Global MENA Financial Assets - Interim Management Statement

• Text size
•  
•  

Macro Environment

As with all global markets, 2008 was a difficult year for Middle Eastern and North African ("MENA") markets. Initially, it was expected that MENA markets, specifically those in the Gulf Cooperation Council ("GCC") countries, would remain relatively immune from the global financial crisis because of their limited exposure to sub-prime mortgages. However, the situation deteriorated in the second half of the year, mainly due to the liquidity reduction caused largely by the flight of foreign capital. Clearly, the situation globally continues to remain volatile with markets finding little support on either an economic or corporate profitability front.

Unprecedented steps have been taken by central banks and governments around the world. Some of the governments in the GCC / MENA region have also taken the step of guaranteeing all bank deposits in order to restore confidence in the financial system. Central banks have also pumped liquidity into the market in order to revive it. In the long term, this should have a positive impact on GCC / MENA regional markets.

The economic slowdown, coupled with a reduction in multiples of comparable quoted companies, has placed pressure on the valuation of our investments. Nevertheless, the majority of our portfolio companies are performing well operationally. We are also working closely with our portfolio companies to explore ways to minimize the impact of the economic slowdown.

GMFA's investment portfolio as of 17 February 2009 consisted of eight equity assets comprising two listed companies and six unlisted companies. The unaudited net asset value per share ("NAV") as of 8 February 2009 was £1.32 compared to a net asset value of £1.15 on 30 September 2008 (unaudited), representing an increase of 15 per cent., primarily as a result of sterling depreciation against the US dollar. This NAV has been calculated on the assumption that the Islamic deposits (murabaha[1]), referred to in the Notice to Shareholders issued on 19 January 2009, will be recovered in full. There can be no certainty that full recovery can be achieved.

GMFA's share price has declined by 38 per cent. from 109.5p to 68.0p over the period from 30 September 2008 to 16 February 2009, while its peer group of other listed vehicles declined by an average of 48 per cent. (The peer group includes direct private equity investment companies listed on the London Stock Exchange on the selected dates). Since listing in July 2008, GMFA's share price has declined 34 per cent. up until 16 February 2009, while the same peer group declined by an average of 54 per cent. and the FTSE All Share Index declined 39 per cent. over the same period.

Portfolio Update

HSBCHSBC

CitibankCitibank

US$59.1 million (KD 17.3 million) is outstanding under murabaha contracts held with two Kuwaiti companies, other than Global Investment HouseGlobal Investment House K.S.C.C. ("Global"), which have been experiencing difficulties in paying their financial obligations. The Board instructed Global Capital ManagementGlobal Capital Management Ltd., the Company's investment manager (the "Investment Manager") to take all possible steps to pursue repayment and the Investment Manager has so far recovered US$11.9 million (KD 3.5 million) from one of these companies, as announced on 13 February 2009.

US$47.8 million is outstanding under murabaha contracts with Global. These murabahas with Global mature on 31 March 2009. The Company is in discussions with Global, which may or may not lead to the acquisition of two investments from Global, the effect of which would be to reduce the outstanding exposure of the Company to Global under these murabaha contracts. There can be no certainty that agreement can be reached to acquire these two assets, in which case the Company's exposure to Global will remain outstanding.

The Investment Manager is working to recover the remaining balances as soon as possible. The Board will update shareholders in respect of all developments.

Investment Activity in the Fund

There have been no new investments since July 2008. In October 2008, GMFA participated in the capital increase of one of its portfolio companies, Bindar Trading and Investment ("Bindar"), a consumer finance company operating in Jordan and listed on the Amman Stock Exchange. The capital increase was performed via a rights issue, whereby Bindar's shareholders exercised their subscription rights. An increase in Bindar's capital from JD 14 million (US$19.7 million) to JD 20 million (US$28.2 million) was required to allow the company to expand its financing and leasing activities, and to modernize the company's programmes, equipment, and human resources to meet productivity and growth plans.

Board of Directors

On 30 January 2009, the Company announced the resignation of Sayanta Basu as a non-executive director of the Company, with immediate effect. Mr. Basu resigned in order that he might devote fuller attention to his role within the Dubai Group.

The Board has identified a replacement director that it intends to appoint following his approval by the Guernsey Financial Services Commission, which is expected shortly.

Share Repurchase

The Board is conscious that the share price is at a significant discount to the net asset value. As Global is a 29.99 per cent. shareholder in the Company, the Board intends to take the necessary steps to obtain a waiver from Panel on Takeovers and Mergers in respect of the obligation that might otherwise arise for Global to make a mandatory offer for the Company pursuant to Rule 9 of the City Code on Takeovers and Mergers if its holding increases beyond 30 per cent. as a result of share repurchases. The Board expects to put appropriate proposals to shareholders in due course.

Shailesh Dash, CFA, Managing Partner, Global Capital ManagementGlobal Capital Management Ltd. commented:

"Against a backdrop of challenging global capital market conditions, GMFA's investment portfolio continues to perform well. Current global financial turmoil has created significant investment opportunities within the MENA region financial services sector, which the Company is well positioned to capitalize upon. Global Capital ManagementGlobal Capital Management remains confident of delivering long-term returns to shareholders."

-Ends-

About Global Mena Financial Assets Ltd.
Global MENA Financial Assets Limited is a Guernsey incorporated investment company formed on 2 June 2008 to make attractive absolute gains through investment in a diversified portfolio of financial sector assets focused predominantly in the MENA region (including Turkey).

www.gmfa.com

About Global Capital ManagementGlobal Capital Management Ltd.
Global Capital ManagementGlobal Capital Management Ltd is a wholly owned subsidiary of Global Investment HouseGlobal Investment House K.S.C.C. The Investment Manager has one of the largest private equity teams in the MENA region. The team is organized into transaction, due diligence and organizational development and monitoring subgroups. The members of private equity team have diverse sector and geographic experience in countries across the MENA and other emerging markets. The team collectively maintains a broad network of institutional relationships within the regions targeted for investments by GMFA. The private equity team currently manages assets of more than US$3 billion.

For information please contact:
Shailesh Dash, CFA
Managing Partner
Global Capital ManagementGlobal Capital Management Ltd.
T: +965 2295 1200
F: +965 2295 1648
E: shaileshdash@global.com.kw

Financial Dynamics
Ed Gascoigne-Pees
Nick Henderson
+44 (0)20 7269 7114

This statement aims to give an indication of material events and transactions that have taken place during the period from 1 October 2008 to the date of publication of this statement and their impact on the financial position of GMFA. These indications reflect the Board's current view. They are subject to a number of risks and uncertainties and could change. Factors which could cause or contribute to such differences include, but are not limited to, general economic and market conditions and specific factors affecting the financial prospects or performance of individual investments within GMFA's portfolio.

[1] Murabaha is an Islamic financing structure, where an intermediary buys an asset with free and clear title to it. The intermediary and prospective buyer then agree upon a sale price (including an agreed upon profit for the intermediary) that can be made through a series of instalments, or as a lump sum payment. Pricing depends on credit ratings, transaction size and types of goods being financed. The premium is generally based on a benchmark figure, such as LIBOR, plus a margin. A bank cannot re-price its receivables if LIBOR rises during the contract's duration. A murabaha is not an interest-bearing loan, which is considered riba (or excess). Murabaha is an acceptable form of credit sale under Shari'ah law (Islamic religious law). Similar in structure to a rent to own arrangement, the intermediary retains ownership of the property until the loan is paid in full.

© Press Release 2009