GMFA cash rich and ready to spur growth

GMFA is a private equity investment company listed on the London Stock Exchange and managed by the private equity arm of the well-known Global Investment House in Kuwait.

The company holds investments in 8 companies, 2 listed and 6 unlisted, with a total estimated market value of $257.3m as of the end of last month.

The company had also invested in Murabaha transactions with 4 companies, one of which is fully repaid recording a return of 8% annually and is now swiftly clearing its debt to the others.

The major positive aspect is that the cash and Murabaha amounts, without taking into account the value of investments, exceed the company's market cap, thereby giving it a tangible liquidity to exercise options to the maximum advantage.
Elaborating on the current strategy being adopted by the company, the Chairman of GMFA, Richard Bernays said,

"In these difficult markets, GMFA is exceptionally well positioned with almost 50% in cash giving it the opportunity to acquire companies in the region at very reasonable rates. The wait and watch strategy adopted by the money manager in falling markets will prove beneficial to investors in the short and long term."

He said that while the timing of the Murabaha launch of the fund unfortunately coincided with the meltdown in the global financial markets and a general slowdown in the regional economy as well as a fall in the capital markets the comeback has been strong and recovery is now a given.

GMFA is the only private equity investment company listed on the London Main Market with such a specific focus where the objective was and is to capture the upside of the oil rich economies by investing in the growth sector of financial services. About one third of the portfolio is invested in banking assets and the rest in leasing and consumer finance companies spread across five countries. The offering also provided an above average risk/return profile coming through a put option on all the unlisted seed assets acquired from Global Investment House.

Since the MENA region economy is dependent on oil and oil related revenues, the markets show a very strong correlation to the oil and gas prices. Bernays picked up this point and said, "We have seen a sharp recovery in oil prices, rebounding from its lowest point of $36 per barrel reached in December 2008 to $67 per barrel at the beginning of June 2009. These levels provide a budget surplus to most of the oil producing countries in GCC region. Driven by the above factors, we see signs of that recovery in the underlying economy in the region. This should also have a direct impact on the performance of GMFA driven by better profitability of its existing portfolio companies and one can safely say that these projections have a measurable element of credibility seeing the market trends.'

In the comeback phase the attempt to rectify things has seen Global agreeing to reduce its outstanding Murabaha by the agreed price for these two assets which are being independently evaluated. In line with this, Global has repaid $9.65m in June 2009. If these acquisitions take place at the values provisionally agreed, there will be no outstanding Murabaha with Global and the ship will be on an even keel once more.

To add to the growing confidence there has also been a concerted move to present a revised repayment schedule with one of the Kuwaiti companies and it has already made payments of more than 60% of the original amount due. The balance is expected to be made in two installments in September and November of this year. Negotiations are still in progress with the second Kuwaiti company to agree on an acceptable terms for both parties.

Taking a conservative approach GMFA have made a provision of 50% on the amount outstanding with the second Kuwaiti company so that no slack is left over once the agreement is arrived at.
Bernays struck a note of conviction after what has been a tough battle. "As the Company looks forward to complete its first anniversary of listing, it moves ahead more confidently with the benefit of a strong balance sheet and strong cash position to implement its investment strategies which should help its shareholders generate attractive absolute gains and benefit from the growth in the MENA economy" he said, adding that Global and its affiliates had now sailed out of the stormy waters and were on course to being the financial powerhouse always envisaged.