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The Middle East Private Equity LandscapeKey Market Opportunities & Developments
Arif Masood NaqviExecutive Vice Chairman & CEO
20th September 2005
2
• Introduction
• Private Equity in the Middle East
• Drivers of the Private Equity Industry
• Regional Private Equity Trends
• Conclusions
3
Christopher Columbus
• Conceived of special incentives (carried interest) to take the trip to the “new world”
• All expenses paid
• 10% of all profits (no preferred return)
• 5% of all gold
• Title of Admiral for life
4
• Picked site of National Capital of the US – included land on which he held options to buy
• Worked for “expenses” only
George Washington
5
Global Private Equity Syndrome
1. Prematurely grey hair
2. Inability to remember city or country in which one is awakening
3. Persistent daze / jet lag / hoarse throat
4. Equating sleep on an airplane with real sleep
5. Inabilities to remember (or be present at) birthdays, anniversaries, or school conferences
6. Contact with new friends concerned about holding charitable dinners in your honour or naming school buildings for you
7. Frequent musings about the fairness of pre-nuptial agreements
8. Doubling of golf handicap every 6 months
9. Ability to schedule annual physical only every five years
10. Frequent spousal / child discussions about the value of sound estate planning
6
Why is there growth in this industry?
Professionals enjoy approximately 20% carry (25% - 30% in best venture funds) – flock to industry and provide product to investors
Profits Profits
Available Capital Available Capital
Regional Macro Trends
Regional Macro Trends
Returns Returns
Key Factors Description
Returns are consistently better than other investment opportunities
With public returns expected to go down in the coming years, private equity is even more attractive
IN THE END, THE RETURNS ARE THERE – THAT IS BY FAR THE KEY FACTOR
Economic disequilibriums, corporate restructuring, acceptability of selling assets, rapid technological change, and available financing – all provide private equity opportunities
Investors have an abundance of equity capital – the rise in public markets has ironically provided more capital for private equity (percentage allocation might stay same – but base is larger)
7
Performance of Private Equity
40.0%
12.7%8.4%
Top Quartile AllPrivate Equity
Mean All PrivateEquity
S & P 500
34.7%
11.7%8.7%
Top Quartile AllPrivate Equity
Mean All PrivateEquity
S & P 500
US Private Equity 10-year returns1 European Private Equity 10-year returns1
• Private equity on average has outperformed public equities benchmarks over a 10 year period by 4.3% in the US
• Top quartile managers have outperformed by a much wider margin of 31.6%
• Selection and access to top quartile funds is required to achieve superior performance
Premium of 31.6%
Premium of 26.0%
1. % annualized net IRR: Net 10-year returns for period ending 12/31/03; Net IRR is the rate of return after the exclusion of management fees, expenses and carried interest.
Source: Thomson Financial/Venture Expert and MSCI
1. % annualized net IRR: Net 10-year returns for period ending 12/31/03; Net IRR is the rate of return after the exclusion of management fees, expenses and carried interest.
Source: Thomson Financial/Venture Expert and MSCI
8
Private Equity Evolution
• Investment professionals moving abroad, taking their private equity skills with them
• Support infrastructure is changing to assist global investing (lawyers, accountants, consultants, investment bankers, commercial bankers etc)
• General acceptance in local markets of foreign based private equity firms
• Once was a Cottage Industry in the United States
• First firms were early 60’s U.S. venture firms - $10 million in capital was large (often took a year to raise that amount)
• Firms were “Mom and Pop” businesses – no succession planning
• In the 70 – 80’s, private equity spread to Europe (firms there were typically supported by large institutions or one-two investors – less entrepreneurial)
• Ever growing amount of investment by firms outside of their home
• Emergence of global, mega funds and firms
• Expansion of private equity programs by global banks, investment banks, insurers
1960’s Current
9
• Introduction
• Private Equity in the Middle East
• Drivers of the Private Equity Industry
• Regional Private Equity Trends
• Conclusions
