Bahrain’s Mumtalakat, one of the Gulf’s youngest sovereign wealth funds (SWFs), has faced and survived some challenging economic conditions since it was established in 2006, taking over a portfolio of 29 commercial enterprises from the Finance Ministry.

A relative newcomer among regional giants such as Abu Dhabi Investment Authority (Adia), which dates back to the 1970s, and Kuwait Investment Authority, which was set up in the 1950s, Mumtalakat wanted to set the tone for a new kind of SWF that maintains very high standards of transparency and accountability.

Yet barely three years into the fund’s existence, the global financial crisis hit, causing major companies in Mumtalakat’s portfolio such as Gulf Air and Bahrain Aluminium (Alba) to start posting large losses. The fund had to admit to a multimillion-dollar loss in 2009.

Return to profitability

Since then, under the leadership of CEO Mahmood Hashim al-Kooheji, Mumtalakat has managed to turn its business around. Costs have been cut and major restructurings of its flagship companies have been undertaken.

In 2013, the investment vehicle returned to profitability and this year is set to match, if not exceed, last year’s achievements, according to Al-Kooheji’s predictions.

“If we achieve similar results to last year, I will be happy,” the CEO tells MEED.

Not only that, but Al-Kooheji also wants the company to start building a stronger presence regionally and internationally. Until now, the fund has been predominantly focused on domestic investments.

Fund background

Mumtalakat is far smaller than its regional peers and is ranked 42nd in the world, according to the US-headquartered SWF Institute’s global fund rankings. Most of the other Gulf funds rank far higher, with Adia listed as the second-largest, owning $773bn-worth of assets.

In comparison, Mumtalakat had total assets of BD4bn ($10.6bn) at the end of June 2014, with majority and minority stakes in nearly 40 entities spanning sectors including aluminium production, financial services, telecoms, real estate, tourism, transport and food production. But its transparency ranking of 9 is higher than that of many of its peers, with 10 being the highest granted by the SWF Institute.

Al-Kooheji was one of the original founders of the fund, initially joining as deputy CEO before being promoted in March 2012. He was also the chairman of Alba from 2008-14.

Even before joining the fund, Al-Kooheji’s career has been intrinsically intertwined with the development of the Bahraini economy. He started working in the oil industry at Bahrain Petroleum Company (Bapco) as an industrial engineer, and in 1988, he accepted a role at the Ministry of Finance and National Economy.

Strengthening economy

During his time in various government positions, Al-Kooheji worked to strengthen the Bahraini economy. He supported the issuance of the country’s first sovereign bond for $500m and helped Bahrain win rating upgrades from companies including the US’ Fitch Ratings and Standard & Poor’s.

Al-Kooheji has also been active in the privatisation of several power plants and mergers between major aluminium and petrochemical companies. Benefiting from this experience, he was well-placed to steer Mumtalakat back to profitability when trouble hit in 2009.

The fund reported a loss of $485m that year, a massive slump from the $183m profit it made in 2008. Revenues fell by 28 per cent year-on-year. Roll forward four years and at the end of 2013, Mumtalakat posted a profit of $219m, turning around the net loss of $482m recorded in 2012.

Gulf Air

Mumtalakat’s financial problems have mainly revolved around the embattled national carrier Gulf Air. Struggling with high fuel costs and an inefficient business model, the airline posted a loss of $503m in 2009, marking a 21 per cent deterioration compared with the previous year.

Gulf Air’s situation worsened further in 2011 amid the political unrest that swept across the Arab world and engulfed Bahrain. In a defensive move, the government halted certain Gulf Air routes to prevent activists from nearby countries entering Bahrain. Unfortunately for the airline, these were its most lucrative routes.

Manama provided a cash injection of BD185m to the airline in 2012, via Mumtalakat. But the drain on the SWF’s profits from Gulf Air became so significant that by the beginning of 2013, Al-Koojehi, in cooperation with the government, realised drastic changes to the airline were required.

“[We carried out] an ambitious restructuring programme,” he says, referring to the cancellation of unprofitable routes, job losses and the reduction in the number of aircraft. 

