The deals are the first step in the firm’s $129 million industrial growth strategy
Saudi Arabia, the biggest Arab economy, will probably delay plans to raise gasoline and other energy prices until later this year or early in 2018 amid an economic slowdown, according to four people familiar with the matter.
The government plans to raise energy prices in October at the soonest and most likely early next year, according to the people, who asked not to be identified because the information isn’t public. Energy Minister Khalid Al-Falih said in December that the next increase “will not be late in 2017.” A spokesman for the finance ministry declined to comment. Spokesmen at the economy and energy ministries were not immediately available for comment.
The government delayed the next round of price increases because it wanted to ensure that an increase won’t slow industrial activity, two of the people familiar with the matter said. The government is still assessing how much to raise prices to avoid hurting the economy, they said.
Saudi Arabia is trying to rein in spending and reduce dependence on oil after a global slump in crude prices. Energy-subsidy reform is a key part of the reform plan, along with the sale of stakes in state-owned entities, including the world’s biggest crude exporter known as Saudi Aramco. The kingdom raised fuel prices in December 2015 and announced plans for more hikes. But gross domestic product shrank by 0.5 percent in the first quarter, showing the scale of the challenges the government may face as it seeks to overhaul an economy still reliant on a struggling oil industry.
Payments to low- and middle-income Saudis to help them adjust to the subsidy cuts and other austerity measures, expected to begin this month, have also not started. The benefits program, called the Citizen’s Account, will take effect before energy prices are raised, Al Watan newspaper reported on Wednesday, citing Yaser al-Zahrani, a media center official for the program. No date has been set yet, he said.
Saudi Arabia’s energy prices are still among the cheapest in the world, with 91-octane gasoline at 0.75 riyals (20 cents) per liter, up from 0.45 riyals per liter before the first subsidy cut. The government aims to link them to international prices, Al-Falih said in December.
As CEO of Bahrain Mumtalakat Holding Company, Mahmood Alkooheji represents a steady hand on the tiller of the Gulf state’s investments.
Bahrain’s sovereign wealth fund was established in 2006 to build and manage a diverse portfolio of assets for the kingdom. In little over a decade, Mumtalakat has grown this portfolio to include stakes in more than 50 commercial enterprises, which span the fields of logistics, consumer and healthcare products, general services, financial services, industrial manufacturing, real estate and tourism, and telecoms and technology.
As such, Mumtalakat’s construction-related interests are expansive, to say the least. The organisation owns stakes in a broad range of high-profile companies, including Aluminium Bahrain (Alba), Bahrain Airport Company, Bahrain Real Estate Development (Edamah), Durrat Khaleej Al Bahrain Company, and Southern Area Development.
Yet despite the breadth of his remit, and the national interests at stake, Alkooheji is unwilling to entertain the idea of government handouts. On the contrary, Mumtalakat’s CEO is adamant that both his organisation and its portfolio companies must remain self-sufficient in order to add value to Bahrain’s economy. If a Mumtalakat company wishes to expand, he explains, it must demonstrate the feasibility of its plans, and secure the requisite funding based on the strength of its own finances.
“We seek private sector investment in all of our projects,” begins Alkooheji. “We do not pursue projects [solely because of a perceived need]. If the private sector believes there is demand for a project, and it has the potential to result in a healthy return, then we will proceed. Private sector involvement is very important. It brings business and commercial sense to proceedings.”
When it comes to development, Alkooheji views the private sector as both an effective source of funding, and a valuable second opinion.
He elaborates: “When one of our commercial enterprises approaches a bank for funding, we gain a second pair of eyes on the project. The bank will look at the proposal and, if it’s feasible, provide funding. If the bank is not comfortable, it will [refuse funding]. Because it’s the bank’s money that is being invested, it adds discipline to the process.
“At Mumtalakat, we don’t obtain funding from the government,” Alkooheji continues. “We fund our projects based on our own cash flow and balance sheets. So when [wider economic circumstances affect national revenues,] our work is not disrupted. That’s why I believe that our companies need to be self-sustainable. If they require equity, we will work with them to obtain it, but we do not lend to our companies. That is the banks’ role, and Mumtalakat is not a bank.”
One of the largest projects within Mumtalakat’s current portfolio is Alba’s Line 6 expansion. US-headquartered construction giant, Bechtel, has been appointed as the engineering, procurement, and construction management (EPCM) contractor for the $3bn (BHD1.1bn) initiative, which will add 540,000 tonnes to the aluminium smelter’s annual capacity, taking its total production capacity to 1.5 million tonnes per year. Main construction works for the project commenced last year, and the new pot line is expected to begin production activities in Q1 2019.
“Alba’s Line 6 expansion project involves the development of a new production line on the existing site,” Alkooheji tells ITP Media Group publication Construction Week. “Once completed, this will be the largest single-site aluminium smelter in the world.”
