(Corrects capitalisation of Khaleeji to 100 million dinars from
By Bernardo Vizcaino
July 11 Bahrain-based investment firm Gulf
Finance House (GFH) hopes a leaner balance sheet and a
revamped business model can revive the fortunes of a firm which
once symbolised growth of the kingdom's Islamic finance sector.
GFH's new strategy calls for it to become more involved in
its investments, and to hold projects until completion rather
than passing them to third parties to develop as was done in the
past, its acting chief executive said in a telephone interview.
For several years a hands-off approach worked well for the
sharia-compliant investment house, which was founded in 1999.
Strong global markets allowed it to book healthy premiums in the
stakes it sold in real estate projects.
Profits poured in, totalling $343.3 million in 2007 and
$291.9 million in 2008. But the global financial crisis then
made it hard for GFH to sell assets and in 2009 it posted a net
loss of $728.4 million. Last year, it booked a profit of $10.05
million and in the first quarter of this year, $1.5 million.
"Because the market was hot everything was sellable, but now
we are looking at fundamentals and more calculated risks," said
Hisham Al Rayes, who took the helm at GFH in April last year.
Formerly chief investment officer, Al Rayes has been with GFH
since May 2007.
"We have changed the model - instead of using sub-developers
we are now going vertical in the development of our projects."
The credit crunch piled up liabilities of over $2 billion,
and GFH was forced to restructure some of them more than once to
avoid defaulting in the years after 2008. But Al Rayes said the
company had now slimmed down its debt to $223 million, with
maturities extended until 2018 via two-year grace periods.
GFH completed the takeover of English soccer club Leeds
United in December through its Dubai-based subsidiary, GFH
Capital; it hopes the deal will vindicate its new way of doing
It did not give a value for the deal, but its cashflow
statement indicates GFH has so far paid over $33 million for
Leeds, with a further $42.7 million in liabilities. The
statement values the club at $88 million.
"I think it was a transaction that to a certain extent
confirmed the recovery of GFH," said Al Rayes.
Because of its debt burden, GFH may not be able to put as
much money into Leeds as other Gulf investors have showered on
European soccer clubs such as Manchester City.
But with new players and staff, including former Reading
coach Brian McDermott, GFH says it plans to turn Leeds into a
sustainable franchise by emulating the success of clubs such as
"I would like Leeds to reach that stage as well...but you
can't just do changes overnight, you have to do it smoothly.
Overall we are looking at the enhancement of operations and
enhancement of results."
GFH has had to outline its strategy not only to its
shareholders but also to the soccer club's vocal fan base, an
unusual demand on a firm that has kept a low profile since 2009.
GFH classified its stake in Leeds as being "held-for-sale"
on its year-end financial statements, but Al Rayes said this did
not mean it intended to exit the club any time soon. He said
GFH planned to bring new investors into Leeds while retaining an
"influential minority" stake, declining to give a figure.
"New investors will come into the club, some directly and
some under the GFH name. This will further extend opportunities
for Leeds United and further bring resources to the club."
"To clarify, we are a private equity house - we create funds
and create value and then achieve a good return."
In March, GFH Capital sold a 10 percent stake in Leeds to
Bahrain-based International Investment Bank.
GFH also plans to extract value from some of its
longstanding investments, such as the proposed merger of
affiliate Khaleeji Commercial Bank with Bahraini
lender Bank Al Khair. GFH owns 47 percent of Khaleeji, which is
capitalised at 100 million Bahraini dinars ($265 million), and
is waiting for a valuation of the transaction by consultants
"In the next six months things will develop. In one or two
months we will be clear on valuation," Al Rayes said.
While GFH expects to reduce its shareholding in Khaleeji,
the new entity will benefit from having a more diverse
geographical scope that allows it to better weather geopolitical
risks, Al Rayes added.
"This takes us from a focus on Bahrain to other markets such
as Malaysia, India and Turkey."
GFH also plans to seek a listing of Bahraini cement and
aluminium firm Cemena next year, after it obtains regulatory
approval. GFH launched the firm in 2008 with authorised capital
of $600 million.
But it has retreated from other projects, such as a proposed
purchase of Turkish lender Adabank which was initially announced
in 2011. "We entered Turkey with a premium but it was difficult
for us to progress on that basis."
The Turkish banking regulator rejected the bid a year later,
saying the consortium including GFH which was buying Adabank had
(Editing by Andrew Torchia)