Dubai Investment Watch

The UAE, led by Dubai, is on an unprecedented asset buying spree and this page will follow some of the investors that are leading the way.

Dubai buys stake in Airbus parent

5 July 2007

Dubai - home to Emirates airline, the biggest customer in the troubled A380 'superjumbo' programme - has bought a 3.12% stake in Airbus parent EADS. This can be seen as a vote of confidence is EADS' restructuring plans but also a means of making sure that Emirates Airline's interests are closely watched over by the Dubai authorities.

The investment was made by the Global Strategic Equities Fund (GSEF), making it 'one of the largest institutional shareholders in the company', according to a statement.

GSEF, which is managed by state-owned Dubai International Capital (DIC), did not give details of how much it paid, saying only that it was investing with partners.

DIC said neither it nor the fund would seek a seat on EADS's board or take a role in managing the group.

Abraaj makes 'significant' education investment

Abraaj Capital has acquired a “significant” stake in Dubai-based Global Education Management Systems (GEMS), the investment firm said today.

GEMS owns and manages a number of primary and secondary schools across the Middle East, including Our Own English High School, Dubai American Academy, Cambridge International School and Our Own Indian School.

The company would not reveal how large an investment it has made or what percentage of GEMS it now controls.

Abraaj said the investment in GEMS, made through its Infrastructure and Growth Capital Fund (IGCF), is aimed at capitalising on the rising demand for education in the region.

The Dubai-based investment firm said this demand, coupled with limited capacity in the sector, is straining the region’s existing education infrastructure.

“The MENASA (Middle East, North Africa and South Asia) region's youthful population and high demographic growth rate will place great pressure on the economies over the coming decade,” said Arif Naqvi, vice chairman and chief executive of Abraaj.

“As a result, today more than ever, the region needs educational institutions that produce individuals with the skills necessary to compete in a modern and global economy,” he added.

The investment follows the launch last month of a $10 billion education foundation by HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, at the World Economic Forum (WEF) in Jordan.

Naqvi said the stake in GEMS would also contribute to the stability and diversification of Abraaj’s investment portfolio.

Currently the firm’s investment portfolio includes companies such as the Egyptian Fertilisers Company, Air Arabia, Egyptian financial services firm EFG-Hermes, Arab internet portal Maktoob.comm, and Saudi Arabia’s National Air Services (NAS).

"There are two kinds of people in this world," insists Arif Naqvi, breaking into a broad grin. "The first kind wake up in the morning, they look up, and they say ‘Good morning, God'. The second kind wake up in the morning, look up, and say ‘Good God, it's morning'."

Without a doubt, the CEO and vice chairman of private equity giant Abraaj Capital belongs to the former category. He is a self-confessed "massive optimist" - and with good reason, as his company is at the forefront of the region's increased confidence in the private equity market.

Increased liquidity is attracting some of the biggest names in the field to the Middle East, and Abraaj has taken swift advantage of the shift in industry attitudes, rustling up a series of funds in sectors as diverse as aviation, infrastructure, and agriculture. Last week, Abraaj closed the largest private equity acquisition in the history of the Middle East and North Africa, with the US$1.41bn leveraged buyout acquisition of Egyptian Fertilisers Company (EFC), one of Egypt's largest private-sector fertiliser manufacturers and exporters

"It's the first deal we've done in primary petrochemicals, although we're very comfortable in the sector, and we've always wanted to do a landmark transaction in the sector," says Naqvi. "The sector's very exciting and interesting, given how critical it is to the region."

It is so exciting that Naqvi happily admits Abraaj is in "very advanced" talks with a number of other Egyptian companies in the same line of work.

"We're talking to four or five other producers in the region with a view to coming together under a common platform," he reveals. "That's what private equity does - it pulls other businesses in to create a far bigger critical mass and scale that enhances efficiency and yields, and can get us better values when we eventually exit the business."

For Abraaj, Naqvi explains, fertiliser means bigger business than might initially be apparent.

"Every analyst tells you that if we keep burning oil at the speed we're using it, we're going to run out of oil in the next 50 years," he says. "It may take 30 years, it may take 60 years, but it doesn't matter - there's a finite end to that particular natural resource.

"The world's not going to stand still," he continues. "The world is going to be looking for alternative energy sources, it's going to be looking at biofuels, it's going to be looking at wind power, and so on.

"So we are going to be using alternative sources. Now what is the biggest alternative source today? That's ethanol - and ethanol comes from corn, sugar cane, and stuff like that.

"In order to enhance the productivity of things that we grow, you need fertiliser, and that's why the fertiliser industry has a very rosy future ahead of it." The deal is a fine example of the foresight that has enabled Abraaj to build seven funds, worth a cool US$4bn between them, over the last decade. In addition, the firm is also the single largest shareholder in leading regional investment bank EFG-Hermes.

"With our deployable capacity - with each of our transactions we only use about 30% capital, the rest is co-investor capital and then leverage on top of that - we're talking about deploying close to US$12bn in the region over the course of the next few years," reveals Naqvi.

"Last year, for example, we invested over US$1bn, and this year we expect to achieve double that.

"We're on a very rapid acceleration process in terms of investment, which is coming at a time when stock markets are going through corrections and are significantly off highs, so that means that we have great buying opportunities at this time," he continues. "We're long-term investors, we're stable investors, we look at opportunity not just for today, but for the next few years to come. Our exit drivers are not time, but efficiency."

With utmost efficiency, Naqvi rattles through Abraaj's key business lines. Each has proven hugely successful in its own right; each has made its investors rich.

"There's real estate, where we have one fund fully invested and exceptional returns produced for our investors. We'll probably be raising another real estate fund some time this year," he says.

"We have the special opportunities business, again fully invested, where we take minority positions in public companies. It's almost like a hedge fund, but we've outperformed every other regional fund in the stock market last year, and this year so far," continues Naqvi, matter-of-factly.

"Everybody else is in the negative realm because of the markets; we're very positive on the returns from that business.

"Our third area is the equity buyout space where we have two operational funds, again fully invested. We're into about 14 or 15 companies in that space that we've invested in," he adds.

The final area is that of infrastructure. Last year, Abraaj launched its first infrastructure fund with Deutsche Bank and Ithmaar Bank, and saw a first closure at US$500m in December. The next close will be at the end of June, Naqvi adds, and the fund should be fully capital-raised by the end of October. "Where's the biggest investment thrust in this part of the world going to come from?" he asks, leaving barely a breath before the answer. "It's going to be in infrastructure, because as governments are accumulating these surpluses they're also realising that they need to spend them very intelligently, because they're generating wealth off a dwindling resource. It's not going to come again and again.

"We've experienced a boom in the last three or four years, but what does that boom mean? It has been driven primarily and totally by the private sector - real estate, stock markets, and so on," he continues. "As that has slowed down, governments have kicked in. And who's going to benefit from that? Again, it will be the private sector because they are the subcontractors to that process.

"So I see good years ahead of us, but the one sea change that I see is that governments are now beginning to realise that all of this infrastructure spend needs to be through the private/public partnership model," he adds. "Governments are beginning to realise that governments should be in the business of governance, and not in the business of management."