In keeping with Mumtalakat’s philosophy of self-sustainability, Alba’s Line 6 expansion was subject to significant scrutiny during the planning stage, and this diligent approach has been extended into the construction phase. Despite the magnitude of the project, Alkooheji is supremely confident in the Alba team’s ability to deliver the expansion within the targeted parameters. When asked whether he expects the project to meet its proposed deadline, he responds: “I have no doubt. I think that Alba’s track record speaks for itself. The company has always been very disciplined in this respect.
“And let me tell you something else,” Alkooheji continues. “When one of Mumtalakat’s companies puts a plan in place, we [monitor] it by the day – not by the month. If they say they will start production on a particular date, they usually deliver on that date. We may allow them a few extra hours, but not days,” says Alkooheji, only half-jokingly.
Mumtalakat’s CEO goes on to point out that Alba’s continuous expansion has led to growth in local aluminium demand, thereby benefitting Bahrain’s wider manufacturing segment. He explains: “Alba’s growth has led to significant expansion in the downstream sector, creating more jobs with lower levels of required investment. I think that this is an achievement that a lot of people [do not recognise]. Elsewhere, raw metal [tends to be] shipped to other countries, whereas here, approximately 50 percent of Alba’s aluminium is used locally.
“What’s more, the development of Alba’s Line 6 is expected to add approximately 500 permanent, direct jobs. During construction, we expect between 2,000 and 3,000 people to work on the project. And all of these works are taking place without any interruption to the facility’s ongoing production activities.”
Outside of the manufacturing sector, Durrat Khaleej Al Bahrain Company – a joint venture between Mumtalakat and Kuwait Finance House – is in the final stages of delivering Durrat Al Bahrain, a 21 sq km master-planned community that has been developed on 15 artificial islands in the south of the country. Upon completion, the project is slated to include more than 1,000 beachfront villas, luxury apartments and offices, several high-end hospitality resorts, a 400-berth marina, and a broad range of community amenities. Durrat Al Bahrain has been designed to accommodate 60,000 residents, and up to 4,500 visitors per day.
“Mumtalakat and Kuwait Finance House have been working on Durrat Al Bahrain for many years,” says Alkooheji. “As of early 2017, the final phase of Durrat Al Bahrain’s initial development was substantially complete, with the majority of the constructed units having been handed over to their buyers. The remaining undeveloped land has been distributed proportionally to each of the development’s shareholders.”
In turn, a separate management company will take operational responsibility for Durrat Al Bahrain’s developed projects once they complete, and the majority of the decision-making will be conducted by the community’s residents.
“Eventually, Durrat Al Bahrain will be run by the people who live on the island,” Alkooheji explains. “Mumtalakat will [withdraw its involvement,] and the community will become self-managing. The tenants are paying the fees, so they should make the decisions.”
Meanwhile, Mumtalakat’s real estate development arm, Edamah, is working on an array of initiatives across Bahrain, with an ongoing project portfolio valued at almost $3bn (BHD1.1bn). Edamah’s current activities include a cultural project in Muharraq, an eco-friendly development on Hawar Island, the transformation of Al Jazayer into a 1.6km-long public beach and tourist destination, and the construction of a series of much-needed car parks.
While all of Mumtalakat’s projects are designed to serve Bahrain’s denizens, Alkooheji reiterates that they must also benefit the public purse.
“Balancing commercial considerations with the public good can be a challenge, especially in the early stages of a project,” he explains. “For example, if a government entity or local authority asks us to build a car park, we say: ‘Fine, we want to build this for you but, for the project to be viable, it needs to be integrated with other commercial elements.’ It takes a bit of… I wouldn’t say negotiation, but perhaps convincing in the beginning. But so far, Mumtalakat has been very convincing in its arguments.”
Alkooheji concludes: “We aim to introduce commercial thinking into all of our projects. [Will we] build something just because you need it? No. Let’s first find out what will make it self-sustainable. I believe in financial sustainability in the same way that I believe in environmental sustainability. For me, it’s the same thing. A development should not depend on Mumtalakat or the Bahraini government. It should be capable of supporting itself.”
Dressed in a well-fitted suit and luxury watch, Shailesh Dash looks much more like a successful corporate CEO than an entrepreneur. And yet it is the latter title he uses to describe himself. And he does have a point.
Picture your typical CEO, and you probably think of them running a big, successful business (which he does), rather than creating new ideas and new companies (which he also does). Arguably, then, the key to Dash’s success is his ability to do both simultaneously.
To explain, Dash has founded several financial institutions that invest in the Middle East and South East Asia across various industries such as healthcare, education, food and beverage, logistics and financial services.
