PE firms critical for transparency in Gulf family-owned cos

Private equity firms will play a critical role in increasing levels of transparency in Gulf family owned firms, the chief executive of Dubai Financial Services Authority (DFSA) has told Arabian Business.

“Private equity will allow firms to get used to a little bit more of transparency,” Paul Koster said. “Where I really see a role for private equity firms to participate in gaining momentum in regard to transparency [is in] family owned businesses.”

He added that increasing levels of transparency is paramount for Gulf companies. “Ultimately you have to accept as a local firm that if you want to play in the international arena…you have to meet the levels of transparency.”

Family owned firms control around 90 percent of all commercial activities in the Gulf, according to a report by private equity firm Ithmar Capital. More than 5,000 companies hold combined assets of $500bn in the GCC and employ around 70 percent of the regional workforce.

Despite their size, family owned companies are known for being exceptionally secretive. The global financial crisis has prompted a series of investigations that has led to a series of fraud investigations.

In October, the CEO of Dubai-based Damas International, Tawhid Mohammed Taher Abdulla, resigned after he disclosed alleged “unauthorised transactions” worth approximately $165m. A source at the jewellery firm told Arabian Business that the transactions were as a result of the difficulties faced from going private to public.

“Yes, I think the transition [from public to private] is difficult. [In this region] that comes from centuries of having done this business model and now suddenly you hear that you should do things differently,” said Koster.

“Transparency is something that you need to sell because it’s not in the genes here, it has been family business oriented. ‘Why would I tell my neighbour what I’m doing’ it’s a learning process,” he added.

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