Real estate company profile: Gulf Finance House

25 September 2008
Gulf Finance House (GFH) is an Islamic investment bank that targets infrastructure development as the major part of its portfolio.

As a result, the Bahraini institution is responsible for developing and masterplanning some of the largest real estate projects in the region, from the energy city developments in Qatar, Libya and Kazakhstan to Bahrain Financial Harbour.

“We do not really like to be called a real estate developer as we do not take any risk in putting up buildings,” says Jinesh Patel, senior director of infrastructure at GFH.

Key facts

Established: 1999

Value of projects: Not available

Net profit (2007): $340m

Revenue (2007): $580.9m

“We are initiators of infrastructure. Our strategy is that we look for fresh opportunities in fast-growing emerging markets where there is substantial need for infrastructure.”

The company can target any industry from energy to finance, IT and telecoms. After spotting a potential project, the firm will present the concept to the government in the form of an ‘economic map’ for its development.

“We carry out in-depth studies from demand analysis to legislative framework,” says Patel.

An example of such a scheme is the Tunis Financial Harbour, covering 4.5 sq km of land close to Carthage. The firm identified the lack of a financial centre in north Africa and liaised with international strategists to examine the possibility of creating one.

“The offshore industry does not exist in Africa - there is lots of potential,” says Patel.

Specific sectors

The next step is for GFH to finalise the masterplan, with construction of basic infrastructure expected to begin within five months. All GFH’s schemes target specific business sectors.

Patel says GFH focuses on key industrial projects in the finance and energy sectors rather than service sectors, because governments are more receptive to them.

Governments that can expect to receive considerable future revenues by way of taxes from new businesses at industrial developments are more likely to make land available at a lower cost, he explains.

“They [governments] sell land to us at favourable rates as we are proposing industry and job creation,” he says. “The tax input from these industries far outweighs any land values. Sometimes we also strike deals on tax, but these are confidential. We are usually able to get favourable terms and we pass these on to developers.”

Once the basic infrastructure is in place and the plots are sold off, GFH’s financial risk ends, but it still monitors and supervises the developments on site. “Governments see us as responsible for the whole works,” says Patel. “The developer will follow our blueprint, and our contract with it has conditions including penalty clauses.”

Overseeing installation

This model is being followed in the Energy City projects, which are designed as a business cluster for companies in the oil and gas ind-ustry.

While its obligations are technically at an end, GFH is overseeing the installation of a computer network to enable information sharing between cities. The network is being created by the US’ Microsoft. To date, it has been launched in Qatar, Libya, India and Kazakhstan.

Energy City Qatar was the first to be launched. According to GFH, all the plots have been sold on to secondary developers.

“It equates to 1.5 sq km of development and the returns to clients were 35 per cent [of the value of the project],” says Patel. “We generally consider that if we do not make 20 per cent, we do not do the business.”

Libya is a market that many investors are seeking to target, but bureaucracy and political interference are key challenges for international firms operating in this country.

“It was an easy decision to go into Libya - we have very good ties with the National Oil Company,” says Patel. “In any market, you have to build in contingencies, and we are fully aware of the bureaucracy risk. GFH never announces a project until it has government permission.”

Private equity is used to start all GFH’s projects. On a typical $3bn scheme, the company might put in $500m from its investors.

Although it has projects in its portfolio worth $25bn, its own investment stake is considerably smaller. Much of the cash is raised from individuals who have banked with the firm for some time, but investment funds are also beginning to invest.

“We have thousands of high net worth individuals as well as some institutions,” says Patel. “They know GFH is producing results. GFH’s capacity to raise money has been increased following our global depository receipts listing on the London stock market, and that has raised our profile.

“Institutions are happy to pump $100m or $50m into a deal. This means our growth potential has increased.”

Such potential, and the record profits of $340m in 2007, up 61 per cent on 2006, have underpinned the launch of GFH’s largest project to date: the Mumbai Economic Zone. GFH requires financing of $10bn to deliver it.

Following an agreement signed with the government of Maharashtra in December 2007, the 1,600-acre zone will include energy, telecoms, software and entertainment cities.

In 2007, the bank raised more than $630m from GCC investors for the India Energy City project, making it the largest private equity raising in the firm’s history.

As liquidity remains high in the Gulf and investors are keen to invest in emerging markets, larger fundraising activities for ever-larger projects are on the horizon in 2009.

CAPTION: Bahrain Financial Harbour: Masterplanned and developed by Islamic investment bank Gulf Finance House

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications