Mideast private equity firms to sell assets as markets strengthen

Improving economic fortunes are encouraging equity firms to attempt public offerings, executives say

Private equity firms in the Middle East are preparing to exit a range of investments, a sign that asset markets in the region are recovering from the twin blows of Arab Spring uprisings and the global financial crisis.
Firms including Abraaj Capital, Egypt's Citadel Capital, Abu Dhabi-based Gulf Capital and the private equity arm of Standard Chartered aim to conduct at least three initial public offers of shares and a dozen portfolio asset sales in coming months, conversations with industry executives suggest.
"In the Middle East, and unlike previous years, we're expecting a wave of exits. This means more money channeled back to investors," said Steve Murphy, managing director at Citadel.
"The IPO market is like a barometer of institutional confidence. Investors need to see good return before they put fresh money into the industry."
The instability of global financial markets over the last several years, and last year's uprisings in the Middle East, created opportunities for private equity firms by making companies cheaper to buy.
But they also closed off avenues for private equity firms to realise profits on their investments. Initial public offers of shares ground to a halt in some markets, while nervous banks became less willing to provide financing for asset disposals.
Now the environment appears to be improving. Banks are in better shape while IPOs may resume in markets such as Dubai, where the Al Habtoor Group, one of the biggest family-owned conglomerates, said last month it was looking to raise as much as $1.6 billion in an IPO sometime next year.
In Egypt, signs of returning political and economic stability have boosted the stock index 58 per cent so far this year, though the index remains 21 per cent below last year's pre-uprising peak, and it is unclear when the market will be strong enough to sustain major IPO activity.
Citadel, which is listed on the Egyptian stock market, is looking at selling at least three non-core assets next year, expecting each to bring in close to $50 million.
"There are talks about a number of floatations and some other assets will be offered for sale," Murphy said.
Also in Egypt, Abraaj will consider strategic options for its Egyptian medical laboratories business Integrated Diagnostics Holding in 2013, Abraaj chief executive Mustafa Abdel-Wadood said.
"An IPO seems to be the most natural exit route for us. The company has seen significant growth through self-funding and an IPO would secure further funding for its future growth."
Abdel-Wadood added, "Most PE companies have been sitting on assets and are willing to exit when both the assets they own and the markets are ready. We believe that next year will present a good window for the right assets.
"It never plays to a script, you first decide to exit a deal, prepare for that and keep your options open. It all depends on how talks unfold and the market appetite."
Elsewhere in the region, Gulf Capital said it was exploring options to exit its investment in barge company Gulf Marine Services, including an IPO in London, Singapore or Abu Dhabi.
Earlier this year talks between Gulf Capital and two bidders for the majority stake ended without a deal because of financing issues and differences over valuation, sources familiar with the talks said. Gulf Capital chief executive Karim El Solh confirmed there were obstacles to a sale but added he had not given up on disposal efforts.
Taimoor Labib, managing director and regional head of private equity at Standard Chartered, said private equity firms' difficulties in exiting investments over the past few years had made them more cautious about putting money into companies.
"Investors are increasingly negotiating exit terms before they even sign a deal or invest in a company. Exits are still challenging, and it's hard to find open-minded owners of firms who are willing to agree on deal terms from day one."
But he added that the Middle Eastern market was seeing increasing interest from foreign lawyers, accountants and other service providers who assist in deal-making and exits.
Construction Products Holding Co, Saudi Arabia's largest maker of building materials and a unit of Binladin Group, which is partly owned by Standard Chartered, plans a Saudi IPO in late 2012 or 2013, industry sources said.
At one of the Middle East's biggest annual conferences for the private equity industry in Dubai last week, service providers accounted for almost a third of the roughly 300 attendees.
"We're seeing more service providers this year. There's more interest from custody and administration, advisory and acounting services," said Basil Roshdy, general manager and chief investment officer at Egypt-based Nile Capital.
"The region lacks service providers, at a time when these international players have lost most of their business outside the region. So they are now trying to woo the wealthy Middle Easterners in financial centers like Dubai, Qatar and Cairo."