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Islamic Private Equity The MENA Opportunity

TABLE OF CONTENT

Economic Outlook

Drivers & Opportunities

Islamic - Private Equity: A Natural Fit

Area of Focus: Business Cycle

Area of Focus: Sectors

Structured and Alternative Investments

Soaring Demand

Drivers & Challenges

Islamic Private Equity Going Forward


Economic Outlook
Privatisation/Public Private Partnerships

Strong population growth


Economic deregulation
Current account surplus
A
Tunisia Syria

B- BBB
BBB Lebanon Jordan A+
Morocco Kuwait A
Bahrain High GDP growth

AA-
Algeria
Libya BBB- Qatar Aa3
Egypt A+ UAE
Saudi Arabia
A
Oman

Private sector strength: entry


of multinationals & family
group expansion/diversification

Fragmented industries
driving consolidation Sector diversification

One third of worldwide US$ 300bn of FDI (5%


Population to grow by
100 million jobs to be infrastructure spending of world FDI) flowing
1% above world average
created until 2020 is in the Middle East into the region until
to 468m by 2011
until 2011 2011

Source: CORECAP Research & Analysis, World Bank, IMF, EIU, Standard & Poor’s, Noozz, www.bp.com, GIH, Alistair Crighton: “The Economies of Knowledge” 2006, Dr. Fatih
Birol: “World Energy Prospects and Challenges” 2006, World Economic Forum: “The Arab World Competitiveness Report 2007”; all ratings from S&P except of UAE (Moody’s) 4
Drivers & Opportunities
Macro Framework

Progressive Government
Political Stability High Oil & Gas Prices
Initiatives

9 9 9
ƒ Advanced ƒ Improved ƒ Improved ƒ Clear Vision ƒ Infra- ƒ Large
Regulatory Investment Sovereign Horizon structure Account
Structure Climate Rating Dvpt. Surplus

Liquidity
Ample
IPR/Dispute Settlement/Tax/ Attracting FDI & Repatriation of Seeking
Liquidity/Eco.
Capital Repatriation/Sukuk Regional Capital Islamic Inv.
Multiplier
Issuance/Conversion of Banks Opportunities

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Drivers & Opportunities (Contd.)
Drivers Opportunity PE Industry Sectors

ƒ Need for Job ƒ SMEs Healthcare/ Educ./


Population Growth
Creation ƒ Infrastruct. Dev. Power/ Energy
ƒ Infrastruct. Dev.

Increased Intl. ƒ Impact on FOF ƒ Trade/Sale/MBO/ Retail/ Manuf./


Trade ƒ Impact on GOE Spin-off/Consol. Services
ƒ Privatiz./ MBI

Economic ƒ Dev. of Non-Oil ƒ Seed Capital


Tech/ Media/
Sector ƒ Venture Capital
Diversification Telecom
ƒ Invest in Tech and
R&D

ƒ Exit Route ƒ Initial Public


Stock Market Dev. Offerings Logistics/ Islamic
ƒ Valuation
Fin./ Inst./ RE
Benchmark

ƒ Acq./ Divest. ƒ Mergers &


Inst. Investments ƒ Liquidity Acquisitions Insurance/ Takaful

MENA ISLAMIC PRIVATE EQUITY


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Islamic - Private Equity A Natural Fit
Sharia’a Principles Private Equity Natural Fit

Private
Private equity
equity invests
invests in
in companies
companies trading
trading in
in real
real goods
goods and
and
Real Economy
services
services

Equity Investment Private


Private Equity
Equity takes
takes majority
majority stakes
stakes in
in stable
stable companies
companies

Partnership-shared Partners
Partners in
in aa private
private equity
equity fund
fund share
share thethe same
same risk
risk and
and
Risk & Return return
return ofof companies
companies thethe fund
fund invests
invests in
in

Alignment of Private
Private Equity
Equity unlocks
unlocks value
value by
by aligning
aligning interests
interests of
of investors,
investors,
Interests managers and all other parties involved in a transaction
managers and all other parties involved in a transaction

