Gulf Finance

At Gulf Finance House we believe foresight inspires the wisest decisions, helping us translate the needs of tomorrow’s world into today’s most remarkable investment opportunities. Contents 2 3 9 About Gulf Finance House Message from the Chairman Executive Management • Executive Management Overview 13 Board of Directors 16 Sharia’a Supervisory Board 17 Business Activities • • • • • Economic Infrastructure Islamic Financial Institutions Venture Capital Initiatives Private Equity Asset Management 32 Case Study: Tunis Financial Harbour 2 About Gulf Finance House Gulf Finance House is a leading voice in the fast emerging global Islamic investment banking sector. Now celebrating its tenth anniversary, GFH has established a unique business model and a reputation for unlocking high value opportunities in some of the world’s most promising emerging economies. With an historical core focus on the conception and realisation of sector-themed economic infrastructure projects and initiatives, GFH has now diversified its offering with the introduction of a Venture Capital business, an arm devoted to the establishment of Sharia’a compliant financial institutions, a Private Equity division and an Asset Management division. Our economic infrastructure projects include a network of economic development zones, energy cities and financial harbours taking shape across the GCC, South Asia and North Africa. In each case, we work in close partnership with governments to deliver communities that realise domestic industrial potential and produce sustainable economic benefits for current and future generations. The successful development of GFH economic infrastructure initiatives inspired the diversification of our business lines. Having worked to conceive energy communities, our specialist teams identified an opportunity to provide flexible and bespoke intelligent financial solutions focused on a specific sector. First Energy Bank was the product of this thinking and is the first and only Islamic investment bank in the Middle East offering tailored finance to the energy industry. GFH’s exposure to the infrastructure sector showed a need for greater volumes of critical building materials sourced from and manufactured across the MENA region. For this reason our Venture Capital team conceived Cemena, which represents a high value investment opportunity and offers a farsighted local solution to a local problem. Throughout a decade of success, GFH has tirelessly built a reputation for delivering high investor returns by identifying innovative opportunities unseen by others. Although our spiritual home lies within the GCC, our work is changing lives far beyond these borders and as we embark on a new financial year in 2009, we plan to reach out to new investors in European markets and beyond. GFH is currently listed on the Bahrain Stock Exchange, the Kuwait Stock Exchange and the Dubai Financial Market. More recently, in 2007 GFH undertook a GDR listing on the London Stock Exchange with a view to exploring new markets and increasing awareness of our unique offering. > First Energy Bank. The first and only Islamic investment bank in the Middle East offering tailored finance to the energy industry. Message from the Chairman IN THE NAME OF ALLAH, THE BENEFICENT, THE MERCIFUL, PRAYERS AND PEACE BE UPON THE LAST APOSTLE AND MESSENGER, OUR PROPHET MOHAMMED. 3 Dear Shareholders, On behalf of the Board of Directors, it is my privilege to present the annual report of Gulf Finance House (GFH) for the year ended 31st December 2008. The year started with the deepening of the global financial crisis in the US and Europe and ended with the major advanced economies in recession. Commodity-exporting countries and emerging economies in general were not immune as a result of the globalisation of trade and capital flows. Commodity prices, especially oil, reached unprecedented levels by the middle of the year and then crashed as the speculative bubble burst in the last quarter. Nevertheless, the average price of oil for the year as a whole was close to US$ 100 per barrel. As a result, the GCC economies fared much better than most other countries. It is therefore likely that the governments of the GCC ended 2008 with higher sovereign wealth despite losses on their holdings of international assets. The financial and corporate sectors in the GCC also did better than their peers in the rest of the world thanks to the vigilance of the regulatory authorities. The liquidity shortage that affected the GCC financial markets in the second half of 2008 represented a severe test of financial institutions and thankfully demonstrated the resilience of the A focus on initiatives that address majority of them, especially those that are the urgent demands across industry Sharia’a compliant. By the grace of the and emerging world economies Almighty and prudent management of risk underlines the robust versatility and liquidity GFH ended the year in of our business model despite the a strong position despite the challenges global economic downturn. and the tough operating environment. GFH has built on its core economic infrastructure business while offering diversified investment opportunities as we expand the range of financial products available to our investor base. A continued focus on initiatives that address the urgent demands across industry and emerging world economies underlines the robust versatility of our business model despite the global economic downturn. As we celebrate our 10th anniversary, GFH can look back proudly over a decade of innovation and consistent performance. From our base in the GCC we have always taken a keen interest in the many emerging economies locally and throughout North Africa and Asia. GFH has never been moved by the pursuit of generic investment opportunities. Our work has been inspired by the design of intelligent economic and financial platforms that empower domestic and regional economies. We’ve reached out to governments, listened closely to their aspirations and studied in the most minute detail how best to maximise their domestic economic potential. Over the years these efforts have given rise to a variety > Celebrating a decade of innovation