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    • Abstract: Gulf Cooperation Council(GCC) Investment OutlookApril 2010www.mergermarket.comIn association with: ContentsForeword 01Methodology 02Study findings 03

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Gulf Cooperation Council
(GCC) Investment Outlook
April 2010
In association with:
Foreword 01
Methodology 02
Study findings 03
Joint Ventures in the Gulf 16
About Blakes 19
About mergermarket 20
Gulf Cooperation Council (GCC) Investment Outlook
Welcome to the Gulf Cooperation Council (GCC) Investment When looking at specific countries within the GCC region, Saudi
Outlook, published by mergermarket, in conjunction with Blake, Arabia and Qatar are identified repeatedly as the region’s most
Cassels & Graydon LLP in association with Dr. Saud Al-Ammari active players. These countries are expected to have the most
Law Firm. This report presents the opinions of corporate favorable financing markets, and are also expected to account for
executives based in the GCC region, offering keen insight into the highest levels of inbound and intra-regional investment in the
emerging trends in both domestic and foreign investment activity. GCC this year.
This study highlights a variety of catalysts for economic growth When looking at cross-border investment activity, this report
across the GCC region. Approximately one-third of respondents uncovers an interesting and mutually reinforcing relationship
believe the region’s economic development will depend primarily between the GCC and specific Asian countries. China and India
on international economic conditions, and close to one-quarter are identified not only as key markets for GCC-based investors,
of respondents believe the stabilization of oil prices will be most but also as the two countries that will lead foreign investment
important to stimulating growth. But while the oil industry is activity into the GCC region over the next 12 months.
undeniably a pillar of the GCC economy, many respondents
believe the strength of the GCC economy will depend heavily Like financial markets the world over, financial markets in the GCC
on developments outside of the sector. Significant portions of are coming off an extremely volatile two years, which respondents
respondents believe the development of non-oil industries and say has resulted in decreased bank lending and an increased cost of
government stimulus packages will play an important role in financing. But there are signs of optimism, as respondents expect
fueling economic growth, as these factors would lessen the bank loans to be the primary source of financing for new deals and
region’s dependence on its oil market. liquidity in the sukuk market to increase.
In fact, diversification beyond the oil sector is a recurring This report provides in-depth analysis on the above findings and
theme throughout this study. Specifically, respondents expect other specific facets of GCC investment activity, including deal
the telecom and infrastructure sectors to see the most rapid structures, drivers of M&A activity, financing trends and opinions
development over the next 12 months. These sectors are also on a common currency. We hope you find this survey both useful
expected to offer the greatest opportunities for both domestic and and informative, and as always, we welcome your feedback.
foreign investors, and to witness significant consolidation among
GCC-based entities in the upcoming year.
Dr. Saud Al-Ammari
Managing Partner, Saudi Arabia and Gulf Region
Dir: +973 36 72 44 44
Cell: +9665 05 81 56 99
[email protected]
Dan Fournier Q.C.
Chair, Gulf Region
Dir: +973 17 15 15 01
Cell: +973 36 48 33 44
[email protected]
www.mergermarket.com 01
Gulf Cooperation Council (GCC) Investment Outlook
Respondent Breakdown by Geography
14% Bahrain
In the first quarter of 2010, mergermarket interviewed more than 75 19%
corporate executives from the GCC region to gain perspective on the Saudi Arabia
business community’s outlook for investment activity in the region Oman
in the upcoming year. Respondents provide insight into the specific United Arab
investment trends emerging in the region and offer detailed forecasts Emirates (UAE)
of future activity. All respondents are anonymous and results Kuwait
are presented in aggregate. 18%
02 www.mergermarket.com
Gulf Cooperation Council (GCC) Investment Outlook
Study findings
GCC – Economic Growth Sectors
Which of the following factors will be most important to In the GCC region overall, which of the following
fueling economic growth in the Gulf Cooperation Council sectors do you think will see the most rapid
(GCC) in 2010? development in the next 12 to 24 months?
