the end of this year, and could reach $12 trillion by 2015 on account of capital appreciation.[2] Sovereign wealth funds may soon become the most important buyers of stocks and bonds, and oil countries account for about two-thirds of such assets globally.
[www.memrieconomicblog.org will soon present a more detailed discussion of sovereign fund investment and some possible complications of their proliferation.]
Attracting Western Industries
The current generation of economic and industry ministers in the Gulf region is largely composed of men who began their careers in the private sector. This correlates with efforts in almost all MENA countries to increase the privatization of state-owned entities in an attempt to create an “open market” atmosphere. As the Middle East daily al-Sharq al-Awsat reported on August 8, 2007, an international investment firm in Kuwait noted that privatization trends in Gulf countries—which are competing amongst themselves to become the next global “financial capitol”—are reflected in the flow of private capital into publicly traded stocks and other financial instruments. In 2006 this amount totaled $7.07 billion, which was a 61.6% increase over the previous year.
As regional investment levels skyrocket, from both private and public sources, local private investment funds are scrambling to attain access to European and American markets so that shareholders can enjoy even higher returns on their assets. In the end, this has pulled many Western services and industries, attracted to the copious amount of funds that proximity to potential investors can yield, into the Gulf region.
The Carlyle Group LP says that the Middle East is now the “hot spot” for private equity deals, and HSBC reports that as much as one third of all project finance involves Middle Eastern projects.[3] Dubai is a particular hub of this activity. The chief executive of oil services company Halliburton has recently opted to relocate at least part of the company’s corporate and executive headquarters from Houston to Dubai. Other prospective buyers of property in the emirate include Oracle, Cisco and Microsoft.[4]
Indeed, Dubai has made itself fertile ground for a Western economic presence with its free trade zones, in which companies are not held to the standard UAE requirement that all entities be majority-owned by a UAE national. Various information technology firms, investment banks and media corporations have holed themselves up in these territories, and officials expect finance alone to quadruple its contribution to the emirate’s GDP to $15 billion by 2015.[5]
Low tariffs, low currency risk, the absence of restrictions on repatriation of profits, a small national bureaucracy, and UAE laws that forbid corporate and sales taxes helped the number of Greenfield projects [certain types of investment ventures] within Dubai alone to rise from 88 in 2002 to 215 in 2005. As such, non-oil growth has average 10.6% annually over the past five years. [6] In turn, state-oriented investment facilities such as Dubai International Capital, Istithmar [investment holding company] and DIFC Investments have taken stakes in HSBC, Standard Chartered Bank, Blackstone [private equity fund] and Deutsche Bank.
Qatar is following in Dubai’s footsteps, announcing on July 16, 2007 the unification of its regulatory system, and its intention to rewrite outdated legal codes for commercial and financial transactions that may act as barriers to entry for international firms.
On a smaller scale, many US companies are moving into the region to bolster the sugar industry, which has had to quickly develop after the World Trade Organization capped exports of sugar from the EU in July, 2006. With the Gulf’s large number of transport vessels, it is a magnet for much of the half-billion dollars being invested in sugar output production.
A Mastercard survey also indicated that consumer confidence in the region is at an all time high, and so spending is soaring in Kuwait, Saudi Arabia, Qatar and the UAE. Owing to this and the decline of the dollar, to which all of the Gulf currencies are pegged with the exception of Kuwait’s, some American products are getting a boost. For instance, June was the best month for General Motors in the Persian Gulf because its cars were enjoying an advantage over Japanese and European cars.[7] If the spending trend continues, other Western manufacturing may be pulled into the Gulf’s orbit.
Expanding Horizons
While Western banking, financial and information technology industries are rapidly being drawn to the Gulf countries, Gulf investment is not necessarily giving preferential treatment to the Western hemisphere that has largely responsible for its explosion of financial power.
