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Dubai-based PE firm Abraaj Capital is set to solidify its already formidable presence in the region. Group CEO Arif Naqvi explains what the future holds for the investment group, and for the Middle East market.

This really is one of the few great spots left in the world of financial investing," insists Arif Naqvi, Vice Chairman and Group CEO of Abraaj Capital. His optimism is understandable - with over US$5bn of assets currently under management, Abraaj has established itself as a one of the region's pioneering private equity (PE) practices since its inception nine year ago.

The firm has carried out some of the most compelling and successful transactions in the history of leveraged acquisitions across the region - including deals with Aramex and Arabtec - and was the first pure private equity firm to be registered by the Dubai Financial Services Authority to operate out of Dubai International Financial Centre.

"If you happen back to February when the world was gathered in Davos, and talking about the prospects for the coming year, the Middle East was being talked about by most people as a potential savior of the global marketplace," insists Naqvi, jovially. Moreover, Naqvi is convinced that the Gulf business community can look forward to at least a decade of unprecedented economic growth.

"And I say that with a lot of confidence because I'm not just picking a figure randomly - with global [oil] prices even remaining at half what they currently are, the kind of surpluses this region will generate are going to be trillions of dollars in the years to come.

Naturally, oil is at the heart of Abraaj's most recent deal. Last week, the firm announced that it had acquired a stake in the holding company of Bosicor Group, an up-and-coming player in Pakistan's burgeoning integrated oil sector. The stake will provide Abraaj with a 40% shareholding in Bosicor Group's two group companies, Bosicor Oil Pakistan Limited and Bosicor Chemical Pakistan Limited, while the PE firm will also snap up a minority stake in subsidiary Bosicor Pakistan Limited (BPL).

BPL currently operates the fifth-largest oil refinery in Pakistan, with a rated capacity of 30,000 barrels per day (bpd) and a market share of 12%. Established in 1995, BPL is listed on all three stock exchanges in the country, and is active in the production, marketing and sale of petroleum products.

The investment in Bosicor was made through Abraaj's US$2bn Infrastructure and Growth Capital Fund (IGCF), which is focused on infrastructure projects in the MENASA region in various sectors, including transportation, education, healthcare, water, manufacturing, petrochemicals, and power and utilities.

"This investment in the future of Pakistan - one of many made by Abraaj and the first by IGCF - will greatly enhance the country's ability to fuel its ongoing economic expansion," says Naqvi.

"Led by an expert management team and benefiting from Pakistan's extremely competitive labour and production costs, Bosicor is poised to become the clear leader in this key sector.

The investment will fund the establishment of a petrochemical plant and a refining unit that will provide the Bosicor Group with an initial aggregate refining capacity of 145,000 bpd, and create an integrated platform operating across the full value chain in the oil sector. According to Abraaj, further investments in related infrastructure are planned over the next few years with a view to creating Pakistan's first global-scale refining, petrochemicals and energy conglomerate.

Our investment in Bosicor will not only contribute significantly to the company's physical expansion, but also assist Bosicor in increasing efficiencies through an ongoing programme of vertical integration," continues Naqvi. "Already one of Pakistan's top five energy firms, Bosicor will shortly make an even greater contribution to the prosperity of one of South Asia's true economic success stories.

With demand from transportation, power and manufacturing sectors increasing due to thriving economic activity in Pakistan, including annual GDP growth of up to 8%, the country's total demand for petroleum products is forecast to rise at a five-year compound annual growth rate of 5% until at least 2010. Pakistan currently imports over 50% of its high-speed diesel requirement and almost 100% of petrochemical products.

Last week's deal does serve to reflect the breadth and variety of Abraaj's investments. Just last year, for example, the firm dipped into the other end of the energy spectrum with what was at the time the largest PE acquisition in the history of the Middle East and North Africa region.

Abraaj's US$1.41bn leveraged buyout (LBO) acquisition of 100% of the shares of Egyptian Fertilisers Company - a private joint stock company and one of Egypt's largest private-sector fertiliser manufacturers and exporters - positioned the firm as a key player in the market for granulated urea and liquid ammonia, nitrogen-based fertilisers that are widely used in the agricultural industry in Egypt and abroad.

Significantly, and particularly in the US and Europe, demand for urea is increasing as a result of expanded production of ‘cleaner' fuels such as ethanol. Be it fossil fuels or biofuels, Abraaj is in the game.

"When we did the Egyptian fertiliser deal, every conceivable global financial product was brought to lay," Naqvi recalls. "That meant a significant level of sophistication in the LBO... [And now] I think that the local banks are beginning to wake up to the realisation that there is opportunity, and that's a good thing.

"I think that the quantum of liquidity in this region is going to drive the growth, and I don't see any signs of it stopping anytime soon," continues Naqvi. "I'm very optimistic, and very sure that the opportunity is virtually at our doorstep.

"If we can overcome sandbaggers, and if we can get enough quotas of investment professionals in the region, I think we will have tremendous opportunities.

As the US and Europe slide towards recession, the Middle East's booming economy is attracting the attention of investment vehicles worldwide. Fortunately for Naqvi, that means he should not be caught short when it comes to attracting quality investment professionals to the region. The talent follows the money - and the Middle East has money to burn.

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