3% 1% 3%
4% 5%
International economic Telecom
5% conditions 7%
26% Infrastructure –
Stabilization of oil prices Natural Resources
Growth of non-oil industries Infrastructure –
15% Government stimulus
packages Infrastructure –
Demand for exports
9% Alternative Energy
Availability of Islamic
finance Financial Services
Other Infrastructure –
16% Healthcare
18% Investment opportunities 12%
for private equity Real Estate
14% Other
Economic growth across the GCC region will depend on a range Approximately one-quarter of respondents expect the Telecom
of factors over the next 12 months, and while there is no clear sector to be the most rapidly developing sector in the GCC region
consensus as to which will be most important, certain areas are over the next two years, which one respondent credits to the sector’s
clearly considered more vital than others. For nearly one-third of insulation from the economic downturn: “Compared to most other
respondents, economic growth will depend primarily on international industries, Telecom is not greatly affected by the global meltdown or
economic conditions, while close to one-quarter of respondents say events happening in the current market.”
the stabilization of oil prices will be key. One respondent believes
these two factors are interrelated, as “international conditions will Though the largest group of respondents expects the development
affect the price of oil,” while another states that “due to cash flows, of the Telecom sector to outpace that of other industries, significant
the GCC has always been dependent on the international economy.” portions of respondents identify Natural Resources, Transportation
and the general Infrastructure sectors as those best-positioned for
The growth of non-oil industries in the region and government expansion, with many commenting that these particular industries
stimulus packages were selected by 18% and 15% of respondents, contain a variety of early-stage projects that are likely to stimulate
respectively, and the perspectives within these two groups vary growth further down the road.
widely. One respondent believes the government needs to come
up with a revival plan for all sectors of the economy, while another
is not as convinced: “Government stimulus packages would be an
encouragement, but not at this time as the situation is not that
bad. Government encourages growth in the non-oil industries, to
counter the region’s dependence on the import market for its generic
consumer and industrial needs.”
www.mergermarket.com 03
Gulf Cooperation Council (GCC) Investment Outlook
GCC – Investment Focus
In which of the following Gulf countries do you expect Which of the following will be the most abundant source
to see the most bank lending activity over the next 12 of investment opportunities in the GCC region over the
to 24 months? next 12 months?
5% 3%
Saudi Arabia Publicly held
Family businesses
32% 27%
State owned
13% UAE 38% enterprises
Oman Other
Shedding light on the financing markets of specific GCC countries, the Respondents are nearly evenly divided when it comes to specific
most active bank lenders are expected to be Saudi Arabia and Qatar, investment opportunities in the GCC region this year. While the largest
according to 32% and 27% of respondents, respectively. One respondent percentage of respondents (38%) predicts that publicly held companies
believes banks will seek “safe bets” throughout the GCC region, and will offer the highest volume of new investment opportunities, family
that Qatar is likely to be best suited to more risk-averse investors: businesses and state owned enterprises are not far behind, according to
“Qatar is experiencing the most expansion in all of its sectors.” As for roughly one-third and one-quarter of respondents, respectively.
Saudi Arabia, one respondent cites its rapidly expanding Infrastructure
sector as a major force behind banks’ willingness to finance “major In the view of one respondent based in Bahrain, “In the next
railway and port development projects.” 12 months there will simply be more opportunities to invest in public
businesses.” But for many respondents, it is more than a matter of
It is important to note the timing of this survey, as it may have colored volume. According to one respondent, public companies will attract
respondents’ perspectives on this particular issue. Respondents more buyers because “the management level in public companies
were surveyed in the first quarter of 2010, shortly after Dubai World is better, and decision-making ability is high with the involvement of
announced it would be unable to meet its debt payment dates in late partners and directors.” In a similar vein, several respondents believe
November of 2009, which may help to explain respondents’ relatively the appeal of public companies is rooted in transparency, as public
modest expectations for bank lending activity in the UAE. companies may have more rigorous standards of financial reporting.
One respondent observes that private companies often appear
financially healthy “on the books” even though their “assets and
funds are in poor condition.” Again, respondents’ comments should
be taken in context as the emphasis on transparency coincides with
widespread doubts about the financial health of Dubai World at the
time these interviews were conducted.
04 www.mergermarket.com
Gulf Cooperation Council (GCC) Investment Outlook
GCC – Investment Activity
Which of the following countries will see the most foreign Which of the following countries will see the most intra-
investment activity over the next 12 months? (Rank where regional investment activity over the next 12 months?
