LONDON, 15 January 2007 — Gulf Finance House (GFH), the Bahrain-based Islamic investment bank, buoyed by an initial investment grade rating of BBB- assigned by international rating agency, Standard & Poor’s, has embarked on an ambitious expansion program — both in terms of geographic diversification and entering new business lines, especially asset management, wealth management and European private equity.
“We are migrating away from just placing direct investments with clients to a more holistic wealth management approach. To do this effectively, we need to have the right suite of investment products to satisfy the requirements of any particular investor. We have recruited a top wealth management expert with over 10 years experience including at Goldman Sachs to spearhead this transition to a holistic wealth management function,” explains Peter Panayiotou, deputy CEO of GFH.
GFH went to the financial markets in December 2006 to raise a revolving $300 million Murabaha facility which was subscribed to by over 30 participating banks. The facility, lead managed by the London branch of WestLB and Austrian bank, RZB, allows GFH to draw down the facility over three years as and when the funds are needed. The funds, according to Panayiotou, will be used for general corporate purposes and to fund the expansion of the Bank’s activities. GFH, as such, rules out any need to go to shareholders to raise further equity at present. Its current capital at par value is about $212 million.
GFH is projecting a good performance for 2006, with a bottom line of between $200 million to $250 million. This compared to $140 million for 2005. However, the bank acknowledges that clients’ deposits in 2006 are down because of the GCC stock market crash and nervousness on the part of local investors. GFH still projects to have raised up to $2 billion for the products on offer till end December 2006.
“In 2007 we see things picking up,” says Peter Panayiotou, formerly a partner with international auditing firm, PricewaterhouseCoopers. “Certainly, the equity capital markets are bottoming out. They are at a critical point in our region. If they bounce from here, they are going to go up. If they break where they are now, and there are key resistance points where they are now especially in Kuwait and Saudi Arabia, then we could be in for a rough time. I don’t think they would break however. With interest rates likely to come down, with real estate quite buoyant in our region, it could be that the equity markets are due a bounce now.”
GFH also has a commercial banking subsidiary in Bahrain, GFH Commercial Bank, which is in the process of being spun-off to strategic partners in a private placement. Its license is currently restricted to real estate-related activities, but GFH has applied to the Central Bank of Bahrain to relax this restriction so GFH Commercial Bank can have a broader business activity base including consumer finance, personal loans, leasing and so on. The Bank may also venture into other GCC markets eventually.
GFH late last year also signed a landmark Master Agreement with the Egyptian government for the development of projects in the transport sector. This claims GFH is the first such agreement signed on a national basis anywhere in the world. “What we have done is basically got the right to a first refusal to any transport-related project in Egypt. We don’t have to do a particular project. But if want to do a feasibility we have the right to do so and have the first refusal. The holding company to facilitate this Master Agreement is in the process of being established. The authorized capital of the holding company is about $1 billion but the initial capital itself is not large, because it is only there to fund the feasibility studies. As the project starts to take off, individual project companies will be set up to implement each separate project, which would be capitalized to do that project respectively.
The Egyptian government has a 20 percent interest in the holding company. It is a good deal for Egypt — it will make some money ; will have the project done; and the government does not have to raise public finance to finance the project”, explains Panayiotou.
In the European real estate market, GFH has profitably sold both its Gulf Atlantic Real Estate Funds (GAREC) for the UK and France.
“We got an annual yield of 14 percent to 15 percent (rental income plus capital growth) for our investors for both portfolios,” confirms Panayiotou. Another portfolio, GAREC Spain should have been exited in October 2006, but the Spanish market has not performed as per expectations.
In India, GFH is promoting Energy City II, a cluster of energy-related companies akin to an energy business-cum-industrial park plus residential and some commercial developments around it. Dubai’s Emaar Properties, which has a subsidiary in India, has already offered to buy 25 percent of the Energy City II project. Elsewhere in Asia, GFH is seriously contemplating setting up a regional office in Singapore especially to leverage capital markets products.