The Saudi conglomerate is using its wide-ranging business interests to expand into other countries.
Xenel was founded in 1973 by the descendants of one of the oldest trading houses in the Middle East, the house of Alireza, which can trace its first ledger back to 1867. Its corporate lineage was started by Zainal bin Alireza, who arrived in Jeddah in the 1840s.
Xenel Industries was formed by the sons of Sheikh Ahmed Alireza, positioned at the centre of a group of companies active in energy, industry, construction, infrastructure development, healthcare, industrial services, information and communications technology, logistics, real estate and global investing.
Date established: 1973
Main business sectors: Diversified
Main business regions: Saudi Arabia, Gulf, Asia, Africa, North America, Latin America.
Executive director: Khalid Ahmed Zainal Alireza
Xenel’s structure involves a series of joint ventures, which has enabled it to build up experience in a variety of fields. It is a decentralised company model in which each enterprise must succeed on a standalone basis. The Xenel Industries base company in Jeddah mainly exists to provide financing capabilities and oversee its diverse shareholding interests.
Xenel remains a private company, and its hierarchical structure has prevented any move to go public, as a small but increasing number of Saudi family firms have. However, through the standalone structure, individual affiliates have gone public. Saudi Cable Company (SCC), in which Xenel is the largest single shareholder, is listed on the Saudi stock exchange (Tadawul).
As a diversified conglomerate, Xenel has developed an extensive footprint by building on its foundations as a prime contractor to the Saudi government. Through 40 subsidiaries, it operates a portfolio comprising industry, petrochemicals, infrastructure, construction, real estate, transport and logistics, healthcare, technology and, more recently, carbon-based finance (see box right).
The company established its credentials in service provision in areas such as airport maintenance and healthcare, before beginning a targeted assault on sectors in which it could best take advantage of Saudi Arabia’s natural advantage in cheap energy feedstock, extending its reach into industrial areas.
SCC produces conductors and cable products, and has developed a downstream business working on turnkey projects, from design and installation to testing and commissioning. Now it is among the world’s top 10 cable manufacturers, positioning itself strat-egically for the massive expansion of regional electricity networks.
Xenel, working with UK developer International Power, led the first privately owned greenfield power plant in East Asia: the Hubco project in Pakistan. It is also active in the petrochemicals sector. Xenel affiliate National Petrochemical Company will this year start producing 400,000 tonnes a year (t/y) of propylene and 400,000 t/y of polypropylene from Yanbu.
Xenel will continue to leverage its wide range of activities as a platform for further geographic and sectoral expansion. The company prefers to move into projects early to capture the full value of business opportunities.
Having gained a broad array of skills and expertise across a range of areas working in the public sector, it attempts to transfer these into new areas in the private sector. For example, its healthcare experience built up over decades will now be deployed in one of the Middle East’s fastest-growing sectors, with clinics opening up in Egypt, Qatar and Oman. Xenel’s healthcare subsidiary, Magrabi Hospitals & Centers, is building new medical facilities in Qassim, Kuwait and Bahrain, while there are plans for hospitals in Yemen and Sudan.
The ability to see beyond national boundaries has been a distinctive feature of the firm from the outset and it will aggressively pursue new growth opportunities in the Middle East and beyond. Xenel’s track record in getting an independent power project operational in Pakistan has imbued the company with confidence, and it will attempt a similar scheme in Iran, although rising costs look set to ensure its demise.
Xenel is looking to take advantage of Saudi Arabia’s position as a major trading hub, partnering with Malaysia’s MMC Corporation to build a new container terminal at Jeddah Islamic port, costing $447m, with a handling capacity of 1.5 million t/y and a shipyard of 18-metres depth.
It is now developing alliances in the construction sector, including in the US, where it is developing a 400-acre plot in Orlando, Florida. Another first is the Xenel-Balderrie project in carbon-based finance (see box right).
Xenel’s widening base of activities poses a risk that the company is spreading itself too thin, but its corporate structure, which allows its affiliates operational independence using credible partners, mitigates against this risk. It takes a long-term view on projects, but using its diverse array of relationships, it can quickly activate key strategic projects. The model of developing management expertise in one area then transferring that skill set to other sectors has served it well, and will continue to do so.