and consistent performance. ANNUAL REPORT 2008 Gulf Finance House 4 Esam Yousif Janahi CHAIRMAN ... continued (Message from the Chairman) 5 of international sector-themed economic infrastructure projects, including energy cities and financial harbours. GFH’s tireless appetite for understanding the finest points of each sector it explores has perhaps inevitably led to the identification of more specialised industrial demand and the development of new and diversified investment opportunities. More than any year before, 2008 has seen GFH diversify its initiatives, utilising the depth and breadth of its experience to the fullest. With a record of creating Islamic financial institutions such as QInvest and Khaleeji Commercial Bank, GFH will continue to pursue the development of specialist Islamic financial entities offering intelligent, tailored solutions. First Energy Bank (FEB) was the latest in a planned stable of related initiatives and the first Islamic investment bank in the Middle East offering financial solutions tailored exclusively to the energy sector. Alongside this development, and after years of exposure to the challenges faced by the infrastructure sector, our Venture Capital division launched several initiatives designed to address the MENA-wide shortage of critical building materials and industrial services – conceiving local solutions to local problems. > Our Venture Capital division launched initiatives across the MENA region. Financial Performance and Shareholder Returns I am pleased to announce that GFH has enjoyed a profitable year despite the well documented global financial crisis, recording a net profit of US$ 291 million, a decrease of 14% on 2007 profits. While GFH recorded a strong performance in the first three quarters of 2008, the fourth quarter reflected a cautious trend amongst the global investment community. Despite this, GFH enjoys sufficient capitalisation, a low and flexible cost base and liquid assets that remain in excess of US$ 1 billion. Profits in 2008 have been driven by both economic infrastructure initiatives at Tunis Financial Harbour, Caspian Energy Hub, Kazakhstan and Energy City Libya and through the success of Cemena, which demonstrates the emerging contribution of our diversified business lines to overall revenue. Our steady navigation of a challenging regional marketplace can be attributed to a few key factors. Our strict adherence to Sharia’a principles precludes direct exposure to the toxic asset classes that have triggered the eradication of wealth across world markets. Secondly, the majority of GFH initiatives are focused on selected emerging economies and our thorough due diligence, government partnerships and sector specialists are effective in mitigating risks typically associated with execution and delivery. Furthermore, in a competitive marketplace, we remain confident that available liquidity will seek the most intelligent, innovative and prescient investment opportunities, and GFH will continue to provide them in the year ahead. > Available liquidity will look to GFH for intelligent, innovative and prescient investment opportunities in 2009. ANNUAL REPORT 2008 Gulf Finance House 6 ... continued (Message from the Chairman) 5-Year Financial Highlights 32.07% ’04 16.73% 32.97% 46.54% ’05 18.44% 36.40% 41.48% ’06 16.27% 36.85% 43.96% ’07 18.16% 32.32% 31.62% ’08 ROAE (%) ROAA (%) 10.19% 35.91% Cost to Income (%) Quantitative Indicators – Return on Average Equity (ROAE) Return on Average Assets (ROAA) Cost to Income Strategic Progress 2008 witnessed the launch of GFH initiatives in new territories with the announcement of Caspian Energy Hub in Kazakhstan and Energy City Libya. Both initiatives are an indication of the esteem GFH is now held in by governments across MENA and Asia. Nations with inherent industrial and economic potential continue to put their faith in our ability to design tailored economic platforms. Accordingly, we expect to expand further in other emerging markets as these nations look to enhance their economic infrastructure. While the conception of economic infrastructure initiatives has historically been a core GFH business line, we have placed far greater emphasis on diversification throughout the past twelve months by building strong capability across our Venture Capital, Private Equity, Asset Management and Islamic Financial Institutions operations. We look forward to offering our loyal investors a full range of products and investment opportunities. As part of our diversification, from a private equity and venture capital perspective we will assume an opportunistic stance towards undervalued assets in the region. Equally, we will continue to focus energy on opportunities within defensive sectors, including agriculture and food production. We also anticipate a focus on new regions, starting with the world’s other major Islamic financial hub in South East Asia. With the continued growth in the sophistication and appeal of Islamic finance, we hope to bridge the two markets and deliver the whole range of GFH products to a new investment community. > Nations with inherent industrial and economic potential continue to put their faith in our ability to design tailored economic platforms. > Our focus will be on defensive sectors like agriculture and food production. Foresight 7 Corporate Social Responsibility Corporate Social Responsibility is a fundamental Islamic principle for GFH and an integral part of our operations. We have always looked to support important causes across the community we live in. In 2008 GFH has made several donations that have benefited over 700 Bahraini families, helping the poor in a responsible, sustainable way by addressing their basic needs and ensuring an improved quality of life. We have also supported various funds and organisations responsible for helping the needy in their respective locations and encouraging improved welfare. Through charitable donations we are contributing to the construction of modern housing for those who have long been deprived of homes and providing funds to educate young Bahrainis who would otherwise not enjoy the enormous benefits of an education. We also continue to sponsor the Crown Prince’s