1 = least activity and 6 = most activity) (Rank where 1 = least activity and 6 = most activity)
5 5
81% 19%
4 4
Average ranking
Average ranking
3 3
4.38 4.27 4.35 4.15
2 3.66 2 3.80
3.03 3.03
2.93 2.92
2.73 2.75
1 1
0 0
Qatar Saudi UAE Bahrain Kuwait Oman Saudi Arabia Qatar UAE Kuwait Bahrain Oman
Qatar is identified as the GCC country that will see the most inbound Saudi Arabia and Qatar emerge once again as the top two countries
investment activity from outside the GCC region this year, followed for investment interest from other GCC-based entities. While
closely by Saudi Arabia. Respondents nevertheless point out the many respondents acknowledge that Saudi Arabia’s oil market will
various factors fueling investment activity outside of the top choices, continue to make the country a key location for both domestic and
with one respondent making clear that sector-specific activity foreign investors, they also draw attention to the development of
in certain countries will have a strong influence on M&A activity its non-oil industries as an important driver of domestic deals. A
levels: “As for Transportation Infrastructure, it will mostly be seen in respondent based in Qatar points out that all of the GCC countries
Bahrain, Oman, and Qatar as they become more populated.” “are experiencing expansion, and the promotion of non-oil industries,
like the tourism industry, will drive intra-regional M&A among them
all.” Another respondent, also based in Qatar, refers to consolidation
in the non-oil markets as well: “Domestic companies do not have an
adequate base and will likely use M&A as a road to expansion in the
non-oil markets.”
“In 2010, the World Bank ranked Saudi Arabia the best place to
do business in the entire Middle East and Arab World. This is not
necessarily surprising. With recent legal reform in Saudi Arabia,
business transactions have become more timely and cost efficient,
making the country an attractive hub for both internal and foreign
Dr. Saud Al-Ammari, Managing Partner, Dr. Saud Al-Ammari Law
Firm in association with Blake, Cassels & Graydon LLP
www.mergermarket.com 05
Gulf Cooperation Council (GCC) Investment Outlook
GCC – Currency Influence
Should plans for a common currency for Bahrain, Qatar,
Kuwait and Saudi Arabia follow through, do you think
such a currency would positively influence investment
activity in the GCC region?
The clear majority of respondents (74%) believe a common currency
in the GCC region would positively influence investment activity, and
respondents within this majority tend to focus on the specific effects
a common currency would have on intra-regional investments. A
respondent based in Qatar believes it would stimulate intra-regional
cooperation and investment, as does a Bahrain-based executive who
predicts a common currency would increase intra-regional trade by
30% to 40%. Another respondent who supports a common currency
reasons, “If the Gulf could have a common, unified currency it would
become stronger against other currencies.”
The 26% minority was equally vocal. Several respondents in this group
believe each country’s unique economic cycle would make it difficult
to establish common ground: “The GDP varies among GCC countries,
therefore a proper union can’t be formed.” An executive from Bahrain
makes a similar argument, stating that “each country should find value
for its economy individually.”
06 www.mergermarket.com
Gulf Cooperation Council (GCC) Investment Outlook
China and India
Please rate each of the following countries and regions Please rate each of the following countries and regions in
in terms of their investment activity in the GCC region terms of inbound investment activity from the GCC region
over the next 12 months, where 1 = minimal activity over the next 12 months, where 1 = minimal activity and
and 5 = significant activity. 5 = significant activity.
5 4
Level of activity
Level of activity
2 3.78 3.77 3.24 3.00
2 4.01 3.93 2.97 2.95
3.31 3.28 2.56
2.52 2.45
3.00 2.76 2.18
2.70 1
2.42 2.24
1 2.00
0 0
China India US Western Asia- MENA** Australia Canada Eastern Latin India China Asia- Western MENA** US Canada Australia Eastern Latin
Europe Pacific* Europe America Pacific* Europe Europe America
* Excluding Australia, China and India
* Excluding Australia, China and India
** Excluding GCC countries
** Excluding GCC countries
China and India are expected to be the most active investors in India and China, previously identified as the countries most likely to
the GCC region over the next 12 months, exceeding both the US lead inbound investment activity in the GCC, are also identified as the
and Western Europe, and also standing out against the broader countries in which GCC-based investors will be most active. Western
Asia-Pacific region, which is generally expected to be less active. Europe, MENA and the US are expected to see similar levels of
As an executive based in Bahrain observes, ”China will be active in inbound investments from the GCC region.
trade investments this year, and among the Asia-Pacific countries
(excluding Australia, China and India) Malaysia will be the most active
country to invest in the GCC region; the US as an investor will be very
interested in Qatar and Saudi Arabia.”
Economic and financial factors will not be the only determinants of
foreign investors’ strategies, adds another respondent based in Bahrain:
“India will likely be the most active of these countries, and the GCC
hopes to see more investments and attachment with that country in the
future, as Indian and Arabic people share common nature.”
www.mergermarket.com 07
Gulf Cooperation Council (GCC) Investment Outlook
Saudi Arabia
In Saudi Arabia specifically, to which sector will banks be In Saudi Arabia specifically, do you expect M&A in each of
most willing to lend over the next 12 to 24 months? the following sectors to increase, decrease or remain the
same over the next 12 to 24 months?
