Private equity in Gulf to keep up pace

The oil price slump, the strong dollar, weaker economies and political turmoil in parts of the region will not slow down private equity in the Arabian Gulf region, experts say.

Instead, financial institutions will continue to deploy their funds and exit investments that have matured.

Many private equity managers raised money last year. Abu Dhabi-based Gulf Capital raised its third and biggest private equity fund that closed at US$750 million, bringing the firm’s total assets under management to more than $3.3 billion across its four business units: private equity; credit and mezzanine; property development; and principal investments.

NBK Capital, the investment banking arm of Kuwait’s biggest lender National Bank of Kuwait, last year closed a fund with $310m in capital. The Dubai-based private equity firm Abraaj Capital, which manages $9bn across regional, sector and country-specific funds, has raised about $1.3bn for two Africa funds, one for Sub-Saharan Africa and another for North Africa.

“Looking across the Mena [Middle East and North Africa] private equity industry, I expect 2015 to be even busier than last year,” says Mohammed Sammakia, a managing director for the UAE at the Bahrain-based alternative investment manager Investcorp. “With credit markets remaining healthy and political stability returning to countries like Egypt, we will see more firms raising more money and executing more deals.”

The overall value of new money raised in 2014 is expected to be more than the $700m achieved in 2013 and $900m in 2012, according to the Dubai-based non-profit Mena Private Equity Association (Menapea).

The Bahrain-based Sharia-compliant investment house Arcapita plans to raise funds deal by deal this year and hopes to have a $800m to $1bn fund for investments next year, says its chief executive, Atif Abdulmalik.

Richard Rollinshaw, a Dubai-based partner at PwC Middle East, says, “you have to proceed a little bit more cautiously in the short term but in the medium and long-term prospects [for private equity] are still strong.”

Gulf Capital is considering deals in the consumer, energy, logistics and infrastructure sectors and expects to strike four to six deals between private equity and credit this year, says its chief executive Karim El Solh.

Investcorp, which had $11bn in assets under management at the end of 2014, is bullish about making deals this year.

“If you look at Investcorp over the last 24 months, we have invested in 13 companies across the geographies where we operate – North America, Europe and Mena,” says Mr Sammakia. “That is about a deal every two months and is a record for the firm. We have no plans to slow down.”

The Saudi Arabia-based private equity firm Amwal Al Khaleej, which has funds in excess of $800m, could deploy as much as 500m Saudi riyals (Dh489.5m) on transactions this year and invest in two deals in the kingdom, its chief executive Fadi Arbid said last month.

Imad Ghandour, the managing director of the private equity firm CedarBridge Capital and a co-founder of Menapea, says there could be more deals because valuations have softened. “It is generally a softer economic year, so valuation expectations I suspect will be softer and therefore deals might be struck easier,” he says.

Arcapita says it aims to strike a deal in the United States by the end of this year and is targeting three to four deals next year. The US is the prime focus for private equity and the sectors of most interest are primarily logistics, industrial, consumer, energy and renewables.

As well as Saudi Arabia and the UAE, private equity houses are focusing more and more on Egypt because of renewed political stability and economic reforms.

“The outlook for Egypt is good today, yesterday and tomorrow,” says Mr Ghandour. “It is the people, the size of the market [that is attractive], and at this point at least there is a very clear economic policy and definitely there is a lot of political stability and that’s what attractive today.” CedarBridge has signed three investments this year, two in the UAE and one in Egypt.

The Cairo-based investment bank EFG Hermes is bullish about Egypt and has a healthy deal pipeline for the wider region and in Egypt, where the bank is keen to invest in energy and renewables.

“We see a lot of potential in Egypt given the turnaround and underinvestment that has been happening over the past three to four years,” says Karim Moussa, EFG Hermes’ head of private equity. The bank’s private equity division, which has assets under management of $800m, also anticipates opportunities in health care and the wider consumer arket. EFG agreed last year to buy a 49 per cent equity stake and outstanding shareholder loans in the French wind-energy company EDPR France, a unit of EDP Renewables, for $208m. EDPR France has a portfolio of 33 operational wind farms with a combined gross capacity of 334 megawatts.

“We are looking to grow our outbound investment, so raising money from the Middle East and investing in energy assets in Europe and elsewhere,” says Mr Moussa.

Even international private equity players are increasingly keen to invest in the Arabian Gulf and wider Middle East and North Africa region. Abraaj and the US private equity firm TPG have just completed a Sharia-compliant investment in the Saudi food group Kudu.

An investor group led by the Dubai-based Sharia-compliant investment firm Fajr Capital last year acquired a minority stake in the UAE-based Gems Education, alongside the Bahrain sovereign wealth fund Mumtalakat and the private equity firm Blackstone.

Companies are expected to still make exits this year, despite the slowdown in initial public offers, especially in the Gulf region. Amwal Al Khaleej expects two exits this year and EFG Hermes is looking to make about the same number of divestments in the next year or two, tailored to strategic investors, not capital markets.

“Definitely people are not under so much pressure to exit investments and will take a long-term view,” says CedarBridge’s Mr Ghandour. His views are echoed by Investcorp.

“We are not under any pressure to sell or exit due to a fund lifetime expiry date,” says Mr Sammakia. “We look for multiple avenues for growth and once this is established we explore exit avenues.”

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