10Note: Excludes all VC and real estate fundsSource: Gulf Venture Capital Association, Zawya, Company websites, AltAssets, Industry Interviews
There are approximately 27 PE firms in the Middle East, primarily concentrated in the UAE…
UAE:1. Abraaj Capital2. HSBC Private Equity3. Injazat Tech. Fund4. Ithmar Capital5. Shuaa Capital6. The GCC Energy Fund Managers7. The Group8. The National Investor
Lebanon:1. Middle East Capital
Group2. Capital Trust Group3. Byblos Bank
Tunisia:1. Tuninvest
Egypt:1. Citadel Capital2. EFG Hermes3. Gulf Arab Investment Co.4. Oasis Capital
Jordan:1. Foursan Group2. The Jordan Fund
Kuwait:1. Kamco2. Global Investment House3. Kuwait Financial Center
Bahrain:1. Emerging Markets
Partnership2. Gulf Finance House
Saudi:1. Amwal Al Khaleej2. Athar Al Majid Hold.3. Swicorp
India:1. Over 100 foreign PE
players operating
Morocco:1. ATLAMED SA
11Note: Excludes all VC and real estate funds Source: Gulf Venture Capital Association, Zawya, Company websites, Private Equity Online, Industry interviews
…With over 24 traditional private equity funds…
Firm Fund NameInception
DateFund Size (US$ mn) Status Geographic / Sector Focus
Abraaj Capital Abraaj Buyout Fund I 2003 116 Fully Invested MENA, South Asia, No sector focus
Abraaj Capital Abraaj Special Opportunities Fund I
2004 32.5 Profit Distribution MENA, Pre-IPO & listed equities
Amwal Al Khaleej Amwal Al Khaleej Private Equity Fund
2004 267 Investing GCC, No sector focus
Atlas Investment Group, Foursan Group
The Jordan Fund 2002 50 Investing Jordan, No sector focus
Capital Trust Middle East, Shuaa Capital
MENAVEST 1998 50 Fully Invested MENA, No sector focus
EFG Hermes Private Equity Technology Development Fund 2004 8.6 Investing Egypt, VC, Seed, & Early stage on tech & media sectors
EFG Hermes Private Equity Jordan Hi-Tech Venture Fund 2000 4.5 Fully Invested Jordan, VC& Early stage on tech & media sectors
EFG Hermes Private Equity Middle East Technology Fund 2000 25 Fully Invested MENA, VC& Early stage on tech & media sectors
EFG Hermes Private Equity Horus Private Equity Fund I LP 1997 54 Fully Invested Egypt, No sector focus
EFG Hermes Private Equity Commercial Int'l Investment Company
1994 145 Fully Invested Egypt, No sector focus
Emerging Markets Partnership (Bahrain)
IDB Infrastructure Fund L.P. 2002 950.5 Investing IDB member countries, No sector focus
Global Investment House Direct Investments Fund 2003 99 Investing Kuwait, No sector focus
12
…With over US$ 2.3 billion in total fund size
Note: Excludes all VC and real estate fundsSource: Gulf Venture Capital Association, Zawya, Company websites, AltAssets, Industry Interviews
Firm Fund NameInception
DateFund Size (US$ mn) Status Geographic / Sector Focus
HSBC Private Equity Middle East HSBC Private Equity Middle East
2003 118 Investing GCC, No sector focus
Injazat Capital Limited Injazat Technology Fund 2001 50 Fully Invested MENA, Iran, VC & Early stage, Tech. focus
Ithmar Capital Ithmar Fund I 2003 70 Fully Invested GCC, No sector focus
KAMCO Kuwait Private Equity Opportunities Fund
2004 45 Investing Kuwait, No sector focus
Markaz Markaz Energy Fund 2004 165 Investing GCC, Energy sector
Swicorp Financial Advisory Services
MENA Water Ventures 2003 NA Investing MENA, Water related companies and technologies
Tuninvest Tuninvest Sicar 1994 7.5 Fully Invested Tunisia, No sector focus
Tuninvest Tunisie Sicar 1997 3.7 Fully Invested Tunisia, No sector focus
Tuninvest Tuninvest Interantional Sicar 1998 7.5 Fully Invested Tunisia, No sector focus
Tuninvest Tuninvest International Ltd. 1998 13.5 Fully Invested Tunisia, No sector focus
Tuninvest Maghreb Private Equity Fund 2000 23.1 Fully Invested Tunisia, Morocco, Algeria, No sector focus
Tuninvest Tuninvest Innovations Sicar 2002 4.1 Investing Tunisia, Tech. focus
Total 24 Funds 2,309.5 Size of 1 fund unavailable
13
There are another 17 funds currently being raised for over US$ 2.6 billion
Note: Excludes all VC and real estate fundsSource: Gulf Venture Capital Association, Zawya, Company websites, AltAssets, Industry Interviews
Firm Fund NameFund Size (US$ mn)
Geographic / Sector Focus Comments
Abraaj Capital Limited Abraaj Buyout Fund II 500 MENA, South Asia, No sector focus
Initial close June 2005 with $ 300 mn in commitments, 2nd close at firm $ 500 mn
Abraaj Capital Limited Abraaj Special Opportunities Fund II
100 MENA, South Asia Launched June 2005
Athar Al Majd Holdings Ltd.
