Abraaj Ara

Abraaj Capital Annual Review 2007

Abraaj Capital Level 7 Emirates Towers Offices PO Box 504905 Dubai, United Arab Emirates T +9714 3191500 F +9714 3191600 E [email protected] W www.abraaj.com

Abraaj Capital Annual Review 2007

A unique perspective on unlocking value

A unique perspective on unlocking value

Abraaj: Empowering potential across the MENASA region. Our foresight and innovation – along with our skilled and experienced team, robust processes and true understanding of our region – are what make us the leading private equity firm in the Middle East, North Africa and South Asia.

Produced by Wardour (+44 (0)20 7016 2555) Original photography by Michael Heffernan, Ian Phillips-McLaren and Phil Baber Printed by royle print, a carbon neutral company Printed on Zanders Mega Silk – a paper that is manufactured using 50% recycled de-inked fibre and 50% TCF (totally chlorine-free) pulp, sourced from sustainable forests. Zanders Mega Silk is biodegradable and harmless to the environment.

Our Year

Contents Our year 2

Abraaj at a glance

4 Board of Directors’ statement 10 Group Chief Executive Officer’s review

18 The future of private equity 22 The case for private equity in the MENASA region

30 Our unique route to unlocking value 32 Capitalising on regional insight 34 Investing in high potential companies 36 P artnering with strong management teams to foster growth 38 Delivering superior returns

42 Abraaj funds year in review 45 Abraaj Buyout Fund LP (ABOF) 52 Abraaj Real Estate Fund LP (AREF) 63 Abraaj Special Opportunities Fund II LP (ASOF II)

Our investments

Our investments

empowering potential

Empowering potential

Private Equity

Private equity

65 Abraaj Buyout Fund II LP (ABOF II) 73 Infrastructure and Growth Capital Fund LP (IGCF)

82 Corporate governance 85 Our Advisory Board 86 Sustainable development 89 Connecting with our stakeholders 92 Our people 94 Management team 96 Our shareholders

THOUGHT LEADERSHIP

Thought leadership

Abraaj at a glance

A remarkable track record

A unique team

> 50

Abraaj has 135 employees representing 27 nationalities achieving coverage that spans our region. Half of the team are investment professionals while its senior managers have 228 years of combined experience. Our Executive Directors have a long history of working together and are associated with landmark private equity transactions in the region.

Average IRR across 20+ exits compared to a US top quartile performance of 25% IRR over a comparative period

5 Funds US$5bn 400 128 US$1bn

Assets under management

In the last year profits of our parent company grew 400% Gross capital gains on exited regional investments

We returned over US$1 billion to our investors in 2007

Abraaj has put private equity on the map in the MENASA region No current investment plans

Turkey Tunisia Lebanon Morocco

Syria

Jordan Algeria Libya

Egypt

Iraq Kuwait Bahrain Qatar

Pakistan UAE India

Saudi Arabia Oman

Abraaj has an unmatched geographical spread of investors and stakeholders. Abraaj’s more than 200 investors represent some of the most influential individuals and progressive family groups in the region as well as prominent institutional investors globally.

02 | 03

abraaj Capital annual review 2007

Bangladesh

Yemen

Sri Lanka

Our Year

IRRs of 2007 exits:

Arabtec

Our funds: Delivering superior returns ABOF

EFG-Hermes

93

Empowering potential

70 5X

ABOF exited 5 investments at an average 4.3x multiple of investment and an IRR of 70%

Private Equity

116 AREF

AREF exited 2 investments at an average 5x multiple of investment and an IRR of 91%

Acibadem – Turkey Air Arabia – UAE Egyptian Fertilizers Company (EFC) – Egypt Global Education Management Systems (GEMS) – MENASA GMMOS – UAE Tadawi – Saudi Arabia

75

+

Our investments

6 completed investments in 2007

Maktoob

ASOF II

45 39

THOUGHT LEADERSHIP

Septech

Exited with a net gain of 45%

04 | 05

abraaj Capital annual review 2007

Our Year

Board of Directors’ statement We are proud to present Abraaj Capital’s first public annual review.