International Scholarship Programme, which identifies and helps secure suitable education for some of the most promising young Bahrainis. GFH recognises the importance of reinvesting in the community and we will continue to support causes that empower Bahrainis, promote their welfare and contribute to a brighter future throughout the Kingdom. During 2008 we also made a BD 100,000 contribution to the Bahrain National Committee for the Support of Palestinians in Gaza, a charitable foundation chaired by His Highness Shaikh Nasser bin Hamad Al Khalifa. > We continue to sponsor the Crown Prince’s International Scholarship Programme, which identifies and educates some of the most promising young Bahrainis. Looking Ahead The global economy is facing enormous challenges but GFH is built on strong foundations and throughout a decade of success and innovation we have established ourselves as a leading regional Islamic investment bank. As we embark on a new year, we expect the sophisticated and intuitive nature of our initiatives to be in even greater demand, creating value based on the specific long term needs of our investors. A different commercial landscape will require intelligent thinking to identify the specific economic, technological and industrial challenges that require urgent solutions, irrespective of the ebb and flow of the global economic tumult. With a track record for conceiving visionary solutions, GFH is well placed to adapt and flourish in a changing environment. > With a track record of conceiving visionary solutions, we are well placed to adapt and flourish in a changing environment. ANNUAL REPORT 2008 Gulf Finance House 8 ... continued (Message from the Chairman) We will continue to focus initiatives on economies that offer attractive sector-themed medium and long term growth prospects, capitalising on the investment potential of countries, industries and ideas whose time has come. We expect to be tested in the year ahead but with a strong pipeline of initiatives rapidly taking shape and a robust network of partners we look forward to further diversification and continued success in 2009. We are mindful of the role our governmental partners continue to play in our achievements and we are forever grateful for the unique relationships we have established over the years. We thank the rulers and respective governments of the Kingdom of Bahrain, the People’s Democratic Republic of Algeria, the People’s Republic of China, the Republic of India, the Hashemite Kingdom of Jordan, the Republic of Kazakhstan, the State of Kuwait, the Great Socialist People’s Libyan Arab Jamahiriya, the Kingdom of Morocco, the State of Qatar, the Kingdom of Saudi Arabia, the Tunisian Republic and the United Arab Emirates. Allow me to take this opportunity to extend my heartfelt thanks and appreciation to our valued investors and shareholders, whose continued support enabled us to fulfil our goals. In your name and on your behalf I also wish to thank the higher management team and wish them a prosperous year. We sincerely hope that 2009 will be a year of renewed achievement for GFH. Yours truly Esam Yousif Janahi CHAIRMAN Executive Management Peter Panayiotou* ACTING CEO 9 Peter Panayiotou was responsible for recommending and executing the bank’s strategy. He was a Director of Bahrain Financial Harbour, Vice Chairman of Bahrain Aluminium Extrusion Company, Chairman of Injazat Capital, Chairman of Jordan Gate, and Chairman of Royal Village Company Jordan. Mr Panayiotou joined GFH in May 2003 as Chief Operating Officer, and was appointed Acting CEO in July 2007. Previously, Mr Panayiotou spent 17 years with PricewaterhouseCoopers in the UK, Bahrain, and the Sultanate of Oman. A Fellow of the Institute of Chartered Accountants in England and Wales, he also holds a degree in jurisprudence from the University of Oxford. * Mr Panayiotou left GFH during the 4th quarter of 2008. Salah Rahimi DEPUTY CEO Salah Rahimi has over 20 years’ experience in finance and banking and has held several key positions with GFH, including Chief Financial Officer. He assumed his current role of Deputy CEO in July 2008 and will be continuing his previous role as CFO. Further responsibilities include restructuring and streamlining the bank’s operations, managing GFH’s strategic financial operations related to accounting, finance and central bank reporting and maintaining regulatory standards in the bank’s financial processes and methodology. A graduate of the University of Southern California, Mr Rahimi holds a bachelor’s degree in business administration, majoring in accounting. Prior to joining GFH he held several key positions in the area of internal audit at Deloitte & Touche, Al Juraid & Company and United Gulf Bank. He also holds CPA and CISA qualifications. Mehran Jamsheer DEPUTY CEO Mehran Jamsheer is responsible for acquisition and capital transactions, sourcing, sponsoring and executing transactions, consultancy and management on a variety of deals, and taking the lead in originating and driving business development at GFH. He first joined GFH in 2003, heading up the bank’s Private Equity business. Mr Jamsheer has 14 years’ experience as an auditor, starting with 7 years at Arthur Andersen & Co and then at BDO Jawad Habib. He is a CPA licensed in the USA, and holds a BSc in accounting from the University of Bahrain. ANNUAL REPORT 2008 Gulf Finance House 10 ... continued (Executive Management) John Wright CHIEF OPERATING OFFICER John Wright joined GFH in mid-2008 as Chief Operating Officer, and has overall responsibility for GFH’s corporate support functions and in particular for the Development Infrastructure and Venture Capital companies. Mr Wright has held several positions in investment banking in a career spanning 20 years. He has been a Financial Accountant, CFO, CAO and his last role was COO of Merrill Lynch EMEA Residential Real Estate. His qualifications include an MBA (Distinction) and FCCA. ExECUTIvE MANAGEMENT OvERvIEw We are delighted to say that over a year marked by increasing turbulence throughout the global economy, Gulf Finance House has recorded a strong performance once again, driven by our core business and an increasingly diversified