MARRAKECH // Mumtalakat, Bahrain's government investment arm, plans to sell part of Gulf Air to private investors once the beleaguered airline returns to profitability, expected in about three years, says the fund's chief executive.
The sale of Gulf Air, Bahrain's national carrier, is part of a broader new strategy to generate cash and diversify Mumtalakat's portfolio of investments, Talal al Zain said on the sidelines of the World Economic Forum in Morocco.
"There's definitely a need to diversify and partially exiting or partially monetising some of our investments feeds into that," he said. "We own 100 per cent of Gulf Air. There's no need for us to keep 100 per cent ownership."
As it reorganised its holdings, Mumtalakat's immediate priority was to sell off small, non-controlling stakes in companies to free up cash to invest elsewhere, Mr al Zain said.
The ultimate goal, he said, was to diversify to a stage where the fund had half of its holdings in the MENA region and the other half invested in markets elsewhere.
Mumtalakat, which in June reported a loss of about US$485 million (Dh1.78bn) for last year, said last week it would offer up to 11.5 per cent of Alba, Bahrain's biggest company and home to the world's fourth-largest aluminium smelter, to outside shareholders in an initial public offering (IPO). Mr al Zain said a bigger share of the company could "possibly" be sold to investors at a later date.
Mumtalakat also in August said it sold a 12.5 per cent stake in Bahrain Family Leisure Company, a restaurant and entertainment group. Those moves have already freed up cash for new investments.
"Today, if you ask me where you would direct your liquidity to, it's going to go toward more liquid investments because the bulk of our assets right now are in the form of private equity," Mr al Zain said. "We're looking at hedge funds, we're looking at fixed income, we're looking at capital markets and we're looking at the global markets." Mumtalakat's dramatic strategy shift, first revealed last year, came just three years after its founding by royal decree to manage a portfolio of 29 companies formerly owned by the ministry of finance. Many sovereign wealth funds shifted focus after the financial crisis - a 2008 report from the Monitor Group, a consultancy based in London, said funds' investments were going increasingly towards domestic markets as well as to fast-growing emerging markets in Asia. But few funds in the Gulf have revealed as much as Mumtalakat about that shift or the losses suffered during the crisis.
Gulf Air has been one of Mumtalakat's biggest challenges. It was responsible in large part for the losses Mumtalakat reported last year and needed a $1bn capital injection from the Bahraini government last October. Mr al Zain characterised the intervention as a positive step for the airline, mimicking cash injections received by other operators in the crisis-hit sector.
How and when Mumtalakat exits Gulf Air depends mostly on the company's health but also on the buoyancy of local markets, he said.
"How we do it depends on the timing and the interest," he said. "There is an IPO, there is inviting the private sector to take it through a private placement or it can be inviting a strategic partner to come in. There are several exits."After we break even, after we start generating profits - and that we expect in three years' time - we should be able to get to that stage."
