Bahrain sovereign wealth fund Mumtalakat is refining its strategy as it looks to widen the net with new infrastructure investments and clean energy projects in the kingdom and the wider Gulf region, its chief executive said.
"Because we are a holding company and if you look at the assets … we are about $18 billion (Dh66bn) … more than 60 per cent are concentrated in about ten holdings … how do I manage these government-owned assets in a much better way? How do I extract value?" Khalid Al Rumaihi, who headed the kingdom's top economic promotion agency before taking on the role in August, said in an interview with The National in Davos at the World Economic Forum annual meeting.
“We are going to be much more active as a shareholder … if you do this well you can increase substantially the value of these holdings,” he said. There is, however, no intention to sell any of its stakes in these companies.
Set up by the Bahrain's government in 2006 with a mandate to grow the kingdom’s strategic non-oil and gas assets, Mumtalakat’s domestic portfolio investments include aluminium producer Alba, telecoms operator Batelco, National Bank of Bahrain and Gulf Air. Internationally it has holdings in supercar maker McLaren, Russian airline Aeroflot and Richard Branson’s Virgin Hyperloop One.
Being more active means Mumtalakat, adopts a similar approach to private equity companies and other government-owned holding companies. That includes Mumtalakat bringing in its own advisory board directors, and "on a quarterly basis having a check-in with these companies,” said Mr Al Rumaihi.
“You should impose your view, as an owner you shouldn’t be shy about doing that but with interests of that company in the long-term.”
Another part of the strategy is looking at how best to invest capital internationally.
“I am of the view that while I can be selective in my direct investing ... that maybe we should partner up with managers that do this for a living especially when you are going outside of your region,” Mr Al Rumaihi explained. The Gulf region is likely to see more privatisation of state assets including those related to infrastructure, he said.
Sustainability-related sectors represent an opportunity for Mumtalakat in terms of infrastructure investments, including solar power and waste to energy projects.
“We are looking at it from a micro grid perspective for economic reasons in addition to the climate change agenda," Mr Al Rumaihi said. "We are looking at an investment in an alternative energy company that can supply homes and small businesses [for example]. We are vetting their technology because it is a combination of solar and wind and its micro grid appropriate.”
Mumtalakat is also increasingly investing in education in Bahrain. The fund opened a school and a university last year.
With all investments “there is going to be a discipline about the internal rates of return we seek, discipline about walking away from investments if it is good money after bad, and we have exhibited that,” he said.
Mumtalakat will be just as focused about exits, even though there is no pressure to sell holdings as there might be for private equity funds, who need to regularly raise capital and show a track-record of making money for investors.
There will be more focused decision making around when to enter investments, or when not to put more money into portfolio companies and a clear understanding of when there is a good liquidity event and if the timing makes sense to sell, Mr Al Rumaihi said.
Last week, Mumtalakat raised $500 million in sukuk, or Islamic bonds, over 7-years, which will be used to refinance debt and extend their duration in what is a “benign interest rate environment”.
“When I first became CEO I realised that it made sense for us to extend the duration of our debt," Mr Al Rumaihi said. "We have a $600m bond that’s due in November 2021. I said I want to execute a certain strategy, I don’t want to think about a bond that’s coming due and it is a significant portion of our debt.”
The success of the fund's new sukuk – which may grow to $600m – is not just a vote of confidence in Mumtalakat but also in the kingdom's fiscal balance programme, he added.
In November, S&P Global Ratings revised its outlook for Bahrain to positive from stable, citing expectations that the country's fiscal deficit will shrink as the government continues to implement reform plans.
“We had about $4bn of orders and it was spread quite widely geographically. We chose to tighten pricing … I wanted to go inside 4.5 per cent and so we kept dropping our indicative price all the way to … 4.25 per cent. The demand was there, there is a lot of liquidity in the global market,” Mr Al Rumaihi explained.
The profit rate of 4.25 per cent on the new sukuk is lower than the 5.625 per cent achieved in its February 2019 issuance and also below that of Bahrain sovereign sukuk issued in September that was priced at 4.5 per cent.
The average life of Mumtalakat’s debt is now 6 years compared to 3 years before Mr Al Rumaihi took over.
“Our investment strategy is long-term so now we have a better asset-liability match,” he said.
The effects of climate change are high on the agenda at Davos this week. A study from the Forum also showed that environment-related concerns filled the top 5 long-term risks that worry global business leaders most.
“It is now a business imperative” to meet client and investor expectations about climate change action, Mr Al Rumaihi said. “There is a need for entities that can take a long-term view and I say that we have a responsibility as long-term investors” to take into account climate change risks, he added.
Sovereign wealth funds around the Gulf region and elsewhere in the world, such as in Norway, have served both as a way to diversify income away from a reliance on the revenue from oil and as a source to help fund public spending during periods when that revenue dips.
“There is a misnomer that we group all of these funds under one heading called the sovereign wealth fund," Mr Al Rumaihi said. "We see a lot of non-oil exporting countries set up sovereign funds. Bahrain did not set up a fund in that nature. Mumtalakat is a holding company much like Temasek [of Singapore] is a holding company.”
