19 March 2016

Maha Al Ghunaim: investing in the future

Global Investment House founder and Group Chief Executive officer Maha Al Ghunaim explains how the company has emerged stronger from a USD1.7bn debt restructuring in 2013

By Neil King | Finance | Gulf Business


Following a grueling restructuring process Global Investment House declared itself debt-free in 2013. How did the firm survive the journey and what position are you in today?

“It was an interesting restructuring because it involved more than 53 financiers from Kuwait, the GCC and wider MENA region as well as international banks, European banks, Asian banks and some American banks. We had a wide spectrum of different institutions. Also 15 per cent of the debt at that time was with bond-holders who on their own were almost 30 institutions, and there was a tranche of the debt that was Islamic. So we were dealing with Shari’ah boards and other boards of Islamic institutions. It has been a very important and interesting ride, which took four years out of the last seven years of Global, working to find a permanent solution to the capital structure of the company and trying to reach a consensual solution that would not affect its core fee business.


“We succeeded in doing that and today the company is totally debt free, without any recourse or waterfall to any of the debt. It has also enhanced our fee business because we ended up winning the mandate to manage the on-balance-sheet assets that went to the bank in lieu of the debt, so that also enhanced our assets under management and we created a new department to manage special situation assets that are distressed.


“Now we stand as a debt free company, focusing on the asset management and investment banking business in the region. Our head office is in Kuwait and we have an office in the DIFC, Kingdom of Saudi Arabia, Egypt, Bahrain, Oman and the wider MENA.”


What are the key challenges currently facing companies in the region that are looking to restructure?

“I think the most important challenge is the legal frameworks they have to operate within. Since our restructuring some new laws and regulations have come into place, which will facilitate future restructurings; for example there wasn’t a chapter 11 existing at the time. The government in Kuwait introduced what they call the ‘stability law’, which was perceived by the creditors as very hostile and only deals with the term out extent and roll over of the debt.


“Another issue was with having to deal with so many regulators at one time. We had to deal with the Ministry of Commerce, the Central Bank of Kuwait, the Capital Market Authority and the Kuwait Stock Exchange. So obviously having to deal with so many regulators in order to achieve a consensual agreement was really challenging and will be for others looking to restructure. We were a listed company and we had to deal with their mandatory tender offer challenge, which is also very serious. And we ended up delisting the company because we couldn’t get an exemption from a mandatory takeover order. Now there can be exemptions, which is a positive thing.


“So although laws are evolving and improving, there is still a lot of work that needs to be done to justify and simplify restructuring and to create innovative solutions rather than just a term out.”


What is the benefit of using international expertise rather than local talent when it comes to restructuring?

“Having international banks within the syndicate helped us think out of the box. They were constantly thinking of new solutions. From their experience in dealing with different restructurings, they helped to add value to the negotiations. It also helps to bring on board international legal firms and international financial advisers, who can assist and help you in communicating and providing the proper due diligence and information to the financiers and all the related parties.


“If you don’t have the proper experience or the know-how to do such a restructuring, having advisers with international experience really helps resolves some complex issues.”


What do you expect the investment landscape to look like in the coming months and years?

“Obviously, we are going through some challenging times and governments are confronted with serious challenges. In 2008, we originally believed the decoupling story and we felt with oil trading at around $140 at the time that we would not be as affected as the international markets. But that didn’t work and obviously we were affected, and severely affected. Some GCC governments took initiatives to support their financial sector and minimize the effect of the tsunami; others did not. And certain sectors were able to survive; others were not.


“Now the challenge seems to be even bigger than it was in 2008. We’re starting with much lower interest rate scenarios, so it’s not like you have that room to maneuver with monetary policy. Governments have embarked on some serious fiscal spending but today with oil prices hovering around $30 I think they’re also challenged with how they’re going to support development and at the same time manage liquidity.


“We see commercial banks now sensing and feeling the withdrawal of liquidity from the sovereign wealth funds within their own local system and we’re seeing that reflected in capital market prices. The crash we’ve been having since last year continues to extend this year.


“Over and above this we have to deal with geopolitical pressures all around us. Iraq, Syria and Yemen, for example. And then there is the removing of sanctions on Iran. Some people see that as an opportunity, others are seeing that as a threat. It’s something that remains to be seen. So these are very challenging times.


“The good news is that the governments are finally taking some serious measures to solve the fiscal issues and the budget balances of their own countries by removing subsidiaries, talking about privatization and supporting SME businesses. So we’re finally seeing some concrete steps on that front. It might be painful in the short term but if it’s done correctly we’re hoping that it will improve the situation in the medium term. So 2016 and 2017 in my opinion will continue to be very volatile years.”


