DUBAI, 6 June 2005 — Dubai-based private equity firm Abraaj Capital has almost filled its second buy-out fund and expects to have $1.5 billion of capital to acquire and restructure promising Arab businesses, its chief executive said last week.
“The 500 million fund is almost full,” Arif Naqvi told Reuters. “A buy-out fund of 500 million is easily 1.5 billion of investable capital,” he said, with the extra $1 billion coming from debt and from additional investments in specific projects from Abraaj investors. Abraaj expects to buy around 10 companies this year, though Naqvi declined to give details.
Abraaj, which specializes in turning around companies in the Middle East and selling them on for a profit, is benefiting from a surge in local stock markets that has left investors with plenty of cash but fewer opportunities for easy returns.
Its first buy-out fund closed in June 2003 with commitments of $116 million and is already proving a success, Naqvi said.
“Our first fund has largely returned the value of the fund in the first two exits,” he said. “There are seven more.” It targets an internal rate of return of 30 percent.
The fund bought Jordanian logistics firm Aramex in 2002 for $65 million. At the time it was listed on NASDAQ. Abraaj is poised to sell Aramex to Arab International Logistics, a shell company created specifically to buy Aramex that raised 1 billion dirhams ($272 million) through a stock market listing in Dubai earlier this year. Part of the attraction of firms in the Arab world is that many have the potential to break out of their domestic markets as barriers to investment across the region fall, said Naqvi. And the lack of language barriers and the cultural similarities between countries means the local expertise a company acquires in one market can be profited from in another.
“The future for these companies is to go regional in the Arab world and take on the multinationals,” Naqvi said.
Naqvi said Abraaj will focus on buying private companies “because that’s where the greatest value is”.
He said Arab family firms could begin to offer some good opportunities. “Everyone talks about family firms being a great source of private equity deals. I haven’t seen many of them.” But he said that should change: “I see the second generation or third generation very able to differentiate between value realization and ego.”
Naqvi said Abraaj might acquire stakes in listed companies if valuations become attractive after a stock market correction.
He welcomed the growing number of rival private equity funds in the Arab world, managed by local institutions such as the UAE’s Al-Mal Capital, formed this year, and global players such as HSBC Holdings Ltd.
And he was confident that Abraaj would secure lucrative investments in the future, despite increasing competition for opportunities, because of its strong local contacts. He said Abraaj planned to move to Dubai International Financial Center, a free zone backed by the government of Dubai, partly because of its robust regulatory environment.
“In terms of regulation of the industry as a whole, we are in the dark ages.” Abraaj has no immediate plans to raise more funds. “We have enough on our plate,” said Naqvi.