Gulf Finance House to sell unit via public offering, plans acquisition

Hisham Alrayes of Gulf Finance House says their new strategy is primarily focused on creation of a financial group. Razan Alzayani / The National

Gulf Finance House (GFH) is planning to make an acquisition this year and sell a unit in an initial public offering.

The expected moves are part of efforts to reshape GFH, which was hit hard by the 2008-2009 global financial crisis.

“The new strategy of GFH is primarily focused on creation of a financial group rather than just an investment bank which it used to be before,” said Hisham Alrayes, the chief executive. “From the five pillars, we would like to have an equal participation of income, ideally.”

Currently the Bahrain-based Islamic investment bank has four units: investment banking, commercial banking, real estate and industry.

GFH’s first quarter net profit rose 140 per cent to US$6 million from $2.5m a year earlier. It returned to profitability last year with an annual consolidated profit of $17m, compared with a loss of $17.6m for 2013. It was the company’s highest profit since 2008.

“We continue to seek the right acquisition to complete the missing block in the group,” said Mr Alrayes. “We have been talking to several asset management firms in the region. It’s in-depth talks to take control and our objective is to have majority stake.”

GFH, which is talking to one firm in Bahrain and two in Dubai, is banking on closing this year with at least one leveraged acquisition valued at about $200m.

The firm is seeking to finance the acquisition through 30 to 40 per cent equity and the remainder in debt.

“The debt we are expecting to have will most probably be a Murabaha facility taken directly from banks on the asset itself,” said Mr Alrayes. “The strategy is always to go for leveraged acquisitions so that we build higher growth into our balance sheet.”

GFH, which has medium term debt of about $165m, could in the future issue a sukuk to repay debt and get new financing for its projects.

“It is time for GFH to be in a growth phase, and hence we might agree with our current lenders to extend the remaining debt for further tenors or take a bigger facility and repay the old ones,” said Mr Alrayes. “Currently it is being arranged to pay the $165m over four years.”

The firm will next month make $34m in debt repayments, he added.

GFH, which in April completed a capital reduction to $598m from $1.49 billion to eliminate its accumulated losses, is not planning further capital reductions, the chief executive said.

“We have reduced the capital this time to eliminate the accumulated losses and hence to make the GFH balance sheet more appealing, healthier and be able to distribute dividends in future. Market cap has increased following this change which is positive to shareholders” said Mr Alrayes.

“Hopefully this year we will pay dividends as we achieve the profitability targets. We would like to maintain the performance of the first quarter and more.”

GFH is planning to float Falcon Cement Company on the Bahrain bourse in the second half of this year. Currently the firm has a value of about $120m

“We are planning to go for up to 20 per cent (stake sale in the IPO) in Falcon by quarter four and we have ambitions to further do a double listing in Dubai in the future,” said Mr Alrayes.

The company is ploughing ahead with $1.8bn worth of real estate projects spanning five countries: UAE, Bahrain, Tunisia, Morocco and India. It is seeking partners in its projects to help spread the risk and lower debt financing, he said.

“Before we used to rely on debt financing a lot, now we are being more creative,” said Mr Alrayes. “I prefer to get joint partners with me in the project so that we both finance the equity portion or to share the proceeds based on each party’s contribution.”

The firm plans to forge ahead with its mixed-use project in Tunisia despite the recent terrorist attacks that have left tourists fleeing the North African country and had an impact on its stability.

“Our project in Tunisia is long term in nature and we are investing in infrastructure and mixed-use development,” said Mr Alrayes. “This will be done over 8 years and hence, by the time we start selling, the end product of the first phase is three years from today.”

In the UAE, it is developing property in Dubai, where prices have dipped this year.

Dubai property prices could fall 10 to 20 per cent over the remainder of this year and early 2016 after rising in the past three years, according to the ratings agency Standard & Poor’s (S&P).

“It will be quality properties, but at the same time targeting the middle-income segments to make more affordable properties in Dubai, which I believe will always be in demand for the foreigners working in Dubai primarily and for GCC nationals who would like to have a nice property in Dubai,” said Mr Alrayes.

The firm, whose shares are listed in Bahrain, Dubai and Kuwait, is still studying the possibility of delisting from Kuwait and listing in the Saudi market. It decided in April to delist its global depository receipts from the London bourse, citing weak trading.

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