Athar Al Majd Diversified Private Equity Fund I
27 MENA, No sector focus Launched in 2005
ATLAMED SA ATLAMED Invest 60 Morocco, MENA, No Sector focus
Launched May 2005, 1st closing target $ 60 mn, another $ 60 mn within 5 years
Byblos Bank, European Investment Bank
Byblos Private Equity Fund
40 No sector focus Announced
Capital Trust Group EuroMena Fund 120 Levant & North Africa, No sector focus
Launched April 2005
Catalyst Private Equity NA 50 MENA, Technology intensive industry focus
NA
EFG Hermes Horus Private Equity Fund II LP
70 NA Expected closing Q3 2005
EFG Hermes Horus AgriBusiness Fund
50 Egypt, Agricultural industry focus
Expected closing July 2005
Global Investment House Global Opportunistic Fund
500 GCC, Pre-IPO & IPO situations
Launched June 2005
Ithmar Capital Ithmar Fund II 150 MENA, no sector focus Launched May 2005, 1st closing at over US$ 60 million in Sept. 2005
National Bank of Kuwait Not Disclosed NA NA NA
Oasis Capital Oasis Capital 150 Egypt, no sector focus Announced July 2005, Naguib Sawaris ($ 60 mn), MAF Trust ($ 45 mn), Olayan Financing Co. ($ 45 mn)
Shuaa Capital Shuaa Partners I LP 200 GCC, Levant, & Egypt, No sector focus
Initial close July 2005, 2nd close September 2005
Swicorp Intaj Capital 260 MENA, No sector focus Savola anchor investor, initial close at $ 60 mn, will raise add. $ 200 mn
The National Investor Not Disclosed NA NA Launching 2nd Half 2005
The GCC Energy Fund Managers Ltd.
GCC Energy Fund LP 350 GCC, Energy sector Launched March 2005, subscriptions open for 18 months
Total 17 Funds 2,627 Sizes of 2 funds not available
14
The majority of funds currently in the investing stage primarily do not have a sector focus and invest across the MENA region
Diversified
38%
Infrastructure
33%
Real Estate
9%
Technology
20%
Sector Focus of Funds Currently Investing
Source: Private Equity Monitor (Zawya)
GCC
6%
Worldwide
19%MENA
32%
Other
14%
Egypt
19%
Kuwait
10%
Geographic Focus of Funds Currently Investing
15Source: Global Venture Capital Database 2004
Global Private Equity Firm Distribution
1%
2%
7%
29%
61%
MENASA
Oceana
Rest of Asia
Europe
AmericasComments
Region was historically small with deal flow and exit opportunities rare
Regional turmoil and strict regulations for foreign investors
More recently, the regional dynamic has changed with relative government stability, gradual improvement of regulations, developing capital markets, and increased liquidity looking to be deployed within the region
With the exception of India, global private equity firms have historically ignored the region…
*
Currently minimal competition from global players in the region
*Excluding India
16
Large-tier PE firms are concentrated in Europe and the US with only regional PE firms covering the local market
* Include only private equity funds
Source: Abraaj Capital Analysis
Global Reach
Americas Europe Asia Middle East
Carlyle
Blackstone*
Abraaj - $700 millionShuaa - $200 million
CVC Partners$42 billion
$31 billion
$14 billion
Texas Pacific Group
$15 billion
Bain Capital$26 billion
Silver Lake$6 billion
Global Reach of PE Firms
Apax Partners$18 billion
17
By the end of 2005 it is estimated that the total PE industry will have US$ 5 billion of funds under management
Middle East PE Total Fund Size (US$ million) Comments
• Funds under management were estimated to be approximately US$ 280 million in 1998
• Consisted of a number of relatively small funds from Capital Trust, EFG Hermes, Tunisvest, etc.
