Family is important, but when it comes to investments, investors must prioritise according to what they want their money to do.
By the time that Gulf Finance House (GFH) lists its GDRs on the London Stock Exchange, it will be one of the most listed ﬁrms in the world, counting four stock exchanges which now include the Dubai Financial Market, as well as the Bahrain and Kuwait Stock Exchanges. Investors who have bought into GFH shares have proﬁted handsomely, more so even than those who invested in their funds.
Essam Janahi, the dynamic CEO of this relative newcomer to the world of GCC ﬁnance, has proven to be shrewd, launching several multi-billion dollars worth of local, regional and international projects in a short span of time. He is one in a list of a few people, including Nemir Kirdar and Atif Abdulmalik, founders and CEOs of Investcorp and Arcapita respectively, who have brought Bahrain back into the ﬁnancial limelight after years of suffering from allegations of government corruption and political unrest. GFH’s chief executive, who also happens to be chairman of the Bahrain Financial Harbour Holding Co., a subsidiary of GFH, has also been entrusted to supervise the BFH development; coincidentally, the contract for the lead consultant to design the US$1.3 billion ﬁnancial free zone was awarded to a ﬁrm called Ahmed Janahi Architects, owned and operated by managing director Ahmad Janahi.
It is also quite a coincidence (there are more than one of them in this case) that Abu Dhabi Investment House (ADIH), the GFH partner of choice in the UAE, the second biggest economy in the MENA region, is a company founded and managed by Rashad Janahi, who happens to be the brother of GFH’s CEO. GFH was kind enough to include the relatively inexperienced ADIH in several of their regional initiatives including the massive US$8 billion Prince Abdul Aziz Bin Mousaed Economic City in Saudi Arabia, a spectacular US$30 billion Egyptian transportation infrastructure fund and a smaller US$150 million Shari’ah compliant oil fund, as well as other less extravagant but equally opportunistic collaborations.
But it hasn’t been smooth sailing all the way. Early this year, GFH fell into trouble with the Kuwaiti Stock Exchange, which issued a statement to the Kuwaiti press concerning a number of high proﬁle ﬁrms including GFH, which did not disclose the names of shareholders with stakes above ﬁve per cent. GFH also had its share of trouble in Jordan with the Greater Amman Municipality after a ﬁre broke out on August 25, 2006 on the eighth ﬂoor of the 40-storey US$300 million Jordan Gate project, resulting a full three weeks later in the collapse of the same ﬂoor of the building killing four workers and injuring 15 others. Work was suspended and it was revealed that the building contractors had not even received a licence to commence construction, which led to a ﬁve month delay – not to mention a barrage of criticism from Jordanian ofﬁcials concerning location and underrepresented trafﬁc ﬁgures, as well as protests over the value of the land sold.
GFH, which has a market capitalistion of US$1.5 billion, is beyond doubt the star of the sombre Bahrain Stock Exchange. It is also one of the best performing stocks in the GCC region in the past few years, with investments diversiﬁed in places ranging from Morocco to India to China. It has a consistently high dividend cash payout averaging at about 58 per cent in the last four years, with regional investment banks regularly including it in their buy recommendations and prestigious awards being bestowed upon it by the likes of the London-based Euromoney journal.
GFH was also a pioneer in developing the highly perplexing pipe-line investment structure to market their new projects. The scheme starts in the Cayman Islands, and after several linked boxes with similar sounding names, ends up owning a smaller part of the ﬁrm in which investors were invited to participate in the ﬁrst place. This pipe-line structure was emulated by other investment banks in the region, including Abu Dhabi Investment House. GFH, to its credit, also publishes a glossy bilingual private placement memorandum with each subscription agreement that includes a glossary as well as a guide to their use of the funds, biography of the management team and a step-by-step guide of how the money will be utilised.
But, ultimately, it all boils down to one single question.
Do superior dividend returns and growth in stock value justify investing in a business with family connections?
This article was originally published in MONEYworks on July 2007.