x Abu Dhabi, UAESunday 23 July 2017

A steady hand to steer the ship

With an economic storm circling the world, companies need the right person to at the helm during rough financial conditions.

Only a few Gulf executives can say they have managed a company through anything like the present crisis. Constantin Salameh is one of them. Just over a decade ago, at the height of the Asian financial crisis, Mr Salameh was in charge of computer giant Hewlett-Packard's financing unit for Asia, the Middle East, Africa, central and eastern Europe, managing credit in places where banks feared to tread.
Now, he has come to Abu Dhabi to help one of the UAE's family-run companies navigate through the current economic storm. And for not just any family. Mr Salameh, 52, is the chief operating officer at Emirates International Investment Company, or EIIC, the investment firm for at least two sons of Sheikh Zayed, the founding President of the UAE. "We're really re-inventing the group," says Mr Salameh, in an interview at his office at the company's Khalidiya headquarters.
As part of that overhaul, Mr Salameh says EIIC is cutting costs and beefing up its corporate governance, all in preparation for a restructuring that he says will see the company spin off or postpone costly projects in favour of those that can produce quick returns. "You focus on projects with the highest short-term cash flow generation potential while building your funnel for other opportunities with longer-term potential," he says.
Soon, the company plans to adopt the name of its parent, National Holding, and move into a new, avant-garde building near the airport designed by Zaha Hadid, the renowned British-Iraqi architect. While government-owned companies tower over the Gulf's commercial landscape, family-owned firms dominate private enterprise in the region. Standard Chartered Bank estimates that family businesses collectively account for about 90 per cent of the Gulf's non-oil GDP.
Like many other family companies, EIIC took advantage of the recent boom to expand into new businesses and new markets. It owns a controlling stake in Abu Dhabi Islamic Bank and last year re-branded its fast-growing property division as Bloom Properties. But now, with credit receding and prices falling, EIIC and other family-run companies are in a race to rationalise operations, spin off weaker units and plough the cash into their core businesses so they can not only survive, but emerge from the crisis stronger than they went in.
In many ways, the crisis has only hastened a process many companies such as EIIC were already undertaking as globalisation and the spread of multinationals forced them to either expand abroad or tighten their grip as local, niche players. "That is a force that requires more professionalisation, it requires better governance," says Randel Carlock, the director of the Wendel International Centre for Family Enterprise at Insead, the French business school.
Family-run companies are, in many cases, proving more resilient to the crisis, he adds. Part of this is because such firms tend to have a longer-term outlook. Where many corporate executives borrowed heavily to keep beating last quarter's results, family companies tend to invest for the long-haul. "At HP, you manage for the next quarter," Mr Salameh says. "In a private family business you manage for the next generation."
Mr Salameh's own family is originally from Jerusalem, where his grandfather made his fortune in real estate. One of his properties, the art deco Villa Constantin Salameh, still houses the Belgian consulate there. But the family was forced to leave by the Israelis, and the elder Mr Salameh relocated to Alexandria, only to be forced out by then president Gamal Abdel Nasser. He then settled in Beirut.
His eldest grandson, who by tradition bears his name, earned his bachelor's degree from King's College in London, and his master's from the Massachusetts Institute of Technology. Mr Salameh did a stint at the World Bank before heading to Stanford University for an MBA. Eventually, he settled in Geneva, where he became a Swiss citizen and started both a family and a career at HP. When the financial crisis erupted in 1997, Asia was one of HP's fastest-growing sources of new business. But as the banks reeled in credit, even healthy customers could not buy equipment. So, Mr Salameh expanded HP's leasing business, bypassing the banks and offering credit directly to corporate customers in places such as Indonesia, where competitors such as IBM and Compaq would not.
"Providing financial services solutions in Indonesia and China during the crisis allowed us to secure outstanding partnerships with key regional accounts, while generating healthy risk-adjusted returns and building the foundations for a strong long term revenue growth journey," he recalls. "One of the reasons why HP is the leading computer vendor in these countries today is due to the creative financing solutions that we offered when everybody else was getting out of these countries."