• Between 1998 – 2002, funds increased with additional firms entering including Emerging Markets Partnership (Bahrain), Atlas Group, Foursan Group, Injazat, Rasmala, etc.
• The last couple of years have seen a number of new entrants including Global Investment House, Ithmar Capital, Shuaa Partners, etc.
• If all announced funds reach their targets within 2005, there will be US$ 5.0 billion of PE funds in the region
Note: Does not include VC and real estate fundsSource: Gulf Venture Capital Association, Zawya, Company websites, Private Equity Online, Industry interviews
$5,000
$1,400
$280
1998 2002 2005
CAGR
49%
CAGR
53%
18
Private Equity allocation versus other asset classes
Stocks
35.7%
Bonds
54.7%
Real Estate
5.1%
Cash Equiv.
3.9%PE
0.6%
GLOBAL
Total Investable Capital Market - $87.2 trillion
Note: As of December 2004
Source: Ennis Knupp & Associates
Difficult to estimate the size of total investable capital market:
Equity market cap of over $900 billion
Absence of bond markets
Lack of publicly traded real estate securities
Middle East estimated to have up to $2 trillion in investable net worth
US$5 billion commitment to Private Equity as a % of total investable capital is below global standards
Regional Perspective
19
• Introduction
• Private Equity in the Middle East
• Drivers of the Private Equity Industry
• Regional Private Equity Trends
• Conclusions
20
Drivers of The Private Equity Industry
Macroeconomic Conditions
Macroeconomic Conditions
Stable economic growth and macroeconomic environment
Description
The Region has witnessed impressive growth rates despite unstable political environments in some countries
Regional Perspective
Regulatory & Economic Restructuring
Regulatory & Economic Restructuring
Improvement in regulatory infrastructure and shift in economic policies caused by privatizations, globalization and efficient deployment of capital
Improving regulatory environment in most countries with competition to attract capital
Economic liberalization under way in a number of countries and family businesses undergoing generational change
Availability of Capital
Availability of Capital
Financial institutions and pension funds providing capital
Post 9/11 the appetite of local investors turned to regional investment opportunities
Exit mechanism Exit mechanism
Availability of exit routes either through trade sales or IPOs
Increasing IPO and M&A activity, as well as impressive performance of stock markets
New exchanges like DIFX to be launched shortly
21Source: Economist Intelligence Unit
Majority of countries in the region are growing at above 5% p.a.
0
50,000
100,000
150,000
200,000
250,000
300,000
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5
Real GDP Growth Average 2005 – 2006, %
No
min
al G
DP
US
$ m
illi
on
, 20
05E
Pakistan
Qatar
Saudi Arabia
Egypt
Bahrain
Oman
UAE
Kuwait
Morocco
JordanLebanon
India
GDP: 750,000
Population Size
Tunisia
• With real GDP growth in most countries exceeding 5%, the regional economies are amongst the fastest growing in the world
• Real GDP growth is expected to increase faster than the rate of population growth leading to an accelerated growth in living standards across the region
Note: Bubble size not to scale
22Source: Economist Intelligence Unit, Moody’s Investor Service
Large forex reserves, low inflation, and budget surpluses in many countries have led to economic stability and growth
2.0
4.0
5.0
5.0
6.0
9.0
10.0
11.0
16.0
19.0
23.0
30.0
149.0
Bahrain
Tunisia
Oman
Qatar
Jordan
Kuwait
Pakistan
Lebanon
Morocco
Egypt
UAE
Saudi Arabia
India
Total Forex Reserves
2005E, US$ billion
CPI Inflation Rate
2004 - 2005E, %
4.1%
0.6%
4.1%
4.9%
2.4%
2.5%
7.3%
3.0%
3.6%
6.4%
NA
2.4%
2.0%
Budget Balance
% of GDP, 2005E
(4.3%)
18.7%
3.6%
(7.0%)
(6.8%)
(10.7%)
(3.1%)
33.2%
(9.6%)
14.8%
11.5%
(-3.3%)
7.7%
Credit Rating
Moody’s