How is your organization performing? Did your restructuring open up new business opportunities?

“Since we went back to our core business, which is the fee business, we have really succeeded in turning around the company. We have been profitable for the third year consecutively and hopefully this will be another positive year. There are still challenges and we understand that but we are very capable of providing the proper products and services that our clients in the region need today. We’re very attractive when it comes to dividend yield in the region. We’re talking about 4-5 per cent, and we still foresee some earning growth within specific sectors in the GCC markets. From the investment banking side we are also helping a lot of our clients in merger and acquisition transactions and buy or sell side mandates at financial advisory, and that is doing quite well.


“Also, within asset management we were able to create new services that help the existing landscape. We believe there are a lot of commercial banks that ended up inheriting assets due to debt to asset swaps and they don’t have the expertise to manage them. Since we won the mandate to manage the assets that were inherited to our own financiers, and develop a very good track record in that, we’re able to attract AUM from other commercial banks in the region who would like to have a professional firm help them exit these assets at a realistic valuation and within a specific timeline.


“That’s an important source of AUM and I believe Global has been able to take its experience from its own restructuring and use it to enhance its fee business. We were also appointed as a financial advisor to one of the listed companies in Kuwait when they were negotiating their debt. They told us ‘if you can settle with 53 banks I’m sure you can help us settle with five banks’. They successfully signed. I believe the experience we have built is an experience that’s needed in the region and we should provide it as a service.”


How do you see Islamic finance developing and what is your company doing to grow its own offering in this area?

“Obviously Islamic finance is very important. It’s an area that is expected to grow to the tone of trillions of dollars by the year 2020 and I see it happening. More and more people are becoming educated with the ways of Islamic finance and I believe also Malaysia, Indonesia and other parts of the world have added a lot to the depth and the value of Islamic financing. So it’s an area that is expected to continue to grow. Since we are not an Islamic Shari’ah investment company we have not been very active there, but we are assisting certain clients in their financing needs with the sukuk market.


“Having said that, we do have Shari’ah products. So we manage some equities according to Islamic Shari’ah and we also do conventional. So we offer products and funds in both spectrums. We also do discretionary portfolio management in Shari’ah and we try to offer products within Shari’ah because we usually have a wider spectrum of an audience. So from that front yes but from liability side and managing their debt, we have not been that active.”


Which of the region's investment sectors do you believe will perform well in the coming months?

“We’ve been doing some simulations within our asset management team to see the effect of lifting subsidies on listed companies, especially in Saudi Arabia and other countries. To our surprise some of them may still survive extremely well, even with oil prices hovering around $35 and subsidies lifted. So there will still be some earnings growth. But everybody today is very keen on defensive sectors. By which we mean healthcare, education and so on. The sectors that actually benefit from the young demographics of the region.”


You have long been cited as a role model for women in the region. Do you believe women still need to look to you for encouragement?

“It was never my intention to become a role model but I’m very honored that people see what I have done as a story that is worth telling and that they aspire to fulfil their dreams by seeing what I’m doing. I think most of the credit that I take on a personal level is actually the credit of the team but I happen to be the spokesperson.


“Things are changing for working women, especially in Dubai and the UAE in general. The government has played a very important role in pushing forward UAE women to take a leading role and supporting them. In other countries, you have to fight to achieve that status.


“I remember when I first started my business that many of the family businesses in the region were – still are – clients of mine. It was rare that you would see the daughters sitting attending the meetings. But now, 20 years later, many of them are division heads, if not CEOs. Now as women become more educated, more cosmopolitan and are given equal opportunities to learn and to experiment, they are proving themselves quite successful and they don’t need me as a role model.”


“Things are moving in the right direction. I’m very proud to see the status of women and what they have achieved in family businesses, in government and everywhere else.”


What must be done for greater equality?

“We need to continue to be proactive. It’s important for women not to stand still and to make sure they educate themselves. It’s also the role of the parents to give their children an equal opportunity in education and the ability to fulfil their dreams if they are interested in a career path.”


“It’s not only education. They could be educated and try hard but then the obstacle comes culturally within their family. I was blessed to be raised by parents who provided their children with equal travelling and education opportunities. And I was also blessed to have a husband who wasn’t threatened by my success but proud of it. I hope other women get to have those same opportunities and can remove the obstacles they might feel or see in their career without making too many sacrifices.”


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