Global Capital Management Limited comments on its Sector Outlook and Sector Strategy in the MENA and the GCC
Global Capital Management Limited, private equity group of the Kuwait based asset management company, Global Investment House (Global PE), commented today on its sector outlook and sector strategy in the MENA and the GCC.
Mr. Shailesh Dash, Managing Partner, Global Capital Management Limited, said: “We are optimistic on service sectors in MENA and GCC and maintain an opportunistic stance on commodity sectors. Consolidation will emerge as an important theme in the coming years and players will endeavor to achieve cost advantages through scale economies.” Global PE is upbeat on oil and gas, healthcare, construction services, transportation and logistics, retail, education, and financial services sectors. Global PE has a superior deal flow in each of its focus sectors and maintains greater than 30% market share for each focus sector (based on Global PE investments as a percent of investment universe of GCC private equity houses).
Mr. Dash commented: “Global PE has a sector attractiveness measure, which is regularly reviewed and sectors favored are those which are direct beneficiaries of macro-economic themes, offering international competitive advantage, and characterized by high growth, entry-barriers, and low business cyclicality.” He added: “Global’s private equity team works with the management of the portfolio companies to create value through regionalization, product/service differentiation, and product/category expansions.”
He added, “private sector penetration is low in the region with only around 25% of the total healthcare spend contributed by the private sector. This is expected to increase with the development focus of GCC Governments, who are promoting private sector participation in healthcare.” Mckinsey estimates healthcare spending in the region to increase at a CAGR of 10% till 2025. Global PE was among the first GCC private equity houses to invest in the healthcare sector when it promoted Gulf Healthcare International (GHI) in 2006. GHI owns and manages pathological laboratories and provides entire range of routine and specialized laboratory testing.
Global PE recognizes the construction services sector to be a direct beneficiary of the ongoing infrastructure development in the region with major airport and seaport expansions, new industrial and utility projects, and a record number of real estate developments. Construction services is a direct beneficiary of over USD 2 trillion infrastructure projects in pipeline in GCC. Global PE bought a controlling stake in Al Jazeera Steel Products, Oman, which is one of the largest steel pipes producer in the region. The team is committed to invest in two more companies in the construction services sector.
Transportation and logistics services is a logical play on the increasing trade activity in the region, which has grown at a CAGR of 20% between 2002 and 2007. Our region enjoys geographical advantage by being situated between Europe and Asia. We foresee exciting opportunities in regional transportation and logistics industry. Global PE has invested in Gulf Navigation Group, UAE, a play on the regional tanker industry. Global PE is also considering acquiring a controlling stake in a major logistics company in the region.
Retail is an attractive play on the growing consumer spending in the region. Per capita consumer spending in GCC has increased at a CAGR of over 10% between 2002 and 2007. Global PE, recently concluded the acquisition of a controlling stake in Al Sawani, the third largest retail player in Saudi Arabia. Population growth, lifestyle improvements, brand consciousness, and emergence of World class retail malls should continue to benefit the retail sector, especially in Saudi Arabia, UAE, and Egypt. Global PE promoted Planet Pharmacies, a pharmacy retailer in alliance with Gulf Pharmaceuticals Industries (Julphar). The Retail sector is generally fragmented in the region and Planet Pharmacies is a consolidation play in the retail pharmaceutical industry.
There is demand for quality education and private sector penetration in the education sector will increase in the coming decade. For example, today less than 10% of the schools in Saudi Arabia are under private sector. Global PE was among the first GCC private equity houses to invest in the education sector, when it promoted Al Rayan Holding Company, which runs 5 schools offering different curriculums.
MENA enjoys 65% of the World oil reserves and 46% of World gas reserves. MENA’s share in oil production stands at 37% and that in gas at 17%. Global PE is upbeat on the sector in the long term and favors oil/gas construction and exploration services, oil refining, oil/gas transportation and marketing.
Mr. Dash commented: “The regional financial services industry is not confronted with the problems of high leverage and sub-prime loans that the West is currently facing. Banks in GCC are well capitalized.” Global PE’s analysis shows that net profit growth of the GCC banking sector for H1 2008 has been impressive (see chart).
Mr. Dash pointed out: “Although petrochemicals, fertilizers, and aluminum sectors are likely to face margin pressures in the near term, these industries enjoy international competitive advantage as a result of the regional gas price economics and we remain opportunistic.” MENA accounts for 6% share in global aluminum capacities and this is expected to increase to 12% by 2020. Similarly MENA accounts for 4-8% share in various global petrochemical product capacities and this is expected to increase to 15-25% by 2015.
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