Dr. Karim El Solh, Co-Founder and Chief Executive Officer, Gulf Capital tells Zoya Malik about the make-up and performance of the company’s funds and advises investors on GCC growth sectors.
Banker Middle East – April 2015 Issue
Kindly tell us about Gulf Capital ‘s performance in 2014? Any milestones?
2014 has been a very productive year for Gulf Capital on all fronts: private equity, credit and real estate. We had a successful closure of our third private equity fund, GC Equity Partners III at $750 million, the largest private equity fund raised in the Middle East over the last three years. Fund III launched with a target cover of $550 million but was significantly oversubscribed and closed at its hard-cap of $750 million. The final closing of Fund III brings Gulf Capital ‘s total assets under management to over $3.3 billion (over AED 12 billion) across its four business units, Private Equity, Credit and Mezzanine, Real Estate Development and Principal Investments. “We also had two notable exits in our Private Equity division last year. The first was the landmark IPO of Gulf Marine Services on the London Stock Exchange (one of the best performing IPOs in 2014) and the second was the ground breaking sale of a 38.4 per cent stake in Metito Holdings to Mitsubishi Corporation and Mitsubishi Heavy Industries. Gulf Capital continues to hold a strategic stake in both Gulf Marine Services and Metito. These cross border global transactions have been noticed by our international and regional peers who have voted Gulf Capital as the “Firm of the Year” in MENA at the Private Equity International awards last month. “On the credit side, our First Credit and Mezzanine Fund, the $221 million Gulf Credit Partners I is 80 per cent deployed. It has recently committed $25 million to Amak Petroleum, a leading Egyptian oil and gas service company and $30 million to Evolvence Knowledge Investments, an operator of international schools in the GCC. Gulf Credit Partners I is busy financing fast growing companies in defensive sectors across the Middle East and Turkey. By offering flexible, cash-flow based financing solutions, we are able to fund and support the growth of promising and fast growing companies across the region. “Our real estate division, Gulf Related, has been performing equally with the dual ground breaking of our landmark $1 billion Al Maryah Central high-end retail mall in Abu Dhabi and the 520 homes Antara residential compound in Riyadh. Once completed, these projects should generate substantial current income for Gulf Capital and its investors. ” Gulf Capital also recently closed an AED 850 million ($231 million) revolving credit facility from two of the leading banks in the UAE, Abu Dhabi Commercial Bank and First Gulf Bank. The new six-year facility will help fund Gulf Capital ‘s growing pipeline of investments across its various business units.”
What’s the objective of the AED 850 million credit facility that closed in February 2015?
“The facility will help fund Gulf Capital ‘s growing pipeline of investments across its various business units, including private equity, credit and mezzanine and real estate. This facility, together with our $750 million third fund allows Gulf Capital to enter 2015 extremely well-funded both at the corporate and fund levels. We are privileged to be in such a strong financial position today and to be one of the best funded regional investment companies. As a result, Gulf Capital can take advantage of the numerous investment and growth opportunities across the region. We believe there is a unique window today to secure attractive investments at reasonable valuations in high growth sectors across the GCC.
What is the structure of the facility and why have you chosen the debt over equity financing route?
Gulf Capital is continuously assessing its funding options in the regional capital markets, be it on the debt or equity side. In the current low interest rate environment and increasing bank liquidity, the Firm took a view that it would be more advantageous to fund its growth through a debt facility rather than through the equity capital markets. The record size revolver credit facility allows Gulf Capital to reduce its borrowing costs, optimise its capital structure and continue financing its investments across all of its asset classes. This is a six-year revolving credit facility that we can draw down on whenever we identify and close attractive investment opportunities – this is a very efficient and optimal structure for Gulf Capital .”
Kindly tell us about the reception from investors to your latest GC Equity Partners III fund? What are investors trying to achieve by investing in such a fund?
The market received the launch of Gulf Capital ‘s third control-oriented growth buy-out fund with great enthusiasm. There was tremendous uptake from international as well as regional institutional investors looking to diversify their portfolios and secure exposure to growth sectors in the Gulf Cooperation Council countries. Gulf Capital ‘s Fund III was their gateway to such investments and portfolio diversification. “Investors in GC Equity Partners Fund III today include a significant number of regional and international limited partners, comprising of sovereign wealth funds, pension funds, endowments, fund of funds, insurance companies, family offices and other institutional clients. It is particularly gratifying to note that close to 60 per cent of external investors came from abroad, namely from the US, Europe and the Far East, highlighting the appeal of the fast-growing GCC region to global investors.”