Private
Private Equity
Equity creates
creates long-term
long-term value
value through
through the
the
Long-term Value
implementation
implementation of
of well-defined
well-defined strategies
strategies

Private
Private Equity
Equity enhances
enhances Corporate
Corporate Governance
Governance in
in portfolio
portfolio
Ethical Investment
companies, increasing transparency
companies, increasing transparency

Sharia’a Compliant Private


Private Equity
Equity invests
invests in
in all
all industries;
industries; Islamic
Islamic private
private equity
equity
Industries funds
funds exclude
exclude non-Sharia’a
non-Sharia’a compliant
compliant industries
industries

favorable

unfavorable

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Area of Focus Business Cycle
Fit For Islamic Private Equity

Time Area of Focus Funds & Asset


Traders
Late Stage

Business
LBO/MBO Turnaround
Governments & Growth Stage Consolidation
Family-Owned Firms
Grow Expand Bridge Organic growth Buyout by internal Restoration
Early Stage and/or expansion management or of under-
through external acquirer to performing
Preparation acquisitions capitalise on healthy mature business
Growth in Major underlying business
Seed Startup Commence for IPO within
operations expansion
next 12 months

Exploration of Realisation of Start of


business initial business production Structuring
opportunity plan and sales

Sharia'a compliant

Funding

Senior Debt Securitization Mezzanine Convertibles High-Yield Equity

Value

Low Risk & Return High

Placement and Management

Portfolios / Funds
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Area of Focus Healthcare

Sharp increase in lifestyle- Enhanced health education


Drivers

High population growth related diseases (diabetes, and awareness among local
cardiovascular, etc.) population

Increasing Healthcare Spending and Demand for Hospital Beds


across GCC
57.3
Spending CAGR 9%
162

Beds CAGR 5%
(Thousands)

114

11.9

65

Current 2015 2025

Healthcare Spending (US$ billion) No.of Beds

Investment in
Opportunities

ƒ Healthcare providers

ƒ Pharmaceutical companies

ƒ Infrastructure companies and projects


Source: CORECAP Research & Analysis, The Arab World Competitiveness Report 2007
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Area of Focus Insurance/Takaful

Change in insurance Increasing acceptance of


Drivers

High population growth regulation in many MENA insurance among Muslim


countries population

Growth Opportunity in Insurance Sector in MENA

9%
8% 9%

1,222 1,241
1,177
(US$ billion)

3%

1%
47 9

North America Western Europe EU15 Central and MENA


Eastern Europe

Gross Premium Income (GPI) GPI % of GDP


Opportunities

Investment in

ƒ International/local insurance/takaful providers

ƒ Privatisation of public insurance companies

Source: CORECAP Research & Analysis, Swiss Re, Bahrain Monetary Agency
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Area of Focus Travel & Tourism

High population growth Governmental efforts to


Improved connectivity to
Drivers

triggering intra-regional position the region as


and within the region
travel attractive destination

MENA Travel & Tourism to witness strong growth


in arrivals and revenues over the next decade

3.1%
Over 6m jobs to
be created in T&T
sector until 2016 190

102

2.6%

2006 2016

MENA T&T Revenues in US$ bn Contribution to GDP in %

Investment in
Opportunities

ƒ International/local tourism operators

ƒ Infrastructure projects such as airports, etc.

Source: CORECAP Research & Analysis, Global Investment House: “GCC Investment Strategy – II” 2007
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Area of Focus Telecom

Low penetration levels in


Drivers

High population growth Market Liberalisation


many countries

MENA Mobile Spend per Capita in US$ p.a. per Country

558
542

492

340

240

185

99 93
63 52 50 44
22
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Investment in
Opportunities

ƒ International/local telecom service providers

ƒ Privatisation of public telecom operators

Source: CORECAP Research & Analysis, Global Investment House: “GCC Investment Strategy – II” 2007
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Area of Focus Infrastructure

