UAE alternative finance firm considers debt fund

09 March 2017

IAF is looking to target opportunities in its core UAE and London markets

Integrated Alternative Finance (IAF), a UAE-based alternative financing firm, plans to expand its debt offering including potentially launching a $250m debt fund either in the second half of this year or in 2018 as it seeks to expand its reach and targets further financing opportunities in its core markets of UAE and London.

“We are having initial conversations on the fund at the moment,” Fawad Tariq-Khan, the head of IAF told MEED. “We think there is a scope for a $200m plus fund over here, may be $250m.”

The company, which is primarily focused on real estate sector debt financing, is a wholly-owned subsidiary of Abu Dhabi Financial Group (ADFG). Since inception three years ago, IAF has arranged a total of $3bn in financing, which includes debt as it helps developers with overall financing of real estate projects as well.

IAF has so far done 10 alternative debt deals and plans to increase the number to between six-to-10 deals a year and has the capability to “scale up easily should more opportunities arise”, he said.

Of the 10 debt deals closed so far, IAF has already exited three and expects a further three-to-four exits this year. “That’s what got us thinking about a fund because now I can show that the majority of my investments have exited successfully,” he said.

IAF, typically, targets $300m-400m real estate projects and its debt financing ticket size vary between $25m-75m. It has acted as last-mile financier in most of the deals for developers who either were struggling to finish their projects due to lack of funds or were looking for extra finance to accelerate the pace of construction.

“In some of them we have participated as proper mezzanine financer and provided junior debt where a lender was already present. In deals where developers was relying on sale of units to pay off contracts and did not have debt, we have come in and provided senior debt,” he said, adding that the size of the financing depends on the developer and the risk IAF is willing to take.

UAE focus

The UAE’s property market has recorded a slowdown in recent quarters after recovering from a meltdown in 2008-09. Projects have stalled, real estate prices have dipped and analysts predict a tough 2017-18 for the market. The construction sector, in particular, has been hit hard after the government scaled back on spending in the wake of oil price slump from a mid-2014 peak of $115 a barrel to current $55 a barrel level.

“We believe there is lack of capital available for developers and real estate assets and the reason for that is that many of the traditional banks who gorged themselves on property financing back in 2013-14 are now in the process of deleveraging,” Tariq-Khan said.

Developers in the UAE had previously financed their projects through very little equity and instead relied heavily on off-plans sales, which have effectively stalled and now there is “limited investors’ appetite” for such transactions. With banks mostly out of the picture, developers are now turning to alternative debt financiers, such as IAF, he said.

The company has a very strong pipeline of deals in the UAE and is seeing new proposals on “almost daily basis”. “Our focus is on finding good developers and good locations for financing,” he added.

Most of the IAF transactions, so far, have been in the UAE but the company is looking selectively at Bahrain market and has closed the debt financing of $650m Villamar project. IAF has arranged a small $25m portion of financing along with the senior debt extended by regional banks.

The company, he said, will continue to maintain its focus on the UAE market as regulations in some of the other GCC jurisdictions do not provide enough coverage in terms of enforcement of securities.

“In the UAE, the land department has put in few extra layers of security in the system, which is not the case in some of the other regional markets,” Tariq-Khan said, adding that Dubai remains the most liquid property market in the region with a large universe of buyers – similar to gateway cities like London or New York.

London expansion

IAF is also looking to increase the number of deals in London where the parent ADFG owns the luxury developer Northacre, a high-end residential properties developer, which not only acts as development platform for ADFG, but also manage projects on behalf of other investors.

“A good example is the Chelsea Police Station, owned by Gulf Islamic Investments. Northacre act as development managers and will be working with the owners to take the scheme through planning, development and eventual sales,” Tariq-Khan, who also sits on the board Nortacre, pointed out, adding that the company is working on another transaction in the London’s real estate space to arrange bridge financing for the acquisition of a property company.

Outside of real estate sector, IAF, is eyeing alternative financing opportunities in consumer, retail and healthcare sectors, which have a shorter working capital cycle. It is also working with other private equity firms for acquisition finance.

“We have a couple [of deals] that are being looked at. Ticket size of financing range between $25-$100m,” he said, adding that the private equity deals are typically in the range of $200m where financial sponsor puts in 50 per cent of equity and IAF looks to fund the rest.

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