business model. Financial Review Over the four quarters of 2008, we posted robust profits of US$ 291 million despite a global financial crisis and a considerably more challenging trading environment in the second half of the year. It should be noted that while this figure represents a 14% fall in profits in absolute terms when compared to 2007, if we subtract the non-recurring US$ 84 million contribution to full year results in 2007 from the sale of a 60% holding in Khaleeji Commercial Bank, 2008 is the most profitable year in the bank’s history. Total income for the full year was US$ 618 million compared to US$ 588 million in 2007. Income was driven by a number of varied initiatives both core and diversified. Our economic infrastructure business continues to thrive with the announcement of new concepts throughout 2008, including Tunis Financial Harbour, Energy City Libya and the Caspian Energy Hub. Alongside these achievements, the launches of First Energy Bank and Cemena underline the fast-emerging contribution our diversified products are making to profits across Venture Capital, Private Equity and Asset Management. Total expenses reached US$ 325.7 million compared to US$ 244.73 million in 2007, driven largely by increased staff, advisory and financial expenses. Staff costs rose by 29.6% to US$ 134.5 million due to our continued policy of recruiting talented individuals who can successfully execute our business model. Investment advisory expenses climbed by US$ 170,000 to US$ 48.5 million reflecting the diversification of our business lines and increased product offering. After a decade in business the bank’s fundamentals remain strong and with over US$ 1 billion in liquid assets we are well placed to weather the downturn in the global economy. We were pleased to note that our BBB-/A-3 rating has been affirmed by > 2008 was the most profitable year in the bank’s history. 11 international credit rating agency Standard & Poor’s (S&P) in recognition of GFH’s strong financial performance, adequate liquidity, sufficient capitalisation and low and flexible cost base. While S&P has revised the bank’s outlook from stable to negative, this change is driven by the operating environment and reflects the turmoil across financial markets, which is common to all institutions globally. People The past year saw significant investment in recruitment with the bank growing by 20%. We expanded our front office capability, enhancing existing teams and bringing new talent to the organisation. As the year progressed and market conditions presented new challenges, we streamlined our processes and took the opportunity to focus on the effectiveness of team structures. Across the business we have redeployed human resources and aligned them with the demands of our business model and the marketplace we serve. 20% Recruitment to the bank increased Outlook Without question the outlook for the year ahead is challenging but we are well placed to navigate our way through a difficult market. A changeable commercial landscape will present new opportunities and we will adapt our products to the needs of the wider marketplace. With a continued focus on some of the world’s fastest growing economies, a diversified range of products and an opportunistic approach to undervalued assets and initiatives in the defensive sectors across the region, GFH can be optimistic about the coming year. Executive Compensation The bank has both a short-term and long-term compensation structure for its executive management which has been developed based on current market surveys and industry norms. The bank also operates an incentive scheme whereby eligible executive employees are awarded a combination of shares and cash incentives based on performance. For further details please refer to note “w” on page 22 of the consolidated financial statements. Number of shares held by Management Year Executive Management 2008 4,279,234 2007 4,164,234 ANNUAL REPORT 2008 Gulf Finance House 12 Esam Yousif Janahi Chairman Hamad A Aziz Al Shaya vice Chairman Abdul Latif Abdulla Al Meer Member Adel Dawood Al Ohali Member Buti Khalifa Al Flasi Member Khalid Mohammed Najibi Member Samir Yaqoob Al Nafisi Member Yousif A Latif Al Serkal Member Yousif Mohammed Khayat Member Board of Directors The GFH Board of Directors, all non-executive members, is comprised of representatives from regional banks and financial institutions and they are as follows: 13 Esam Yousif Janahi CHAIRMAN (Member of GFH’s Board since July 2004) One of the main founding members of Gulf Finance House, Mr Janahi successfully led the organisation as Chief Executive until 2007, when he was elected Chairman. With 21 years of financial experience he has been instrumental in the strong growth and success of the bank and continues to play a key and active role in driving the business forward. As Chairman Mr Janahi sets the strategic direction for the long term and advises on operational matters for the short and medium term. He also governs the Board and ensures effective communication with shareholders. Mr Janahi holds numerous directorships as Chairman of Energy City Qatar, First Energy Bank, Royal Ranches Marrakech and Vice Chairman of Al Areen Holding. He holds a master’s degree in business administration from Hull University in the UK and a bachelor’s degree in industrial management (with honours) from the University of Petroleum and Minerals in the Kingdom of Saudi Arabia. Hamad A Aziz Al Shaya vICE CHAIRMAN (Member of GFH’s Board since October 1999) A professional with over 37 years’ experience, Mr Al Shaya is the Chairman and Managing Director of Mohammed Hummod Al Shaya Company in Kuwait, one of the leading retail commercial groups in the Middle East. Currently he is the Chairman of Injazzat Real Estate Development Company in Kuwait and a board member of QInvest and Bahrain Financial Harbour. He represents Mohammed Hummod Al Shaya’s and Abdulaziz Al Shaya’s stake in GFH. Mr Al Shaya holds a bachelor’s degree in business administration from San Francisco State University, USA. Abdul Latif Abdulla Al Meer MEMBER (Member of GFH’s Board since March 2003) Mr Al Meer is the Managing Director of QInvest, before which he was the Assistant