Dubai Investments, the largest investment company listed on the Dubai Financial Market, is planning an AED1bn (US$272m) Islamic bond offering as it seeks to pay off debt and finance expansion, which could include as many as six acquisitions, its CEO said.
The firm has 32 companies with interests in real estate, manufacturing and finance.
“Part of what we are borrowing now will pay partly some of the loans against some of the manufacturing units which were subjected to penalties and higher costs of borrowing," Khalid Bin Kalban said in an interview with Arabian Business. “Once we get that AED1bn we will restructure, maybe we will increase some of the capital of those companies, reduce their costs and their profitability will be higher."
The company wants to go to the market to take advantage of the low cost of financing by issuing the five-year sukuk at less than 5 percent, Kalban said. He expects to close the deal and secure the financing by the end of April.
Dubai Investments reported a 58 percent increase in its 2012 profit which reached AED320m on the back of a recovery in the real estate sector and markets rebounding.
Divestment from two companies, which Kalban declined to identify, could reap the company as much as AED530m this year and boost Dubai Investments' profits more than three times.
“If we don't exit we will have a profit growth of about 30 percent, if the exit happens we will have growth of 200 percent," he said.
“The market was taking a beating the last couple of years so now the performance of companies after restructuring, proper funding has improved," Kalban said. “Markets around us have improved, financial markets, real estate activity and manufacturing we see improvement across the board. “
The Dubai Financial Market is up about 17 percent since the start of the year, Abu Dhabi is at a 39-month high, while Kuwait is at a nine-month high.
“Last year was a year of consolidation for all the companies. This year, 2013, and onward is going to be a growth strategy going forward," Kalban said.
The company is currently reviewing six entities as part of its acquisition and growth strategy which would cost it about AED280m, he said.
“There is a positive trend in equity markets, in real estate and in manufacturing," Kalban said as he spoke about the potential for growth and expansion of his company's subsidiaries. “The focus of our manufacturing is building materials and we see the construction activity happening around us in the GCC at a good scale. So our companies in glass and aluminium have secured good orders. The order book is full."
Saudi Arabia, the largest economy in the Arab world and biggest producer of oil globally, is spending more than US$500bn to expand its infrastructure while Qatar and the UAE are spending billions of dollars on backbone and foundation projects.
Dubai Investments will focus only on the Middle East and North African region as part of its growth strategy, Kalban said.
“It is very difficult for us to expand globally," he said, adding “we will have to look at our local and regional investment and look at global investment only at a later stage".
Kalban said the Dubai market was strong and the Gulf region had “a window of opportunity" over the coming three years for growth. However, he also stated that the most challenging aspect for developers was the source of financing as banks have tightened credit facilities.
“There are basic sectors of the economy - even during the financial crisis that held their position. You have investment going into real estate, with investment mainly directed towards tourism. More hotels are coming, more entertainment, and more theme parks," Kalban said. “If you look at the general market, here and around us it has improved. The sentiment is coming from different directions. The equity markets have shown positive trends, real estate values have increased."
Asked about the rapidly rising rental prices, increasing asset values and if the central bank's recent memo asking local banks in the UAE to put a 50 percent limit on how much foreigners can borrow, Kalban said the spirit of the regulatory authority was to limit the scope of speculators in the economy.
“I think the central bank has started rethinking those guidelines,'' he said.
“You cannot cripple speculation. Speculation is the flavour, the spice of markets. What they are trying to do, the central bank is trying to bring a balance between all the investors that are coming, what is available in the country and how the banks should be lending," Kalban added. “This is not the environment for speculators now. Its more regulated than ever. We are way away from 2007, I don't think that will repeat itself. People have learned. There is new money, good liquidity in the market."