The Minority Man

What is the extent of your asset management portfolio?

With the global economic crisis and its impact on the region and Dubai especially, most of our focus has moved toward management. In Dubai we own stakes in a contracting company, a media advertising company, a jack-up drilling rig, an oil field services company (which we recently sold), and we also had operations in Damas, which was exited at the time of its IPO in 2008. With all of our portfolios we aim to enhance the value of the company by being an active member on the board and the various committees, most importantly the executive committee. Within this role, we work with portfolio companies through improving corporate governance, reporting standards, and putting in place the key strategy plans for the company’s growth. Amwal also acts as the financial advisor to the portfolio companies by optimizing the balance sheets and the finances of the company, advising and searching for potential M&A opportunities, leveraging our network to open up new markets, and introducing our clients to our banking relationships. Over the past six months, with the way the market has been improving in Dubai, we are starting to go back into sourcing mode, in which we are looking for companies to start investing in. At the same time we continue to enhance the value of our portfolio companies and to look for potential exits.

How have your funds been performing from an exiting perspective?

We have two funds under management, and they have been performing well. We are in the process of doing an IPO for a travel agency in Riyadh, which will be one of the best transactions we have seen in the area. Hopefully, we will have another exit sometime this year. Saudi Arabian companies have generally been doing very well. In many cases, Egypt has not been as badly hit as you might expect. However, the current political instability is putting transactions and activity on hold, though overall the performance of many of our portfolio companies there has been holding up well.

The investment approach at Amwal is to take a minority interest in companies and not to use leverage. Why do you take this approach?

The reason for that is very simple, and that is how we look at the region. The vast majority of businesses in the region are family owned, and they generally do not want to relinquish control. What they are looking for is somebody who can come in and help them with institutionalizing the company, put in place the correct corporate governance, and help them with the transition to the next generation, especially for companies displaying fast growth figures that suddenly need a set of skills they did not need before. We therefore generally take minority stakes and invest our energy in companies that already have the right management in place. As such, we “invest in” as opposed to “buy out” companies.

Looking to the local capital markets, what do you think are the main challenges facing its further development?

Dubai has grown at a very fast pace, and what we find today is that while the growth is going at a high pace, the soft infrastructure has not had time to catch up. It started to catch up recently because of the slowdown in the economy, but it still has a way to go. The authorities have put into operation the appropriate systems and infrastructure in terms of capital markets, as well as developed a solid regulatory framework. However, not everything has been tested. For example, what happens under bankruptcy? How are minority investor rights protected, and how easily can a contract be applied and enforced? Such issues are critical in terms of giving you comfort as an investor in the country. Secondly, retail investors have generally driven the markets here, and that still continues to be the case. Around 80% or 90% of Saudi Arabia’s market is retail. Dubai has been picking up on volume and moved up to about $200 million a day, which is a good amount of trading volume as compared to levels of around $20 million a day during the past few years. This is critical for companies looking at the exchange, because you need to see liquidity. New liquidity would most likely bring down the price. We want to see good volumes to really reflect a more accurate picture of the value of the company.