By Neil Halligan
From underwater mining to luxury yachts, Mohammed Al Barwani has interests in a staggering range of industries. The chairman of MB Holding explains how he built the firm from scratch to become a billion-dollar player
Gut instinct has played an integral role in how MB Holding Company has grown over its 33-year lifespan. Ever since he started it as an oilfield services company in 1982, Mohammed Al Barwani has held a strong belief that trusting your own instincts in business is vital to being successful.
“In life, not only in business, in anything you do, your gut instincts are very important,” Al Barwani says, as he relaxes in his Muscat office.
“Perhaps you have a gut instinct not to do something and someone tries to convince you, and if you go against your gut feeling, in most cases you’re going to make a mistake.
“Gut instincts are very important because I think your mind is trained to see patterns and see things. Sometimes you can’t logically say why you feel so, but there is a reason why your gut feelings are moving you to a certain direction.”
It’s a policy that has certainly served him well, helping to grow MB Holding into the group it is today, with additional business in hospitality and yacht-building all adding up to create a business worth well over a billion dollars.
A qualified petroleum engineer, Al Barwani started MB Holding by providing products to companies such as state-owned Petroleum Development Oman (PDO) and US giant Occidental Petroleum. With $1.4m worth of revenues in the first year, operations really took off after Al Barwani was asked to acquire an oil rig for PDO in a short delivery timeframe. He pulled off the deal and six months later he secured a contract for three more rigs.
“That’s how it took off,” he says. “At the high point, which would be three or four years ago, we had half-a-billion dollars worth of revenue in oilfield services, not counting other businesses, and almost 5,500 employees in oilfield services.”
But then the market changed and competition increased. It wasn’t just western companies like Schlumberger and Halliburton that were competing for business, it was companies from China, India, Egypt and new local Omani companies that helped erode the margins completely.
“Some of these companies coming in, especially the Chinese, are very aggressive [with the] price to enter the market. Because a lot of them tend to be large companies owned by the government, they are not worried about having to pay loans to banks, or worry about profitability. Sometimes, market share is more important than the price,” he says.
Al Barwani says they’ve gradually pulled back from oilfield services in places like Indonesia, Australia, and New Zealand.
“We still have businesses in the Middle East, Germany and Hungary. We’ve virtually changed our business model. We went more into exploration and production of oil and gas. Today we have concessions in Oman for exploration and production of oil and gas, we produce and sell gas in the Netherlands, we have some production in Egypt, and we have a concession for exploration in Mozambique,” he says.
MB Holding has developed Petrogas as its exploration and production arm, says Al Barwani.
“Today, it’s our biggest business and it’s also the business where we are likely to grow, even in these low oil price times. You have to remember that the cost of production of oil in the Middle East, even at $60 per barrel oil, is one third of that,” he says.
“When you’re at $60, you’re still profitable, but of course you have lost 50 percent of your cash flow, so you need to re-budget. In our case, it’s going to have an impact for about a year. Next year’s budget will be budgeted on a lower oil price. For private companies like us, the impact is not that bad. The real impact is on publicly-traded companies because the share price reflects their cash flow and the profitability.”
Al Barwani’s gut instinct led to the establishment of many new businesses. In 2000, he was at a friend’s house for dinner, also attended by a US mining engineer. By the end of the night, Al Barwani had heard a convincing argument about exploration for copper in Oman and decided to establish what was soon to become Mawarid Mining.
“Basically, the next day I employed the guy [US mining engineer] as my general manager for mining. He was employee number one in mining and we started mineral exploration,” he says.
“It wasn’t as easy as he said. He thought within a year we could be in production and he thought it would take $500,000 worth of investment. It took us 11 years and something like $60m until we got into production, but when we did get in production it was worthwhile.
“By the time production started, mineral prices were up — the price of copper was at its peak at $9,000 a tonne — and the investment [we had made] we paid it back in less than two years.”
With more than 400 employees, Mawarid Mining is also involved in phosphate exploration in Namibia and copper and gold in Tanzania.
“We are exploring in Rwanda for tin and another valuable mineral, and we are getting very good results from those explorations. We did find a large ore body in Namibia. We found gold in Kazakhstan but the problem is the gold price is low and what we did find, at this price, is marginal,” he says.
The next big industry, Al Barwani says, will be seafloor mining. The company has a 28 percent share in Nautilus Minerals, an industry giant, which he says will become the first company in the world to be mining for gold, nickel, copper and zinc two or three kilometres under the sea in Papua New Guinea.
Al Barwani says there has been significant investment to date with a 240-metre ship being built in China, and robots “bigger than any earth-moving machinery” being built in Newcastle that will carry out the mining.
“Nautilus is tomorrow’s company and I have no doubt that the first day that we produce the first tonne of gold or copper, that share price will go through the roof,” he says, adding that he expects to be producing three years from now.
United Engineering Services, the engineering arm of MB Holding, has grown ten-fold since it was acquired. Producing parts for other companies in the oilfield industry, Al Barwani says it is also trying to enter the aerospace and the defence industry.
“In the UK we got the licences for part manufacturing for the aerospace industry and in Oman we’ve entered services for the defence industry, as part of United Engineering Services group,” he says.
The gut instinct was also very much in evidence when he made the move into yacht-building. During the financial crisis, Al Barwani was planning to buy a yacht and instead of investing in just one, he was offered a whole shipyard full in Alblasserdam, south Holland.