While it is true that various emirate companies invested $3.5 billion in the US last year[8], many of those same companies are also shifting their interest to Asian markets on account of the falling dollar and for the sake of diversification:
- Dubai International Capital and DIFC Investments are working to extend their reach into Pakistan, India and South Korea.
- Istithmar’s real estate arm, which is part of the Dubai World group of companies, plans to increase the 5% of its assets it has invested in Asia to 30% within five years.[9]
- The Dubai government firm Emaar is responsible for the housing boom taking place across Asia, most recently securing a deal to construct a 1,200-hectare project, set on the pristine Mandalika Beach, estimated at $600 million in worth.[10]
- Remaining oil exports in the Dubai are being used to help launch the Dubai Mercantile Exchange, a joint venture with Nymex that is to create a futures market for Mideast crude oil exported to Asia.
- Dubai Ports World, in its attempt to double its capacity in 10 years, is developing terminals in China, India, Vietnam and Pakistan.
There has also been a trend of increased cross-border investment within the Gulf and larger MENA regions. Part of the reason behind this trend is a post-9/11 sentiment in the Arab world that the West, and especially the US, is unwelcoming of Arab investment. This fear did not seem entirely unfounded in 2006, when the House of Representatives passed legislation forbidding Dubai Ports World from gaining operations of ports in major American cities, citing that al-Qa’ida funding had passed through UAE banks, albeit unbeknownst to the government, prior to 9/11. [This caused a showdown between Congress and the White House, which supported the deal, and much controversy ensued.]
As an example, construction company Emaar’s most recent press releases discuss not Western development, but a $500 million deal to build Samara Dead Sea Golf and Beach resort in Jordan, and a memorandum on understanding with a Saudi energy company on plans for the construction of an open-cycle gas turbine power plant for King Abdullah Economic City in Saudi Arabia.
Mergers and Acquisitions
Arabic satellite television has allowed Gulf companies to develop strong regional brands, and then take their business to a global level. The substantial revenues produced by this trend have enabled more mergers and acquisitions to take place. For example, Qatar Telecommunications Co. paid $3.7 billion for a 51% stake in Kuwait’s National Mobile Telecommunications Co., while Abraaj Capital, MENA’s largest private equity firm, paid around $1.4 billion for Egypt’s largest private sector fertilizer manufacturer.[11]
The Gulf’s stepped up trans-shipment and trading hub status means that it is also increasing its trading links with Iran. Each year, chemicals, oil production equipment and computer technology enter into Iran via the UAE, and especially the ports of Dubai. This, in theory, assists Iran in its quest to develop its industry and become more economically autonomous. The US also suspects that some equipment transshipped through Dubai ports may have been used by Iran for its nuclear program.
Conclusion
These investment patterns place the Gulf region, and especially Dubai, in a unique position. As relationships increase in number and depth within certain markets, namely Iran and China, diplomatic ties with Washington and Europe will probably occasionally feel a squeeze.
Sovereign wealth funds are set to grow in the short and medium-term at least, and as they do so it is inevitable that the economic sway held by Gulf countries, by nature of their voracious appetite for foreign investment, will increase dramatically. Of course, there will be repercussions to this new scheme of sovereign investment. But one should expect Western industries, especially financial services, to continue to converge upon and cater to the burgeoning market of the Gulf. At the same time, Asian markets—especially real-estate sectors—will be able to count on continued attention from oil-producing asset powerhouses such as Dubai.
[1] Countries with the top-ten largest sovereign wealth funds include, in descending order: UAE, Singapore, Norway, Saudi Arabia, China, Kuwait, Australia, United States, Qatar and Russia.
[2] The Economist. “Sovereign-wealth funds: The world’s most expensive club”. May 26, 2007.
[3] The Wall Street Journal. “Boom in Investment Powers Mideast Growth”. July 19, 2007.
[4] Financial Times. “Drilling minds: Dubai’s ruler has big ideas for his little city-state”. May 4, 2007.
[5] Financial Times. “Emirate sets its sights on trebled GDP by 2015”. July 24, 2007.
