Despite declining oil prices and a renewed focus on fiscal contraction, one government body has bucked the consolidation trend and embarked on a new phase of expansion. Established in 2006, Bahrain Mumtalakat Holding Company is the independent holding company for Bahrain’s strategic non-oil-and-gas-related assets, and as such is the government’s chief investment division. It is a medium-sized player, ranked by the Sovereign Wealth Fund Institute (SWFI) as the 42nd-largest such fund in the world. However, unlike GCC giants such as the Abu Dhabi Investment Authority, which are the recipients of a portion of the nation’s fiscal surplus, Mumtalakat’s income is derived from its portfolio dividends and whatever it raises on the international debt markets. While this might make for a more challenging operating model, it insulates the fund from the effects of lower oil prices and the consequent decrease in public revenues. Mumtalakat has adopted a growth strategy that it hopes will see it double its assets over the next five years.
Mumtalakat’s principal objective is to enhance the value of its portfolio as a source of future wealth for the people of Bahrain. This sometimes translates into making investments beyond Bahrain’s borders, but as one of the government’s most useful tools for economic growth it has historically sought opportunities to invest in domestic companies and projects. In doing so, it attempts to identify companies whose activities chime with Bahrain’s status as a regional business centre and a popular tourist destination, and which are also capable of generating good returns on investment.
Mumtalakat’s portfolio includes 38 commercial enterprises distributed across a range of sectors, including financial services, telecoms, real estate, transport, tourism, industrial manufacturing and services, and food production. Among its interests are national champions that have come to represent Bahrain on the world stage, including the flag carrier, Gulf Air, 100% of which is owned by Mumtalakat; Bahrain Livestock Company, which distributes 20,000 tonnes of government-subsidised lamb and cattle annually (Mumtalakat holds a 25% stake); Arcapita, the sharia-compliant investment management company with offices in Bahrain, London and Singapore (15%); National Bank of Bahrain, the country’s leading provider of retail and commercial banking services (45%); Aluminium Bahrain (Alba), one of the world’s leading aluminium smelters (69.38%); Arab Shipbuilding and Repair Yard (18.64%); Bahrain International Circuit Company, operator of the kingdom’s Formula 1 race track (100%); and Bahrain Telecommunications Company, Bahrain’s leading integrated telecoms player.
Mumtalakat scores a maximum 10 on the SWFI’s Linaburg-Maduell Transparency Index, placing it in a group of 11 funds that includes Singapore’s Temasek, Ireland’s National Pensions Reserve Fund, the Australian Future Fund, Norway’s Government Pension Fund Global, Canada’s Alberta Heritage Fund and the UAE’s Mubadala Development Company. Key criteria necessary for the top score include published guidelines in reference to ethical standards and investment policies, details regarding ownership percentage of company holdings, and up-to-date and independently audited annual reports.
Mumtalakat’s investment decisions have served it well in recent years. Over 2014 the company grew its total assets by 2.1% to reach nearly BD4.2bn ($11.1bn), while net profit rose by 10% year-on-year to hit BD91m ($239.7m). Within its income streams, dividend income showed particularly strong growth, rising from BD810,000 ($2.1m) in 2013 to reach BD1.86m ($4.9m) in 2014 – a gain of 129%.
Its solid financial performances and the diversity of its investment portfolio have helped Mumtalakat attain strong ratings from the major agencies, with both Fitch and Standard & Poor’s rating it at " BBB-" , which places it in the "good credit quality" class.
Borrowing To Grow
The ratings enjoyed by Mumtalakat are essential to its policy of issuing bonds and sukuks (Islamic bonds) to fund its growth. In 2010 it issued its first debt instrument, a $750m bond, which it followed up with two small sukuk offerings denominated in Malaysian ringgit. In November 2014 the company stepped up its debt schedule by setting up two bond and sukuk issuance programmes on the Irish Stock Exchange, with a view to raising as much as $1bn to refinance maturing debt in 2015.
The Regulation S Multicurrency Trust Certificate Issuance Programme bore its first fruit on November 18, 2014, when Mumtalakat successfully priced a $600m, seven-year sukuk with a 4% profit rate, its first dollar sukuk issuance, and its first foray into the dollar debt capital market since its inaugural issuance in 2010. The innovative offering – a hybrid composed of a commodity murabaha (fiduciary sale) and a wakalah (contract of agency) based on Mumtalakat’s holding in its portfolio companies – was marketed in investor meetings in financial centres, including Kuala Lumpur, Singapore, Abu Dhabi, Dubai and London.
Another vote of confidence in Mumtalakat’s operations came in early 2015, when it secured a $500m, five-year revolving credit facility from a group of lenders that included BNP Paribas, Deutsche Bank, Standard Chartered Bank and Bank of Tokyo-Mitsubishi UFJ.
Mumtalakat’s strong financial base and budgetary independence mean it can look to expand its investment footprint, even when the Ministry of Finance is in consolidation mode. While its current portfolio is largely based on domestic giants, its future asset mix is likely to have a more international flavour. Speaking to the regional press in May 2015, Mahmood Al Kooheji, CEO of Mumtalakat, outlined the company’s growth strategy: “There are two ways that we grow our assets. Initially, the portfolio that we already have, there is potential to grow there. The other angle is that we are looking internationally and globally for new acquisitions to increase the value of the portfolio that we have.”
The fund is looking at deals in North America, Europe and the GCC, and in evaluating the prospective purchases is open to the possibility of working with similar institutions. In this regard it has already established a successful track record, such as its 2014 partnership with Dubai’s Fajr Capital and US-based private equity and advisory firm Blackstone to buy a minority stake in the UAE’s GEMS Education. Investment partners are also to be found domestically, as was demonstrated by Mumtalakat’s joint effort with Investcorp to buy US-based private education firm Nobel Learning, and software and services outfit PRO Unlimited. Its expansion strategy means investors are likely to be granted an opportunity to buy into Mumtalakat debt in the near term, as any significant purchase will, according to the company’s CEO, mean a return to the capital markets.
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