Business

Dabbagh Group set to buy out Indian partner in lubricant venture

Saudi Arabian family firm Dabbagh Group is in the advanced stages of buying out its Indian partner's stake in a lubricant venture in the kingdom.

Reuters

09 April, 2013

Saudi Arabian family firm Dabbagh Group is in the advanced stages of buying out its Indian partner's stake in a lubricant venture in the kingdom, a deal prompted by strategy differences between the partners, three sources aware of the matter said.

Jeddah-based Petromin is a joint venture between Gulf Oil International Group – a unit of family-owned Hinduja which owns a 49 per cent stake, and Dabbagh with a majority 51 per cent stake.

The strategic differences over the business, which sources say is valued at about US$700 million, prompted Hinduja Group to hire Deutsche Bank last year to help review options, including a potential sale.

Dabbagh Group, which has interests in food, property and automobile services among others, is partly financing the purchase through debt and has decided not to engage another party in the venture for the time being, one of the sources said, speaking on condition of anonymity as the matter is not public.

"It's pretty much a done deal now and they are waiting for some formal processes before signing it. Petromin is a profitable business and it makes sense for the Saudi family to keep it within the group," the source said.

The sources were not aware of the valuation of the stake being bought. A Hinduja Group spokesman in Mumbai declined to comment. Petromin did not respond to an email request seeking comment, while Dabbagh Group could not immediately be reached for comment.

The deal highlights the challenges faced by international investors in the largest Gulf Arab economy where relationships with influential local partners and government can determine the eventual fate of businesses.

On Monday, Malaysian construction firm MMC Corp Bhd said the Saudi government had terminated the rights of its joint venture with Saudi Binladin Group to develop the $30 billion Jazan Economic City in Saudi Arabia.

Another Saudi family conglomerate, Alhamrani Group, was considering the sale of its approximate two-thirds stake in a lubricant joint venture with Germany's Fuchs Petrolub, sources told Reuters in May last year.

Petromin, the oldest lubricant company in the Middle East and formed by royal decree in 1968, makes more than 150 lubricant products and exports to over 35 countries in the Middle East, Africa and Asia, according to its website.

Dabbagh Group and Gulf Oil International Group paid $200m to buy Petromin in 2007 from a joint venture between Saudi Aramco and Mobil Investments, an ExxonMobil affiliate.

* Reuters

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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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