Pipe dreams

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INDUSTRY LEADER: Future Pipe is providing the much needed components for today’s oil and gas sector.

Future Pipe Industries is set to become the latest addition to Dubai's DIFX. Sean Cronin speaks to CEO Rami Makhzoumi to hear what investors can expect from the listing.

Rami Makhzoumi talks almost evangelically about the pipe business. The well-groomed CEO of Future Pipe Industries has reason to be excited. The world's largest fibreglass pipe manufacturer is preparing to sell shares to the public in what will be a global offering expected in early May.

"This is an emerging technology and material. Something like Google was to the research world or what the mobile phone was to communications," says Makhzoumi. "In order to do things like these great companies, like the Googles and the Nokias of this world, going public is certainly a fundamental component."

The shares will list on the Dubai International Financial Exchange (DIFX), which was opened in 2005 with the aim of becoming the Gulf's first bourse to open to issuers and investors of any nationality.

That plays to the company's desire to tap international institutional investors as well as the local players who may more readily grasp the opportunity presented by a company that makes pipes upon which much of the oil and gas, petrochemical and desalination industries rely.

"Regional investors are important to us, but at the same time we are a multinational. I would say people in the region are perhaps a lot more aware of what is happening here with infrastructure and oil and gas.

At the same time, people abroad in countries with, let's say, poorer economic conditions, are increasingly looking to markets like this," says Makhzoumi.

Future Pipe is the first new security to tempt investors since Nanodynamics Inc, pulled the plug on its planned DIFX listing in February.

It was intended to be the first US company to list its shares on the bourse, but one day before it should have listed its shares, the alternative energy company instead told the exchange that it was not going ahead with the sale.

This latest listing is also an alternative of sorts. Future Pipe uses fibreglass to manufacture pipes, instead of alternative materials like steel and plastic.

And so far it has made enough of them to circle the globe three times, says Makhzoumi.

Future Pipe will sell up to 35% of its shares to the public although the company is not saying how much it hopes to raise from the sale, pointing to a ‘book-building' process to determine the value of the offering.

The oil-fuelled economies of the Gulf are investing record budget surpluses into large-scale infrastructure and industrial projects. From Doha to Dammam, the construction boom is helping manufacturers such as Future Pipe boost sales to new oil refineries, desalination plants and district cooling facilities. The global pipe market is estimated to be worth about US$120bn.

"Oil and gas and water infrastructure is where the core of our business is. So if you look at the infrastructure explosion in oil and gas, this consists of about 70% of our sales," he says. Spending on pipes across the Middle East is soaring with construction projects worth US$1 trillion already underway.

Utilities are also investing record sums in building new power and water plants to cope with the rapidly expanding populations of cities such as Dubai and Abu Dhabi.

Dubai's state utility plans to spend about US$13.6bn through 2010 expanding power and water desalination capacity. Similarly large-scale investment programmes are also planned in countries such as Saudi Arabia and Qatar.

Outside the Middle East, the Future Pipe CEO points to the economies of Europe and the US, which he says have a pressing need for pipe replacement.

While the global pipe business may be worth an impressive US$120bn, the fibreglass market represents less than 3% of that with a value of just US$3.5bn.

Nonetheless, Future Pipe claims to have a market share approaching 12% in a business where the top five players control almost a quarter of global supply.

Makhzoumi also stresses the market is growing fast, helped by demand driven by the oil and gas industry, reinvesting profits accrued from record oil prices into new infrastructure.

When I first joined the business, our chairman used to send me to conferences in obscure parts of the world where they talked about gas lines running from Qatar to the UK - mega-projects that simply never materialised,"he recalls.

While such projects may have been in the realms of fantasy a few years ago, Gulf budget surpluses are encouraging governments to spend on projects that are only now stacking up commercially.

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