Seoul // Arabtec Holding, associated with some of the UAE's most prestigious building projects including the Louvre Abu Dhabi, has launched a joint venture with the engineering arm of the South Korean conglomerate Samsung.
Arabtec regards the deal as a “major milestone” in its new strategic direction to expand into more complex engineering and “big ticket” infrastructure work around the Middle East and North Africa.
The chief executives – Hasan Ismaik for Arabtec and Park Choong-heum for Samsung Engineering – signed the terms of the deal at a ceremony in Seoul yesterday.
“The launch of this company is a major milestone in our ambitious strategy to expand into new areas, in association with world-class partners, as part of our endeavour to consolidate our status as a key player at the regional and international levels,” said Mr Ismaik.
“The new joint-venture company is a powerful combination of construction expertise, decades of successful project management, strong engineering capability and an extensive regional network in government and business. I am confident that this combination of leading capabilities will prove a success in the near term and look forward to announcing Arabtec-Samsung Engineering’s future achievements.”
Mr Park said the new company would “build on the success of our partnership with Arabtec on some of the region’s highest-profile projects. The success of this partnership with Arabtec is part of our expansion strategy in the Middle East and North Africa region and we believe that our new company is well positioned to capitalise on the exciting growth opportunities in the oil and gas, power and related infrastructure sectors.”
The deal could also boost employment in the UAE, with the establishment of a “centre of excellence” in Abu Dhabi using Samsung technology and expertise to train Emirati engineers.
“The new company will also contribute to the human development of young Emiratis through the centre, which will train and educate Emirati engineers of the future,” said Mr Ismaik.
Shohidul Ahad Choudhury, the investment banker hired by Arabtec as its head of mergers and acquisitions, said the deal was part of a “robust business plan” put together to transform Arabtec into an engineering, infrastructure and facilities management group, in addition its expertise in contracting.
“Five years ago, the growth was in construction of leisure, housing and retail projects, but now there is lots more competition and lower growth in these sectors,” he said. “The margins are better in engineering, procurement and construction, and there is a huge need for infrastructure across the region. We’ll be looking at big-ticket projects – upwards of US$1 billion, and there are plenty of those out there, especially in petrochemicals and refineries – across the GCC region.”
He added that Arabtec was looking at a similarly structured deal with a “prestigious” global company such as Samsung to give the UAE economy an entry into the booming market for infrastructure projects but gave no indication on the timing of any announcement.
A joint statement from Arabtec and Samsung said: “The oil and gas, power and infrastructure sectors in the Middle East region are key drivers of long-term economic growth. The major projects market is gaining momentum with the region’s 100 biggest schemes currently under construction accounting for more than $304bn of capital spending.
“Activity in these sectors in 2013 and beyond is set to increase dramatically in the coming years. The top 50 projects currently planned or already under way across the region are valued at $1.56 trillion, representing a 42 per cent increase compared to 2012.”
A memorandum of understanding had been signed earlier this year between the two companies, but there was a significant change to the final deal. Arabtec and Samsung will each have 40 per cent of the venture, but the Abu Dhabi property and leisure group Tasameem Property Investment will also take a 20 per cent stake.
The original plan was for Arabtec, part-owned by Aabaar Investments, to have a 60 per cent stake.
Abaar is owned by International Petroleum Investment Company, chaired by Sheikh Mansour bin Zayed.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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