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Mon 7 Jan 2008 04:00 AM

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Dubai International Capital

Sameer Al Ansari, CEO of Dubai International Capital, tells Daniel Stanton how the firm is positioning itself as a global private equity player.

Dubai's transformation as a financial centre is perhaps best illustrated by the rise of Dubai International Capital (DIC). Just four years ago, Sameer Al Ansari was group chief financial officer for the Executive Office of HH Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice President, Prime Minister and Ruler of Dubai, but in 2004 was involved in the establishment of both Dubai Holding and its private equity investment arm, DIC.

As CEO and executive chairman of DIC, he has been behind a sophisticated new approach to investment for sovereign wealth funds, which has been shown most recently in the firm's purchases of stakes in multinational giants EADS, HSBC Holding and Sony.

The credit market is still open to the right deals.

This rapid growth could have taken a knock following the US sub-prime crisis, which put the squeeze on debt markets, but Al Ansari says that it has not slowed DIC's progress.

"You can see from the announcements we've made over the past few weeks that it hasn't really affected us," he says. "We have announced deals worth US$3.8 bn. I would say the credit market is not closed, the credit market is still open to the right deals and the right sponsors.

"The only thing that's changed is banks are a little more careful, a little more conservative. They are giving, I would say, one notch less EBITDA (earnings before interest, tax, depreciation and amortisation) multiple than they were before.

"Debt is maybe a little bit more expensive, covenants are a little bit tighter than they were pre-July, but as an average weighted cost of capital I would say debt is not more expensive because LIBOR has come down in the meantime, so one thing has compensated for the other.

He is cautious about how the situation could develop in the future, since the Middle East has so far escaped the repercussions of the credit crisis. "Will it affect us going forward?" asks Al Ansari. "I guess it just depends on how bad things get.

"I think the region hasn't felt it yet, but will feel it pretty soon because I think the liquidity is just not going to be there for anything and everything. I'm hearing the sukuk market is quite tight now.

In recent months, DIC has acquired Almatis, a German producer of specialist alumina; UK-headquartered Alliance Medical, a provider of diagnostic imaging services throughout Europe; and Mauser, a specialist packaging company founded in Germany; and has purchased stakes in Japanese technology giant Sony and New York-based hedge fund Och-Ziff.

Looking at this list, it is hard to discern a pattern to DIC's investments. Al Ansari says that the firm does not want to specialise in any particular sectors at this moment, but looks for common factors when looking for acquisition targets. "We have not tried to invest in certain sectors: we have always taken an opportunistic approach," he says.

"In buyouts, what we look for are secondaries - companies that are already owned by private equity, that have good management teams, that have opportunities for growth, that are in the $1 billion to $2 billion enterprise value, where there is potentially an Asian story that we can help the management roll out.

Al Ansari adds: "Eventually as we build a much bigger portfolio I think we will find we'll end up with three or four sectors in which we are more comfortable, in which we have a better understanding, specialisation and so on, but in the early days that's pretty difficult to do.

"In any case, one of our key objectives is diversification.

DIC has an investment horizon of three to five years for most of its stakes, and has a particular interest in market leading companies that are under-performing.

So far, the firm has been happy to leave the management of its target companies in place.

Its purchase of a 10% stake in US hedge fund Och-Ziff Capital Management marks something of a departure for DIC, and could open up a whole new market. "Och Ziff takes us in a slightly different direction, but at the same time gives us all the things we need at exactly this point in time in our development," says Al Ansari.

"First of all, we believe this is an investment on which we are going to make money - we would not do it otherwise - but this is one of the largest hedge funds in the world, the first hedge fund in the world to go public, with a phenomenal track record, an excellent team with a fantastic reputation, resources across the world, offices in all of the countries we want to be in all over the world, with resources on the ground.

"It's a financial as well as a strategic relationship. It gives me access to all the things I need at this point in time to develop DIC.

The alliance should work both ways: DIC will have access to Och-Ziff's talent pool and deal flow, while the hedge fund will be able to call on DIC's access and networks in the Middle East.
Al Ansari denies that DIC will take a leaf out of Och-Ziff's book and go public, at least for the foreseeable future. However, DIC has already changed its structure several times to help it operate more efficiently. In October 2006, it launched NewDawn GSE Asset Management Limited, a fund manager operating in Dubai International Financial Centre, which manages the Global Strategic Equities Fund (GSEF), through which many of DIC's acquisitions have been made.

