Exclusive: Bahrain's Arcapita to close several billion dollar deals in the coming weeks

The Islamic investment firm faced Chapter 11 bankruptcy in 2012, but as it moves forward it has big plans afoot. CEO Atif Abdulmalik outlines its strategy and explains how he has been able to turn the business around.
Arcapita CEO Atif Abdulmalik.
By Shane McGinley
Sat 14 Feb 2015 09:19 AM

One of the reasons the Gulf has been so slow to introduce bankruptcy legislation is because there is still a stigma associated with the process. While some of the biggest companies and business names in the West have gone through the process, in the Arab world it is still seen as taboo and a major cultural failure.

One company that has gone through the process, come out the other side and is slowly beginning to scratch away at the doomsday perception associated with bankruptcy is Bahrain-owned, US-based firm Arcapita.

Headquartered in Bahrain, it was established in 1996. With offices in Manama, Atlanta, London, and Singapore, the firm currently has around $3bn in assets under management and over the last two decades it has handled over 70 investment transactions worth around $30bn.

Under the strain of the global recession which struck in 2009, it applied for Chapter 11 bankruptcy proceedings in March, 2012 in New York, declaring that while it had listed assets of $3.06bn, its liabilities amounted to $2.55bn and it had failed to restructure a new agreement with its lenders.

Speaking to Atif Abdulmalik, chief executive and chairman of the executive committee at Arcapita, he certainly doesn’t sound like a man who is under any stress and actually sounds quite upbeat.

“Things are moving very positively, better than we would have expected,” he says when we ask how he feels now there is light at the end of tunnel since the company exited from Chapter 11 restructuring in September 2013.

“Everything was done 18 months ago and we are just moving ahead and delivering to our investors… The beauty about [Chapter 11] is it gives you enough time to restructure internally and it is 100 percent controlled so there is no pressure to sell off your assets at a lower market price. I would say that is the best benefit of Chapter 11.”

In fact, he believes the Arcapita experience should be seen as an example to authorities in the region who might be reluctant to push ahead with the introduction of similar procedures in the Arab world for fear of the taboo associated with it.

“I would really push the authorities, some of the central banks in the region, to consider something like the Chapter 11 protection,” he says.

Abdulmalik claims that the process has not hindered the finance house at all and the smoothness of the proceeding has, in fact, worked to its benefit. “When we talk to people here they are now more positive. They are therefore more willing to look at it as going forward.”

The company made headlines a few weeks ago when it announced the sale of PODS Inc, the provider of portable storage and moving solutions for residential and business customers in North America, for more than $1bn.

The deal to sell to the Ontario Teachers’ Pension Plan (OTPP) was the latest in a line of divestments by the company and it said it was happy with how it is moving forward with exiting from some of its investments.

Abdulaziz H Aljomaih, the chairman of Arcapita’s board of directors, said at the time: “Arcapita has capitalised on favourable market conditions by exiting a number of portfolio investments. By completing the sale of PODS, we have delivered approximately $2bn in exit proceeds to our investors during the last 18 months. We have an active new deal pipeline and expect to complete a number of new investments over the next few months. The board and management continue their focus on maximising value for our shareholders and investors”.

In fact, a look at Arcapita’s website shows it has been busy looking for buyers around the world for its portfolio of assets. In January this year, it sold its 50 percent stake in Lusail Golf Development in Doha to Qatari firm Barwa Real Estate Company for approximately $1.4bn. The plot owned by Lusail Golf is located in Lusail City, a master-planned development covering an area of 21 sq km, and was one of the largest in the project. In June 2014, it sold its portfolio company, CardioMEMS, to St Jude Medical, a global medical device company headquartered in Minnesota, for $450m, while in February the same year it secured a payday worth $740m from the sale of Varel International Energy Services, a manufacturer of drill bits for the oil and gas industry, to Swedish firm Sandvik AB.

This list is set to get even longer as the months progress as Abdulmalik reveals that there are currently several more deals in the works ready to be announced. “Since we exited 18 months ago, we exited successfully from several companies and we delivered $2bn so far to the investors and what we see coming in the pipeline we do have several exits between now and the end of the year 2015.

“In the US, Europe, this is what we are going to target. If I can focus on the coming exits, which we are anticipating to divest, I think two or three will be in the range of $1bn,” he reveals.

