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14 July 2024

GCC companies look at options to invest wealth

By VM Sathish



The enormous wealth generated by the current oil boom is prompting the Gulf countries to look for good investments that would add value to their economies and stock markets.

The trend is set by the UAE and Saudi Arabia, said a leading investment banker from Saudi Arabia. Saudi Arabia is planning to establish a sovereign wealth fund with a corpus exceeding $900 billion (Dh3.3 trillion).

Dr Saleh Al Suhaibani, Head of Research and Investment Advisory of Al Rajhi Bank, Saudi Arabia told Emirates Business that the cash-rich region, especially Saudi Arabia and the UAE, is now looking out for world-class assets and expertise to become a major supplier of capital to the rest of the world. The oil boom has also lead to the rise of new financial instruments like sukuk as a strong vehicle for investment.

“In the last oil boom the GCC firms and governments were content buying stakes in western firms listed abroad. Now they are looking for investments which would add value to their economies and markets and create employment opportunities for the youth,” he said.

“With one of the world’s fastest growing populations, GCC governments are looking out to buy companies which would provide a sustainable solutions in the form of providing expertise and creating jobs. The acquisition of GE Plastics by Sabic [Saudi Basic Industries Corporation], the acquisition of P&O by DP World, DIFC’s bid for OMX and other foreign exchanges are setting a new trend of overseas acquisitions,” he added.

Sabic, the Kingdom’s largest company by market capitalisation, became global leader in petrochemicals following the purchase of GE Plastics.

“Sabic has been generating huge amounts of cash as a result of cheap raw material and higher product prices. The deal was the perfect utilisation of surplus cash,” said Dr Saleh.

Sabic is planning to almost triple its steel output by 2020. It currently manufactures six million tonnes of steel, aims at producing around 15-17 million tonnes by 2020.

Quoting Al Rajhi Bank research, Dr Saleh said Saudi Arabia is planning to double its own oil production and seek investments opportunities abroad in oil development through joint ventures. Joint venture firms are being set up for refineries in Asian countries such as China, Japan, South Korea, India and the Philippines.
PetroRabigh, a joint venture between Aramco and Sumitomo Chemical of Japan is developing a 10 billion integrated petrochemical complex scheduled for 2008.

Saudi investment banks are now looking for operation in countries such as Malaysia, Indonesia or even China where there is a big domestic market and scope for expansion, he said .

The GCC experienced unprecedented rates of growth and fiscal prosperity over the past three years, buoyed by the rising oil prices and production, as well as non-oil sectors’ growth.

Between 2001 and 2006, the GCC’s economy more than doubled in size in nominal terms to about $723 billion. The GCC countries account for a total of 3,519 projects worth $2.53 trillion – King Abdullah Economic City in Saudi Arabia is the biggest construction project currently under way in the region, valued at $120bn, followed by Dubailand in the UAE, valued at $110bn and Silk City Project in Kuwait, valued at the $86bn. The retail industry in the region has topped $100bn and is considered a major driving force behind the economies of the GCC.

Retail has become the second largest industry after oil production. 

Dr Saleh said Dubai is smartly adopting this route to develop indigenous capital markets. By the acquisition of P&O by DP World and the subsequent listing of DP World after the IPO and DIFC’s efforts to buy western bourses would provide greater depth to the local stock markets.

With the development of world-class stock markets through such deals, the region can be major capital provider to the world.

“It makes sense for the GCC states to develop their own local market and attract foreign companies to list.,” he added.

The DIFC endeavour to acquire exchanges would provide it the management and execution technologies along with a possibility of creating a global exchange.

Firms such as Kingdom Holding will provide strategic investments in various sectors and regions, he said.