Syria's family firms to go public

Region Syrian family businesses have begun to explore issuing shares ? and so contribute much-needed tax to state coffers.

Syrian family-owned businesses are beginning to open up to the idea of taking their firms public.
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Syrian family businesses have begun to explore issuing shares ? and so contribute much-needed tax to state coffers ? in response to government reforms that aim loosen its control over economic activity in the country. The government began prioritising market reform five years ago after decades of state control of the economy. In 2007, it introduced Law 61 with the aim of encouraging family firms to move into the formal economy, as part of a wider reform effort to create a lower corporate tax regime. The law particularly favours companies that go public or convert to joint stock corporations.

Sources suggest up to 12 family firms are in the process of converting under the terms of the law, ahead of a 2011 deadline that would enable limited liability companies (LLCs) to receive the benefit of an amnesty covering any past under-declaration of income and profit. One of these is Rankoussi, a Damascus-based bedding company. "I'm planning for the future," says general manager Khaled Rankoussi. "I'm 40 years old and I don't know whether my children will want to keep running the company or not. I do know I can work for another 10 or 20 years, but I need the company to be running for the long term and converting to an LLC would enable this."

A new Syria-focused private equity fund is preparing to buy into these companies. Backed by two Syrian-American business leaders and seasoned US emerging market private equity chief Peter Wodtke, the Syria Rising Private Equity fund will target underdeveloped sectors of the Syrian economy on its launch next year The Gibraltar-registered fund aims to make investments in interests in Syrian manufacturing, agri-business and service companies prior to their conversion to joint stock companies, with a view to their listing and trading on the Damascus Securities Exchange (DSE).

"Many of these companies are starting to realise the advantage of converting into corporations that have better defined corporate governance structures and accountability to shareholders. With this type of governance they can extend the longevity of the corporation itself," says Ahmad Hashem, chairman of Rawasi Investing Group, the Syrian partner behind the new fund. But some of the largest Syrian family businesses still appear reluctant to go public. One Syrian manufacturer says that long-standing concerns about taxation issues is hampering uptake of Law 61.

"While the law provides a reasonable corporate tax rate, most would prefer to keep things the way they are as most underestimate their tax liabilities quite significantly," says the manufacturer. "A lot of Syrian companies are very apprehensive about coming out and stating what their true net worth is and that's the main issue." For Rankoussi and other smaller firms, like Al Reef Ceramic Company, that are looking to convert, such fears are overplayed. "Before we faced losing around 80% of company in taxation but with this law, we can reveal exactly how much company is worth," says Mr Rankoussi.

Mr Hashem is quietly confident about the private equity fund's prospects. "We have identified some strong candidates for intervention," he says. "Many family businesses realise that they need to bring in new investors and private equity is the best way to do that." The DSE opened for business in March of this year, but there has not been a rush of firms seeking to list. Of the 11 currently listed firms, most are banks.

"Most Syrian family businesses are cash rich and don't have a tremendous need for capital expansion," explains the manufacturer. Mr Hashem, a Syrian who spent 15 years in the US, including a period as global manger for Microsoft's Health care and Life Sciences Group, says there is nonetheless a growing confidence among Syrian expatriate investors about the local business climate. "We are going in with our eyes wide open," says Mr Hashem. "The reform trend is continuing - there are now 13 private banks here, there are private universities and the stock market opened in March. We want to be part of that change."

His private equity fund is looking to focus on areas of the economy where Syrian companies enjoy a competitive advantage. The fund directors believe that there are profit opportunities in taking the development of Syrian food products upstream and help Syrian food products enjoy regional and even global brand recognition. "We feel a private equity funds makes real sense at this level as it will give these companies a real push," says Mr Hashem.