Since leaving his corporate role at Global Investment House (GIH) in Kuwait back in 2009, he has founded Al Masah Capital, Regulus Consultancy DMCC, Regulus Asset Management Limited, Avivo Group, Al Najah Education, Diamond Lifestyle and Gulf Pinnacle Logistics.
Currently, he is the founder and CEO of Regulus Capital Limited, a private equity advisory business with nearly $850m (AED3.1bn) in assets under management (AUM) in four sectors. He’s also the founder and CEO of Al Masah Capital, which, over the last six years, has successfully raised more than $1.5bn (AED5.5bn).
These are big businesses, but ones that he has created. So in effect he is both CEO and start-up founder – at least in terms of mindset – which begs the question: how does he gain expertise across multiple sectors and then leverage it into success across all of them?
Upsides to the downside
In the case of Al Masah, founded in 2010, Dash was seizing opportunity in adversity. “People had really suffered during the financial crisis,” he says in an interview at the Arabian Business offices. “The bankers and asset managers had lost their hard earned money. So we wanted to find a solution, particularly for regional investors, who were cautious about investing.”
He explains that there was still money in need of a home, but risk appetites had changed. Dash wanted to respond to that sentiment, which he did by asking a lot of questions of the market and his investors. His assessment was that the crash had happened due to inflated asset prices and over-leverage. And yet growth, especially in the Gulf, was still good, with oil prices buoyant (at an average of $61 in 2009, adjusted for inflation). This meant it was the perfect time to buy assets at low prices, but he couldn’t rely on investors willing to tie up cash in a company or blind pool for ten years.
“Family offices in particular had lost patience with this approach,” says Dash. “They wanted to know about the business they were investing in and they wanted access to their money. They wanted transparency, better returns, and for those investments to be more regional so they could look and feel the returns. And finally they wanted to be in sectors where there was obvious demand. So we spent a year talking to these people to find out what they were looking for. And then we ensured we had the skillset in those sectors, which led us to our first big venture in healthcare, and then education.”
Dash explains how they built businesses from there. “We’d find a sector, invest between five and 20 percent ourselves and then raise the rest from likeminded investors. We now have pension and sovereign funds, but back then it was mainly family businesses with a $1m (AED3.68m) or maybe $5m (AED18.4m) to spend. For this amount they could become a shareholder in a healthcare business and get eight or nine percent annual returns.”
With these investors Dash went shopping for healthcare companies to form Avivo Group, which is now “probably number one in dental; number two and number three in derma and IVF; and we have 30 to 35 clinics in the UAE.” Dash built a team of healthcare managers to integrate the different businesses and cross-sell products for each other.
And then he did it again in the education sector. Schools at that time had two-year waiting lists, and were also unaffordable to many families.
“There was a gap where people were looking for quality but in the middle class segment,” he says. The result was Al Najah Education, which now has over 16,000 students across ten brands.
Affordability is an important principle that applies to all his businesses. “We are not at the low or high end. We think maximum demand is always in the middle where you can still deliver a quality product at a good price. So for example, top schools in Dubai charge between AED75,000 and AED110,000 a year. Horizon costs somewhere between AED37,000 and AED70,000, but is among the top-rated schools in Dubai. This is how we differentiate our model. We want to provide services that people can afford to pay for, in every sector that we are in.”
While these seem like obvious sectors for success, Dash says the devil is in the detail. “Everybody was talking about healthcare and education back then, but it is difficult to make it happen. I can only think of about four names who were able to do so. Talk is cheap and it is all down to the implementation. This is where a skilled team, along with leadership and vision are important.”
Growth markets of the future
Dash has plenty of ideas for other sectors to invest in, and the decision over which ones to choose comes down to a very simple formula. “We want to be in industries where there are lots of consumers,” he says. “The region has consumption-based economies due to the large young population demographics here.”
To that end, he is already in logistics, a sector he thinks will explode due to the sudden rise in e-commerce. Indeed, Dash thinks by 2022 to 2024, the sector will be “three times its present size”, though he has a warning: “Everybody is trying to get into that segment but only the best will survive.”
He’s also looking at real estate, but not in the way that most people in the region enter the market.
“What is the difference between London, New York or Singapore and here?” he asks rhetorically. “Over there, a 50-year-old real estate asset looks as good as new because it is so well maintained. And this is due to technology. You need to build new advances into maintenance programmes.”
The problem here, he says, is that developers also manage finished buildings, when in reality it requires specialist third party companies. “It’s a completely different skillset, and with the way construction is going, over the next 20 years you will need these services.”
It’s interesting to think a little more about that idea. Arguably in the past, this region’s buildings had a shelf life of a few decades and could easily be torn down and replaced. But its more recent 60-storey-plus towers, as well as all those now famous landmarks, are here to stay – and will therefore have to be maintained. It will be a big business, and Dash is planning to be in it.