However, he is says there is no deadline and that this is not a fire sale as he is under no pressure to offload assets to raise capital quickly: “The good thing about Chapter 11 really is we are not forced to sell because of pressure from anyone, the management continues to be in control and we are just seeking the best opportunities where we can get maximum value for our investors to exit.”

According to the company’s website, it currently has eight private equity assets and funds still under management, while 28 have been divested. In terms of real estate, nine remain in the portfolio, while 22 have been exited over the last 15 years. The US seems to make up the bulk of the assets exited, accounting for 34 divestments, or 68 percent of all those it has sold in recent years.

“We do have something very soon coming in the pipeline in Europe and the other one is going to be in the US and will be in the real estate and that is as much as I can say at the moment,” Abdulmalik says.

When I put it to him if any of the assets are considered part of the Arcapita ‘crown jewels’ and will never be put on the chopping block, he reveals this is certainly not the case: “For the right buyers and right price, then yes [we will sell]. We already [have] some of them for beyond 2015, but the big one will be coming this year and a couple in 2016.”

Buyer appetite is what controls the market, but Abdulmalik says demand is currently strong: “Actually, very, very high. We are close to signing on one of them in the coming four weeks.” In fact, he reiterates that demand has also not been affected by the recent drop in the price of oil or the value of the euro against the US dollar.

“Actually, on the private equity business we are in we don’t see the impact on the valuation side. The two we are exiting we did not notice any impact in terms of the pricing… We are at a very advanced stage and I don’t see anyone backing out.”

One deal that definitely won’t be on the cards is Viridian Group. In August last year, Reuters reported that Arcapita Bank had hired JPMorgan to lead a share listing for the Irish energy firm, in a deal that one source said could give the firm a value, including debt, of nearly $1.7bn.

Belfast-based Viridian emerged as a holding company in 1998, after the 1993 privatisation of Northern Ireland Electricity, and has been owned by Arcapita Bank since 2006.

However, Abdulmalik was quick to shut this report down. “That was a rumour basically, absolutely as the company is focused on the growth opportunities and we are looking forward to that and to maximise value for the shareholders and we will exit only at the right time.”

But the Arcapita story is not all about exiting; it is clearly looking at the long term and the next stage in its evolution. Late last year, Arcapita completed a $100m fundraising round from new and existing shareholders. It said at the time the money will help it to make investments in the Gulf region as well as in international markets including United States, Asia and Europe.

“Basically the $100m is going to be focused on the new opportunities,” Abdulmalik says. “Since exiting Chapter 11, the focus was to stabilise and the exit opportunities, which [we] have done. We are focused on the new opportunities and you will hear soon that we are acquiring an asset in the GCC.

“In the short term, in the coming six to 12 months, it is going to be GCC real estate and then we are moving to the US and Asia over the next 12 months,” he adds. While he gives little away, one area that could also be on the cards is the UAE and Dubai, but he admits he is being quite picky.

“We are trying to be focused on the very core yielding real estate. We are a little bit shying away from developments just yet, just income-generating assets and if there are any guarantees in terms of the lease and all of that,” he says without giving away too many details.

In addition to looking at new potential assets, Arcapita also took on a major new shareholder last year when Bahraini sovereign wealth fund Mumtalakat acquired a 15 percent stake. Abdulmalik is not ruling out any more high-profile parties coming on board.  “It is quite nice, we have diverse shareholders, between sovereign wealth funds like Mumtalakat and financial institutions like Dubai Investments Company and we do have high net worth individuals.

“Once we decide on the capital raising in the future and we have accrued new business in a year or two we might increase the capital and seek a new investor at that time. But, for the time being, the capital base is sufficient to do the new deals we are targeting for the coming 18 months.”

In the midst of all these deals on the cards, Abdulmalik says the company is also looking to expand its global reach with more offices worldwide. “We are planning [to expand] and will be approving new teams in the US and Europe shortly.”

Arcapita seems to have been able to brush off any potential bankruptcy stigma and Abdulmalik is confident Bahrain as a country can also overcome any potential backlash from the ongoing political unrest that has affected the island state over the last few years.

“Well, anybody will notice that in the last six to eight months the sentiment has really improved and is gaining momentum, especially in the real estate. Bahrain is a well-established business hub so the situation has really improved the way we see it going forward.”

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