[6] The Middle East. “The Success Story Surges Onwards and Upwards”. June, 2007.
[7] al-Riyadh. Saudi Arabia, August 7, 2007.
[8] Financial Times. “Drilling minds: Dubai’s ruler has big ideas for his little city-state”. May 4, 2007.
[9] Financial Times. “’Bubble economy’ defies gravity”. July 24, 2007.
[10] Asia Property Report. “Lombok lifted by Emaar project”. July 23, 2007.
[11] The Wall Street Journal. “Boom in Investment Powers Mideast Growth”. July 19, 2007.
Changing Patterns of Investment in the Gulf Region: The Case of Dubai
Bianca Gersten* - taken from memrieconomicblog
28.8.07
Emirates Post issues stamps to mark 30 years of Emirates Bank
Emirates Post has issued a set of commemorative stamps to celebrate 30 years of Emirates Bank, one of the UAE's leading banks. The stamps, issued in four denominations (Dh 1, Dh1.50, Dh3 and Dh3.50), are available at all post offices in the UAE. In addition, First Day Covers of Dh 10 and souvenir sheets of Dh 15 are available at the philatelic counters in Karama, Deira and Abu Dhabi post offices.
Abdulla Al Daboos, Director General of Emirates Post, said, "Emirates Bank has made a strong mark on the region's banking sector. In just 30 years, it has emerged as one of the major banking corporations with diversified products, making an effective contribution to the nation's growth. Emirates Post is pleased to salute Emirates Bank through these special stamps." Emirates Bank was established 30 years ago through a decree issued by Sheikh Rashid Bin Saeed Al Maktoum under the name Union Bank of the Middle East, which was later renamed Emirates Bank International, following its merger with Dubai Bank Ltd and Emirates National Bank Ltd. Sulaiman Al Mazroui, Chief Manager Group Affairs, Emirates Bank, said, "We highly appreciate that Emirates Post has issued commemorative stamps to mark Emirates Bank 30th anniversary celebrations. We are proud that we have been successful over these years and have grown from a small local bank into one of the largest and most profitable financial institutions in the region".
Today, Emirates Bank's range of products and services encompasses conventional and Islamic commercial banking, investment services, property development, insurance, credit card and brokerage services. The bank's network covers regional and international markets, including Riyadh, London, Tehran, Mumbai and Singapore. The bank has also established strategic alliances by acquiring a stake in Bank of Beirut and Al Baraka Banking Group.
Emirates Bank has also been active in launching major business initiatives to boost the national economy and has taken part in the financing of the nation's major projects. It also launched the Al Tomooh Scheme for financing young entrepreneurs, as well as supported different educational, philanthropic, sporting and cultural activities. (Emirates News Agency, WAM)
Abdulla Al Daboos, Director General of Emirates Post, said, "Emirates Bank has made a strong mark on the region's banking sector. In just 30 years, it has emerged as one of the major banking corporations with diversified products, making an effective contribution to the nation's growth. Emirates Post is pleased to salute Emirates Bank through these special stamps." Emirates Bank was established 30 years ago through a decree issued by Sheikh Rashid Bin Saeed Al Maktoum under the name Union Bank of the Middle East, which was later renamed Emirates Bank International, following its merger with Dubai Bank Ltd and Emirates National Bank Ltd. Sulaiman Al Mazroui, Chief Manager Group Affairs, Emirates Bank, said, "We highly appreciate that Emirates Post has issued commemorative stamps to mark Emirates Bank 30th anniversary celebrations. We are proud that we have been successful over these years and have grown from a small local bank into one of the largest and most profitable financial institutions in the region".
Today, Emirates Bank's range of products and services encompasses conventional and Islamic commercial banking, investment services, property development, insurance, credit card and brokerage services. The bank's network covers regional and international markets, including Riyadh, London, Tehran, Mumbai and Singapore. The bank has also established strategic alliances by acquiring a stake in Bank of Beirut and Al Baraka Banking Group.
