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Wed 9 Apr 2008 04:00 AM

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Banking on oil

Peter Panayiotou, of GFH, says its time to launch a bank aimed directly at the oil and gas business.

Peter Panayiotou, acting CEO of Bahrain's Gulf Finance House explains why now is the time to launch a bank aimed directly at the oil and gas business.

The first Sharia'a compliant bank focused on the investment, financing and service needs of the energy sector is currently under formation with a planned paid-up capital of US$750 million, having obtained the 'in principal' approval of the Central Bank of Bahrain.

We firmly believe the demand for investment in the global energy sector over the next 25 years is profound and unequivocal.

Once it's established, First Energy Bank (FEB) will target consistent of returns for clients by focussing heavily on opportunities within the oil and gas sector, including upstream, downstream, transportation, and petrochemical investment.

FEB is a strategic business concept from Gulf Finance House, designed to capitalise on anticipated demand for investment in the global energy industry. According to the International Energy Agency's World Energy Outlook 2007, the energy infrastructure for the MENA region alone requires approximately US $56 billion per year from now through to 2030. This therefore, implies the region's energy sector will need a staggering US $280 billion in investment within the next five years.

International Energy Agency (IEA) estimates world energy demand will increase by 1.8% annually through 2030. Demand is anticipated to grow from 83.6 million bpd in 2005 to 91.3 million bpd in 2010 and to 116.3 million bpd in 2030. Natural gas demand is expected to rise by 2.0% per year over this time period, more rapidly than any other fossil fuel.

To meet this demand, US $4.3 trillion of new investment will be required globally in the oil sector through 2030, and approximately US $3.9 trillion is projected to be invested in the gas sector. Approximately half of these investments will be in emerging market countries, in particular India and China, whilst more than three-quarters of the investments in oil will be in upstream projects.

In addition, upstream investments are projected to account for 60% of investments in the natural gas sector. "A substantial number of these new energy projects will be implemented by private developers who have a sound project concept, yet lack capital and extensive development expertise - two crucial elements that First Energy Bank can provide," says Peter Panayiotou, acting CEO of GFH.

Regional companies that focus their business primarily on the energy sector, such as local oil services firms that lack the resources to fully capitalise on the current growth in the sector will also be targeted as potential acquisitions.

Investment activities of the Bank are planned to include energy development projects, consisting of equity investments and underwriting for new projects that are in the early stages of development where the Bank can act as principal or joint venture partner.

Equity positions in these projects may be subsequently syndicated through a private offering or offered to the public through an IPO within 2 years of initiating a successful development opportunity. These development projects are expected to yield the highest rates of return to the Bank.

"The genesis of First Energy Bank (FEB) came from our analysis of the significant gap between the abilities of Governments to fund projects and the tremendous demand for private equity money," adds Panayiotou.

The Bank has made it clear from the start that although the Gulf is very much its home it will quickly expand its reach into Northern Africa.

"From an international perspective we see ourselves particularly well placed to handle investments in Libya and Algeria. We are also heavily invested in India, so although we'd anticipate around 75% of the bank's custom to come from within the GCC, the remainder will come from Asia and North Africa. Given the potential for the oil and gas sectors in these territories, this proportion may well grow in the medium term," explains Panayiotou.
FEB has also targeted co-investment as a strategy in the early stages of development projects, combining forces with investors who will lead and manage the development activities while the Bank will participate in the management, structuring and commercialisation of the projects.

The potential to work with countries where refurbishment and infrastructural upgrades need financing is also on the ambitious agenda.

"We think that there's equally huge potential in Asia, where in India certainly, we know there is a shortfall in investment. Oil production off the coast of Mumbai is extremely promising but much of the machinery is outdated and in need of an upgrade - the financing for which is a perfect example of why FEB has been conceived."

The genesis of First Energy Bank came from our analysis of the significant gap between the abilities of governments to fund projects and the tremendous demand for private equity money.

The decision to launch a Sharia'a compliant energy finance house has been borne out of a combination of being in the right place at the right time, and securing the all important backing.

With the outlook for accessing capital through Western institutions faltering somewhat on the sub-prime crisis fall-out, and the global appetite for energy growing apace, Panayiotou says striking while the iron is hot is a key part of the Bank's strategy.

"Very simply, there is a great opportunity we couldn't ignore. We firmly believe the demand for investment in the global energy sector over the next 25 years is profound and unequivocal. The IEA estimates the global sector will require US$4.3 trillion of direct investment along with US$487 in refinery construction finance."

As existing regional funding sources fall well short of projected need, establishing First Energy Bank was a logical and direct response to this imperative. "We're very proud to be associated with a Sharia'a banking concept that will be the very first to offer exclusively tailored investment and service solutions to the energy industry," he adds.

Being Sharia'a compliant, Panayiotou says, places First Energy Bank in a unique position in the marketplace.

"There is no other Sharia'a compliant, energy focused bank throughout the whole of the GCC and MENA region. So FEB will be the logical choice for energy sector companies in need of a specialist investment product that places their needs first."

The Bank has made clear its intentions to start business in Oil and Gas refining projects initially, but anticipates fairly rapid diversification in the character of companies it will serve.

"We already have a specific maritime department - we are actually in the process of finalising this right now, and energy associated transportation, petrochemicals, and independent water and power production dedicated teams will follow in time."

Traditional banking activities, such as Corporate Acquisitions will also be within the banks spectrum of activities. "We expect acquisitions of public or private companies that are mispriced or undervalued in their market, and where value can be added through more efficient structuring, more active management or strategic repositioning will become a core activity of the bank."

Since its launch, the bank has successfully attracted investments from influential individuals from across the Gulf, including H.H. Diab Bin Zayed Al Nahayan, and organisations, such as Abu Dhabi's Tasameem, Emirates Islamic Bank, Kuwait Investment Co, and Bahrain Islamic Bank, among others.

Demand for finance in the oil and gas business seems set to soar, and access to a bank that specialises in the provision of capital funds to the oil and gas sector is sure to be popular. The huge ambition that's clear from the start may provide the impetus to finance ambitious upstream projects other sources of finance may, for reasons of their own, have needed to shy away from in the current climate.

"FEB will support its goals of nurturing growth while simultaneously rewarding our investors with consistently high returns," concludes Panayiotou.

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