General Manager for Investment at Qatar Islamic Bank. He is a board member of several other companies and financial institutions. Representing Qatar Islamic Bank’s stake in GFH, Mr Al Meer holds a PhD in international business administration from the University of Nova, Florida and has over 34 years’ experience in the financial industry. ANNUAL REPORT 2008 Gulf Finance House 14 ... continued (Board of Directors) Adel Dawood Al Ohali MEMBER (Member of GFH’s Board since October 2003) A board member of several regional investment and financial institutions, Mr Al Ohali is currently the Managing Director of Al Ohali Group in Saudi Arabia, a leading regional company specialising in finance, real estate and auto motors. He represents his own investments in GFH and has over 30 years’ experience. Mr Al Ohali holds a diploma in business. Buti Khalifa Al Flasi MEMBER (Member of GFH’s Board since October 1999) Previously the CEO of Dubai Islamic Bank, Mr Al Flasi currently runs his own financial consultancy business in Dubai and has 28 years’ experience in finance and administration. He represents Dubai Islamic Bank’s stake in GFH. Mr Al Flasi graduated from the College of Economics at the UAE University, Abu Dhabi. Khalid Mohammed Najibi MEMBER (Member of GFH’s Board since February 2006) Mr Najibi is a founder member and Executive Director of Najibi Investments Company. He currently holds several key positions including Director and Chairman of the Executive Committee of Bahrain Islamic Bank and Crown Industries. With 19 years’ experience, Mr Najibi is also the Vice Chairman and Managing Director of Capital Management House and represents Bahrain Islamic Bank’s stake in GFH. Mr Najibi holds a bachelor’s degree in financial management from Schiller International University, London, UK and is a CPA from the State of California, USA. Samir Yaqoob Al Nafisi MEMBER (Member of GFH’s Board since October 1999) Mr Al Nafisi is currently the General Manager of Yaqoob Al Nafisi & Sons Company as well as Chairman of Innovest and the former General Manager of Al Nafisi Trading Company in Kuwait. Prior to this he held managerial positions at Kuwait Commercial Bank and Kuwait Insulating Materials Manufacturing Company. A professional of 33 years’ experience, Mr Al Nafisi is the Vice Chairman of Kuwait Finance House which he represents in different projects and companies, including its stake in GFH. Mr Al Nafisi holds a bachelor’s degree in science from the University of Kuwait. 15 Yousif A Latif Al Serkal MEMBER (Member of GFH’s Board since October 1999) A board member for numerous financial organisations and companies, Mr Al Serkal has in-depth experience of more than 36 years in industry, development and finance. He represents Islamic Development Bank’s stake in GFH. Mr Al Serkal holds a bachelor’s degree in economic management from the University of Baghdad. Yousif Mohammed Khayat MEMBER (Member of GFH’s Board since October 1999) Currently the First Deputy Chairman and Managing Director of the Saudi Economic Development Company (SEDCO) Mr Khayat is a board member of several investment and financial companies, including Al Fanar Investment Holding in Holland. He represents the SEDCO stake in GFH and has amassed over 25 years’ experience in the financial industry. Mr Khayat holds bachelor’s and master’s degrees in business economics from the University of California, Santa Barbara and has attended various high level seminars and training programmes, including the Columbia University Executive Education programme. * A new Board has since been elected effective 13th February 2009 ANNUAL REPORT 2008 Gulf Finance House 16 Sharia’a Supervisory Board Shaikh Abdulla bin Sulaiman Al Manie CHAIRMAN Shaikh Abdulla is a member of the Grand Scholars Panel in the Kingdom of Saudi Arabia and an expert of the Islamic Fiqh Academy. He is also a retired judge of the Supreme Court in Makkah Al-Mukarramah in the Kingdom of Saudi Arabia, and a member of the Sharia’a supervisory boards of a number of Islamic banks and financial institutions. Shaikh Nizam Mohammed Saleh Yaquby ExECUTIvE MEMBER An executive member of the Sharia’a supervisory board of Abu Dhabi Islamic Bank, Shaikh Nizam is also a member of the Sharia’a supervisory boards of Bahrain Islamic Bank and Shamil Bank, a board member of the Dow Jones Islamic Index and a member of the Sharia’a supervisory boards of a number of other leading Islamic banks. Dr Fareed Mohammed Hadi ExECUTIvE MEMBER AND GENERAL SECRETARY Dr Hadi is Assistant Professor at the College of Arts in the Department of Arabic and Islamic Studies at the University of Bahrain. He holds a PhD in Ibn Hazm’s Methodology of Jahala from Edinburgh University and a PhD in Al-Bukhari’s Methodology from the University of Mohammed V in Morocco. Dr Hadi is also a member of the Sharia’a supervisory boards of a number of other leading Islamic banks. Dr Abdulaziz Khalifa Al Qassar MEMBER A Professor at the College of Fiqh and Department of Sharia’a and Islamic Studies at the University of Kuwait, Dr Al Qassar holds a PhD in law and Sharia’a from Al-Azhar University in Cairo. He is also a member of the Fatwa and Sharia’a supervisory boards of a number of institutions in Kuwait. Innovation Business Activities: Economic Infrastructure ECONOMIC DEvELOPMENT ZONES 17 GFH Economic Development Zone – Navi Mumbai In December of 2007 GFH signed a wide ranging agreement with the Government of Maharashtra heralding the creation of the GFH Economic Development Zone – Navi Mumbai (EDZ). Located on approximately 1,700 acres of land just south of Mumbai, this multi-themed initiative will comprise three distinct components including Energy City India, Software and Telecom City Mumbai and Entertainment City Mumbai. It will be the largest integrated business community anywhere in Asia and a major global commercial and technological hub. The EDZ is expected to be awarded Mega City status shortly, delivering a range of benefits and incentives and a significant reduction in the time required to obtain planning permission and building permits. ENERGY CITIES Energy City Qatar Launched in March 2006, this regionally strategic US$ 2.6 billion end-value project was conceived as the