Standard Chartered in Creative Private Equity Exits on SlumpArif Sharif
Standard Chartered Plc., the British bank that earns most of its profit in Asia, said its private equity business is exploring “creative” exit options in the Middle East and North Africa after share markets slumped.
“We don’t want to be in a position where we are six or seven years into an investment and there is no exit in sight,” Taimoor Labib, Standard Chartered’s Dubai-based head of MENA private equity, said in an interview on Jan. 17. For companies where an IPO or a sale to another company isn’t possible, the bank may propose a sale back to the company or a conversion of equity into debt or a preferred dividend, he said.
Middle East and North Africa private equity exits have been hurt by a slump in initial public offerings after Arab uprisings toppled leaders in Tunisia, Egypt, Libya and Yemen and because of the debt crisis in Europe. Money raised from regional IPOs reached $2 billion in 2012, Ernst & Young International said last month. That compares with the more than $80 billion of IPOs that were announced in 2008, data compiled by Bloomberg show.
Standard Chartered is looking to buy minority stakes in mid to large-sized companies in countries including Saudi Arabia and the United Arab Emirates, the two biggest Arab economies, Labib said at the bank’s regional headquarters in Dubai.
The bank’s goal “is to do two or three deals a year with its core clients” and it is looking at companies that can list in two years or where it invests through a blend of debt and equity financing with a clear exit path, he said.
Fundraising by MENA private equity firms in 2011 fell to the lowest level since 2004 as regional unrest and Europe’s sovereign debt crisis eroded investor appetite. Companies raised $672 million in 2011, compared with $1.5 billion in 2010, the MENA Private Equity Association said in June.
Standard Chartered’s private equity business has completed two MENA deals so far. In August 2011 it bought a $75 million stake in Construction Products Holding Co., a unit of the Saudi Binladin Group and Saudi Arabia’s biggest manufacturer of building materials like cement and tiles. Earlier that year, it completed a $75 million mezzanine investment in Bahrain-based retailer Hassan Mohammed Jawad & Sons BSC to help it expand.
Investors are looking to invest in Dubai’s consumer industry, including restaurants and hotels, to take advantage of the boom in the emirate’s tourism industry and rising consumer spending, Labib said. The lack of IPOs in the emirate is the “biggest constraint to the Dubai PE market,” he said. Consumer finance, construction and food are attractive industries in Saudi Arabia, where the IPO market is growing, he said.
“If you look at private equity in the Middle East, there is no reason why there can’t be $1 billion to $2 billion of equity invested per year in 10 to 15 cheques,” Labib said.