Emirates Bank has also been active in launching major business initiatives to boost the national economy and has taken part in the financing of the nation's major projects. It also launched the Al Tomooh Scheme for financing young entrepreneurs, as well as supported different educational, philanthropic, sporting and cultural activities. (Emirates News Agency, WAM)
26.8.07
Dubai to Pay $5.1 Billion for MGM, Vegas Hotel Stakes
Dubai to Pay $5.1 Billion for MGM, Vegas Hotel Stakes
Dubai will invest as much as $5.1 billion in Kirk Kerkorian's MGM Mirage, giving the Las Vegas casino company a partner as it expands into real estate.
The investment helps the 90-year-old Kerkorian, who owns 54 percent of MGM, branch into hotels and condominiums as the company pursues wealthy travelers around the world. It adds to Dubai's $13.5 billion in planned acquisitions this year as the Persian Gulf state spends cash from an oil-fueled economic boom.
MGM ``is talking to partners who can help them transition from a heavy, capital-intensive business to a management business,'' said Chris Wiles, portfolio manager at Allegiant Asset Management in Pittsburgh, which owns about 300,000 MGM shares. In Dubai, ``they've got some willing-and-able buyers.''
Dubai World, owned by the government, said today that it will pay $84 each for as many as 28.4 million shares of MGM, 13 percent more than yesterday's closing price. It will invest $2.7 billion for a stake in CityCenter, a hotel and casino complex in Las Vegas, and MGM will use the cash to pay down debt.
``One of the issues that concerned me was the size of our debt'' to build CityCenter, a $7.4 billion project set to open in 2009, MGM Chief Executive Officer Terry Lanni said today. Dubai's cash will shave $3.9 billion off MGM's liabilities, he said.
MGM advanced $6.62, or 8.9 percent, to $80.94 at 4 p.m. in New York Stock Exchange composite trading for the biggest gain since May. The stock has more than doubled in the past 12 months.
Tender Offer
Dubai will purchase half the 9.5 percent stake from MGM's treasury and half from other investors via a public tender offer. Standard & Poor's Ratings Services said it may upgrade the BB rating on MGM's debt because of Dubai World's investment.
The price ``is a bargain for Dubai,'' said Larry Klatzkin, an analyst at Jefferies & Co. in New York, who has a ``buy'' rating on MGM stock and a target price of $112. ``Dubai is a passive and positive investor.''
MGM, the world's second-largest casino company, owns the Mirage, Luxor and Bellagio among its properties on the Las Vegas Strip. Its second-quarter profit more than doubled on increased condominium sales and higher spending at resorts.
Kerkorian, who was an investor in the Metro-Goldwyn-Mayer Inc. movie studio in the 1970s, bought and sold the studio three times over the years. In 1981, he opened the MGM Grand casino, building it into the world's largest, and in 2000 acquired Mirage Resorts Inc., owner of the Bellagio, for $6.4 billion.
Kerkorian Offer
In November, Kerkorian offered to buy as many as 15 million MGM shares for $55 each in a tender offer. The announcement drove the stock 16 percent higher. He ultimately purchased fewer than 450,000 shares.
In May, Kerkorian said he was considering ``alternatives'' for his stake in MGM, triggering a wave of interest in the company and sending the shares up 37 percent. A month later, he abandoned those plans, damping speculation that the company would be sold.
``It's very telling that Kerkorian didn't sell anything,'' Wiles said. ``He thinks it's a company headed in the right direction.''
Dubai will pay MGM an additional $100 million if the CityCenter project is completed on time and on budget. It also has an option to raise its MGM holding to 20 percent, and ``would like to go there once our gaming board approvals come,'' Dubai World Chairman Sultan Ahmed Bin Sulayem said in an interview.
High-End Market
``MGM is the No.1 entertainment company in Las Vegas,'' bin Sulayem said today. ``We're attracted to the high-end hotels market, and Las Vegas is high-end and high-growth.''