He lists other areas for potential involvement as “things we all need: electricity and water, especially water, and we will soon be in these sectors. Then there is food processing and agriculture. We don’t have the skill-set for these fields on our team yet. But there is room for growth there as well.”
IPOs and economies
Back in 2014, Dash was predicting an IPO for parts of his business by 2018. With that date around the corner, he is now more circumspect. “We still want to do it,” he insists. “We’ve taken a lot of advice and studied this a lot but I don’t see enough demand or liquidity. I don’t think we’re ready.”
He points to the example of GEMS Education which is rumoured to be looking to float in London rather than Dubai. “It’s a chicken and egg situation,” Dash continues. “IPOs are successful in a booming stock market. We don’t have that today. Luckily Emaar always comes to the rescue but I’m not sure where it goes next. You are seeing governments trying to raise money – Aramco, ADNOC, Emaar is quasi-government – but you don’t see the private sector coming in with IPOs and you won’t see it unless they think there is enough liquidity in the market. An IPO means nothing if you cannot sell your shares.”
All that said, he is bullish about the potential for regional growth. “I’m an optimist. We have 40 to 50 million people to feed in this part of the world, and in the MENA it’s more like 380 million people. So if you have a good product or service then consumption is not an issue. Plus we’ve seen the worst in terms of economic slowdown. Oil isn’t at $30 anymore and I believe that prices of $55 to $70 are here to stay due to healthier global economies and the curb in supplies by OPEC countries.”
This price range, he says, is a “comfortable level” for the Gulf countries to prove whether they can deliver on their ‘vision’ plans for a future that is less reliant on oil.
“In all parts of the Gulf and the MENA they need to deliver on their targets. And the UAE could advise the governments on those changes. Cash and buildings are not enough.”
Dash thinks that VAT will help in that process. Though not particularly keen on the Gulf becoming a region that imposes taxes, he does think it will make companies reorganise along more professional standards.
“The private sector and governments need to take more steps to provide the right products and services to meet the aspirations of their populations. Taxes are implemented in countries where you have a lack of resources. We have enough resources. But we have spent that money outside the region. The Dubai model has shown that investment has to be internal.”
The next step
As the conversation draws to a close, he discusses the pros and cons of doing business in this region. Dash has offices in Singapore and business interests all over the world, but he likes the free flow of ideas and mix of people in Dubai, despite it not yet having the same levels of bureaucratic efficiency that Singapore has where, he says, he can open a bank account in less than an hour.
There is one final question to be asked before he leaves: what topics haven’t we covered in this conversation that he talks about with fellow CEOs over dinner? “Quite honestly I don’t have much time to go to restaurants,” he replies. “Our businesses are young and there is so much to do.”
Dash will admit to squeezing in coffee meetings from time to time, but doesn’t share details on these occasions of his most vital resource: the people he works with. “The most important thing for my businesses is the quality of my staff and I’m not going to share those details with other CEOs. This is where the game-changing transformations happen. I’ve seen billion dollar businesses created in this market because of who was leading those companies. So I will talk about business but I’ll keep some information to myself!”
He does impart one final piece of very useful advice, however, that would be of use to any entrepreneur or business leader: “Supply creates demand. If you provide the right services you’ll always find customers.”
Where is the Middle Eastern Goldman Sachs?
“There is no regional leader. Market depth is one of the reasons and that’s because most Gulf funds have traditionally moved out to the US and Europe. Recently they’ve extended into more emerging markets but not nearly enough. Also, people think there are fewer opportunities here. It’s only recently that Saudi Arabia has announced its intention to build really big projects.
“The UAE has long been doing that and it has had a very good effect on other Gulf countries, because its neighbours now want to give their people the same facilities. The aspiration levels are higher due to technology and social media. Citizens will ask why they have the same resources in their country but not the same facilities.
“That’s why the recent steps taken in Saudi have been very positive and would be very good news for all the Gulf states seeing as it is the largest country. There is a vision and its leaders seem to be working toward it, but we have to give it time. It took 20 years to create Dubai.”
Do inflated share prices indicate another asset bubble?
“There are different views on this. Some people say it is like it was pre-2000 when you had a correction, but then again the world economy grew for another six or seven years after that slump. So the same could happen again. We could see a mid-cycle wobble rather than all-out crash. But the numbers don’t indicate that it’s a bubble. I know we’ve had cheap money and quantitative easing (QE) but growth has continued despite this being slowly withdrawn. And over here higher oil prices and government spending will help a great deal.”
Are family businesses planning properly for the future?
“Assuming your children can run the company as well as you is a mistake. They can have the right education and be surrounded with the right people, but they don’t have the hunger that you did. It just doesn’t happen. So we have to learn from international markets. To preserve the wealth of the family you need corporate governance. I’ve seen family businesses where no one works in the business. They get a monthly allowance but they don’t run it; they provide the checks and balances and corporate governance instead.”