Baa3
Baa2
A1
Ba1
Ba1
B3
B2
A2
Ba2
A1
Baa2
Baa2
Baa1
23
The regional equity markets have added significant depth and liquidity since 2002, creating a viable exit mechanism for PE players
234
811
1,941
4,676
2002 2003 2004 July 2005
206
352
606
923
2002 2003 2004 July 2005
126
238
207
363
2002 2003 2004 July 2005
41%
65%
101%
137%
2002 2003 2004 July 2005
Market Capitalization* (US$ billion)
Average Daily Value Traded*(US$ million)
Average Daily Volume Traded**(million)
Market Capitalization/GDP*(Percentage)
*Excludes Tunisia ; **Excludes Morocco and TunisiaSource: Shuaa Capital, Relevant stock exchanges
24
In 1999, the GCC and ME region had negative FDI inflows, however, post 9/11 there has been a reversal of capital flight and increased amounts of FDI…
Source: UNCTAD
-5,000
0
5,000
10,000
15,000
20,000
GCC Middle East North Africa South Asia MENA MENASA
1999 2003
CAGR 15%
CAGR 35%
FDI Inflows US$ million, 1999 - 2003
CAGR 33%
CAGR 34%
25Source: Energy Information Administration, Bloomberg
Comments
…Which combined with oil prices over US$ 60 per barrel has created a tremendous amount of excess liquidity looking for investment
• Due to high oil prices, the GCC economies (especially Saudi Arabia and Kuwait) have recorded large budget surpluses for FY 2004 and FY 2005
• Oil prices are expected to come down to US$ 25 – 30 per barrel over the next five years
Historical and Projected Oil Prices1980 -2015, Brent Crude US$ per barrel
0
10
20
30
40
50
60
70
80
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
May
-05
July
-05
Sep
-05
2015
E
Asian financial crisis
• OPEC raises production triggering a price war
• Iran/Iraq tensions
Iraq war
Peak Price - $68.00
Aug 2005
Gulf war
Current Price - $60.10
26
Examples of privatizations in recent years illustrate the drive towards increasing the role of the private sector in the economy resulting in increased deal flow for PE…
Company Country Sector Size US $ M Equity Offered Date BuyerVitrac Egypt F&B 20.1 35% 2005 Switzerland-based HeroSuez company for Cement Egypt Building Materials 153.0 14% 2005 Ciments FrancaisSuez company for Cement Egypt Building Materials 207.0 19% 2005 Other buyersJoramco Jordan MRO 58.0 80% 2005 Abraaj CapitalEmirates Foodstuff & Mineral Water Co. UAE Agriculture and Food 80.0 49% 2004 Capital MarketNCCI Saudi Arabia Financial Services 382.7 70% 2004 Capital MarketBanque Centrale Populaire Morocco Financial Services 85.0 20% 2004 Capital MarketFirst Domestic Fuel Marketing Co. Kuwait Oil and Gas 76.0 76% 2004 Capital MarketAl Maha Petrol. Products Mktg. Co. Oman Oil and Gas 24.0 60% 2004 Capital MarketEtihad Etisalat Company Saudi Arabia Telecoms and IT 267.0 20% 2004 Capital MarketAl Kamil Power Company Oman Power and Utilities 15.0 35% 2004 Capital MarketMaroc Telecom Morocco Telecoms and IT 1,037.0 15% 2004 Capital MarketIndustries of Qatar Qatar Oil and Gas 674.0 30% 2003 Capital MarketMaroc Telecom Morocco Telecoms and IT 815.0 16% 2003 VivendiRegie des Tabacs Morocco Tobacco 1,520.0 80% 2003 Altadis (French-Spanish)Arab Potash Company Jordan Mining 173.5 52% 2003 Potash Corp. of Saskatch., CanadaJordan Telecom Jordan Telecoms and IT 88.0 15% 2002 Capital MarketQatar Fuel Company (Woqod) Qatar Oil and Gas 50.0 80% 2002 Capital MarketSaudi Telecom Saudi Arabia Telecoms and IT 2,720.0 30% 2002 Capital MarketSaudi Electric Company Saudi Arabia Power and Utilities - 19% 2002 Capital MarketSaudi Basic Industries Saudi Arabia Oil and Gas - 30% 2002 Capital MarketAl Ahram Beverages Egypt F&B 280.0 98% 2002 Heineken of HollandVitrac Egypt F&B - 65% 2002 Switzerland-based HeroMaroc Telecom Morocco Telecoms and IT - 35% 2001 VivendiSuez company for Cement Egypt Building Materials - 40% 2001 Ciments FrancaisRoyal Jordanian Catering Ltd Jordan Services 20.0 80% 2001 Alpha Flight Services, UKJordan Telecom Jordan Telecoms & IT 508.0 40% 2000 France Telecom & Arab BankJordan Telecom Jordan Telecoms & IT 114.0 15% 2000 PF & SSCQatar Telecom Qatar Telecoms and IT 717.0 - 1998 Capital Market