Gambling revenue on the Las Vegas Strip, the city's main casino corridor, climbed 5.9 percent to $6.75 billion for the year that ended July, according to the State of Nevada Gaming Control Board. That followed a 15 percent gain a year earlier.
MGM owns and operates 17 casinos in Nevada, Mississippi and Michigan and is involved in three joint ventures. Harrah's Entertainment Inc. is the biggest casino company by revenue.
Dubai World manages a range of businesses for the government, including the palm tree-shaped islands off the Gulf emirate's coastline. It owns container-port operator DP World and private-equity firm Istithmar, which this month paid $942.3 million to buy Barneys New York from Jones Apparel Group Inc.
Dubai's investment in MGM will give the casino company access to the wealthy Middle Eastern, Indian and Russian real- estate investors who are buying property in Dubai World's developments. They may also be interested in Las Vegas condominiums, Lanni said.
Marketing Potential
``We see a lot of cross marketing possibilities,'' he said, adding that MGM may eventually develop its own projects in Dubai.
Gambling is banned in the United Arab Emirates and Gulf states including Saudi Arabia and Kuwait because it contravenes Islamic Shariah law.
Through Istithmar, Dubai World owns 13 percent of Kerzner International Ltd., according to its Web site. Kerzner owns the Atlantis resort in its hometown of Paradise Island, Bahamas, and is building another in Dubai. Kerzner also will jointly develop a resort on the Las Vegas Strip with MGM.
``Through our Kerzner investment we're already into gambling, so this shouldn't come as a surprise,'' bin Sulayem said today. ``The important thing is that MGM's non-gambling revenue is rising.''
MGM is expanding into real-estate development and standalone hotels without casinos in Nevada, China and Abu Dhabi in the United Arab Emirates. The company owns 760 acres (308 hectares) on the Las Vegas strip and has contributed 40 acres to a joint venture with Kerzner International Ltd.
It was through the company's chairman, Sol Kerzner, that bin Sulayem approached MGM about buying a stake, Lanni said in an interview. The first talks were held in June on the Italian island of Sardinia, where both Lanni and bin Sulayem were attending a party hosted by billionaire investor Thomas Barrack.
The MGM deal is being made through Infinity World Development Corp., a new unit set up for that purpose.
Credit Suisse Securities was Dubai World's financial adviser. UBS Investment Bank advised MGM.
Selected from a report by Oliver Staley and Will McSheehy
Dubai will invest as much as $5.1 billion in Kirk Kerkorian's MGM Mirage, giving the Las Vegas casino company a partner as it expands into real estate.
The investment helps the 90-year-old Kerkorian, who owns 54 percent of MGM, branch into hotels and condominiums as the company pursues wealthy travelers around the world. It adds to Dubai's $13.5 billion in planned acquisitions this year as the Persian Gulf state spends cash from an oil-fueled economic boom.
MGM ``is talking to partners who can help them transition from a heavy, capital-intensive business to a management business,'' said Chris Wiles, portfolio manager at Allegiant Asset Management in Pittsburgh, which owns about 300,000 MGM shares. In Dubai, ``they've got some willing-and-able buyers.''
Dubai World, owned by the government, said today that it will pay $84 each for as many as 28.4 million shares of MGM, 13 percent more than yesterday's closing price. It will invest $2.7 billion for a stake in CityCenter, a hotel and casino complex in Las Vegas, and MGM will use the cash to pay down debt.
``One of the issues that concerned me was the size of our debt'' to build CityCenter, a $7.4 billion project set to open in 2009, MGM Chief Executive Officer Terry Lanni said today. Dubai's cash will shave $3.9 billion off MGM's liabilities, he said.
MGM advanced $6.62, or 8.9 percent, to $80.94 at 4 p.m. in New York Stock Exchange composite trading for the biggest gain since May. The stock has more than doubled in the past 12 months.
