IPO may be the way for Gulf Capital to build on $3 billion company

Gulf Capital has grown to become one of the best-performing cash machines in the region, delivering its shareholders handsome returns via shrewdly judged investments.

Karim El Solh, the chief executive of Gulf Capital, built on the company’s ambition to be the premier alternative asset manager in the region. Lee Hoagland / The National

It is decision time for Karim El Solh and the Gulf Capital investment group of which he is chief executive.

For the past eight years, the Lebanon-born businessman, with a background in global finance, has been busy creating one of the most dynamic investment groups in the UAE.

Gulf Capital, with US$3.3 billion assets under management, has grown to become one of the best-performing cash machines in the region, delivering its shareholders handsome returns via shrewdly judged investments in the private equity arena and eye-catching real estate projects.

An investor in 2010, for example, would by now have tripled his capital on a net 25 per cent annual return.

If the current set-up at Gulf Capital delivers that sort of performance, why change it?

That is exactly what Mr El Solh, backed by a prestigious board, is asking its 300 founder shareholders to consider. “We are fully funded and generating cash, but we have to think long term. I want Gulf Capital to be a $10bn asset manager, through growing the existing business and adding more asset classes.”

He has options. The bond markets are open to him; the banks would be happy, on the track record so far, to finance future expansion; and he would have no trouble attracting funds from regional and international investors: the third Equity Partners fund recently closed at $750 million, most of that from outside the region.

There is also the option of an initial public offering. Mr El Solh will not talk in detail of this possibility. In fact, he points out that as Gulf Capital currently stands, it has many of the attributes of a public quoted company, with a large number of shareholders, trading opportunities on the over-the-counter market and corporate standards already worthy of public status.

But if Gulf Capital did come to market, it would be a major event in UAE market history. It would mark the turn of the Abu Dhabi Securities Exchange to take some of the IPO limelight recently shining on Dubai, and give international investors an opportunity to take part in the long-term growth of the Arabian Gulf region.

That was the rationale behind the creation of Gulf Capital in 2005. After a career in investment banking in some of the world’s biggest financial centres, Mr El Solh had returned to the Middle East to head up The National Investor, an Abu Dhabi-based investment group.

“The long-term growth opportunities were there for all to see: in oil and gas, power, education and health care, all the sectors associated with the fast-growing economies of the region. But it was difficult to get exposure to them via the stock markets. We, the founders, took the strategic decision that we had to invest privately. The ambition to be the premier alternative asset manager in the region,” says Mr Solh.

The 300 founder investors, including a big chunk of official backing from Abu Dhabi institutions and wealthy investors, were the “ambassadors for Gulf Capital, they brought us deal flow, market intelligence, know how and access”, he says.

The roots were in private equity, with a firm preference for the “defensive” sectors such as energy, utilities and “soft” infrastructure in health and education. The two original funds were proven successes. Two recent headline exits stand out: the £472m (Dh2.77bn) IPO of Gulf Marine Services on the London Stock Exchange, and the multimillion- dollar sale of Metito, a water treatment business, to Mitsubishi of Japan.

“GMS was one of the best performing IPOs in the UK, and has stood up better than its peers despite the fall in oil prices that affected the whole sector. Metito was just a beautiful cross-border transaction, giving a three-fold return on our investment,” he says.

By value, the biggest part of Gulf Capital is the property portfolio. Here, Gulf Capital works with The Related Companies, one of the biggest property asset managers in the US, via the joint venture Gulf Related.

Its flagship development is The Galleria on Al Maryah, at the heart of the planned financial free zone the Abu Dhabi Global Market, in partnership with the investment company Mubadala. When the Galleria extension and related Al Maryah Central retail and leisure project is fully open in 2018, it will add 2 million square feet of upmarket facilities to the free zone, with big names such as the US retailers Bloomingdale’s and Macy’s already signed up.

Gulf Capital is also developing a big residential compound in Riyadh that will ensure solid rental stream from 522 units.

One big area for expansion is in the credit and mezzanine finance sector, where Gulf Capital currently has about $220m of business but which Mr El Solh has earmarked for growth. “We’d like that to be around the $1bn level. There are nascent asset classes that we can grow, like providing mezzanine funding to venture capital and finance to other private equity businesses. We see big opportunities as western banks pull back from those kind of operations in the region.”

So that is the strategy: mixing the reliable income from defensive sectors with the upside profit opportunities from private equity exits, and expanding into new areas of corporate financial services, to eventually triple the size of the business.

Will that growth be achieved as a public listed company? It looks increasingly likely. The 300 shareholders are thought to be in agreement with the IPO strategy, and advisers say the necessary regulatory approvals are being sought, although Mr El Solh will not discuss this in detail.

But he adds: “We want international shareholders to have access to the growth prospects of the Gulf, across industries, geographies and asset classes, and we are a proxy for that.”

Follow The National's Business section on Twitter