Gulf Finance House has moved into Europe. What do they know? Mike Gallagher takes a closer look.
Gulf Finance House has decided to move into Europe and has just announced that it is going to launch a European private equity division and not without some fanfare. After all, who else from the GCC has something similar?
GFH's European private equity division will be run by Joe McGrane, a senior executive director of the bank. McGrane is an old hand in this field, with plenty of time spent in places like the Royal Bank of Scotland, where he was managing director of Development Capital Limited as well as holding leading positions in private equity powerhouses like 3i and Charterhouse Development Capital.
Moving into Europe is typical of GFH's strategy. It has been active for quite some time in places like Tangiers, where it initiated the Royal Resort Cap Malabata project. This is part of GFH's Gateway to Morocco project in which it plans to invest up to $1.4 billion.
GFH's investment portfolio also includes prominent investments like the Bahrain Financial Harbour, which has been described as 'the Docklands of the Gulf' and the $2.6 billion Energy City in Qatar. Other projects that are rumoured to be in the offing are the $2 billion Energy City India; the Royal City project in Jordan as well as the $8 billion Prince AbdulAzizBin Mousaed Economic City in Saudi Arabia of which GFH is believed to be a part.
Some of GFH's portfolio projects have had returns of investment ranging from 10.5 per cent to 34 per cent over periods of between one and four years and this kind of return has made them the talk of the GCC region for their uncanny knack of being able to spot extremely profitable avenues in which to invest.
GFH has a well earned reputation for being quick to spot niche markets and get in early. It prides itself on being a pioneer and the European venture is in keeping with its habit of ensuring that its investment portfolio as is diverse as possible. It has always been quite clever in taking on, originating and finding investment for large real estate and infrastructure projects.
And while there may be an element of that within McGrane's remit, it is clear that in the European arena there is a different aspect to private equity to that which GFH has been doing in the GCC and MENA region, so McGrane has a fairly wide ranging mandate. GFH is naturally expected to consider strategic stakes in listed and unlisted companies and someone who worked with McGrane said that he was essentially taking GFH's 'DNA and implanting it into a European context.'
Where GFH will look to invest is anyone's guess and they are naturally shy about saying where for obvious reasons, but it would be hard to ignore Eastern Europe, especially countries like Poland. The booming economy of the UK would also be a very attractive proposition, although some analysts would suggest it is running too hot at the moment.
GFH appears to have been quick to spot some investors squeamishness about current events in the Gulf region and has wisely diversified its portfolio to take account of this by embarking on projects like those in India and Morocco. GFH has also been very busy headhunting experienced staff to reinforce its real estate and infrastructure group. It is also understood to have lined up at least five highly experienced individuals to support its new European private equity team.
No names have been announced yet, but an insider said that if McGrane has his way in the recruitment process, the new recruits will provide GFH with some serious muscle in the European PE arena. GFH has said that it plans to be based in London and is planning to list its shares in London.
PEVC spoke to a GFH spokesman who said that "if we talk about wealth management or real estate development, which are two of the so-called verticals the bank is involved in, then it is competing with the Merrill Lynchs and the Goldman Sachs of this world. In real estate development terms it is obviously competing with, to a certain extent Dubai International Capital. And indeed in private equity terms it will be competing with a combination of DIC, possibly Investcorp, but equally it will be competing with Blackrock. There are scale issues here, but bear in mind that what makes GFH unique is that it originates projects, so it is not going to be like KKR and Blackrock bidding for Sainsbury's"
GFH has made confident statements about the state of the GCC region and it seems to believe that liquidity in the region will continue to be strong and continually talks about investing in projects, especially big infrastructure projects that it sees as being essential. It then goes about quietly raising the required capital and will usually sell-on the investment on behalf of its clients before project is completed.
GFH is the baby of Esam Janahi and was born in 1999 when Esam pulled together a group of eight leading Islamic financial institutions. In a short time Esam managed to turn what became known as GFH into one of the most envied Islamic institutions anywhere in the GCC.
GFH had a better 2006 than many of its competitors, entering 2007 with glowing accounts. It saw net profits rise by 51 per cent to $212 million from $140 million the year before with assets of around $1.5 billion. The average return on equity was 41 per cent and the return on its paid up capital came in at nearly 100 per cent. So it came as no surprise that gushing statements came pouring out of the GFH HQ in Bahrain. Even dividends were up to a record 75 per cent of par value, which was paid out in cash at 63 per cent and 12 per cent in shares.
The move into Europe will no doubt be watched very closely by all of its competitors in the GCC and Europe to see if it can replicate the kind of success it has had in the Middle East.
© Banker Middle East 2007
