A few years ago, Bahrain’s Mumtalakat was the poster-child for regional sovereign wealth funds (SWFs). It published its financial performance, talked about transparency and was a vehicle for reform and accountability domestically.

The US-based Sovereign Wealth Fund Institute, which ranks global SWFs, gave Bahrain the highest ranking in the region on its transparency index. That helped Mumtalakat as it discussed plans to balance its assets – currently about 98 per cent domestic – equally between local and foreign investments. This is in contrast to most other SWFs, which mainly invest abroad.

Since then, it has faced greater challenges. The global financial crisis forced it to delay its international investment strategy and focus on ensuring the health of its Bahraini assets. The company then became embroiled in domestic politics. Hundreds of workers at firms it controls, such as Gulf Air and Aluminium Bahrain (Alba), were sacked for taking part in protests during February and March 2011.

Domestic investment

“The vast majority of people who lost their jobs have been reinstated,” says Mumtalakat’s chief executive officer, Mahmood al-Kooheji. “People are moving on and life is returning to normal.”

Keen to ensure Bahrain’s economy also continues to stabilise, the firm plans to invest $150m in local projects. It is the largest domestic investment the fund has made since its inception in 2006 and a sign that Mumtalakat is starting to become more active.

The investments are roughly divided between real estate, downstream aluminium and tourism projects. “These investments will create jobs for Bahrainis,” says Al-Kooheji. “This money will be spent before the end of the year. We have already done a detailed study for every project and where the money is going. We had hoped to do more, but this is our budget allocation.”

The investments include several luxury hotels, seed capital for the development of a $1bn downstream aluminium industry that will use the output from Alba’s planned expansion, and new tourism developments around the Formula 1 racetrack.

Al-Kooheji says Mumtalakat will not be looking to borrow any new money this year. Instead, it will focus on refinancing an existing $300m loan that matures later this year and work to reduce its debt. “We currently have approximately $1.1bn of debt outstanding – this compares with $1.5bn of debt outstanding at Mumtalakat in 2010,” says Al-Kooheji. “As part of our five-year planning and budgeting exercise, we have assumed ongoing repayments of Mumtalakat’s debt by approximately $100m a year.”

We remain committed to the medium-term strategy of balancing the portfolio – that continues to be our plan

Mahmood al-Kooheji, Mumtalakat

However, Al-Kooheji does not rule out additional borrowing for foreign acquisitions. “If we need to borrow, it will be for acquisitions, but at the moment I don’t see that on the horizon,” he says. Making more international investments remains the long-term goal, but for now “low-hanging fruit” in the local market is the priority.

Instead of borrowing at the holding company level, Mumtalakat will focus on pushing its borrowing down to the project level. “If projects are bankable, we will borrow at the project level,” says Al-Kooheji. “So Alba, for example, will raise money on its own balance sheet for the expansion.”

Another focus for Al-Kooheji this year will be Gulf Air. Mumtalakat is leading efforts to restructure the perennially loss-making airline. It is the latest in a long string of attempts to turn things around at Gulf Air, but one which Al-Kooheji is convinced will work this time.

Airline restructuring

In late 2012, Manama announced a BD185m ($494m) cash injection into the airline, which preceded the announcement in January 2013 of a fresh attempt at restructuring.

“This time the restructuring will work because we are doing it very transparently,” says Al-Kooheji. “We said to the government if we get this funding for the restructuring, then we will deliver this set of results by the end of the year. So everybody is working towards this target and we can be held accountable to it. The results for the first two months of the year have been very encouraging.”

Under the restructuring plan, losses will be below $100m this year, and under $35m in 2014, well below the more than $200m losses Gulf Air made in the past. “The vision for Gulf Air is to create an efficient and strategic airline with a few international destinations that serve the economy. We don’t aim to be the biggest or the most luxurious airline in the region, but we do aim to be the business airline for the region,” he says.

Turning Gulf Air around would also help Mumtalakat, which in its last financial results reported a widening loss and a fall in the value of its assets. Losses for 2011 widened to BD270.6m, while the fund’s assets dropped in value from BD5bn to BD4.2bn.

Al-Kooheji says although he has yet to receive the final figures for 2012, “operating performance has been quite strong”. He adds that Mumtalakat will remain committed to improving its disclosures. If it can do that, along with making successful investments in the domestic economy and restructuring Gulf Air, Mumtalakat really will be an example for other SWFs in the region.