Tender Offer
Dubai will purchase half the 9.5 percent stake from MGM's treasury and half from other investors via a public tender offer. Standard & Poor's Ratings Services said it may upgrade the BB rating on MGM's debt because of Dubai World's investment.
The price ``is a bargain for Dubai,'' said Larry Klatzkin, an analyst at Jefferies & Co. in New York, who has a ``buy'' rating on MGM stock and a target price of $112. ``Dubai is a passive and positive investor.''
MGM, the world's second-largest casino company, owns the Mirage, Luxor and Bellagio among its properties on the Las Vegas Strip. Its second-quarter profit more than doubled on increased condominium sales and higher spending at resorts.
Kerkorian, who was an investor in the Metro-Goldwyn-Mayer Inc. movie studio in the 1970s, bought and sold the studio three times over the years. In 1981, he opened the MGM Grand casino, building it into the world's largest, and in 2000 acquired Mirage Resorts Inc., owner of the Bellagio, for $6.4 billion.
Kerkorian Offer
In November, Kerkorian offered to buy as many as 15 million MGM shares for $55 each in a tender offer. The announcement drove the stock 16 percent higher. He ultimately purchased fewer than 450,000 shares.
In May, Kerkorian said he was considering ``alternatives'' for his stake in MGM, triggering a wave of interest in the company and sending the shares up 37 percent. A month later, he abandoned those plans, damping speculation that the company would be sold.
``It's very telling that Kerkorian didn't sell anything,'' Wiles said. ``He thinks it's a company headed in the right direction.''
Dubai will pay MGM an additional $100 million if the CityCenter project is completed on time and on budget. It also has an option to raise its MGM holding to 20 percent, and ``would like to go there once our gaming board approvals come,'' Dubai World Chairman Sultan Ahmed Bin Sulayem said in an interview.
High-End Market
``MGM is the No.1 entertainment company in Las Vegas,'' bin Sulayem said today. ``We're attracted to the high-end hotels market, and Las Vegas is high-end and high-growth.''
Gambling revenue on the Las Vegas Strip, the city's main casino corridor, climbed 5.9 percent to $6.75 billion for the year that ended July, according to the State of Nevada Gaming Control Board. That followed a 15 percent gain a year earlier.
MGM owns and operates 17 casinos in Nevada, Mississippi and Michigan and is involved in three joint ventures. Harrah's Entertainment Inc. is the biggest casino company by revenue.
Dubai World manages a range of businesses for the government, including the palm tree-shaped islands off the Gulf emirate's coastline. It owns container-port operator DP World and private-equity firm Istithmar, which this month paid $942.3 million to buy Barneys New York from Jones Apparel Group Inc.
Dubai's investment in MGM will give the casino company access to the wealthy Middle Eastern, Indian and Russian real- estate investors who are buying property in Dubai World's developments. They may also be interested in Las Vegas condominiums, Lanni said.
Marketing Potential
``We see a lot of cross marketing possibilities,'' he said, adding that MGM may eventually develop its own projects in Dubai.
Gambling is banned in the United Arab Emirates and Gulf states including Saudi Arabia and Kuwait because it contravenes Islamic Shariah law.
Through Istithmar, Dubai World owns 13 percent of Kerzner International Ltd., according to its Web site. Kerzner owns the Atlantis resort in its hometown of Paradise Island, Bahamas, and is building another in Dubai. Kerzner also will jointly develop a resort on the Las Vegas Strip with MGM.
``Through our Kerzner investment we're already into gambling, so this shouldn't come as a surprise,'' bin Sulayem said today. ``The important thing is that MGM's non-gambling revenue is rising.''
MGM is expanding into real-estate development and standalone hotels without casinos in Nevada, China and Abu Dhabi in the United Arab Emirates. The company owns 760 acres (308 hectares) on the Las Vegas strip and has contributed 40 acres to a joint venture with Kerzner International Ltd.