Company Country Sector Size US $ M Equity Offered Date BuyerVitrac Egypt F&B 20.1 35% 2005 Switzerland-based HeroSuez company for Cement Egypt Building Materials 153.0 14% 2005 Ciments FrancaisSuez company for Cement Egypt Building Materials 207.0 19% 2005 Other buyersJoramco Jordan MRO 58.0 80% 2005 Abraaj CapitalEmirates Foodstuff & Mineral Water Co. UAE Agriculture and Food 80.0 49% 2004 Capital MarketNCCI Saudi Arabia Financial Services 382.7 70% 2004 Capital MarketBanque Centrale Populaire Morocco Financial Services 85.0 20% 2004 Capital MarketFirst Domestic Fuel Marketing Co. Kuwait Oil and Gas 76.0 76% 2004 Capital MarketAl Maha Petrol. Products Mktg. Co. Oman Oil and Gas 24.0 60% 2004 Capital MarketEtihad Etisalat Company Saudi Arabia Telecoms and IT 267.0 20% 2004 Capital MarketAl Kamil Power Company Oman Power and Utilities 15.0 35% 2004 Capital MarketMaroc Telecom Morocco Telecoms and IT 1,037.0 15% 2004 Capital MarketIndustries of Qatar Qatar Oil and Gas 674.0 30% 2003 Capital MarketMaroc Telecom Morocco Telecoms and IT 815.0 16% 2003 VivendiRegie des Tabacs Morocco Tobacco 1,520.0 80% 2003 Altadis (French-Spanish)Arab Potash Company Jordan Mining 173.5 52% 2003 Potash Corp. of Saskatch., CanadaJordan Telecom Jordan Telecoms and IT 88.0 15% 2002 Capital MarketQatar Fuel Company (Woqod) Qatar Oil and Gas 50.0 80% 2002 Capital MarketSaudi Telecom Saudi Arabia Telecoms and IT 2,720.0 30% 2002 Capital MarketSaudi Electric Company Saudi Arabia Power and Utilities - 19% 2002 Capital MarketSaudi Basic Industries Saudi Arabia Oil and Gas - 30% 2002 Capital MarketAl Ahram Beverages Egypt F&B 280.0 98% 2002 Heineken of HollandVitrac Egypt F&B - 65% 2002 Switzerland-based HeroMaroc Telecom Morocco Telecoms and IT - 35% 2001 VivendiSuez company for Cement Egypt Building Materials - 40% 2001 Ciments FrancaisRoyal Jordanian Catering Ltd Jordan Services 20.0 80% 2001 Alpha Flight Services, UKJordan Telecom Jordan Telecoms & IT 508.0 40% 2000 France Telecom & Arab BankJordan Telecom Jordan Telecoms & IT 114.0 15% 2000 PF & SSCQatar Telecom Qatar Telecoms and IT 717.0 - 1998 Capital Market
Completed Privatization Examples
Source: Zawya, Saudi General Investment Authority, United Nations Development Program
27Source: Dealogic, Thomson Financial
…As can be witnessed in the increased regional deal flow over the past four years
$15.5$17.0
$20.8
$25.1
626
940922875
2002 2003 2004 May 2005
Value of Deals (US$ billion) Number of Deals
Comments
There have been 626 deals announced in the first 5 months of 2005 or 67% of the 2004 total
The value of deals has increased at a CAGR of 16% from 2002 – 2004
The total value of deals announced in the first 5 months of 2005 has already exceeded the 2004 total by 21%
Value of Deals vs. Number of Deals Announced (2002 – May 2005, US$ million)
28
Investment Opportunities: GCC IPO Market
Characteristics of Current GCC IPO Market
Excess capital chasing few investment opportunities
IPOs over-subscribed well over 50 times, especially in the U.A.E. Miniscule allocations for non-founder investors
Significant capital gains for investors available to get large founding blocks
* Portfolio companies of Abraaj Capital Limited
Country Year Company
Over-subscription
(times) Stock appreciation since
floatation (%)
Bahrain2005 Al Khaleej Development Company 265 28%
Oman2004 Al Maha Petroleum Products Marketing Company 7 144%2004 AES Barka 17 119%2004 Al Kamil Power Company 1 -6%2005 Dhofar Power Company 9 26%2005 Oman Telecommunications Company 2 64%
Qatar2004 Qatar Meat & Livestock Company 47 311%2005 Qatar LNG Transportation Company 10 274%2005 Dlaleh Brokerage & Invstment Holding 1 938%
