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‘Emirate must reform’

‘Emirate must reform’

Private equity firms say big reform is necessary to save the sector in the region. That means foreign ownership, family involvement… and of course, transparency.

August 17, 2010 4:18 by

Private equity firms such as Kohlberg Kravis Roberts & Co and regional heavyweight Abraaj Capital – which benefited from Dubai’s boom years – are now looking to the emirate for reforms needed to revive the sector.

Easing foreign ownership regulations and reviving the market for initial public offerings (IPOs) are key steps, and analysts say private equity still needs more business from the powerful families which dominate the region’s wealth.

“We need to see some investments, we need to see the macro environment improving, we need to get the families on board,” said Jeremie Le Febvre, partner-in-charge of Middle East and North Africa (MENA) at Triago, a private equity adviser.

“A combination of all these factors will make the Middle East quite attractive because right now the message to investors is quite blurry,” he said.

Middle East private equity investment, once among the most promising sectors in the region, plunged by 80 percent to $561 million in 2009, Gulf Venture Capital Association data showed.

Deal activity has been slow in 2010 too, with investors backing out from capital calls, sellers still demanding more money than buyers are willing to offer and increasing competition from family groups hampering growth.

Before the global financial crisis erupted, iconic private equity firms from across the globe such as KKR and Carlyle Group set up shop, attracted by the region’s petrodollars and spectacular growth prospects.

The risk now is that without reforms to spur the sector, such firms will go back to viewing the region mainly as a source of capital and not an investment destination.

“There is not much room for big internationals,” Le Febvre said. “Over the next three years you may see some deals done by a select few, buying perhaps a mobile phone operator or a major pan-Middle East healthcare business.”

Dubai-based Abraaj Capital, one the Gulf Arab region’s biggest private equity firms, has cut the size of its fourth buyout fund by half, while shares in Egypt’s Citadel Capital are down 15 percent this year.

“I think it’s safe to conclude that the private equity market in the Gulf Cooperation Council (GCC) is much smaller than was originally expected,” said Yahya Jalil, head of private equity at The National Investor in Dubai.

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