At the end of 2013, the government stopped channelling the bailout money to the airline via the SWF, instead absorbing the losses on its own.

The decision to bypass the fund and continue to prop up the airline was based on the government viewing the carrier as being of strategic importance to the stability of the country’s economy.

“We have now finished that [restructuring] exercise,” says Al-Kooheji. “The fleet and staff are at the right size. Now we can improve on what we have, and grow and open new destinations.”

By the end of 2013, Gulf Air had reduced its operational losses to BD95.4m from BD183.8m in 2012.

Al-Kooheji admits the airline is still a loss-making business and is unlikely to return to profitability within the coming year. But he adds: “The losses are acceptable for the situation we are now in. The airline is on the right track.”

Alba restructuring

Alba is another Mumtalakat company to have undergone a restructuring process. The company was hit hard by the decline in the global price of aluminium during the financial crisis, reporting a loss of $220.7m in 2009, compared with a profit of $781.9m in 2008.

Last year, Alba posted increased revenues fuelled by higher aluminium sales volumes and prices.

Having successfully turned around Mumtalakat’s fortunes, Al-Kooheji is now looking to make new investments.

The fund is actively supporting the development of downstream aluminium industries in Bahrain to provide a larger domestic market for Alba, which is planning its sixth potline, and to boost the local economy. Al-Kooheji says several memorandums of understanding have been signed for potential joint ventures with downstream companies based in Asia.

“Downstream industries [can] employ twice as many people as Alba; it is a big stimulator of the economy,” he says.

New sectors

The fund is also making investments in new sectors. These include luxury tourism, with deals already signed with international hotel operators to open two five-star hotels in Bahrain, one in the east of the country and the other in the south.

The contracts are in the final documentation stage and are set to be completed by the end of the year. Al-Kooheji says the general real estate sector is also proving attractive following its recovery from the 2009 crash.

Mumtalakat also recently made its first international acquisition since 2007, when it bought a stake in UK carmaker McLaren Automotive. That deal marked the fund’s first venture away from its focus on domestic investments. “We are actively pursuing international deals and have concluded one deal already,” Al-Kooheji tells MEED. “Investors are talking to us and we are looking at opportunities.”

Declining to confirm the name of the company, he says it is in the education sector and in the GCC. Al-Kooheji adds that there is a further deal in Europe within the industry and logistics sector that is pending final sign-off.

Mumtalakat, in partnership with UK-headquartered private equity firm CVC Capital Partners, made a bid last year to acquire a US talent agency, IMG Worldwide, in a deal worth just under $2bn.

The bid was unsuccessful, but is a reflection of how wide-ranging the fund’s ambitions are. “It shows the size of ticket we have appetite for,” says Al-Kooheji.

Expansive ambitions

The SWF is also exploring opportunities in Russia and is the latest Gulf-based fund to sign a preliminary agreement with the $10bn Russia Direct Investment Fund.

The deal was signed in late April at a time of heightened tensions between Moscow and the US and EU, which had just started to impose sanctions on the country in response to the Ukraine crisis.

The agreement suggests the sanctions are unlikely to deter Bahrain, or indeed other Gulf countries, from pursuing trade and investment ties with Russia.

In response to any criticism of the deal, Al-Kooheji says: “We adhere to best practices and international governance and are always mindful of corporate governance.”

Funding needs

Despite the ambitions of Mumtalakat, Al-Kooheji says he is not expecting to raise any additional financing this year at fund level. If financing is required, it will be raised at project or company level from the local banking sector, he says. “The bank market is very liquid here, and [the banks] are looking for good projects,” adds Al-Kooheji.

The fund does, however, have a $750m five-year bond maturing next year that it plans to refinance. A sukuk (Islamic bond) issuance is something Mumtalakat may also consider in the coming years, says Al-Kooheji.

The SWF has previously issued Islamic bonds, with a 300m Malaysian ringgit ($93.6m) sukuk due in 2017.

Newly equipped with healthy finances, Mumtalakat is poised to move into its next phase of development, becoming an international player in the SWF world.