Middle East’s first integrated energy business centre for the global oil and gas industry. The proposed clusters in the first phase of the project will include specialist centres for oil and gas producers and downstream operators, shipping and trading companies, service industries, technology companies and information and media businesses. The vast majority of ECQ plots have now been sold and sub-developers’ designs have been submitted. > Energy City Qatar. The Middle East’s first integrated energy business centre for the global oil and gas industry. Energy City India Energy City India (ECI) is a core component of the Economic Development Zone – Navi Mumbai and the second of four energy cities conceived by GFH. The oversubscribed private placement of Energy City Mumbai Investment Company was closed in October 2007 and the design phase is currently in its advanced stages. ECI will be a mixed-use development with a focus on the provision of high-end commercial and residential units for the energy business community. It will provide a much needed alternative to the heavily congested Mumbai city centre, benefiting from excellent communications and a location on the Pune-Mumbai-Thane knowledge corridor. ANNUAL REPORT 2008 Gulf Finance House 18 > India today is a land of tremendous potential. Its impact on the global economy is being felt in everything from technology to steel; from call centres to popular entertainment. As an established global economic force, this country of more than 1 billion people is increasingly aware of the need to channel its resources positively and continue the development of its national economic infrastructure. ... continued (Business Activities: Economic Infrastructure) 19 ENERGY CITIES (CONTINUED) Caspian Energy Hub April 2008 saw the announcement of GFH’s third energy city concept in the Republic of Kazakhstan. Caspian Energy Hub (CEH) marks GFH’s entry into Kazakhstan and represents one of the largest foreign investments into the country. Located in Aktau on the shores of the Caspian Sea, CEH will be a state-of-the-art energy hub that will play host to the major regional and international energy players. The fully integrated economic and business centre will cater to the sophisticated needs of the energy community, with facilities that include several research and development components and a skills and human resources nerve centre. The socio-economic benefits to Kazakhstan’s economy were central to the conception of this high value investment opportunity. To this end, GFH assembled an experienced team of stakeholders including renowned global energy consultants PFC Energy, the SamrukKazyna National Welfare Fund and the Regional Governorate’s Mangystau Investment Company. Each of these will play a positive role in achieving the Government’s target of doubling oil and gas output by 2015. > Caspian Energy Hub represents one of the largest foreign investments into Kazakhstan today. Energy City Libya Libya possesses Africa’s largest proven oil reserves and with a highly strategic location at a crossroads between the Arab, European and African markets, it enjoys excellent prospects for economic growth. GFH conceived Energy City Libya (ECL) as an agent of growth in the shape of a dedicated energy community populated by household names from the global energy sector and staffed by a skilled domestic Libyan workforce. In cooperation with the Economic and Social Development Fund of Libya, ECL will rise on a 780 hectare site on the shores of the Mediterranean, just 70 kilometres west of the capital Tripoli. The US$ 3.8 billion end-value initiative will help to consolidate Libya’s energy sector, by integrating commercial space with This billion numerous residential, business, retail, leisure end-value initiative will help to and entertainment components – a place to consolidate Libya’s energy sector. live, work and play. US$ 3.8 ANNUAL REPORT 2008 Gulf Finance House 20 With vast hydrocarbon resources and a strategic position close to Russia in the north and China to the south east, Kazakhstan sits on the cusp of an economic renaissance. The Government is committed to a bold vision of growth and is wasting no time in the delivery of new infrastructure that will cement Kazakhstan’s position as a major regional player. 21 ANNUAL REPORT 2008 Gulf Finance House 22 ... continued (Business Activities: Economic Infrastructure) FINANCIAL HARBOURS Bahrain Financial Harbour Bahrain Financial Harbour is a US$ 3 billion waterfront development designed to complement Bahrain’s status as the leading financial capital of the Middle East. Currently taking shape on 380,000 square metres of seafront property in central Manama, BFH is a fully integrated financial centre and will be home to some of the world’s leading names in finance and financial services. BFH was the original Financial Harbour concept from GFH and includes business, leisure and residential components. Tunis Financial Harbour Tunis Financial Harbour (TFH) is the second in a planned series of financial harbours and will be the first offshore financial centre in North Africa. Strategically located between the European, North African and Middle Eastern markets, TFH will provide a comprehensive operational platform for household name finance and financial services companies in the MENA region. > Tunis Financial Harbour. The first offshore financial centre in North Africa. The TFH concept was based on the enormous potential shown by the Tunisian economy. Having opted to pursue a market economy and a policy of progressive integration with the world economy, Tunisia laid the groundwork for political and economic stability that has delivered a Gross Domestic Product among the highest in Africa. With a keen eye on the provision of education, the Tunisian Government has signalled its goal of supplying a growing and diversified economy with a skilled workforce. GFH has worked with the Tunisian Government to pioneer a financial services and regulatory environment that complements and augments the economic momentum built up over recent years. Located just 25 minutes from Tunis Carthage Airport in Raoued, North Tunis, TFH will comprise four key clusters including a corporate centre, an investment banking and advisory centre, an insurance and Takaful centre and an exchange. With the anticipated creation of approximately 16,000 skilled jobs, TFH will deliver a significant socio-economic boost to the domestic and regional economy, thereby fulfilling one of GFH’s principal goals in projects of this nature. 