Telecom Telecom 81% 19%
Infrastructure –
29% Infrastructure – 74% 25%
Natural Resources
Infrastructure – Infrastructure – 67% 30% 3%
Healthcare Healthcare
Infrastructure – Infrastructure – 59% 28% 13%
Transportation Natural Resources
Alternative 57% 42% 1%%
Real Estate Energy
Infrastructure – Infrastructure – 57% 40% 3%
Other Other
Financial 40% 34% 26%
14% Alternative Energy
12% Financial Services Real Estate 19% 38% 43%
0 20 40 60 80 100
Percentage of respondents
Increase Remain the same Decrease
Looking more closely at Saudi Arabia, the largest percentage of Respondents have high hopes for Saudi Arabia’s Telecom sector in
respondents (29%) say banks will be most willing to lend to the terms of M&A activity, with 81% of respondents expecting M&A in
country’s Telecom sector, which according to one respondent is the sector to increase over the next two years. In fact, a majority of
“growing exponentially.” Infrastructure for Natural Resources, respondents expect M&A to increase in all sectors, save Financial
Healthcare and Transportation will also see a fair share of bank Services and Real Estate. This mirrors responses to the previous
lending activity. question, in which Real Estate and Financial Services were on the lower
end in terms of respondents’ expectations for general development.
Real Estate and Financial Services are the only two sectors in which
the majority does not predict an increase in M&A. Looking at the
relatively low expectations for M&A in Real Estate, one respondent
explains that “Real Estate is down right now, but will be stable in some
time.” As for Financial Services, respondents are less pessimistic.
“The economy of Saudi Arabia is well-positioned for growth in the next While 43% of respondents predict a decrease in Real Estate M&A, only
three to five years, due largely to developments in the private sector, and 26% predict the same for the Financial Services sector.
particularly in the industrial sector. Indeed, a strong pipeline of planned
projects, including government-sponsored construction projects and a
host of mega-projects in the oil and raw materials industries, including
aluminum plants and oil refineries, are likely to drive the country’s
steady advancement. Saudi recovery could well lead the GCC region in
the years ahead.”
Dr. Saud Al-Ammari, Managing Partner, Dr. Saud Al-Ammari Law
Firm in association with Blake, Cassels & Graydon LLP
08 www.mergermarket.com
Gulf Cooperation Council (GCC) Investment Outlook
Structure Types
Which of the following deal structures do you expect How do you expect the volume of domestic/intra-regional
to be the most common in the GCC region over the next joint ventures to compare to the volume of international
12 months? joint ventures in the GCC region over the next 12 months?
Joint venture International joint
ventures will
9% Private equity outnumber domestic
buyout 24% joint ventures
Distressed merger Domestic/intra-regional
joint ventures will
Merger of equals outnumber international
joint ventures
Asset sale
No material difference
46% Other
Joint ventures are expected by almost half of respondents (46%) to be While respondents tend to agree that joint ventures are the deal
the most common deal structure in the GCC region over the next year. structure of choice in GCC countries, they are split when it comes
Private equity buyouts are also expected to be considerably high in to the specific type of joint ventures that will dominate deal activity
volume over the next 12 months, according to 21% of respondents. One in the GCC over the next 12 months. Intra-regional joint ventures
respondent based in Bahrain believes private equity firms will play an are expected to outnumber domestic joint ventures by 43% of
active role in financing strategic M&A transactions, but will not produce respondents, but one-third of respondents predict that the opposite
a particularly high volume of buyouts as the private equity market in his will be true.
country is still maturing.
Several respondents draw attention to the drivers behind domestic
and international deals, pointing out that developing sectors are
likely to benefit from joint ventures involving foreign investors, and
that many intra-regional joint ventures are likely to be pursued by
distressed businesses operating in the region.
“Joint ventures are powerful vehicles for driving business expansion and
entry into new markets – particularly international markets. The success
of a joint venture, however, depends not only on thorough due diligence
in the traditional sense, but also on having a sound understanding of the
unique complexities of a partner’s particular culture or region.”
Scott Burrell, Partner, Blake Cassels & Graydon LLP in association
with Dr. Saud Al-Ammari Law Firm
www.mergermarket.com 09
Gulf Cooperation Council (GCC) Investment Outlook
Principal Legal Issues
What are the top three most important factors to What are the top three most important factors to
non-GCC entities entering into joint ventures with GCC-based entities e

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