The traditional way of crossing from Rabat to its twin city of Salé has been to take a rowing boat across the Bouregreg estuary that separates Morocco’s administrative capital from the old corsair town. But after centuries of cultivation, the small holdings that fill the Bouregreg estuary valley seem set to disappear, and the Rabat-Salé boatmen have been lobbying to preserve their livelihood, as the area is set for radical transformation into a multi-billion-dollar real estate development financed by investors from the United Arab Emirates, who are also tapping into local savings that have long searched for a home.
The Bouregreg experience is being replicated across the Middle East and North Africa (MENA), as the 2005-06 oil price boom is translated into a huge investment hike by the region’s wealthier countries and individuals into projects and new financial initiatives. The template established by Dubai’s glitzy commercial and leisure hub is being replicated in some unlikely destinations: there is an upsurge in Kuwaiti investment in Syria, providing just one example of Gulf investors looking to place their money in one of the MENA region’s less attractive investment targets (see The Banker, August 2006).
Investment fears
Such investment trends say much for the post-9/11 world, where many Arab investors have become deeply concerned that their funds held offshore – especially in the US and jurisdictions where its writ runs deep – may be frozen in the ‘global war on terror’, no matter how innocent of any links to ultra-radical jihadist groups they may be.
“9/11 profoundly changed the way we saw the world, as our children came under suspicion in US universities and our friends’ funds were frozen in US banks,” says one Bahrain-based banker. “Since then we have been looking to alternative investments, and some of those we’ve found closer to home.”
It is not just real estate investment that is creating a new home for Gulf money, as the opening of Gulf Co-operation Council economies to greater international banking activity is providing new opportunities. GCC central bank governors agreed earlier this year to allow national banks to open branches in all member states, to help the flow of capital as the six-member grouping prepares for its planned monetary union in 2010.
Thus during the traditionally quiet month of August it was announced that National Bank of Abu Dhabi (NBAD) would open its first branch in the long-closed Kuwaiti financial market, and also planned to move into the new Qatar Financial Centre (QFC). “Qatar and Kuwait have not been as liberal as the UAE, so entering these markets is key to our growth,” says Jamil Halabi, NBAD’s head of finance.
In Saudi Arabia, recent entrants approved by the Capital Market Authority include the Beirut-based Audi Saradar Investment Bank (ASIB), which the CMA has granted a full licence to operate as an investment bank, Audi Saudi Arabia. This follows ground broken in the kingdom by HSBC (see page 116). EFG-Hermes, which owns a minority stake in ASIB, also has a licence.
Bahrain-based Ahli United Bank (AUB), under Adel El Labban, is pushing to build its international holdings. As majority partner with the Kuwait-based Bank of Kuwait and the Middle East (BKME) it has bid for Egypt’s Delta International Bank, among other assets.
Abraaj makes its move
In late July, one of the region’s most respected institutions, Cairo-based EFG-Hermes Holdings, agreed to an offer from UAE-based Abraaj Capital to buy into it, via a 25% capital increase. The Cairo and Alexandria Stock Exchange (CASE) said this would involve issuing an additional 97 million shares at £E30 per share to a wholly owned subsidiary of the Dubai-based firm, Abraaj Egypt, in a deal estimated by CASE to be worth $509.3m. EFG has a dual listing on CASE and the London Stock Exchange.
Abraaj Capital is very much the model of a modern Gulf institution, describing itself as “the first pure private equity firm licensed to operate in the Dubai International Financial Centre”, with a focus on private equity buy-outs, taking strategic minority block positions in public enterprises and real estate investments in the MENA region. It has $1.5bn of assets under management.
If approved by EFG-Hermes’ shareholders and regulatory authorities, the transaction would position Abraaj Capital as the Egyptian investment banks’ single largest shareholder. EFG-Hermes is the largest shareholder in Lebanon’s influential Bank Audi.
According to Arif Naqvi, chief executive and executive vice-chairman, it represents “a strategic and long-term investment for Abraaj [which] shows our confidence and commitment to the future of the Middle East”. He says: “The strategy moving forward will be to catalyse and accelerate the regional development plan of EFG-Hermes to become the foremost integrated financial services institution in the region.” Mr Naqvi adds: “EFG’s footprint currently gives it access to 88% of the investment banking fee pot in the Middle East.”
EFG’s management has also seen the potential for growing bigger still by taking on a powerful strategic shareholder. Chief executive Hassan Heikal says: “This move is in line with EFG-Hermes’ stated strategy to aggressively expand its regional presence across all business lines, thereby creating a regional financial services powerhouse.”
The Abraaj move on EFG was announced only one month after Mustafa Abdel-Wadood became an Abraaj managing director and joined the board of directors. He was formerly EFG’s man in the UAE.
Cross-border deals
A substantial amount of financial investment is focused on real estate, which Gulf investors still understand much better than private equity and even initial public offerings (IPOs) – whose dangers were underlined by the first half 2006 regional stock market crash.
Recent examples of big cross-border deals are legion. Abu Dhabi Investment House (ADIH) and Bahrain-based Gulf Finance House (GFH) are working with the local Rakisa Holdings to develop the estimated $8bn Prince Abdul Aziz Bin Mousaed Economic City in Saudi Arabia.
ADIH, like GFH, is controlled by Bahrain’s ambitious Janahi family. According to chief executive Rashad Janahi, ADIH is investing in the kingdom because although “the home market is certainly growing and is vibrant… we believe in diversifying our investments and those of our customers and right now Saudi Arabia is the right place.”
In Qatar, ADIH and Doha-based Diar Real Estate Investment Company have signed a $1.2bn agreement to develop the totally new Lusail Entertainment District to cater for about 50,000 visitors a day. The Bahrain group also has a $1bn investment commitment in Egypt.
Further afield
Gulf banks are also looking further afield, often – but not exclusively – in other Islamic countries. Most spectacular was the move by global investor Prince Alwaleed bin Talal’s Al Azizia Commercial Investment Company, at the head of what it called “an elite group of Saudi investors”, to take a much-coveted $2bn strategic stake in Bank of China.
Mr Alwaleed is not alone in buying into Asia. Saudi giant Al-Rajhi Bank has announced plans to open dozens of branches in Malaysia. Al-Rajhi is an Islamic bank that already has a licence to operate in Malaysia. Dubai Investment Group subsidiary Dubai Financial (DF) has taken a 40% stake in Malaysia’s oldest sharia-compliant bank, BIMB’s Bank Islam Malaysia.
DF has also moved into Europe, buying 31.5% of Greece’s Marfin Financial Group, for which DIG chief executive Soud Ba’alawy will serve as chairman.
While Dubai Ports World’s efforts to take over US port facilities was famously quashed by a congressional backlash against Arab investors – which also nearly scuppered long-time western ally Oman’s much-anticipated bilateral Free Trade Agreement with the US – a stream of private equity deals are emerging from the Gulf as investors seek to place their funds.
Gulf financial institutions are apparent in deals across the world, from Qatar’s efforts to buy Thames Water to Istithmar, the investment arm of state-controlled Dubai World, buying US speciality retailer Loehmann’s Holdings from Bahrain-based private equity firm Arcapita.
Opportunities continue to open – and these will eventually include Iraq. It said much for Gulf banks’ new appetite for foreign operations when, in June, Commercial Bank of Kuwait opened its first Iraqi branch in the Kurdish city of Suleymania. According to Jamal al-Mutawwa, chief executive, CBK will focus on corporate business, with further branches planned across the Kurdish region.