Which growth sectors in MENA will Gulf Capital target in 2015?
“GC Equity Partners Fund III will continue Gulf Capital ‘s investment strategy of making control-oriented growth buyout investments in the GCC. Gulf Capital was able to deliver superior returns through its focused investment approach in defensive and fast growing sectors in the GCC and through partnering with exceptional management teams to grow and exit its portfolio companies. In 2015, we will continue our strategy of focusing on consumer driven industries such as food, FMCG, healthcare and education as well as other fast growing industries such as logistics and hospitality. When it comes to energy related investments, we will continue looking at this sector but with an opportunistic angle. There are some interesting investment opportunities today in the oil and gas sector at particularly appealing valuations, and we will seek to capitalise on them.”
What types of industry partnerships have you forged to date and why?
“We have formed a strategic partnership with The Related Companies, one of the largest mixed-use developers in the US, to launch our jointly owned real estate development company, Gulf Related. To date, we have launched together some of the most high-end mixed use, retail and residential projects together in the UAE and Saudi Arabia. When it comes to our private equity and credit divisions, we have decided to build them organically as these are very local businesses and the domestic players usually have an edge over global investment firms.”
What is Gulf Capital ‘s interest and view in supporting youth in education and the arts? What are the initiatives?
As a corporate citizen, Gulf Capital has a responsibility to re-invest in the communities where it operates. We focus on the young generation of the region, using the three pillars of training, education and entrepreneurship. All of the Firm’s programmes focus on empowering the future generation with the right set of skills and knowledge that will help them cultivate an entrepreneurial spirit and build a better future for themselves and those around them. We believe that such initiatives are highly worthy and valuable and will certainly go a long way towards building a brighter and more prosperous future for the region. “Supporting youth in education, culture and arts instigates positive transformative power in the society and Gulf Capital is proud to support such activities. Educating the youth of this region is the best investment we can make for the future. Gulf Capital has been working alongside government organisations and non-profit, non-government organisations (NGOs), such as the Abu-Dhabi based Emirates Foundation for Philanthropy, Abu Dhabi Music and Arts Foundation (ADMAF), the Red Crescent Society, to support their various programmes in these areas. “As an example, Gulf Capital launched an internship portal for young Emiratis wishing to get internships in the private sector, along with the Emirates Foundation and a number of leading companies. The aim was to assist Emirati youths in finding the right training opportunities at private and public companies and to hasten their professional and personal development. Our relationship and support of the Emirates Foundation is a strategic commitment to the great educational and training programmes the Foundation provides to Emirati youths. “The Firm also supports entrepreneurship and has launched, with MEED, The Gulf Capital SME Awards programme, which proved to be a resounding success with entrepreneurs in the region. The Awards recognise and celebrate successful entrepreneurs who were able to build and manage admired businesses in the UAE.”
Any new investment strategies for 2015 – 2016?
“We enter 2015 particularly well-funded, both at the corporate and fund levels. We are considering investments in fast growing yet defensive sectors such as social and hard infrastructure, logistics and consumer driven sectors in the GCC. Egypt is also an attractive market for us and we believe the economy has stabilised and should resume its growth over the next five years. As the largest Arab country with a population nearing 90 million people, it is an attractive growth market and investments in consumer driven sectors should do very well over the long term as GDP per capita increases and the middle class expands. “On the real estate side, our focus is on real estate developments in both the UAE and Saudi Arabia. We have a large and growing exposure to the retail sector and are also in the process of launching a number of residential and mixed use projects. Once completed and stabilised, these real estate projects should generate substantial current income for Gulf Capital . “While we expect a certain slowdown in the overall rate of growth in the region in 2015 in this new environment of low oil prices, we still see attractive investment opportunities in select sectors and asset classes that will continue to outperform. We believe the outlook for 2016 onwards should be stronger and more positive and we are busy securing attractive investment opportunities that will allow us to capitalise on the rebound of regional economies in the near future.”