Belhoul takes on the private equity giants

(DENNIS B MALLARI)

Faisal Belhoul believes the right values always produce the right results. This is the maxim by which he leads his brainchild, Ithmar Capital, a five-year-old private equity fund that is challenging global private equity giants on regional turf.

Belhoul (pictured above) joined the senior management cadre of the Belhoul Group in 1999. At the time, the company was a traditional family-run business with a successful history, but not much management depth. Belhoul knew devising a strategy for the group’s evolution in the new competitive environment was going to be his biggest challenge.

Belhoul was a 22-year-old recruit fresh from his engineering class at Boston University, when he took charge and led its transformation from a holding company with interests predominantly in the healthcare sector into a “regional asset management company” in 2001.

“Family businesses have to evolve. Today, success is all about bringing the best talent to the table. You have to create an environment that makes top practitioners in their spheres feel the business is managed in a way that is conducive to their growth, along with that of the business,” he says.

With this view, he created Ithmar Capital in 2002 as a regional private equity fund, focused on investment activities in companies operating within the GCC region or international firms with substantial growth potential in the Gulf. The size of its Fund I portfolio was $70 million (Dh256m).

Ithmar, which has made $500m worth of investments with its two funds since then, will more than double this with its $1 billion Fund III portfolio to be launched next year. “Private equity is one of the fastest growing industries in the GCC. It is growing both in terms of investment opportunities and huge investor appetite,” Belhoul says.

Ithmar announced last month that it will invest Dh1bn in the healthcare sector in the next three years as part of its Fund II portfolio.

“Our investment strategy is to target expansion capital and buyout opportunities in high growth sectors, which have a GCC focus. So we are talking about oil and gas, construction, healthcare and education sectors.”

Unfazed by the overcrowded domain of private equity globally, Belhoul is extremely bullish on the opportunities for firms like his. “It is true that in some parts of the world, private equity has too much money pursuing too few opportunities. But here in the Gulf, it is the other way around – too little smart private equity money is available to cope with all the opportunities available.”

In September, Ithmar successfully completed the acquisition of the entire new share issue of Kuwait’s Mushrif Trading and Contracting Company (MTCC), at an approximate cost of $97 million.

The 31-year-old, who lists perseverance and ambition among his most defining traits, believes there is real value in selling your company to a private equity firm.

“The involvement of an institutional partner brings better corporate governance and the reorganisation into an institutional form that will improve the business and its value. It also assists companies in geographical growth across the region.

“Of course, the other value of a private equity concern is its ability to help owners exit their business and realise more value; either through a trade sale or a public floatation of shares.”

The firm initially focused on the healthcare and education sectors for its investments. But it is now looking to diversify its portfolio.

“The way we get our fund to work is that we draw down funds over an investment period, with not more than 35 per cent of the investor’s committed capital to be invested in a single year. This plays an important role from a ‘year of investment’ diversification perspective.

“We invested in non-specific markets with our second fund, including construction, and oil and gas. The British private equity giant 3i was our strategic partner in the fund.”

Belhoul feels the regional association with world leaders will add significant value to private equity funds in the region. “We are now looking at telecoms as a target sector for our third fund and the 3i partnership will be a major factor in its success.”

Belhoul, who considers the creation of Ithmar as one of his greatest successes, goes on to present the case for private equity investment within the GCC. “The GCC countries now offer the opportunity of high potential returns. The opportunities within the GCC lie in four key areas – family businesses, international companies, privatisation projects and expatriate-owned businesses.”

The aim, he says, is to deliver a minimum IRR, or internal rate of return – the interest rate at which a certain amount of capital today would have to be invested in order to grow to a specific value at a time in the future – of 25 per cent to investors.

“With growth rates so strong, private equity firms can do better than that.”

His leadership flair is evident as he talks of the need for the region’s family businesses to evolve. “Evolution is a critical component of growth. But it does not always have to mean change. It implies retaining what is good and developing what is not in the best long-term interest of the business.”

Belhoul feels there needs to be a clear distinction between ownership and management. “Eventually, whoever manages the company has to be accountable and responsible for achieving the group’s goals.”

Belhoul’s nationalistic viewpoint is evident when he talks of his leadership inspiration. “I’ve always been inspired by the leadership of this country. Their ability to demonstrate to the modern world that this small country can really come up with initiatives that are global, is something that has always driven me to dedicate my energies toward the development of this region.”

Belhoul feels the entry of foreign players in the private equity sector is only going to benefit regional firms like Ithmar. “The Middle East is awash in opportunities. Not only is the region generating billions of dollars in oil revenue every day, but also industries and infrastructure are rapidly privatising.”

Outlining the current investment opportunities in the Gulf, Belhoul feels regional trends in private sector growth and development, the introduction of market liberalisation initiatives, increasing moves toward key sector privatisation and ongoing improvements in regulatory frameworks are all factors that are likely to stimulate the private equity market in the region.

“All this has meant that the GCC markets have witnessed triple digit capital market growth in the past two years,” says Belhoul. “With such phenomenal growth levels, it is only obvious that international players will be looking to tap into regional markets.”

Against this background, he says, private equity could deliver a corporate governance framework, generate rigorous value creation and enable exit opportunities.

A goldmine for investors

Education is one of the sectors identified by the UAE as well as Dubai as thrust areas for investment and growth over the next five years.

Construction is one of the mainstays of the UAE economy as the country creates assets that are attractive for foreign investment.

Oil and gas will attract massive inflows of capital, as crude refining and exploration capacities are built across the oil-rich region.

Telecoms is a big-ticket sector as governments in the region privatise services and introduce new operators as part of a massive thrust.

Healthcare will require more than $250bn (Dh917bn) of capital across the Middle East as populations increase and age, analysts say.

Infrastructure in terms of power, water, sewerage and transport are expected to attract large amounts of investment in the region.

On the move

His work keeps Belhoul busy most of the time. But he still manages to find time to keep his avid interest in football going. The Arsenal supporter says there are three main elements to his typical day: work, family and sport. Social activities are usually relegated to the weekends, he says.

“Early mornings are spent with family, discussing the day over breakfast. I start work no later than 9am, and stay in the office until 8pm or thereabouts with lunch generally, with business associates.

“Then, I’m usually with the family or off to the gym… and if there’s a game, then I’m watching the TV.”

Looking back at the past five years that he has been at the helm of affairs at Ithmar Capital, Belhoul has no regrets with the way he has led the firm.

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