Al Fara'a plans bonds and IPO to fund expansion
The Al Fara'a Group of Companies – whose activities span property development, contracting, pre-cast, concrete, steel, aluminium and glass – is planning a bond issue and could go public to finance its aggressive expansion drive.
Director Natasha Gangaramani said the company was currently evaluating which parts of the group will be offered to the public, adding that its credit history, integrity and business practices have been on a par with those trading in the marketplace.
"We are looking at going public" Shalini Gangaramani, Group Director, told Emirates Business. "It's a natural progression for companies that want to be big. We may go for it in the next year or two. Going for an IPO takes a while but we are studying it."
"We have been here for 28 years and we have a very good structure, so I don't think it's going to be hard for us to make the move," said Natasha.
The major group has been growing 40 to 50 per cent every year in the past three years in terms of revenue but is looking for bigger growth opportunities.
Al Fara'a Properties plans to increase its portfolio by 10-fold from Dh1 billion to Dh10bn by December. Al Fara'a Contracting is also busy looking for deals, latest of which is an Al Ain project, which is slated to be worth Dh1bn.
We've heard the Al Fara'a Group started from humble beginnings, with your father, Jawahar Gangaramani, forming the Al Fara'a General Constructions in 1980 from scratch. How far has the company come?
Shalini:
We employ more than 13,000 people and none of our projects have been delayed to date. And in order to do that, you have to make sure that your subcontractors also work with you. That is why my father decided to have his own ready-mix cement plant, and later on his own electronics and mechanical companies.
That is how this business grew. Today, the Al Fara'a Group comprises Unibeton Ready Mix, Al Fara'a General Contracting Company, Al Fara'a Steel Structures, Al Fara'a Precast, Al Fara'a Interiors and Joinery, Belgium Aluminium & Glass Industries, Al Sabbah Electro Mechanical Establishment, Al Fara'a Properties and Al Fara'a Investments.
Natasha:
We started with a vision that we will deliver every project on time and we won't compromise on quality. You've probably seen a lot of houses where people said there are cracks everywhere, the rain comes through and there are leaks. When you see cracks in the wall, that could be caused by many factors but one core reason is that the people who delivered the concrete may have mixed less cement in the concrete to save cost.
What we have today are different companies that believe in quality. Unibeton, for example, is the largest concrete provider in the Middle East. We were involved in almost all the bridges in the UAE. The concrete used in the Al Garhoud bridge was 100 per cent supplied by Unibeton. Unibeton started not as a profit-making idea. It started because one day someone delivered concrete to us at 3am. We can't always wait. So we decided we'll make our own because if we wait for subcontractors to show on site we'll lose a day of profit.
Al Fara'a Properties, which is barely three years old, is currently the group's largest portfolio in terms of investment. How much investment are you going to earmark in the property business this year?
Natasha:
We will invest a lot. Usually we don't tell what the investment values are but we can tell you that we are going to launch six to eight properties within this year, the collective value of which is Dh10bn. Al Fara'a Properties last year recorded just over Dh1bn revenue but this year we'll touch the Dh10bn worth of revenue.
We have been growing 40 to 50 per cent in the past three years in terms of revenue but this year has been a major jump for us, especially as we secured a lot of land. It's quite a big jump. Currently, we have five properties under construction in addition to the six to eight that we will be launching by this December.
When are these under-construction properties going to be delivered?
Natasha:
The company's first residential project – the Dh225 million Le Grand Chateau in Jumeirah Village – is on track with delivery expected on schedule this December despite the challenges of rising costs of building materials and labour shortage. It is sold-out completely.
This would build our mark as a developer. The second project is The Manhattan, which will be finished next year in December. The Mulberry Mansions Two project in one; it's a string of townhouses and it is to be delivered in 2009. Image Residences will be delivered in December 2010.
How much revenue are you looking at for the whole group for this year?
Shalini:
In terms of the group, it becomes hard to say because some of them are just short-term projects and we are primarily a service industry.
But if we are going to talk about contracting only, we are doing about 32 projects, and to date we have delivered more than 400 projects. Currently we are doing the Fish Market project in Abu Dhabi, Dubai Maritime City, Dubai Waterfront, Downtown Jebel Ali and Al Reem Island. A chunk of Aldar's Raha Beach development is to be built by Al Fara'a as well. We are also looking at huge project in Al Ain, which is worth about Dh1bn.
You've got billions worth of projects in the pipeline. How are you going to raise your funds?
Natasha:
There is cash flow within the group and we also partner with banks. We also have our funds through Al Fara'a Investments, so it is a combination and mix of everything.
Shalini:
We have a strong financial background and we also have other companies, where we get that kind of support right now.
Most of your expansion plans will thus be financed by traditional schemes. Don't you think traditional source of financing is quite tight at the moment, especially banks?
Shalini:
No. We have very good relationships with them. For the banks, when they know you are a good company and you can deliver, they don't mind investing. There has been no issues at all.
Natasha:
We have been here for 28 years. A lot of the banks in the UAE have also been here all these years and they watch us. They have seen Al Fara'a delivers projects and that we have a good credit history, integrity and good business practices. If you have that kind of record, it's very easy for the party sitting in front of you to just judge your cash flows, and say yes. We are not listed on a public stock market, but we are being reviewed internally by the banks.
Are you considering launching bonds?
Natasha:
Not in the short term. Al Fara'a Investments is just setting the base up, maybe yes, next year. A business is about being able to manage your finances well. If you do that, you can achieve what your goals are. We are not cash-rich but you should be able to get your dreams if you balance things very well.
What about going public?
Shalini:
We are looking at it right now. It's a possibility. We may go for it in the next year or two. Going for initial public offerings takes a while, but we are studying it. It's a natural progression for companies that want to be big. IPO is a very good idea.
Natasha:
Any business going forward would look at going public at a certain point of time and this is a very mature and healthy business. We are planning to go public but it's a matter of understanding a model of where we want to go. We are happy to learn this process and we have a very good structure, so I don't think it's going to be hard for us to make the move. Globally, people are used to launching public companies to get some equity. Why not have the same benefits? This is a huge company, it can allow for that.
Do you plan to float the whole group or just one of the companies?
Natasha:
That is exactly the question we are trying to answer right now. We have different partners on board trying to understand which parts of the group should go. We are doing the study of different business models right now. We have nine businesses and every business has its own particular flavour.
Considering the tight EPC market, don't you think your expansion plans will be adversely affected?
Natasha:
Shortage of people and materials can slow you down as you wait for your supplies, but it doesn't stop us from doing many projects.