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THE Gulf’s private equity market remains under-developed, according to a landmark thought-leadership report entitled The Impact of Private Equity on the GCC.
Produced by UAE-based Ithmar Capital, the GCC-focused private equity firm and Dow Jones, a leading provider of global business news and information services, the report tracks the impact of private equity on the GCC.
The initial impact report maintains: “The private equity market in the GCC is currently underdeveloped compared to other geographies and accounts for only a small proportion of the region’s overall economic activity.
“Fundraising in the GCC area reached $10 billion in 2006, accounting for just under a third of the total $33.2 billion raised across the emerging markets of Asia, Eastern Europe, Latin America and the MENA region.”
And in a bullish forecast, the report says private equity in the GCC is expected to grow as a result of rapid economic growth and restructuring, high liquidity from record energy prices, significant fiscal and trade surpluses and heightened interest in the region from international firms looking to hedge investment risks and compete globally.
“In consequence, fundraising is exhibiting strong growth with 41 per cent of the funds raised between 1994 and 2005 raised in the final year of this period, and this $5.8 billion total then almost doubling in 2006. Estimates for private equity fundraising in the Middle East converge on a total of $25 billion in the near future,” says the report.
It points to some specific benefits from a growth of private equity in the GCC including, improved economic diversification and support for the existing positive liquidity climate as well as for growth of a viable private sector.
“GCC states have identified assets valued at more than $1 trillion for privatisation, and public infrastructure accounted for more than 60 per cent of new funds raised by regional private equity firms in 2006.
“Governments in the region are also likely to look to external capital sources to address shortfalls in infrastructure financing and growing pressure on public resources attendant on the GCC’s rapid population growth,” says the report.
The thought-leadership report provides an in-depth analysis of private equity in the GCC, its effects on regional economies and the future outlook, taking into account the lessons learned from previous scenarios in mature markets, such as Europe and the US. The initial impact report features interviews with select regional decision-makers including CEOs, family business owners and industry leaders.
“The input of this select focus group delivers tremendous value and expertise, and brings a multi-dimensional approach to assess where precisely the private equity industry in the GCC is heading,” explained Faisal Belhoul, Ithmar’s co-founder and managing partner.
“The report constitutes a landmark in the understanding of the impact of a specialised asset class on a rapidly developing region, and the informed views and expertise it contains afford a real insight into future regional industry direction.”
“As the private equity sector is still in the early stages of development in the GCC, there are tremendous opportunities in areas such as industry consolidation, cross-border expansion and buy-and-build scenarios but there needs to be a greater understanding of the possibilities to bring these to fruition. This report will go some way to addressing the knowledge gap and empowering solid business decision going forward,” explained Ranjit Bhonsle, director, Ithmar Capital.
Over recent years private equity has gained increasing acceptance as a means of financing growth, adding value and aiding the transformation of family-owned businesses to more corporate concerns.
“This unprecedented growth requires greater understanding of the industry, and a lack of discernable information in the market makes it increasingly difficult for investors and other stakeholders to make educated decisions,” said Jessica Canning, director of global research, Dow Jones.
“The report from Ithmar Capital and Dow Jones addresses this palpable lack of quality information by examining the trends in this growing market through consultation and analysis and endeavours to carve out a logical path and consensus.”