Private Equity

We are the winner of industry awards including ‘Middle East Private Equity Firm of the Year’ from Private Equity International (2006, 2007 and 2008), the Banker Middle East Award for ‘Best Private Equity Institution’ in 2006 and for ‘Outstanding Contribution to Financial Services in the Middle East’ in 2007 and ‘Best Private Equity House’ at the World Private Equity Awards, MENA in 2007. Arabian Business recognised Abraaj among the 50 Most Admired Companies in the GCC this year. In addition, our Group Chief Executive Officer, Arif Naqvi, was voted by Private Equity International magazine (the largest trade journal in the private equity industry globally) as one of the 50 most influential private equity personalities in the world.

“Arabian Business recognised Abraaj among the 50 Most Admired Companies in the GCC this year.”

Our investments

We have evolved to meet the needs of our investors, our investments and the size of the organisation; and the anticipated competition in the future. The main objective driving this thinking has been to create an institution that is built to last in the region. Our history is here and Abraaj’s unparalleled network means that the majority of our deal flow is purely proprietary and that potential investee companies have first-hand knowledge of our exceptional track record that sets us apart from the competition. In fact, in performance terms, in 2007, we are in the top decile (10%) of private equity firms globally, that manage US$5 billion or more in aggregate terms.

We can see evidence of the impact of Abraaj in all our home countries; from banks to supermarkets, from ship manufacturers to airlines, from hospitals to schools and from process manufacturing plants to high street retail outlets, Abraaj is helping shape our nations.

Empowering potential

In a remarkably short time Abraaj Capital has become the premier private equity firm operating in the Middle East, North Africa and South Asia (MENASA). Abraaj leads by example, demonstrating an innovative approach to investment in what we say and what we do. Since its inception in 2002, Abraaj has grown exponentially to include US$5 billion of assets under management, and five private equity funds. We are the first pure private equity firm to be registered by DFSA to operate out of Dubai International Financial Centre (DIFC). Abraaj Capital Holdings Limited (ACHL) itself is also extremely well capitalised, with an issued share capital of US$1 billion.

THOUGHT LEADERSHIP

Board of Directors’ statement Continued

Though multinational in its staff and international in outlook, Abraaj retains the distinctive values and ethos of our home region. We are focused on the markets we know and understand: the markets where we have a unique ability to add value for our investors. Abraaj’s initial geographic focus was the Middle East – essentially the GCC countries and the Levant. But given the significant synergies – cultural and business – within the broader region, the goal was always to expand our focus to include the Sub-Continent and North Africa, and ultimately Turkey, a region in overall terms we named MENASA (Middle East, North Africa and South Asia). There were compelling reasons for this which outsiders sometimes fail to comprehend. The Sub-Continent has more in common with the Middle East than it has with China or Russia; links and ties go back centuries and are based in culture, politics, religion and business. It makes eminent sense to look at this region as one, especially since trade links and investment cross-fertilisation are on the rise. We are pleased to report that the term MENASA is now in wide usage and more and more businesses are adopting this approach regionally, rather than having separate strategies for MENA and India.

06 | 07

abraaj Capital annual review 2007

We recognise that a business such as Abraaj is nothing without its people. Our employees bring us the vision, the drive and the commitment to achieve success. We will continue to open new markets in MENASA and to source deals where others don’t see them – that’s our strength. We have become a major conduit for international capital flows into our region, through our Infrastructure and Growth Capital Fund (IGCF), which is clearly well-positioned in terms of sustainable economic growth and public-private partnerships for many years to come and is being perceived as such by the global investment community. Abraaj will continue to operate ahead of the curve, just as we have in the areas of transparency and regulation in the past and are now doing in the area of corporate sustainability. We are the first private equity company to support the Hawkamah Institute for Corporate Governance and have signed a three-year corporate sponsorship agreement to promote corporate governance across the MENASA region. We believe Abraaj is in a unique position to spread high standards of corporate governance throughout the region by influencing the practices of the companies we invest in. This is upheld, for example, by the chief executive officer and chief financial officer of each business we invest in signing off a monthly report covering 59 separate governance issues. On a broader level, we feel that widespread good governance is essential for sustained growth in the region.