It was through the company's chairman, Sol Kerzner, that bin Sulayem approached MGM about buying a stake, Lanni said in an interview. The first talks were held in June on the Italian island of Sardinia, where both Lanni and bin Sulayem were attending a party hosted by billionaire investor Thomas Barrack.
The MGM deal is being made through Infinity World Development Corp., a new unit set up for that purpose.
Credit Suisse Securities was Dubai World's financial adviser. UBS Investment Bank advised MGM.
Selected from a report by Oliver Staley and Will McSheehy
22.8.07
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
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
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
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
23.7.07
MENA private equity Continues to show robust growth
MENA private equity Continues to show robust growth
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. 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 towards 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 US$13bn 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 US$7,075mn. This has increased by 61.6% from its level in 2005 of US$4,379mn.
Sizes of private equity funds in the MENA region have also exhibited an increase, where total fund sizes have reached the US$14bn mark, and as of June 2007 fund sizes is at US9bn. These are significant developments in the MENA private equity sector given that total fund sizes was at US$78mn 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 US$12,717mn, 40.6% 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% of total value of funds. Fully vested private equity funds in the MENA have a combined total of US$629mn, 2% of total fund sizes, while funds that are in the liquidation process are only 2, and they have a combined value of US$58mn. 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 US$3,842mn, which constitutes 12.3% of the total fund sizes of private equity funds in the region. Closed funds, on the other hand, constitute a mere 1.8% of the total size of private equity funds in the MENA region with a combined value of US$554mn.
The private equity industry in the MENA region does not only seek investment opportunities in the region. Private equity managers have also been tracing absolute returns worldwide, given the maturities of the US and UK markets, and the ample of opportunities in Asia, particularly China and India. It is also important to mention that the private equity in the MENA region is relatively a new phenomenon compared with the US and Europe, hence, the reluctance of family owned business to sell the interests in the companies is still widespread. It is only recently that individuals came to grip with the concept of “going public” and the advantages it has within its folds.
MENA private equity deals in the MENA region conducted by private equity managers domiciled in MENA, it is evident that the combined total of deals were focused on Egypt with 61.6% share of total deals in 2006 and 2007. The United Arab Emirates was the next country of attraction to private equity deals in 2006 and 2007 where 15.3% of total deals flows were directed to that country, followed by KSA at 10.3%, Bahrain at 4.3%, Kuwait 2.1%, Jordan 1.3%, and the rest of the MENA region drew less than 1% each in private equity deals from local fund managers.
The basic materials sector took the largest share of private equity deals in terms of value in 2006 and 2007 combined. The real estate sector attracted 16.4% private equity capital from MENA private equity managers. A lot of activity characterized the real estate sector in terms of private equity deals targeting the said sector where a total of 16 private equity deals were closed in 2006 and 2007. The financial services sector was also a favorite destination for MENA private equity managers. A total of 19 deals were done during the years 2006 and 2007 with a total value of US$1.7bn for disclosed deals.
There are a limited number of exit strategies for private equity investments, namely through Initial Public Offerings (IPO), through the sale of the private equity manager’s stakes to other asset managers or individuals, and through mergers and acquisitions. As far as the MENA private equity is concerned, it is important to realize that the aforementioned industry is still in its early stages and hence very few transactions have been “exited”. The Annual report by GVCA and KPMG on MENA private equity 2006 indicates that only 5% (US$0.3bn) of deals since 1998 have been realized on exit. It is now that we expect some private equity deals have reached the maturity stage and private equity managers will be looking at ways they can exit these investments with highest returns feasible. A very important factor that has helped the private equity managers realize impressive returns on their investments is the vibrant IPO market in the MENA region.
As mentioned above, the governments in the MENA region in general, and the GCC in particular, have taken massive efforts to regulate their financial markets and enhance the privatization efforts. This have reflected positively on the IPO market in the MENA where demand for new offerings by local and regional investors continues to outstrip supply, and all IPO’s have been oversubscribed by several folds. Going forward. It is expected that the charged IPO momentum in the GCC will proceed, albeit not with the same vigor experienced in 2005. Nevertheless, the general trend indicates a vibrant IPO market in the GCC, which consequently prepares the playground for private equity managers to exit their investments that are fast reaching their maturity stages.