Saudi Arabia2004 Sahara Petrochemical Company 125 776%2004 NCCI 12 200%2004 Etihad Etisalat Company 50 1131%2005 Bank Al Bilad 4 1354%2005 Saudia Dairy & Foodstuff Company 7 114%2005 Al Marai Company 4 62%
UAE2004 Amlak Finance 34 1134%2004 Aldar Properties 448 703%2004 Arabtec* 74 455%2004 Emirates Foodstuff & Mineral Water Company 8 249%2004 Finance House 75 1266%2005 Arab International Logistics Company* 80 242%2005 RAK Properties 57 To be listed 2005 Aabar Petroleum 800 To be listed 2005 Sorouh Real Estate Company 176 To be listed
Kuwait2004 Boubyan Bank 4 To be listed 2004 Al Qurain Petrochemicals Industries 2 To be listed 2004 Al Jazeera Airways 12 To be listed 2004 First Domestic Fuel Marketing Company 5 To be listed
Egypt2005 Raya Holding 3 2%2005 Sidi Krier Petrochemicals Company 2 48%
Morocco2004 Maroc Telecom 22 30%2004 Banque Centrale Populaire 11 13%2005 DARI Couspate - 14%2005 Lyonnaise des Eaux de Casablanca 24 51%2005 Sothema Pharmaceutical Laboratories 7 -2%
Tunisia2005 Khartago Airlines - 114%2005 L'Accumulateur Tunisien ASSAD - -55%2005 Societe Generale Industrielle de Filtration - 62%
Source: Zawya as of September 8th, 2005
29
Investment Opportunities: Privatization
Robust Privatization Pipeline with several companies being taken public by various governments in the region in 2005
Source: Zawya
Privatization Issues in the Pipeline (2005)
Company Country Sector Size US$ M Equity Offered
Bahrain Telecommunications Co. Bahrain Telecom 800 -Eastern Tobacco Egypt Agriculture and Food - 14%Telecom Egypt Egypt Telecom - 49%Alexandria Mineral Oil Company Egypt Oil and Gas 135 20%Jordan Telecom Jordan Telecom - 10-20%Kuwait Finance House Kuwait Financial Services 1,000 25%Touristic Enterprises Co. Kuwait Travel and Tourism - 60%Mobile Telecommunications Co. Kuwait Telecom 1,300 25%Kuwait Airways Corp. Kuwait Transport - -Al Jazeera Channel Qatar Media - -Al Jubail Petrochemical Co. Saudi Arabia Oil and Gas - 30%Islamic Development Bank Kuwait Financial Services 240 30%Taaqa Electricity Distribution UAE Power and Utilities - 55%National Commercial Bank Saudi Arabia Financial Services 1,280 30-40%Compagnie Marocaine de Navigation Morocco Transport - -Power & Water Util. for Jubail & Yanbu Saudi Arabia Power and Utilities 300 30%Saudi Arabia Mining Company Saudi Arabia Mining - -Saudi Arabian Airlines Saudi Arabia Aviation - -Pachin Egypt Manufacturing - -Cairo Oil Egypt Oil and Gas - -Misr Hotels Egypt Hospitality - -Egypt Air Egypt Aviation - 40%Egyptian Fertilizers Egypt Manufacturing - -Regie des Tabacs Egypt Transport - 20%
30
Investment Opportunities: Family Groups
Source: Zawya
Family Groups within the region are looking to monetize their investments in their respective companies by exiting or cashing out
Family Groups within the region are looking to monetize their investments in their respective companies by exiting or cashing out
IPO Pipeline of Family led Enterprises (2005)
Company Country Sector Equity Offered
Rotana Hotel Management Co. UAE Travel and Tourism -
Axiom Telecom UAE Telecom -
Swiss Arabian Perfumes UAE Consumer Goods -
Al Bassami International Group Saudi Arabia Transport 30%
Nasser Rashid Lootah and Sons UAE Conglomerate 55%
Jabal Omar Development Co. Saudi Arabia Construction 12%
Al Habtoor Hospitality UAE Travel and Tourism -
31
• Introduction
• Private Equity in the Middle East
• Drivers of the Private Equity Industry
• Regional Private Equity Trends
• Conclusions
32
There will be a number of trends emerging in the regional PE landscape over the next few years
Variation in PE Performance
Variation in PE Performance
Shari’a Compliant PE
Shari’a Compliant PE
Institutional Investment
Institutional Investment
Secondary Buyouts & Exits
Secondary Buyouts & Exits
Emergence of International Players