We also feel it is essential to set the agenda in areas such as corporate social responsibility and in sustainability; how we behave and act as an organisation and as an investor has profound consequences for all stakeholders, including employees, for the environment and for future generations. The group conducted a landmark sustainability study in 2007, modelling and benchmarking our processes. As a result, we have implemented a new group-wide strategy which puts sustainable investment at the heart of what we do. We are strongly committed to this. We do not see sustainability as being at the expense of profits; rather it is an approach that will safeguard and enhance future profits. The publication of this first public Abraaj annual review is a further demonstration of our commitment to transparency and sustainability. We have always provided full and regular reports to our Limited Partners: now we have decided to open this channel to all our stakeholders. In doing so, we are introducing to the public domain seminal company information and setting out, without reservation, Abraaj’s current sustainability status and our future targets. Going forward, our progress against those sustainability targets will be there for all to see.We are proud to be an ambassador for our region on prestigious global bodies such as the World Economic Forum’s Global Private Equity Task Force, the Emerging Markets Private Equity Association and the steering committee of the Gulf Venture Capital Association’s first Middle East Private Equity Report.

Our Year

Abraaj is playing an active part in revitalising the infrastructure of our region. Be it developing essential industries, such as fertiliser production or transport, or creating hospitals and schools, Abraaj is leaving a legacy of transformation across the region. We anticipate that this legacy will grow strongly in the years to come.

In many ways, the story of Abraaj in 2007 has been the story of our own nations: one of exciting progress, rapid growth and an awareness of fresh opportunities on many fronts. Abraaj is both a cause of this progress and a beneficiary of it. We straddle a region of great potential, and one that will experience dramatic growth in the coming decade. We are known for our regional expertise; having deployed capital in 14 countries over the last six years, each with its own unique local characteristics, we are as international as we would like to be. Our opinion is that we could deploy ten times the capital we currently manage and not run out of investment opportunities here. There are tremendous regional infrastructure opportunities in public-private partnerships, and at the same time, governments are privatising state assets, since the realisation has dawned that they need to be in the business of governance and not in the business of management. Just investing into these two sectors across 25 countries will keep us very busy for many years to come. We are confident that Abraaj and our region will continue to prosper together, in 2008 and beyond.

Our investments THOUGHT LEADERSHIP

The next generation is critical to progress in the Arab world. We need to create 80 million new jobs in the next 15 years just to keep our rate of unemployment constant, a challenge not surpassed anywhere else in the world in the last 100 years; this will happen through technical and vocational training, but also through empowering the entrepreneurs of tomorrow. We believe very strongly in mentoring the next generation of entrepreneurs and are involved in the development of the London School of Economics’ Centre for Middle East Studies, including offering 50 MSc students (10 a year for five years) from the Arab world a full academic scholarship. We are delighted to play a part in this initiative, which will develop a core of highly trained people to build our region.

of the money raised in 2007 came from investors outside the region. Abraaj is channelling fresh capital to our markets.

Empowering potential

Increasingly, Abraaj is becoming an agent to enhance regional growth. A growing number of our investors are now from outside the MENASA region. More than 30% of the capital raised this year for our biggest fund – the US$2 billion IGCF – has come from such external investors. We are transforming perceptions, giving institutions and key individuals a fresh and positive impression of the companies and the people of the MENASA region.

30

Private Equity

“We believe Abraaj is in a unique position to spread high standards of corporate governance throughout the region by influencing the practices of the companies we invest in.”

Board of Directors’ statement Continued

08 | 09

Sheikh Abdulrahman Ali Al Turki Chairman

Arif Masood Naqvi Vice Chairman and Group Chief Executive Officer

Sheikh Sultan Bin Saqr Al Qassimi GIBCA Group

Bisher Barazi DIFC Investments

abraaj Capital annual review 2007

Hussain J Al Nowais Vice Chairman

Fadi Ghandour Aramex International

Mohammed Ali Al Hashimi Zabeel Investments

Our Year

“We will continue to open new markets in MENASA and to source deals where others don’t see them – that’s our strength. We operate ahead of the curve.” Private Equity Empowering potential

Hamid Jafar Crescent Petroleum Group of Companies

Saud Abdulaziz Kanoo Oasis Property Developers BSC in Bahrain

Sheikh Khaled Bin Zayed Al Nehayan

Mohamed Al Jaber Al Jaber Group

Engineer Salah Salem Bin Omeir Al Shamsi Al Qudra Holding

Sheikh Nawaf Nasser Bin Khalid Al Thani NBK & Sons Group of Companies

Mustafa Abdel-Wadood Abraaj Investment Management Limited

Our investments

Ashok Aram Deutsche Bank

THOUGHT LEADERSHIP

“Abraaj finished this extraordinary year with US$5 billion of assets under management, through our five funds and co-investment vehicles.”

