By Shirley Redpath
Energy related industries will remain significant, but infrastructure is enjoying rapid levels of investment.
While several countries in Europe and the Americas struggle to leave recession behind, many of the resource-rich economies in the Middle East are enjoying unprecedented growth rates. Contained within only 11,500 sq. km of land, for example, the small peninsular nation of Qatar has the world’s second highest per-capita income and the second fastest growing economy.
With oil and gas accounting for over 50 percent of the country’s GDP, 85 percent of exports and 70 percent of government income, Qatar’s economy did feel the pinch of the latest global economic meltdown – when growth in GDP slowed from an estimated 11.7 percent in 2008 to 9.5 percent in 2009.
That trend is expected to be reversed in the current financial year as global demand for hydrocarbons increases. Yet despite having sufficient proven oil reserves to meet current output levels for at least another 37 years, the Qatari government has embarked on an ambitious plan to diversify the country’s future economy away from its dependence on oil and gas.
“There are many different opportunities for investment in Qatar,” explains Shahzad Shahbaz, CEO of QInvest. “Clearly, energy and energy related industries will remain a significant opportunity, but there will also be huge investments in infrastructure to build airports, roads, power, sewage and water facilities. The government is also promoting Qatar as a financial centre, particularly in asset management and insurance, and a longer term objective is to diversify the economy into education, health, science and technology, sports and culture; and to create a knowledge economy through strong research and development capabilities. There is a lot happening in this country.”
QInvest, Qatar’s largest investment bank, was licensed by the Qatar Financial Centre Authority in April 2007 with authorised capital of US$1 bn. In three short years it has grown to employ over 130 employees with investments in the region and also internationally.
Timing is everything. Although the world’s economy was looking bleak for investors, the turmoil in financial markets in 2008/9 meant that many talented individuals in the finance sector were displaced. With his ambitious strategy backed by a high growth economy, Shahbaz had a competing proposition and was able to attract many top quality individuals to the firm. “I think we have a good mix of international and regional experience on our team,” he says. “We see that as one of our key strengths.”
His enthusiasm for doing business in the region, which QInvest defines as the Middle East, Africa, Turkey, South Asia and parts of South East Asia, is well founded. With a relatively young population, the region has a growing workforce and limited pension liabilities. Governments in the region are turning their attention to the huge capital resource available to them for the development of infrastructure, creating investment opportunities on a large scale. Within this environment, the development of sophisticated regional investment banking services has been relatively slow, so Shahbaz sees opportunities for growth in his sector being disproportionately high even against the high growth rates enjoyed by the rest of the economy.
This prosperity and the investment opportunities in the region are naturally attracting the major global banks but, according to Shahbaz, these are mainly interested in the top end of the market. Beneath that top tier there is a large sub-market of regional suppliers and investors that is hungry for business. “The global banks will always be here and doing business in this region,” he notes, “but there is also room for a well sponsored, well capitalised regional bank with good quality people and strong governance.”
But while QInvest is clearly focussed on developing its business and being relevant to clients and investors within its defined geography, the bank also has part of its sights firmly pointing outwards. Believing that linkages into international markets will enable them to provide better investment opportunities and services to their regional clients, QInvest has already acquired a significant holding in two financial services businesses outside its region.
The acquisition in 2009 of 44 percent of Panmure Gordon, a London based investment banking firm with offices and subsidiaries in the US and Europe, gives QInvest important linkages into the major capital centres of London and New York. The company’s longer term vision, which anticipates huge opportunities in the emerging markets of Asia, is behind its second major investment in early 2010 of a share in Ambit, a leading investment bank based in India.
“Our vision is to develop an emerging market strategy which we can then link into the major financial centres in Europe and the US,” explains Shahbaz. “Other than the major global investment banks, there are not many others who are doing this successfully or effectively.”
In addition to geographic reach, each of the two investments brings good strategic fit in specific business areas. Panmure Gordon has a strong brokerage business which complements the evolving brokerage activity of QInvest, and it provides a network of distribution centres in the European and American markets. The investment in Ambit not only provides QInvest clients with access to opportunities in the high growth Indian market, it enables QInvest to benefit from that growth by gaining access at an early stage.
Solid foundations
Being an Islamic investment bank, QInvest operates within the investment guidelines set out in Sharia’a law which proved robust through the crisis.
Islamic finance does not, however, prohibit an investor from realising a return. There are many Sharia’a compliant ways to construct a transaction which will be able to extract a return, including profit and loss sharing or the sale and buy-back of assets. “What you can’t do is finance something for purely speculative purposes or something where there is no underlying asset,” Shahbaz observes. “That is the strength of Islamic finance. If you look at some of the problems that caused the recent international financial crisis, they were caused by speculative lending where there were no underlying assets.”
Increasing numbers of non-Islamic companies are accessing the benefits of Sharia’a compliant investments. As more people come to understand instruments like the Sukuk, a bond structured in the Islamic manner, organizations raising capital through Islamic structures gain access to a broader pool of investment capital, since both Islamic and non-Islamic investors can participate.
QInvest provides a full range of investment banking, investment management, brokerage and wealth management services to its clients. In addition, the firm has its own private equity strategy which sees it building the beginnings of an investment fund. Initially the investments are being made directly from QInvest resources but Shahbaz expects to get other investors to participate.
The first two investments for the fund were made in 2010. In April, the company acquired a 40.8 percent stake in Intercat Hospitality and Butlers Dry Cleaning and Laundry Services (the “Group”), one of the UAE’s leading outsourced business services companies. “These sectors are developing rapidly and Intercat and Butlers are the leaders,” comments Shahbaz. “We invested in them because the company has very good management and a business in this sector will grow in this region as infrastructure grows.”
More recently, QInvest acquired a 28 percent stake in Asian Business Exhibition & Conferences Ltd (ABECL), India’s leading exhibitions and conferences organiser. “We see India as a high growth market and this company is the market leader in this sector,” says Shahbaz. “This investment fits well with our strategy of supporting well-managed companies with strong growth potential in the MENASA region, and demonstrates our confidence in the Indian economy and our appetite to deploy capital in the country.”
With its wealth of talent and international reach, QInvest is ideally placed to take a leading role in the development of the communities in which it operates. As part of the company’s corporate social responsibility commitment, QInvest has developed a programme of activities that includes funding for a range of charitable, educational, social, cultural and sporting organisations and events. Among these is the annual Qatar Global Investment Forum, the second of which was recently held in Doha. The event attracted over 350 delegates from 30 countries keen to share some of their latest thinking on investment strategies in Qatar, the region, and more internationally. Closer to home, QInvest has set up the QTalent programme; that consists of Qatari Development Programme (QDP), Graduate Development Programme (GDP) and Internship Development Program me (IDP); for spotting and developing high potential talent who will form the future of the growing finance industry in Qatar.
With all of this activity taking place in less than three years of starting business, some might consider it a bit premature to be thinking of realising the firm’s value in the market, but the QInvest team have that on the cards as well. “It is very much in line with our initial investment proposition that we offered to all those who backed the bank,” Shahbaz points out. “An IPO is very much on the agenda but the timing is still undefined. Definitely not before the end of 2011; probably sometime in early 2012, but it all depends on how we are progressing with the implementation of our strategy, and the market conditions at the time.”