Inflation is a menace that has to be controlled, according to Waha Capital CEO Samer Al Haj. The Abu Dhabi-based executive also blames the region’s currency peg to the US dollar and high oil prices for the current inflation, which he said has led to high costs in corporate operations.
The holding company’s main portfolio has been in aircraft leasing, but it has recently decided to enter other sectors and expand its leasing activities to cover other assets, such as shipping, land and infrastructure. Al Haj spoke to Emirates Business about the company’s performance and the pros and cons of operating in the fast-growing Abu Dhabi and UAE market.
Last month you announced a major restructuring of the company and changed the name from Oasis International Leasing to Waha Capital. What is the strategy behind the move?
The strategy was to remake the company from one business entity into a diversified, versatile and flexible business model. What precluded this restructuring was as a public company Oasis International Leasing – with focus on a single business – could not really be very viable in going forward in this global economy and it was not taking advantage of the growth potential of Abu Dhabi.
Here you want to have a diversified group of businesses, that are versatile enough to add or remove any business. So there came, out of consultancy studies, the vision of bringing about fundamental changes. It is not really restructuring; it is a recreation. The versatility and flexibility of a holding company is something that provided an immediate platform to focus on the immediate needs we can benefit from for all shareholders – to grow the company and also contribute to the overall growth of Abu Dhabi and the UAE.
What targets have you set for the young units: Waha Leasing, Waha Financial Services, Waha Land and Waha Maritime?
The analysis and studies [for the restructuring] resulted in continuing with the aircraft leasing business. However, we will be diversifying the leasing activity into other big-ticket leasing activities, such as shipping and infrastructure, as well as construction equipment, and even land in the future. Anything that revolves around leasing will be part of our strategy to expand and diversify within that kind of activity.
The second and natural growth area is land. And land here involves Waha Land’s infrastructure development, whether it is in the housing, industrial, luxury, hospitality, education or health sectors. All these are in great demand. They are a must in the vision for the growth of Abu Dhabi. There are plenty of opportunities to go around. And we feel one pillar of activity in a diversified Waha Capital is definitely land.
Third is Waha Maritime. It is an entity that is focused on maritime – shipping ownership and operations globally, but based in Abu Dhabi. The most versatile unit out of the four is really Waha Financial Services. Under this unit comes all of the other activities that add to Waha Capital’s financial value, rather than operational value.
We believe the four entities will provide our shareholders with [as I mentioned in the beginning] a diversified flexible multi-source revenue, as well as multi-source growth engines for the coming years. And it is flexible enough so that we can add or diversify as we move forward and as things change. These are the current four pillars. The model is flexible and expandable.
How do you measure the company’s performance in 2007? What have last year’s financial results translated in to?
I think we are very proud of the financial performance and achievements the company witnessed in the past few years for sure. Last year, our net profits grew by 78 per cent from Dh96 million in 2006 to Dh171m. In 2005, net profits were at Dh28m [all the previous financial results show two-digit year-on-year growth].
As a public company that achieved a year-on-year growth in double digits, we have a challenge now to try and beat this next year. We are very proud of the firm’s performance and hope our shareholders are proud of it too. It shows the strategies and the activities of the company are paying off handsomely.
What challenges do you see ahead? How do you see the performance this year and beyond?
I think the biggest challenge or even the number one job I have as chief executive is really human resources. There is a tremendous task of staffing the four new entities, or five, one being Waha Capital itself. This is a challenge. It comes at a time when there is a scarcity in qualified human talent one would like to take onboard. But I think we are not without resources.
We are definitely looking at many people. However, we believe there are more opportunities in front of us than obstacles this year and beyond. We have to decide how to pick the most viable, lowest hanging fruit, and those initiatives and projects, that will maximise our performance and thereby our shareholders value.
How has inflation impacted the company’s performance?
Inflation I believe is an overall economic menace. It is something you don’t like to see, especially in fast-growing economies such as Abu Dhabi. You would like it to be under control. You don’t want it creeping up faster than your growth. The problem here is purely an economic phenomenon affecting the cost of living, prices of raw materials and salaries. But as far as opportunities and our business decisions are concerned, it does not figure in much.
