Global Buyout Fund acquires major stake in Omani Steel Company
Global Investment House “Global” announced today that its Global Buyout Fund concluded its first investment in Al Jazzera Steel Product Company, a listed company on Muscat Securities Market.
The Company was established in 1997 and is a market leader engaged in the manufacturing and distribution of mild steel black and galvanized round/square tubes/pipes.
Global Buyout Fund, the recently launched buyout fund focused on investing in the GCC and MENA region, subscribed to 63,697,960 equity shares in Al Jazeera at 0.325 Omani Rials (OR) which is at 43% discount to the market value (market price OR 0.465 as of 21st of October) resulting in the fund taking a majority stake of 51% post the capital infusion.
Mr. Omar El-Quqa, Executive Vice President at Global Investment House indicated that the Extraordinary General Meeting held on October 21, 2007 approved the investment by the Fund, subject to approval from the Oman Capital Market Authority
He indicated that at the Arab Steel Summit 2007 stressed on the growing role of the steel industry in the MENA countries which will have to increase production to meet the demand arising from the projects in the region.
Several Arab companies located in MENA has reported record figures of crude steel production in 2007 and this trend is likely to continue, he pointed. El-Quqa also added that with over 87 new projects expected to be completed by the year 2010, demand for steel would continue to increase.
Mr. Shailesh Dash, Senior Vice President and Head of Private Equity at Global indicated that the company is one of the largest producers of steel pipes in the GCC catering to the local markets while also exporting to Europe and the United States. He also added that the company would benefit from the construction and infrastructure spending in GCC expected at over USD One trillion that would support the growth of the company.
AlJazeera Steel is currently in the final stages of implementing a new merchant bar mill to offer a broader range of products that would cater to the construction sector.
Dash commented by saying, "the merchant bar mill is expected to drive the growth of sales in 2008 and beyond which is considered one of the attractive features of this investment".
“In addition, the company is expecting to receive its API license that will enable the company to supply tubes to the oil and gas industry which will further improve the sales and bottom line of the company.”
As in any investment, Global Buyout Fund has drawn up business plan in order to actively engage in the managerial, operational and financial improvement of the company, Dash continued.
He indicated that that the Fund had already initiated steps to augment the existing management by identifying high quality management with significant experience in the steel sector that will complement the company's management and focus on cost management and profitability improvement.
Al Jazeera recently announced its 9M07 financial results showing a net profit of OR 1.155 million as compared to OR 1.266 million in 9M06, representing a decrease of 9%. However, the Company has witnessed a 6% growth in sales (from OR 29.8m to OR 31.6m) and 14% in gross profit (from OR 3.8m to OR 4.4m) compared to 9M06.
The decrease in the bottom line is mainly due to 14% increase in the financial charges.
Dash stated that part of the capital infusion would be to undertake a capital restructuring which is expected to improve the financial position of the Company.
Over the last three years (2004-2006), the company sales grew at a CAGR of 15%. Sales have grown by over 17% in 2006 compared to 2005; however, high raw material prices had a major effect on the company's gross margins. There has been a major improvement in the total quantity of steel pipes sold over the last three years as it has increased from 121,437 MT in 2004 to reach 144,674 MT in 2006.
Global’s private equity team currently manages over US$ 1.5 billion of private equity funds and have invested in over 40 portfolio companies in the Middle East and North Africa region. Some of these investments are in the real estate and building material companies as Al Jazeera expects to derive synergies from these portfolio companies.
Mr. Mohamed Moosa, Chairman at Al Jazeera Steel Products indicated that though the company received offers from different interested parties internationally and regionally, Global Buyout Fund was preferred by the Company.
Moosa stated that the offer by the Global Buyout Fund offer was the best from a value addition perspective as it will support Al Jazeera in implementing its future aggressive growth strategy.
Members of private equity team have diverse sector and geographic experience in countries across the MENA region and South Asia, and collectively maintain a broad network of institutional relationships within the region this will support the Company's aggressive growth plan in the MENA region and will also assist in identifying opportunities to achieve geographical expansion.
It is worth adding that Global Buyout Fund LP is a Cayman Islands exempted limited partnership. Global Capital Partner Ltd., an exempted Cayman Islands company is the sole General Partner of Global Buyout Fund LP.
© 2007 Al Bawaba (www.albawaba.com)