Structure

Jadwa Investment is a Saudi Arabia-based closed joint stock company that specialises in investment banking.

The firm divides its investment banking into four categories: corporate finance, brokerage, asset management and research.

COMPANY SNAPSHOT
Date established 2006
Main business sectors Sharia-compliant investment banking services
Main business regions Saudi Arabia and GCC, Malaysia and Africa
CEO and managing director Ahmed al-Khateeb

Aside from its Riyadh head office, it has investment centres in Jeddah, Al-Khobar and Hofuf, which cover more than 70 per cent of its target audience. These centres are equipped with small trading lounges for private clients.

The firm’s main shareholders are prominent Saudi investors. Founding partners include chairman Prince Faisal bin Salman bin Abdul-aziz, Mohamed and Abdullah Ibrahim al-Subeaei Company, the Al-Zamil Group, Abdulrahman Saleh al-Rajhi, Mohammed Ibrahim al-Issa, Abdulrahman al-Ruwaita and Abdullatif Kanoo.

Jadwa is one of the few Saudi firms that allows its employees to own a stake in the company, exercised through a share ownership scheme.

Employees own 17 per cent of the business, with shares being offered as incentives to staff members who hit targets.

Shareholders include Jadwa chief executive officer (CEO) Ahmed al-Khateeb, Brad Bourland, chief economist and head of research, and Fadi Tabbara, head of asset management.

In October, Khazanah Nasional Berhad, the investment arm of the Malaysian government, paid SR284.25m ($76m) for a 10 per cent stake in Jadwa.

The deal gives the Saudi partner access to Khazanah’s customer base and exposure to Malaysia’s Islamic financial expertise.

Brad Bourland, a former chief economist at Saudi bank Samba, was recruited in 2007 to head up the research team, and also chairs the Jadwa investment committee.

In 2008, it recruited Taimoor Labib, formerly of private equity house The Carlyle Group, as head of its private equity unit.

Operations

The main focus of Jadwa’s operations is investment banking. With little competition, Jadwa has stamped its authority in the market from a standing start.

Few Saudi banks offer project finance services and debt finance, particularly Islamic bonds (sukuk).

HSBC was the only one to have a leading debt finance team that included sukuk. Jadwa was judicious enough to hire the bank’s team.

Jadwa’s asset management team has built the sixth-largest portfolio of assets under management of any financial institution in the kingdom, totalling SR5bn.

It launched nine funds in its first year of operations, including the first multi-manager funds in Saudi Arabia, with Russell Investments, a US provider of multi-manager investment services, and the first global sukuk fund in the region.

The company has been prolific with its product launches, introducing 13 investment funds since June 2007, including the Jadwa Africa equity freestyle fund, which was launched in May 2008, offering access to opportunities in South Africa and other African markets.

The corporate finance division has executed several mandates that have made a large contribution to Jadwa’s profitability.

In July this year, it struck a deal with developer Jabal Omar to finance a real estate project in Mecca. Jadwa will arrange funds worth SR12.4bn ($3.1bn) to implement the project in two phases.

Private equity is an important part of Jadwa’s business. The company has taken stakes in strategic physical assets, starting with the 2007 acquisition of US energy giant ExxonMobil Corporation’s 30 per cent interest in Saudi Aramco Lub-ricating Oil Refining Company (Luberef).

Ambitions

Imbued with the confidence of its blue-chip backers, and supported by a substantial capital base, Jadwa has set its ambitions high.

Its aim is to become the leading investment bank in the world. It is realistic enough to give itself time to achieve this task – Al-Khateeb says it may take more than two decades.

But Jadwa has a commitment to become the leading investment house in the GCC region within three years, and sees itself as the leader in the entire Middle East and North Africa region within five years.

The company has made efforts to realise this ambition, forming partnerships with leading international investment houses such as Russell Investments, South Africa-based Investec and Khazanah, which provide it with an all-important footprint in a wide number of countries.

Jadwa says its specialisation in investment banking will give it an edge, whether in the equity capital market, project finance or debt finance.

It is positioning itself strongly in these areas and has acquired the largest investment banking team in the kingdom.

MEED assessment

The Jadwa model is a powerful template for a start-up investment house, deploying balance sheet strength and its high-level connections to enable it do things that its competitors are simply unable to.