Its preference for coming in early and taking control of the boardroom should ensure its own interests are well served. For the same reason, it is unlikely to opt for going public, yet will allow its affiliates to do so, as four already have. However, the company maintains that having to report to shareholders on a quarterly basis would deflect it from the pursuit of long-term strategic goals.
Xenel’s business acumen is attuned to seizing opportunities. The group has timed its entry into the petrochemicals market well, hitting an upswing in prices ahead of an anticipated downturn from late 2009. It will also remain on the lookout for acquisitions.
But there are risks in carrying such a varied portfolio: it may lose focus on some of the more marginal businesses, and there must be limits for the central company’s ability to keep control of such diverse interests.
Selected investments in affiliates
100% Arabian Services Group
51% Resources Sciences Arabia
49% Tecnimont Arabia
24% Saudi Trade & Export Development Company
19% Saudi Cable Company
19% Saudi Industrial Services Company
12% Hub Power Company (Pakistan)
Carbon capture earning credits
Saudi Arabia is hardly a pioneer in embracing low-carbon energy alternatives. With an economy rooted in hydrocarbons, there has been little incentive to diversify into low-emission technologies. But Xenel Industries aims to change this. Through the Xenel-Balderrie affiliate, formed in association with Canadian specialists, it has signed the first clean development mechanism (CDM) contracts with Saudi companies.
CDM is part of the Kyoto Protocol under which countries in the developed world are committed to investing in reducing greenhouse gas pollution in developing countries. It enables projects that reduce carbon emissions to gain carbon credits, which can then be traded. The global market was worth $30bn in 2006 and the Dubai Multi Commodities Centre is working on creating a regional trading platform.
Xenel-Balderrie considers itself a specialist in project finance, policy and technology associated with greenhouse gas reduction in energy-intensive sectors. It aims to help policymakers and project owners generate equity equal to a large part of the investment needed to achieve reductions in greenhouse gas emissions.
The company claims to offer a one-stop service to cover all steps in CDM project implementation. It aims to cut out brokers or traders and enable clients to realise the full earnings potential from the CDM process.
The model is simple: by being prepared to assume the expenses to develop the ‘Kyoto Model’ of industrial projects, Xenel-Balderrie takes a co-development role in these projects, freeing companies from having to pay out large fees to consultants and marketers.
It is also offering strategic advisory services to governments in the area of climate change policy. This will include introducing internal emissions trading systems, the optimi-sation of national emission-reduction programs, identi-fication of CDM project opportunities, and the development of national regulatory and legal frameworks to enhance CDM project approval and attract foreign direct investment.
Xenel has the experience to improve its credentials in this area. The executive partner is Rachad Itani, an experienced Lebanese banker who heads a team that includes several senior CDM experts. The advisory board is staffed with prominent policymakers including Rolf Linkohr, a former special adviser to the EU energy commissioner.
The affiliate’s first clients were two firms from the Xenel stable: Safra, a producer of solvents and aromatics, and Saudi National Petro-chemical Company (Natpet). Both launched programmes in 2006.
But Xenel is confident that the model will appeal to others, as CDM-enhanced finance is capable of improving the bottom line. According to Itani, CDM-enhanced project finance could provide a significant boost to the internal rate of return.
As he told a conference in 2007, the gases covered by the Kyoto Protocol - carbon dioxide, methane and nitrous oxide - provide the greatest value.
CDM projects are not intended simply as ends in themselves, but also as a means to reduce long-term operating costs. CDM-generated equity could account for a significant percentage of total equity, and help turn projects from borderline profitability into investment-grade schemes.
However, it remains to be seen how fast the Xenel-Balderrie model will catch on - at least without an element of official compulsion.
The firm says GCC governments are starting to put structures and capacities in place to build the necessary infrastructure for CDM project licensing and support.
With international regulation on emissions getting tougher, it makes sense for Gulf firms to be able to access a locally-based resource, with knowledge of the local market.
Xenel-Balderrie may take time to emerge as a major revenue-generating arm of Xenel. This is unlikely to worry Xenel strategists - the firm likes to take a long-term view, a strategy that has delivered results in the past.
With carbon capture and sequestration becoming public policy issues in the Gulf, Xenel says it will pay to stay ahead in this area.