Emergence of International Players
Trend Description
Increased amounts of regional institutional investments as PE has become a viable asset class in the region
Assets allocated for PE abroad will increasingly be available for PE investment within the region
Rapid growth in Islamic banking, and other Shari’a compliant products in the region
Lack of Shari’a compliant investment opportunities in the region
Will be new and innovative Islamic PE structured funds introduced soon
Is a trend being seen increasingly frequently in the West
The rapid increase in firms in the region will allow PE shops to work together on sizeable transactions and create another viable exit route
Currently almost no international PE presence in the region
Dedicated PE firms will not enter the region very soon, however PE arms of investment banks that have had relationships in the region are looking to enter currently
As the number of PE firms and funds increase there will be significant variation amongst top and bottom quartile performance
33
With a large number of players in the PE arena LPs will be forced to carefully select their G.P.s
Difference between Top and Bottom Quartile performance1
US All Private
Equity
-20%
-10%
0%
10%
20%
30%
40%
50%
Top Quartile
Median
Bottom Quartile
EuropeAll Private
Equity
US Stock Funds
EuropeanStock Funds
Spread Top-Bottom 53.7%
Spread Top-Bottom 46.5%
Spread Top-Bottom 3.6%
Spread Top-Bottom 2.5%
• Manager selection is the critical component to a superior performance in the private equity markets
• Private equity quartile spreads are 15x to 20x greater than comparable public market spreads
Notes:
1 Annualized net 10-year returns (12/31/93 – 12/31/2003); Source: Venture Economics
Past performance is not indicative of future results
Notes:
1 Annualized net 10-year returns (12/31/93 – 12/31/2003); Source: Venture Economics
Past performance is not indicative of future results
34
Advantage of Being Regional
1. Expanded deal flow
2. Enhanced financial resources
3. More industry expertise
4. Ability to pursue / consummate trans-border transactions
5. Ability to recruit more senior, experienced professionals
6. Ability to centralize fundraising, back office tasks
7. Ability to franchise value
8. Ability to focus on the kind of performance investors increasingly want:
– Uniformity - No surprises– No embarrassments - Low-Beta approach– Predictability - Attractive but not heroic IRRs
35
• Introduction
• Private Equity in the Middle East
• Drivers of the Private Equity Industry
• Regional Private Equity Trends
• Conclusions
36
Regional Private Equity – Passing fancy or permanent addition to M.E. Investment World?
1. Globalization in all business areas will accelerate – the same trend will continue for private equity
2. Impact of economic slowdown– Will regional private equity recede or decline?– Will private equity return to early 90’s, traditional nature – smaller firms – one specialty –
local focus only – no cross border operations?
3. Economic predictions / private equity predictions– Are often wrong (look at predictions a few years ago – Internet investing wave of future,
not overvalued; high yield investing still attractive; IPO market would continue to provide exits)
4. Regional private equity firms will continue their growth– Newer funds will have a harder time getting capital– Continue to raise capital in meaningful amounts – investors will focus on brand names,
predictability, and length of track record– Commercial banks, investment banks, insurance companies with global franchises will
take advantage of them / grow their private equity franchises– Regional firms will provide their own internal funds of funds – to allow investors more
balanced private equity portfolios– Emergence of new regional firms will be slowed down – portfolio problems will have to be
addressed first