With elite Saudi family businesses behind it, and figures such as Bourland and Al-Khateeb in its senior management, Jadwa presents a compelling proposition.

In its first full year of operations, Jadwa has performed strongly across all its business lines.

Return on equity is 21 per cent and the return on total assets is 13 per cent. This has prompted an increase in shareholders’ equity to SR735m from SR500m at the end of 2007.

The company has quickly built up a significant investment portfolio, with more than SR5bn worth of assets under management.

Jadwa can make capital out of its connections. Al-Khateeb is well known to the Saudi investor community, having worked for 10 years at Sabb’s private banking unit.

The global downturn may present immediate challenges, but Jadwa says its long-term investment approach should insulate its investors from damage. As Al-Khateeb says, Jadwa is not after short-term returns but long-term value.

The next few years will prove whether its mix of top-level human talent and robust capital will propel it into the premier league of international financial services players.

JADWA KEY FACTS
Commission income, 2007 SR15.8m
Revenues from brokerage, 2007 SR3.8m
Source: Jadwa

Q&A Ahmed al-Khateeb, CEO and managing director

What led you to form Jadwa?

The investment banking community in Saudi Arabia is very small. We all share the same frustration: for commercial and retail banks, investment banking is not at a top priority. So when the government came up with the capital market law, allowing the private sector to establish investment companies, we were among the first to make the move.

I was heading up the HSBC private banking operations in Saudi Arabia at the time and was approached by high net-worth individuals and families. I contacted people I knew with the same vision of setting up a world-class Islamic investment house. We met in late 2005 to establish a successful investment house in Saudi Arabia.

You have some of the most prominent Saudi families as shareholders. Was it difficult to convince them to come on board?

It was easy. In fact, attracting management is much more difficult. I began with Prince Faisal bin Salman, chairman of the Saudi Research & Marketing Group, the largest media group in the Middle East. He bought into the concept.

We then started profiling the shareholders. We needed a few of them from the region, working in different industries, with a good track record, and a high integrity and work ethic. We came up with a fantastic list: Kanoo, Al-Subeaei, Al-Rajhi, Al-Zamil group, Al-Issa and others. We met with 17 shareholders and all committed. It took us just one week to raise the SR500m ($133.5m) capital.

Why did you opt to become a sharia-compliant institution?

The markets in which we operate, and the 10 Islamic countries in which we aim to have established businesses, all want sharia-compliant solutions. In terms of numbers of clients, we are talking about more than 200,000 high net-worth individuals and institutional clients in the Muslim world. That represents more than $2 trillion in wealth.

Does Jadwa aim to be an entry point for foreign investors into the Saudi economy?

The government has just approved the swap agreement whereby a foreign investor can buy a stock direct, where before it used to be via a fund. The equity market is very attractive. Saudi Arabia represents more than 15 per cent of total Middle East and North Africa market capitalisation.

What does Jadwa offer these investors that others do not?

In two years, we have established a fantastic relationship with most big banks around the world. In Brad Bourland, we have the most famous chief economist in the Middle East, and a solid management team. We believe that anyone wanting to access the Saudi market, and hopefully after one year the GCC region, will choose Jadwa to be the platform to do so.

You describe your investment philosophy as ‘long term’. What is the advantage of this approach?

We look at the long-term future. For example, we are positive on the US – we look at what is happening now as an opportunity. We are blessed with a lot of cash and assets that are at a deep discount.

What new areas are you looking to move into?

We are running after some large sukuk deals to position ourselves as the market leader in debt finance. To do this, we have hired most of HSBC’s team in the kingdom.

What drove the decision to take strategic equity positions in companies like Luberef?

We have positioned ourselves strongly for private equity through our acquisition of Exxon-Mobil’s stake in Luberef. We are able to do complicated and large transactions. We were the first local partner with Saudi Aramco and were chosen by the Jebel Omar board to be its financial adviser due to the quality of our people. Price was not the driver.

How do you see the current global financial crisis?

We are very liquid and underleveraged. We see now as a time to deploy our capital and invest for the next five years. In three-to-five years, we will be able to position Jadwa far ahead of our competitors.