Economic diversification Governments divesting


Drivers

High population growth


and industry development state assets

GCC Projects alone are valued at US$ 1.1 trillion

20

In US$ billion

71

112
58 206
663

Water & Waste Industry Power Petrochemicals Oil & Gas Construction

Investment in
Opportunities

ƒ Utility and other infrastructure projects

ƒ Privatisation of public utilities companies

Source: CORECAP Research & Analysis, Qatar Financial Center: Annual Report 2006
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MENA Islamic Private Equity The Way Forward
Structured & Alternative Islamic Investments on the Rise

20%
28% 30% 31% Equities

30%
24% 21% 21% Fixed Income General shift in HNWI asset
allocation strategies towards
25%
13% 13% 11% Cash/Deposits
equities and alternative
16% 16% 15% Real Estate investments…
15%
19% 20% 22% Alternative Investments*
ve
nt s 10%

2002 2004 2005 2007E

* includes structured products, hedge funds, managed funds, foreign currency, commodities, private equity and other investments

Number of Islamic Funds

400

325

…is reflected by soaring


demand for matching
Islamic products 145

2000 2005 2006E

Source: CORECAP Research & Analysis, Capgemini/Merril Lynch: “World Wealth Report 1997-2006”, Ernst & Young: “The Islamic Funds & Investments Report”, 2007
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Soaring Demand

Global Sukuk Issues in US$ millions

27,312
25,394

CAGR 232%
More than 150 Sukuks globally
with a total value exceeding US$
35bn since 2005.
12,066
In 2007, an additional 48 Islamic
7,210 bonds worth US$ 26bn were
5,717
announced
980

2002 2003 2004 2005 2006 2007E

GCC Rest of the World Average Size of Islamic Real Estate Funds in US$ millions

189

CAGR 36%

Islamic Real Estate one of the most


popular asset classes to date
55

2002 2006

Source: Ernst & Young: “The Islamic Funds & Investments Report”, 2007
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Drivers & Challenges
Growth in Muslim Increasing Muslim Governments Growing Investor Need for Islamic
population Wealth Creating Liquidity Sophistication Diversification Entrepreneurship
Drivers

Dubai, Pakistan, Increasing need to Growing economic


Approximately 1.3 Global Islamic Assets Islamic Investors
Germany, Brunei and diversify Islamic and diversification in the
billion Muslims today, of US$ 800bn today, increasingly seek
other Governments non-Islamic investment Islamic world and
expected to grow to expected to grow at an structured products
have issued Sukuks for portfolios with growing increasing number of
1.6 billion within the annual rate of 15-
fund raising asset base Muslim entrepreneurs
next 8-10 years 20% over the coming
years

Low Penetration of F unds in GC C Indicates Strong Growth Potential

Total Fund Assets/GDP Ratio (2006) 100%


France US
90%
80%
70%
60%
line
50%
Trend
40% UK
30% Malay sia
20% Japan G e rm any
Pot ent ial
10% India
GC C
0%
- 10,000 20,000 30,000 40,000 50,000

GDP per Capita (2006)

ƒ Perceived to be ƒ Limited ƒ Premiums due ƒ Dependent on aƒ Scarce research ƒ Limited skill ƒ Non-available ƒ Limited due to ƒ Lack of uniform
restricted to compared to to complexity, pull strategy and outdated pool Sharia’a- Sharia’a accounting
Muslims, conventional screening, figures compliant screening and standards and
Challenges

complex, products higher research requirements interpretation


emotional, costs and of majority of Sharia’a
lower returns product scarcity stake principles

Perception Breadth of Fee Distribution Human Acquisition Investment


Information Uniformity
Products Structure Channels Capital Finance Opportunities

If challenges are overcome, Islamic Private Equity has huge potential to outgrow conventional Private Equity

Source: CORECAP Research & Analysis, Ernst & Young: “The Islamic Funds & Investments Report”, 2007
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Islamic Private Equity Going Forward: US$ 41bn by 2011

IFI GCC
25%
US$ 12bn

Islamic Asset Growth

IB GCC

25% US$ 16bn


42%
900

800

700 In US$ billion


600
Global
500

400 US$ 13bn


300

200 15%
25%
100 42%
-
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GLOBAL ISLAMIC ASSETS IB GC C ASSETS IFI GC C ASSETS
US$ 41bn

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