23 MOROCCO Royal Ranches Marrakech Morocco enjoys a rich history and a unique tradition infused with centuries of Arabian, African and European influences. GFH conceived Royal Ranches Marrakech as a culturally vibrant resort that captures these historic influences in a dedicated equestrian-themed community set in the foothills of the Atlas Mountains. The community will integrate a range of exclusive villas and apartments set within a landscape punctuated by rivers, lakes and waterfalls. Equestrians will enjoy superb facilities including stabling, veterinary services, a world class racing track and climate controlled stands. Golfing enthusiasts can take advantage of an 18-hole mountain view golf course designed by Greg Norman. JORDAN Jordan Gate Jordan Gate is an initiative capitalising on the enormous growth Jordan has experienced in recent years and delivers two striking high rise towers offering a five-star hotel operated by Hilton International and commercial office space on the 6th Circle Junction – one of the highest points in Amman. With both towers nearly finished, the project is due for completion at the end of 2009. ANNUAL REPORT 2008 Gulf Finance House 24 Bahrain Financial Harbour. A world-class, fully integrated waterfront development which will create a complete financial city, a self contained community, in the centre of Manama, Kingdom of Bahrain. 25 ANNUAL REPORT 2008 Gulf Finance House 26 Business Activities: Islamic Financial Institutions First Energy Bank First Energy Bank (FEB) is the product of our experience in the energy business and is the first Islamic investment bank in the region to offer value-added advice and intelligent finance targeted at the energy sector. With the International Energy Agency’s World Energy Outlook 2007 estimating that the MENA energy infrastructure will require US$ 56 billion every year from now until 2030, the need for financial products with an intuitive appreciation of specific challenges faced in the energy sector has seldom been so great. FEB is a response to this trend and comprises an experienced team of partners, including renowned global energy consultants PFC Energy, to ensure the bank delivers on its goals. Sectors likely to be focused on include upstream and downstream oil and gas, petrochemicals, power, transportation and independent water and power plants. A number of investment activities are also anticipated, including energy development projects, asset and portfolio acquisitions, corporate acquisitions and mezzanine and preferred equity investments. Following a heavily oversubscribed private placement – initially planned at US$ 750 million but closing at over US$ 1 billion – FEB was awarded its banking licence in 2008. Both the Sharia’a advisory board and the Board of Directors were appointed and the bank is in the process of reviewing high value investment opportunities. Expertise 27 Growing energy requirements from China, the GCC region and other emerging economies are expected to fuel strong demand for oil and gas in the years ahead. At a time when production rates are declining in such producing regions as the US, Mexico and the North Sea, the MENA region is projected to provide an ever-increasing share of the world’s energy needs. Over 90% of the offshore wells drilled in the MENA region in 2007 were in water depths of 100 metres or less. ANNUAL REPORT 2008 Gulf Finance House 28 Business Activities: Venture Capital Venture Capital has been a key focus in the diversification of GFH business lines in 2008. Over the course of a busy year we have successfully announced and launched partnerships for projects with a total estimated value of more than US$ 1 billion. Cemena Projections on the consumption of cement volumes across the GCC and North Africa predict a significant rise in demand over the next five years. Traditionally, local cement provision has fallen short of demand and our venture capital team identified a medium to long term opportunity to address this shortfall through the creation of a new cement manufacturer. Cemena was announced in May of 2008 with the goal of addressing the shortfall in cement volumes across the MENA region. In a deal with an estimated end value of US$ 2 billion, GFH followed its traditional strategy of assembling a team of experienced partners to mitigate risk and ensure the long term success of the initiative. Partners now include the Associated Group, Emirates Islamic Bank and Capcorp alongside world class technical advisors including Holtec. Having assembled an experienced management team, Cemena was delighted to confirm the acquisition of Falcon Cement Co., a local Bahraini cement producer. This is Cemena’s first step towards achieving its long term goals and manufacturing has commenced years ahead of schedule. Over the coming months we expect to execute a number of acquisitions designed to build the portfolio and boost shareholder returns. As we embark on a new year, we will continue to adopt agile investment strategies enabling us to respond to a changeable economic environment and emerging investment opportunities, including special situation and undervalued assets. CEMENA Taking cement production to new heights. 