x Abu Dhabi, UAEFriday 19 January 2018

Family companies seek funding to expand abroad

Family-owned businesses and other private sector companies are turning to capital markets to generate funding, as they start to outgrow their Gulf backyards and seek expansion overseas.

Family-owned businesses and other private-sector companies are turning to capital markets to generate funding as they start to outgrow their Gulf backyards and seek expansion overseas.

The move is expected to lead to more public sales of bonds and sukuk and to initial public offerings in the region from companies that would not traditionally seek out investment on capital markets, said Rezwan Mirza, a managing director and regional head of Barclays Corporate.

"Companies that were more regionally-focused 10 years ago are now breaking out," he said.

Such companies are finding it difficult to raise financing from banks and grow at a fast enough clip to allow them to meet their ambitious expansion plans, he added. "We see an incredible opportunity to work with clients in the true private sector in this region.

"We're looking at world-class entities with global reach, competitive globally, all based in this region, and expanding out now."

If the increased levels of capital market activity come to pass, it will be a vindication of one of the biggest gambits in the UAE's banking industry as it tries to recover from crisis.

European banks have cut lending to the Gulf as a result of the euro-zone crisis, while uncertainty during the Arab Spring caused a plunge in deal volumes last year, stymying the region's recovery.

The financial sector's retreat has forced some companies to take matters into their own hands as market conditions start to ease.

Majid Al Futtaim (MAF) Holding, the family-owned operator of Dubai's Mall of the Emirates, raised US$400 million (Dh1.46 billion) in a sukuk sale last month.

Borrowing costs were likely to rise during the next few years because of new regulations on investment banks, said Daniele Vecchi, MAF Holding's treasurer. MAF is expanding across the Levant and Egypt while eyeing further expansion in Saudi Arabia and Central Asia.

That has convinced many family-owned companies of the virtues of tapping capital markets directly - but that also requires extra effort from companies that are not accustomed to the scrutiny that accompanies public bond and share sales.

"The main issues are the ability to access the capital markets, and to access the market you need to have a good story to tell, you need proper disclosure policies, good governance and a track record," Mr Vecchi said. "You cannot improvise."

Banks are using private banking to leverage the wealth of large businesses to rebuild their investment businesses - many of which have suffered as a result of a paucity of deals.


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