“I was going to Holland anyway and when we went to look at the shipyard, we were quite impressed — clean working environment, very professional people, and beautiful yachts under construction. Remember I’m an engineer, so you fall in love with the idea of building things. There’s always the kid with the Meccano in all of us,” he says.
Despite it not being the group’s natural business, Al Barwani says the good management team and general set-up convinced him to make an offer for Oceanco, a shipyard that builds high-end, luxury yachts — some up to 110 metres in size.
“During the financial crisis nobody was buying yachts, but I knew that business is in cycles. It’s like the oil price now. You know that cycles don’t last an infinity — a year or two and if you can wait two years, then things will turn around. And that’s what happened,” he says.
“We didn’t sell anything until 2010 but when we sold, we actually sold quite a bit. When the market came back, it came back quite strong. Even during the financial crisis, there’s always an industry that’s doing well. The IT industry was doing alright, the media industry was doing alright, so we sold boats to media tycoons and to IT tycoons. Russia was doing well, and so we had a lot of Russian clients, as well as a lot of Middle Eastern and American clients,” he adds.
Al Barwani recently acquired a Turkish shipyard, Proteksan Turquoise, to build mid-sized yachts.
“It’s a little bit like having a portfolio of shipyards. In Oceanco you’re paying for really the top quality. It’s like buying a Rolex or a Bugatti.
“In Turkey, what we want to do is think of it like an Audi. Bugatti, Bentley and Audi are all part of the same group. In Turkey what we want to build is perhaps the Audi of the industry,” he says.
“They are smaller and less fancy. They’re still expensive; they’re not cheap,” he adds.
Over the years, Al Barwani says the group acquired and built a number of properties, mainly to support the business, particularly in Germany and Hungary, which explains the need to form Musstir, a real estate company that manages the property portfolio, which also includes those in Oman.
Musstir, however, grew into tourism on the back of a government initiative in Oman to encourage growth in that sector. “Five years ago we decided to enter the tourism market. We acquired, as an investment initially, a publicly-traded company that was more or less closed and that gave us the Golden Tulip Nizwa hotel and then through this company bought the Park Inn with partners and then we built the Park Inn in Duqm,” he says.
With three hotels (in different partnerships) in the portfolio, he says the firm is building three more, including an Anantara resort in Salalah, a Louis Vuitton-operated hotel in Muscat and another Anantara in Sifah.
“The Louis Vuitton hotel is going to be very high-end. Cheval Blanc is the Louis Vuitton hotel operating arm. There’s only four hotels like that: one in Paris, one in the Maldives, one in Courchevel, and one is coming in Oman. We also own a hotel in Zanzibar called the Essque Zalu,” he says.
There are further projects in the pipeline for hotels on an island off Ras Al Khaimah and in Abu Dhabi.
“We are looking at other opportunities and at any time we are looking at either acquisition or development,” Al Barwani says. “But we actually like acquisitions. You pay more, but when you acquire something you know its performance, so the price you’re paying is based on how it’s performing. Pay more, risk is less.”
MB Holding, he says, is always looking for new opportunities to invest or to acquire, with a specific division now set up to source new opportunities or to sell off entities that might generate value.
“We started as an oilfield services company. Now we are 30-something years ahead, there’s the next generation coming into the business,” he says. “We are moving from concentrating on oil and gas into a family investment company. We have an investment group as part of MB Holding — we have people who essentially look every day into acquisitions or selling. We became a buyer and seller of companies. Recently we sold a geothermal company in New Zealand.”
The acquisitions that MB Holdings will make in oil and gas will be through the stock exchange. “You will find a lot of oil companies on the London Stock Exchange, oil and gas junior-mid-size companies, who have been hit by the declining oil prices. Some have come down from $2bn market cap to $300m today. So suddenly it opens up a lot of opportunities and you’re going to see a lot more consolidation in the industry. You’ve seen how Shell has taken over British Gas, so more of that will happen now, partly because companies have become vulnerable because of the share price,” he says.
“Our guys are very busy doing the numbers and calculating what to acquire, talking with banks and financial institutions. We’re looking at some exciting prospects. I am sure that we would double our oil business, depending on what we acquire. We are looking to acquire companies with cash flow, with underlying business and assets, mainly on the stock markets,” he adds.
Financing the acquisitions saw the company to take out a bond recently for $310m, which traded on Luxembourg Stock Exchange, and was paid out last year.
“It was a high-yield bond. There were a lot people ‘sorry’ that we paid it back. They were asking when the next bond was coming out,” he says.
There are plans for another bond “just to give us the gunpowder for future acquisitions”, possibly later this year, he says.
MB Holding is very much a family business, Al Barwani says. While two of his sons are CEOs of the mining and exploration and production business, they are there on merit, having served their time in the industry. Similarly, one of his daughters is currently involved in the hotel side of the business, working alongside the CEO, and another daughter spearheads the philanthropic activities amongst the companies.
When the question arises as to a succession plan, Al Barwani says it has already begun.
“I’ve actually slowed down already. I’ve got a good management team so they are running the businesses,” he says. “All our companies have a CEO. I don’t bother them and if they need to see me, they do so. Some of them I don’t see for two or three months. We have a management team that coordinates with them.”
And as for the future of the company, the instinct that has served him well so far will see him stay at the helm for many years to come.
“When you’re running your own business, you let it run on its own path. What I hate is the routine. In your own business, every day there’s something new, something exciting. I don’t want to control, let others control, but I want to be involved,” he insists.