After HP's merger with Compaq in 2002, Mr Salameh joined the departure of executives from the firm. Two years later, he was hired to help overhaul one of the world's best-known family companies, Bata, the shoemaker founded in 1895 in what is now the Czech Republic. Mr Salameh returned briefly to Geneva to run another family investment firm, Safinvest. Last September, he was hired to help run EIIC.
EIIC is similar to Bata in some ways and to Safinvest in others, in that it manages the family's investments as well as its companies. EIIC's biggest shareholders are undoubtedly difficult to impress: One is Sheikh Saif bin Zayed, the Minister of the Interior. The other is Sheikh Ahmed bin Zayed, the managing director of the nation's largest investment fund, the Abu Dhabi Investment Authority, or ADIA. Unlike ADIA, which manages the government's surpluses, EIIC was set up in 1999 out of the Al Nahyan's own family office. "It's their private wealth," Mr Salameh explains.
Today, EIIC has 1,500 employees in the UAE, Algeria, Egypt, Jordan and Libya. Last year, its expansion went into high gear. After rebranding its property unit as Bloom, it renamed its industrial group Exeed, created an oil and gas division called Petromal, and established a trading unit called Rise. The decision to bring in more managers such as Mr Salameh was also part of that expansion. "It's a function of these people getting a little bit better known and having more wealth to reinvest," says Jeremy Parrish, the chief executive of Standard Chartered Bank's Abu Dhabi unit. "It's the way Abu Dhabi as a whole is going."
Central to Mr Salameh's strategy is focusing on EIIC's core strengths - the land in Abu Dhabi that its owners inherited from Sheikh Zayed and the power of the family's name. "If you ask me what our competitive advantage is, it's our shareholders' access to a privileged network, to privileged investment opportunities and access to privileged funding," he says. But then came the economic climate's about-face. Oil prices have fallen by more than 75 per cent from last year's peak. Bloom is offering discounts at its key project, Bloom Gardens, in Abu Dhabi. "People across the different companies are fully realising that Abu Dhabi is not immune," Mr Salameh says.
But that realisation is helping him win acceptance for what he says will be sweeping changes to the group. "The crisis is the best catalyst. It gets people focused." The first step for any company in a crisis, he says, is to restructure its debt. "You have to negotiate with your suppliers and your suppliers in this case are primarily the banks. You really need to sit down and reschedule your debt obligations."
The next step is cutting fat and selling off non-core investments. "You look at your portfolio and you rationalise it," he says. While Mr Salameh won't name which ones specifically, he says EIIC has already postponed some of its projects in order to start sharpening its focus. "We will be contemplating if these are the right sectors to be in over the next five to 10 years." As part of that transition, Mr Salameh says he is imposing new standards of corporate governance at EIIC. "You need to have the financial business controls in place," he says. "There was no business planning cycle, there was no budgeting and review cycle."
Once the restructuring has taken place, EIIC will focus on raising more capital to invest. While for some companies that means going back to shareholders for new equity, in EIIC's case Mr Salameh says the company is hoping to tie up with other investors to invest jointly on projects through special purpose vehicles. But where in this economy does Mr Salameh see investment opportunities? As he did 10 years ago, Mr Salameh says the best investments may be where others see the highest risks. So while other investors are pulling back, EIIC is looking to expand in Asia, Africa and elsewhere around the Middle East into projects that can produce returns of at least 50 per cent. EIIC is even looking at several investment opportunities in Iraq, he says.
"Of course there are risks," he acknowledges, "but we believe those risks over a period of time will wind down and we believe that the returns you can get are quite substantial." warnold@thenational.ae
Born: 1956, in Beirut, Lebanon
Education: Bachelor of Science degree from King's College in London, 1979; a Master of Science degree from the Massachusetts Institute of Technology, 1980; Master of Business Administration degree from the Stanford University, 1984
Family: Married with two sons
Career: 1984: Joins Hewlett-Packard in Geneva, becoming vice president and managing director of HP Financial Services in Asia Pacific in 1996, a position that was eventually expanded to include Middle East, Africa, central and eastern Europe; 2003: Leaves Hewlett-Packard following its merger with Compaq Computer 2004: Joins Bata, helping to restructure the Czech shoe giant TKTK; Leaves Bata to help run Safinvest, a family investment firm in Geneva;  Sept 2008: Hired as group chief operating officer at EIIC; Oct 2008: Moves to Abu Dhabi and begins restructuring the company