29 > Cemena launches network operations and commences production: Cemena Group is a regional network focused on developing one of the largest cement producing holding companies in the MENA region. Cemena commenced operations in early 2009, and continues to build its portfolio through the development and acquisition of prime cement opportunities across the region. Catering to regional demand for cement, Cemena will target an annual production capacity of 12 million tonnes per annum. ANNUAL REPORT 2008 Gulf Finance House 30 Business Activities: Private Equity Despite the loss of confidence in global markets, challenging economic conditions offer different opportunities and we now anticipate a period of greater investor engagement, introducing them to the many emerging investment opportunities in healthcare, agriculture, pharmaceuticals and utilities. Given the current state of the market, increased numbers of distressed sellers are being driven to sell high quality assets and for this reason private equity investments made during a downturn often outperform. They have already begun to emerge, ranging from large corporates to Private Equity firms in need of liquidity. This will likely result in increased volumes of investable opportunities where the ability and the certainty to deliver capital to close a deal will carry more of a premium than price. Added to this, the global correction in world stock markets has had a knock-on effect on the private company sector and values have adjusted to reflect list market prices. History bears this out as some of the vintage years in private equity have come amid sluggish or non-existent economic growth. In 2009 we anticipate attractive opportunities in both public and private equity and we will look at local and foreign markets for the best opportunities – specifically across MENA, Asia, the USA and Europe. The next twelve months should be viewed as the year for ‘value investing’. > Investors will be introduced to emerging investment opportunities in healthcare, agriculture, pharmaceuticals and utilities. Business Activities: Asset Management Our Asset Management division has made important progress in 2008, in what has proved to be a tumultuous year for markets and investors. A key milestone and building block for future product opportunities was the selection and provision of initial investment capital for the Insynergy UK Sharia’a Growth Fund by AXA, one of the world’s leading insurance groups. GFH Asset Management provides the day-to-day stock selection and portfolio management for this new fund, which was launched by AXA in the third quarter. This represents an emphatic validation of the quality of our international equity team and process as well as recognition by global professional investors of our strength in Sharia’a investment management. We look forward to building on this product and distribution relationship in 2009. As part of our strategy to offer our clients opportunities across various asset classes, we saw significant value begin to emerge in the UK commercial real estate sector. The combination of the weakening currency and downward trend in asset prices provided an opportunity to acquire quality commercial properties in prime UK locations at significantly lower levels than previously seen. We partnered with Knight Frank, one of the leading specialists in the UK commercial sector, and have launched the Gulf Atlantic Real Estate Fund 2. This fund is expected to close in the second quarter of 2009 and will build a portfolio of quality assets shortly thereafter. Valuation levels across all asset classes have been driven down in 2008 and we are beginning to see real value emerging for clients who are able to look beyond the short term pessimism and take a longer view. We have products ready for our clients in the GCC equities area, as well as in international equities. In the real estate sector we have further products under development to follow Gare II to market, as well as a number of smaller single property transactions that we will be showing to our clients. GFH Asset Management has been careful to protect its clients through 2008 and has avoided launching products in falling markets and asset classes. We are cautiously optimistic that 2009 will provide opportunities for carefully planned products and we remain well positioned to execute our long term strategy of building the world’s leading Islamic Asset Management business. 31 > We are beginning to see real value emerging for clients who are able to take the long view. ANNUAL REPORT 2008 Gulf Finance House 32 Case Study: Tunis Financial Harbour The Republic of Tunisia sits at the heart of the fast emerging North African economy. Boasting a 1,300km Mediterranean coastline, it enjoys a highly strategic position at the crossroads between the European, African and Middle Eastern markets. With a record of socio-political stability, a temperate climate and a reservoir of skilled labour, Tunisia boasts advantages that make it an attractive location for inward investment. In October 2008 the International Monetary Fund published a report confirming the pace and consistency of Tunisian economic growth. Real GDP growth averaged 5% per annum over the past decade; GDP per capita increased by 45% between 1997 and 2007 and inflation stood at an average of 3%. Despite the global economic slowdown, the Tunisian economy is projected to grow by 5.5% and 5.8% in 2008 and 2009 respectively. These attributes prompted GFH to pay close attention to the potential for investment in the domestic infrastructure. Tunisia opted for a market economy designed to progressively integrate with the global economy. This decision, alongside the implementation of several economic reforms over the past two decades, led to the diversification of the domestic industrial base across a variety of sectors including agriculture, mining, energy, tourism and manufacturing. Tunis Financial Harbour (TFH) was conceived to harness and build on recent progress and give the North African region something it has never had – an integrated offshore financial community designed to house the world’s leading names in finance and financial services. Located in Raoued, North Tunis, just 25 minutes from Tunis Carthage Airport, in an area often described as the Tunisian Riviera, TFH will play a key role in a flowering domestic economic renaissance. > Real GDP growth averaged 5% per annum over the past decade. 5.8% Projected economic growth in 2009 33 Amongst some of the estimated benefits to the Tunisian economy from Tunis Financial Harbour are approximately 16,000 permanent and mostly skilled jobs and the attraction of over 150 financial and support service firms. ANNUAL REPORT 2008 Gulf Finance House Gulf Finance House Investment Bank P O Box 10006, Manama, Kingdom of Bahrain Tel: + (973) 17538538 Fax: + (973) 17540006 E-mail: info@gfh.com www.gfh.com