By Damian Reilly
Bank expects to raise less than half of $1.8bn it raised two years ago.
Bahrain investment bank Gulf Finance House (GFH) this year expects to be able to raise less than half of the $1.8bn it raised in 2007 from investors as a result of difficult economic conditions, chairman Esam Jenahi told Arabian Business on Sunday.
“Raising funds is becoming a little bit difficult. Especially if it is not for a specific idea or project. In the first six months of this year, fund raising was not easy. We are looking at a cycle of $500m-$800m this year. This is our target. Because the market dictates. You have to go with the market. Investors, if his general portfolio is down 60-70 percent, the extra cash he was putting in before may be one third of what it was previously.”
He added that commercial banks’ current reluctance to lend was taking the shine off potential bargains in the market for investment companies with cash to spend.
“Last year when we were looking at opportunities in each sector, because the oil prices were up, the valuations were extraordinary. The same valuations we were getting in the first quarter of this year, when the oil prices were beneath $40, they were almost at 50 percent discount to last year.
"The problem is there may have been a fifty percent discount, but any acquisition you do, you want equity and you want debt. Nobody was prepared to give you any debt, because banks are all on the sidelines. No one wants to make a decision at board level in terms of providing finance.
“This year, even if you have similar liquidity (to last year), opportunities are cheap, but if you structure it, it is not working as at the end of the day, you cannot go 100 percent equity. You want 30/70 percent, or 50/50 percent, to enhance your rate of return.”
Janahi said that GFH, which announced a first quarter loss of $37.7m, was focused this year on making provisions for losses and “cleaning up the house so that when the new CEO comes in at least he has a good place and can take it forward.”
He added that the company’s market capitalisation was down from a high of $3.2bn in 2007 to “less than a billion today.”
In previous years, GFH has given investors returns of over 45 percent, Janahi said.
On August 1, Ahmed Fahour, previously Executive Director and CEO of Australian operations at National Australia Bank will become CEO of GFH. Janahi said he expected Fahour to take the bank, which ended the 2008 fiscal year with profits of $290m, on “another sharp curve of effectiveness and efficiency.”