Eshraq Investments, which is listed on the ADX, is preparing to launch a new operational strategy that will include exploring private equity opportunities in the UAE and Saudi Arabia.
These would take the form of $50 million to $100 million stakes in companies that Eshraq believes have the potential to grow and provide the returns it seeks.
Eshraq announced the new strategy late last month, with a focus on private equity rather than its previous dominant reliance on publicly listed entities. It was expected that Eshraq would focus on markets other than the UAE, with Saudi Arabia being a natural fit.
In the last two to three years, private equity firms have approached tech startups and early-stage businesses. PIF, the Saudi wealth fund, has also been active in this space.
A clear route to an exit
Private equity investments can be quite profitable if the exits go according to plan. In the UAE and Saudi Arabia, such an opportunity already exists, whether it’s selling to other strategic investors or going public on the stock market.
On whether technology-focused businesses will be Eshraq’s targets too, the CEO Mohamed Al Hashimi said: “We will be sector-agnostic on investments. In the Gulf or Middle East markets, one cannot be extremely sector-specific but an opportunist.
“When such an opportunity presents itself, we can add value by asset managing and extracting value. In a good scenario, we can have an exit strategy in 2-5 years. And if it’s an exceptionally good investment, even exit in 5-7 years.
“Our private equity entry will primarily be in the UAE and Saudi Arabia. And if those opportunities dry up, we can look beyond, in Kuwait or Qatar, for instance.”
A sharp re-set
Eshraq’s need for a change of direction and pace has been evident for some time. Investors found the company’s recent financials to be underwhelming, and there was also a high exposure to real estate in the UAE (properties and plots).
For this reason, Al Hashimi was appointed CEO to oversee the transition. Eshraq has recently divested some of its real estate holdings in the UAE, raising new funds for future private equity investments.
Real estate assets
With real estate, the company will consider four options:
Develop plots for leasing or selling.
Create strategic plots, then sell, swap, or exit others.
Sell, swap, or exit plots.
Raising funds
“One of our main priorities is to control the investments and divestments as we switch from public equity to private equity,” said the CEO. “A second way would be to use the cash on hand, while a third option is bring in strategic investors or tap financing through new investors.
“Our previous strategy doesn’t allow us to raise or deploy cash. The new strategy has to do with rebalancing our existing portfolio (and getting new funds).
“If the scale of our planned private equity investments is extremely large, then it will be done through SPVs (special purpose vehicles). (How it’s done) will be fully aligned with the strategies we pursue and specific to an investment.”
Drop share buybacks
One direction Eshraq is not going through any longer is a share buyback program. “We extinguished the shares that we bought in the last 2 years, to ensure shareholders got good value,” said Al Hashimi. “We are no longer running a buyback – and will only consider it if it makes sense in the future.”