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. 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 towards 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 US$13bn 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 US$7,075mn. This has increased by 61.6% from its level in 2005 of US$4,379mn.
Sizes of private equity funds in the MENA region have also exhibited an increase, where total fund sizes have reached the US$14bn mark, and as of June 2007 fund sizes is at US9bn. These are significant developments in the MENA private equity sector given that total fund sizes was at US$78mn 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 US$12,717mn, 40.6% 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% of total value of funds. Fully vested private equity funds in the MENA have a combined total of US$629mn, 2% of total fund sizes, while funds that are in the liquidation process are only 2, and they have a combined value of US$58mn. 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 US$3,842mn, which constitutes 12.3% of the total fund sizes of private equity funds in the region. Closed funds, on the other hand, constitute a mere 1.8% of the total size of private equity funds in the MENA region with a combined value of US$554mn.
The private equity industry in the MENA region does not only seek investment opportunities in the region. Private equity managers have also been tracing absolute returns worldwide, given the maturities of the US and UK markets, and the ample of opportunities in Asia, particularly China and India. It is also important to mention that the private equity in the MENA region is relatively a new phenomenon compared with the US and Europe, hence, the reluctance of family owned business to sell the interests in the companies is still widespread. It is only recently that individuals came to grip with the concept of “going public” and the advantages it has within its folds.
MENA private equity deals in the MENA region conducted by private equity managers domiciled in MENA, it is evident that the combined total of deals were focused on Egypt with 61.6% share of total deals in 2006 and 2007. The United Arab Emirates was the next country of attraction to private equity deals in 2006 and 2007 where 15.3% of total deals flows were directed to that country, followed by KSA at 10.3%, Bahrain at 4.3%, Kuwait 2.1%, Jordan 1.3%, and the rest of the MENA region drew less than 1% each in private equity deals from local fund managers.
The basic materials sector took the largest share of private equity deals in terms of value in 2006 and 2007 combined. The real estate sector attracted 16.4% private equity capital from MENA private equity managers. A lot of activity characterized the real estate sector in terms of private equity deals targeting the said sector where a total of 16 private equity deals were closed in 2006 and 2007. The financial services sector was also a favorite destination for MENA private equity managers. A total of 19 deals were done during the years 2006 and 2007 with a total value of US$1.7bn for disclosed deals.
There are a limited number of exit strategies for private equity investments, namely through Initial Public Offerings (IPO), through the sale of the private equity manager’s stakes to other asset managers or individuals, and through mergers and acquisitions. As far as the MENA private equity is concerned, it is important to realize that the aforementioned industry is still in its early stages and hence very few transactions have been “exited”. The Annual report by GVCA and KPMG on MENA private equity 2006 indicates that only 5% (US$0.3bn) of deals since 1998 have been realized on exit. It is now that we expect some private equity deals have reached the maturity stage and private equity managers will be looking at ways they can exit these investments with highest returns feasible. A very important factor that has helped the private equity managers realize impressive returns on their investments is the vibrant IPO market in the MENA region.
As mentioned above, the governments in the MENA region in general, and the GCC in particular, have taken massive efforts to regulate their financial markets and enhance the privatization efforts. This have reflected positively on the IPO market in the MENA where demand for new offerings by local and regional investors continues to outstrip supply, and all IPO’s have been oversubscribed by several folds. Going forward. It is expected that the charged IPO momentum in the GCC will proceed, albeit not with the same vigor experienced in 2005. Nevertheless, the general trend indicates a vibrant IPO market in the GCC, which consequently prepares the playground for private equity managers to exit their investments that are fast reaching their maturity stages.
Abonohu te:
Postimet (Atom)