It only figures in when we look at operating costs, wages and material costs. The cost of capital sometimes can be affected by inflation – whether it is interest rates for borrowing or required returns on equity.
But so far we have not seen a tremendous amount in our projects. I personally would like to see certain measures that would slow inflation rates, because it is very quickly affecting prices of raw materials – costs of steel, cement and other materials are increasing very fast every month – and that definitely adds to the cost of projects as well as returns ultimately. We would like to see it in check and we would like to see it controlled.
Are the weak dollar and high oil prices drawbacks for the market? What strategies have you developed to protect the company from their negative impacts?
I think this is related to inflation. Part of why we have inflation here is because of our peg to the dollar, as well as how high oil prices trickle back to raw materials and everything else we import. This affects the standard of living and cost of living. What I would like to see is really more a matter of policy of the Central Bank and the GCC
A decision that is bigger than any one company can talk about. We want to see both under control. We are mindful of treasury functions where we might need to hedge some of our operations such as revenues through hedging practices and instruments.
There are many players already active in the country’s property market, particularly in Abu Dhabi. How are you going to survive in this competitive market?
Allow me to disagree with you. I believe there are a lot of opportunities in property development and related infrastructure, especially in Abu Dhabi’s market.
I believe there are not enough players in the sector. It is such an important activity right now, that I believe it is imperative a prominent company such as Waha Capital has a business unit in developing property. Now we might not focus on being everything to everybody, but we will be very opportunistic as the needs of the market evolve. I really believe the market is in a nascent stage here. Abu Dhabi, as an emirate, consists of almost 86 per cent of the land area of the UAE. So there is still a lot to happen.
There are also around 300 natural islands and there huge global interest in Abu Dhabi. I think there are plenty of opportunities to go around for everybody.
The company has announced Dh20 billion in investments over the next three years. Of this, Dh15bn has been invested in real estate. Where are these funds coming from and where will the remaining Dh5bn be pumped into?
The Dh20bn figure is the sum of the investments that Waha Capital and all its units will be involved in during the next three years. This not the capital coming from our balance sheet, it is capital that comes partially from our balance sheet – a reasonable amount.
These kinds of capital investments come through joint ventures, through collaborations and through partnerships with other entities that have an interest in such projects.
The bulk of the amount – Dh15bn – will be used to develop the six square kilometres of land [in Al Hameem area on Abu Dhabi-Tarif Highway in the Western Region], that has been granted by the authorities to Waha Capital. This property will developed in phases. The Dh5bn will be used by the other entities over the next five years.
What about mergers and acquisitions ?
One of the main activities Waha Capital will be involved in is mergers and acquisitions. We will be interested in start-ups, partnerships and joint ventures in any of the four businesses that we have.
Where do you see Waha Capital in the next five years?
Waha Capital will be a prominent Abu Dhabi-based powerhouse for the businesses we are currently in. We will also keep diversifying and growing as market demands dictate, and as the vision and the growth of Abu Dhabi provide us with opportunities. And Waha Capital will still have the same flexibility in adding new businesses and providing shareholders with the best value for their money in the next five years.
Samer Al Haj
CEO of Waha Capital
Al Haj is an investment banker with more than 25 years experience. Prior to his appointment with Waha Capital, he was deputy chief executive officer of Gulf Investment House in Kuwait.
He was also the regional manager of William Blair & Company’s international offices in London and vice-president of Merrill Lynch, Salomon Smith Barney, and Lehman Brothers in their New York offices, where he began his investment banking career.
Al Haj has two Masters degrees – an MBA in banking and finance and an MS in engineering and project management from Case Western Reserve University in the United States. He graduated in civil engineering from Leeds University in the United Kingdom in 1982.
Dh20bn: Waha Capital’s investment budget
Dh15bn: Estimated for property development projects in the Western Region
Dh4bn: 2007 operating assets
Dh3bn: 2006 operating assets
Dh2bn: 2005 operating assets
Dh171m: Net profits in 2007
Dh96m: Net profits in 2006
Dh28m: Net profits in 2005
Source: Waha Capital
Waha Capital to spend Dh15bn to develop Western Region project