GGICO plans Dh500m acquisition

(OSAMA ABUGHANIM)   

The group also has investments in companies in sectors such as manufacturing, industry, finance and brokerage, rental real estate, trading, insurance, retail, transport and hospitality. After announcing a 36 per cent growth in net profit for last year, with a 145 per cent growth in the fourth quarter, the company has proposed bonus shares of 100 per cent of its capital, which will increase to Dh1.08bn.

GGICO is planning major investments in the non-GCC regions this year and sees increased acquisition activity in its businesses. Managing Director Mohammed Abdalla Juma Al Sari spoke to Emirates Business about the group’s investment strategy, market outlook and GGICO’s upcoming EMTN bond programme to finance its expansion and acquisitions.

How much money have you earmarked for acquisition investments this year? Which are those companies, and how much will these investments add to GGICO’s bottom line?

The company’s board has already approved Dh500 million for acquisition of companies. We will look to acquire stakes in three to 10 companies with Dh500m as our approved equity. The actual deal size could be much bigger than that. Depending on the size of the deal, we will look to bring more financing either through strategic partners or raise finance through debt instruments such as bonds. We will target investments in the industrial and non-construction sectors, both in the region as well as outside.

Healthcare, education, hospitality, logistics and retail offer exciting prospects. Our strategy is to become the most diversified industrial group in the region. Currently, we have 27 companies under the group holding with eight fully owned subsidiaries, 11 majority-owned subsidiaries and eight minority-owned subsidiaries. Most of them are in the manufacturing and industrial sector.

You said the deal size of acquisitions could be more than $500m. Are there plans to raise finance through debt instruments?

We will launch a euro medium term note (EMTN) bond programme by the second quarter of this year to be invested in our future investments and portfolio companies. The size of the bond can’t be revealed now but it will have a tenor of five years and will be a Shariah-compliant offering.

Where will the bond be listed and have you decided on any lead managers for the issue?

The EMTN bond will be listed on the London Stock Exchange and will target investors mainly from Europe and Asia. The Eurobond will be denominated in United States dollars. The arranger and advisor for the bond is still under consideration and will be announced soon. The bond will strengthen the company’s equity base in addition to supporting our wide expansion and acquisition strategy.

Why an EMTN programme instead of a conventional bond?

EMTNs are issued directly to the market with maturities of less than five years and are offered continuously rather than all at once like a bond issue. They make it easier for issuers to enter into foreign markets for capital. With EMTNs, the issuer maintains a standardised document that can be transferred across all issues. Unlike conventional bonds, investors can enter into the bond programme any time over the tenor period.

What is your sector-wise revenue breakdown and what is the worth of your new assets acquired last year?

Last year, we had a total revenue of Dh6.43bn. Of this, the manufacturing, trading and industrial sectors accounted for Dh1.51bn. Insurance revenues were at Dh436m. Revenue from properties and real estate was at Dh675m and revenue from shares trading was at Dh3.80bn.

The total worth of new companies acquired and set up last year stands at Dh222.61m, while the total asset value of the companies existing before last year is at Dh6.862bn, making the total asset value of all our companies in excess of Dh7bn.

What is the current worth of your real estate portfolio?

The total value of our real estate portfolio currently stands at about Dh4.47bn. GGICO manages more than 70 properties, both in rental and freehold. The rental division manages 11 buildings mainly in Dubai and Sharjah, both commercial and residential. The freehold division is currently developing many projects.

There are 21 projects in design and construction for freehold as well as rental with a total project cost of about Dh11bn. These are mainly in the UAE. Outside the UAE, we have projects currently under way in Jordan and Oman. The Marina 106 tower and the Dubailand project itself are worth around Dh5.5bn. Construction on the Marina 106 tower will start in March.

What is your targeted internal rate of return on investments and what is your investment strategy?

We target an IRR of between 22 and 25 per cent. Our investment strategy is to acquire majority stakes of 50 per cent or more in the target company. But, we are also open to minority stakes. We look to control operations through majority board seats. Our return on capital for 2007 was 102 per cent. We have witnessed 63 per cent growth in turnover revenues from Dh7bn in 2006 to Dh11bn last year.

With net profit growing from Dh406m in 2006 to Dh551m last year, we have been successful in identifying the right investments and getting optimum returns. We expect a 30 per cent growth in profit for the first quarter of this year.

What are the instances of strategic investments in companies?

Of our 27 wholly owned subsidiaries, 13 have been originally set up by GGICO, which gives us an almost 50:50 ratio of original and acquired companies. For our acquisitions, we usually look to acquire a majority stake but there have been instances of strategic minority investments.

Our purchase of a 28 per cent stake in Jordan’s Arab Real Estate Development is one such investment where we acquired a significant minority stake. Our purchase of a 10 per cent stake in Oman’s Gulf Investment Services and Morocco’s Tassnim International Investments, respectively, are other instances where we identified the companies to be well-managed and acquired a minority ownership. In December last year, we acquired a 6.52 per cent stake in Royal Jordanian Airways.

How effective do you think a diversifying strategy is going to be when everyone is focusing on core competencies?

Our diversified investment strategy is based on our inter-complementary approach to investments. A diversified portfolio enables you to replicate successful business models from one sector to another. It also gives you a better opportunity to grow, irrespective of the existing market trends.

What is going to be your strategy for non-UAE investments going forward?

We are targeting investments in India and Jordan this year along with a few other Asian countries. In India, we are targeting financial and real estate investments. In Jordan, we are looking at other non-construction investments. Also, countries such as Indonesia offer growth prospects for our lubricants and perfume businesses. The euro market, including the UK, offer opportunities for our jewellery business.

Mohammed Abdalla Juma

Al Sari

Managing Director,

Gulf General Investment Company

Al Sari, who has a Bachelor’s degree in business management from the Southeastern University, Washington DC, has been on the board of the Gulf General Investment Company since 1997. Besides his position as Managing Director of GGICO, Al Sari also serves as Director of UAE-based Al Sagr National Insurance Company, Union Insurance Company and Hortin Holding Company. He is also a board member of the Sharjah Chamber of Commerce and Industry and a Director of Investment Group.

GGICO was started in 1973 by his father Abdalla Juma Al Sari as an industrial group and holding company and has since developed into one of the most diversified  groups in the UAE. According to Al Sari,  revenues for the group are projected to grow 24 per cent this year to Dh8.32bn from Dh6.43bn last year. “This year, we want to significantly expand our non-UAE investments. We are looking to acquire between three and 10 companies,” he said.