In July 2007, DIC created four divisions - DIC Private Equity, DIC Global Equities, DIC Emerging Markets and DIC Asset Management. DIC Private Equity focuses on international investment opportunities; DIC Global Equities manages all public equities investments made directly or through the Global Strategic Equities Fund; DIC Emerging Markets manages and grows investments in the Middle East and North Africa, as well as other emerging markets; and DIC Asset Management provides the marketing and placement platform.

One of our key objectives is diversification.

"Six months ago, you had one team doing different transactions, from private-to-public to MENA, to setting up funds, and so on," says Al Ansari. "By creating these departments and basically getting the private equity team to focus only on private equity and work together as a department, it is making us more efficient and more focused on what we need to achieve, and that's working very well.

The new structure should allow DIC's staff to specialise in particular fields of operational expertise. As the firm grows, it could also find itself able to specialise in specific industry sectors.

DIC claims not to have a particular geographic focus, since it aims to diversify its holdings, but its recent acquisition of a stake in Sony, in cooperation with the UAE's Zabeel Investments, and the investor conference it held in Dubai last month featuring the likes of Hyundai, Samsung and ICICI Bank, suggest that DIC could be putting more focus on Asian investments in future.

The firm is positioning itself to ensure it has the knowledge to invest in other mature markets. In November, it announced the formation of an advisory panel for the GSEF, which will be chaired by Al Ansari and include Nobuyuki Idei, former group CEO of Sony, Helmut Panke, former chief executive and chairman of the management board at BMW, and Jean-Pierre Garnier, current CEO of GlaxoSmithKline.

In the MENA region, Al Ansari sees particular potential in infrastructure investment and tourism, adding that the ongoing privatisation of state-controlled companies is creating prime opportunities for private equity.

"Honestly, almost every sector has room for growth in the region because our GDP is growing very fast and our economy is growing very fast," he says.

DIC established Jordan Dubai Capital to make the most of investment opportunities in Jordan, a regional forerunner when it comes to privatisation, and has committed 70% of the $700m allocated to the fund. Al Ansari has said that the model, in which DIC has a specialised team on the ground, allows it to carry out transactions more effectively, and could be replicated in other countries.

So far, most of DIC's investments have been outside the Middle East, but this could change if the region becomes friendlier to private equity.

Speaking at the Private Equity World MENA 2007 conference in Dubai in November, Al Ansari complained that the region lacks business incubators, pension funds and venture capital companies, all of which would help develop the private equity industry.

Many local companies also need to make their capital structures more suitable to outside investment, he said. "The cultural difficulty of family businesses selling onto private equity is one that we face every day," he said.

"The majority of the deals we have concluded have been outside this region because of these difficulties, which is changing slowly but surely.

He added: "We have continued to struggle to implement debt structures in this region that we would do with our eyes closed in North America and Europe.

One encouraging sign is that Middle East private equity firms are increasing their investment in the region outside their home countries. "We have already seen some cross-border transactions," said Al Ansari. "Even the Arab world is beginning to see that they can work closely together. The cultural differences can be put aside when the right deal is on the table, and I think we're beginning to see that happen.

It remains to be seen where DIC will make its next investments, and its focus on diversification could mean that it is more likely to look beyond the MENA region. Regional private equity players and enterprises will be watching Al Ansari's next move with interest.

JD Capital’s investmentsJordan Dubai Capital (JD Capital) was established with initial capital of US$300m to focus on investment projects within Jordan.

The decision to form JD Capital was announced by HE Mohammed Al Gergawi, executive chairman of Dubai Holding, during the 2005 World Economic Forum.

He said at the time: "JD Capital was established as a mega-investment company that will take full advantage of the promising market opportunities in Jordan, and will also benefit Jordan through the expertise and success of Dubai. Politically stable and geographically well positioned, Jordan is poised to soak up a sizeable portion of the excess liquidity in the Gulf region.

So far, these investments have included Saraya Aqaba, a hospitality and leisure development; the $50m Munya Woodland Resort and Spa; and Inwan, Jordan's first specialised mortgage finance company. The last two projects were undertaken in cooperation with the Social Security Corporation, Jordan's pension authority.

JD Capital has also taken a 28% stake in Jordinvest, an 8% stake in First Islamic Insurance Company, and acquired a controlling stake with DIC and Dubai Islamic Bank in Industrial Development Bank via a $100m capital increase. Energy Arabia (ENARA), a company established by Jordan Energy, the energy investment arm of JD Capital, has taken a 51% stake in Central Electricity Generating Company (CEGCO).

JD Capital is now one of the largest single country funds in the region and the second largest investment fund in Jordan.

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