Sunday, 29 July 2007

Public's Money, Family's Business

By the time that Gulf Finance House lists its GDRs on the London Stock Exchange it will be one of the most listed firms in the world, counting four stock exchanges which now include the Dubai Financial Market, as well as the Bahrain and Kuwait Stock Exchanges. Investors who have bought into GFH shares have profited handsomely, more so even than the ones who invested in their funds[1]. Mr. Essam Janahi, the dynamic CEO of this relatively new comer to the world of GCC finance has proven to be shrewd and cunning, launching several multi billion dollars worth of local, regional and international projects in a short span of time. He is one in a list of a few people, including Mr. Nemir Kirdar and Mr. Atif Abdulmalik founders and CEOs of Investcorp and Arcapita respectively, who have brought Bahrain back into financial limelight after years of suffering from allegations of government corruption[2] and political unrest. GFH’s Chief Executive who also happens to be Chairman of the Bahrain Financial Harbor Holding Co, a subsidiary of GFH, has also been entrusted to supervise the BFH development; coincidentally the contract for the Lead Consultant to design the $1.3 billion financial free zone was awarded to a firm called Ahmed Janahi Architects[3], owned and operated by managing director Mr. Ahmad Janahi. It is also quite a coincidence (there are more than one of them in this case) that Abu Dhabi Investment House, the GFH partner of choice in the UAE, the second biggest economy in the MENA region, is a company founded and managed by Mr. Rashad Janahi who happens to be the brother of GFH’s CEO. GFH was kind enough to include the relatively inexperienced ADIH is several of their regional initiatives including the massive $8 billion (Dh29.36bn) Prince Abdul Aziz Bin Mousaed Economic City[4] in Saudi Arabia, a spectacular $30 billion (Dh110bn)[5] Egyptian transportation infrastructure fund, and a smaller $150 million Shariah compliant oil fund[6] as well as other less extravagant but equally opportunistic collaborations.

But it hasn’t been smooth sailing all the way. Early this year GFH fell into trouble with the Kuwaiti Stock Exchange who issued a statement to the Kuwaiti press concerning a number of high profile firms including GFH who did not disclose the names of shareholders with stakes above 5%[7]. GFH also had their share of trouble in Jordan with the Greater Amman Municipality after a fire broke out on August 25th 2006 on the eighth floor of the 40 storey $300 million Jordan Gate project resulting a full three weeks later in the collapse of the same floor of the building killing four workers and injuring 15 others[8]. Work was suspended and it was revealed that the building contractors had not even received license to commence construction which lead to a five month delay not to mention a barrage of criticism from Jordanian officials concerning location, underrepresented traffic figures[9] as well as protests over the value of the land sold[10].

GFH which has a market capitalistion $1.5 billion[11] is beyond a doubt the star of the sombre Bahrain Stock Exchange. It is also one of the best performing stocks in the GCC region in the past few years with investments diversified in places ranging from Morocco to India to China. It has a consistently high dividend cash payout averaging at about 58% in the last four years[12] with regional investment banks regularly including it in their buy recommendations and prestigious awards being bestowed upon it by the likes of the London based Euromoney journal.

GFH was a pioneer in developing the highly perplexing pipe-line investment structure to market their new projects. This scheme starts in the Cayman Islands and after several linked boxes with similar sounding names ends up owning a smaller part of the firm in which investors were invited to participate in the first place. This pipe-line structure was emulated by other investment banks in the region including Abu Dhabi Investment House. GFH to its credit also publishes a glossy bilingual Private Placement Memorandum with each subscription agreement that includes a glossary as well as a guide to their use of the funds, biography of the management team and a step by step guide of how the money would be utilized.

Ultimately it all boils down to one single question.

Do superior dividend returns and growth in stock value justify investing in a business with family connections?

You decide.



[1] http://cm2.zawya.com/researchreports/kmefic/20061017_KMEFIC_082107.pdf

[2] http://www.state.gov/g/drl/rls/hrrpt/2004/41719.htm

[3] http://www.zawya.com/story.cfm/sidZAWYA20030717084808

[4] http://www.zawya.com/story.cfm/sidZAWYA20060704042521

[5] http://www.zawya.com/story.cfm/sidZAWYA20060808032842

[6] http://www.zawya.com/story.cfm/sidZAWYA20070528042708

[7] http://www.zawya.com/story.cfm/sidZAWYA20070106062207

[8] http://www.zawya.com/story.cfm/sidZAWYA20060924030644

[9] Ibid

[10] http://www.zawya.com/story.cfm/sidZAWYA20050701070223

[11] http://www.ft.com/cms/s/75779046-1238-11dc-b963-000b5df10621.html

[12] http://cm2.zawya.com/researchreports/kmefic/20070205_KMEFIC_064547.pdf

2 comments:

Kiwi Nomad said...

You forgot to mention that GFH is now persona non grata in Bahrain and won't be directly awarded any further projects in the Kingdom.

Hamad said...

Contrast the performance of the share price now ...