Business | Investment
Investors bet on Saudi Arabia's economic boom
Large and young population, robust growth and diversification efforts make kingdom attractive to private equity firms
- By Babu Das Augustine, Deputy Business Editor
- Published: 00:00 July 20, 2010
Dubai: Saudi Arabia is drawing strong interest from the private equity sector thanks to a a large and young population, a growing economy and a government dedicated to achieving wider economic diversification.
Saudi Arabia ranks favourably in the Insead-Booz and Company survey on the regional private equity industry, which indicates that a large majority of general partners are looking to invest in the GCC this year. But though many of GCC countries are relatively wealthy, they lack the critical mass of in terms of population and size of economic activity, the survey indicated.
Saudi Arabia scores in this aspect.
New players
A number of international private equity firms have said they expected to open offices in Saudi Arabia in the coming months.
Abraaj Capital inaugurated an eight-member team office in Riyadh last May, while Jordan's Ithmar Invest and Revere Capital Advisors of New York are both reportedly intending to open offices in Riyadh.
Some analysts said they believed that, despite the distinct challenges that the Saudi market could pose, the economy was simply too big with large resources for it not to make a compelling investment case.
Further, the kingdom's latest budget was its largest ever, with projected spending of approximately $144 billion (Dh528.76 billion).
Among the main legal obstacles faced by investors in Saudi Arabia is the difficulty of crafting a reliable exit strategy after taking a position.
Raising debt could be uncertain and, rather than de-listing public companies, most private equity in the kingdom focused on corporate restructuring. The survey showed that general partners were reacting swiftly and transitioning to stronger business models.
Strict regulation
Survey respondents cited several key takeaways from the downturn, including stricter and more disciplined acquisition and due diligence processes.
They also included tighter contracts and stricter enforcement, and stronger controls, management and governance.
The findings suggested that the region's general partners generally expected growth to be moderate but imminent in the near-to medium-term.
The Zephyr M and A report for the first half of this year said the value of private equity investment in the Middle East had plunged to a low not seen since before the crisis.
Just $135 million worth of private equity transactions were recorded in the first half of 2010 — a decline of 78 per cent from $617 million in the second half of 2009.
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