10 | 11

abraaj Capital annual review 2007

Our Year

Group Chief Executive Officer’s review Looking back on 2007, our people and our investors have a great deal to be proud of.

Private Equity

> We generated an astounding US$1.2 billion for investors following the sale of stakes in five companies, Arabtec, Maktoob.com, ABANAR, Septech and EFG-Hermes. This represented an exit IRR of 90%.

> All in all, we returned over US$1 billion in cash to our investors in capital and sales proceeds. In a market where no one has ever really raised anything close to that amount, we returned such an amount in profits alone in just one year.

Abraaj finished this extraordinary year with US$5 billion of assets under management, through our five funds and co-investment vehicles. This was more than double the US$2.3 billion we had under management just 12 months earlier. Such great results, successful exits and high potential acquisitions would have been more than enough for some. But, as a team, we have wider vistas and a dynamism and energy that insatiably seek new challenges and opportunities. We want to keep evolving our firm, our industry and our region – for the benefit of us all. In 2007, we made some meaningful strides in that direction.

THOUGHT LEADERSHIP

>W  e exited our Abraaj Special Opportunities Fund II, with net sale proceeds of US$185.4 million, a net gain of 45% for investors in the fund. This performance outshone all regional peer funds and was notable in the light of the turbulent state of MENASA stock markets during the fund’s three-year life.

Each acquisition demonstrated our team’s skill in identifying and securing leading companies in growing sectors. From the stake in Air Arabia, the first and leading low cost carrier in MENA as all signs point to a huge growth in economy air travel in the region, to our stake in GEMS, as MENASA is clamouring for more and better schools, each transaction demonstrated our characteristic foresight.

Our investments

Notwithstanding the stellar results, it was not an uncharacteristic year for us considering our growth, since 2002, when we have doubled in size every single year. We are now number 45 in the world in terms of private equity assets under management and, by the same yardstick, are among the top five in the emerging markets. However, suffice to say, 2007 was a momentous year. To give you an idea of what we achieved, I’d like to share some of the highlights:

Outstanding new investments The year was as significant for the great companies we bought as for those we sold. Thanks to our strong, often proprietary, deal pipeline and in keeping with our track record for speed in execution, we rapidly deployed US$1.6 billion of funds through six outstanding new investments – Air Arabia, Egyptian Fertilizers Company (via the largest private equity-led leveraged buyout in the region), Global Education Management Systems (GEMS), Acibadem, GMMOS and Tadawi.

Empowering potential

2007 was a year when we outstripped all of our targets and delivered a strong performance across every part of our business. From exceptional returns to investors and an impressive average exit IRR to record-breaking fundraising and a leap in the value of assets under management, we ticked the boxes across the board.

Group Chief Executive Officer’s review Continued

5.4

The World Bank estimates that MENA will grow by 5.4% in 2008.

A solid foundation We have evolved into an established institution in the financial services arena, in just five years. Furthermore, it’s a model that we believe is sustainable given the depth in management talent. We’ve been developing the firm to ensure that it has the team, systems and organisation to keep on supporting – and driving – that growth. Our analysis shows that we represent approximately 20% of the regional private equity industry, so we continue our prominent role. Competition exists in the form of global players entering the market as well as existing regional players. We need to be cognisant of what they do, but our biggest potential enemy remains complacency, not external forces. Obsession with quality, consistency and speed is the mantra at Abraaj. People within and outside Abraaj talk of our culture. The energy, determination and skill that characterises our team is what powers us. During the year, we increased our number of people from 96 to 135. Our competitors are as aware of our people’s calibre as we are and it was both gratifying and humbling to retain our top-performing employees across all levels of the firm. Once again this year we had virtually zero attrition and Abraaj has emerged in a number of surveys as being the employer of choice within the financial services industry in the GCC.

12 |13

abraaj Capital annual review 2007

We developed our structure by combining the previously distinct portfolio management and transactional teams to form fully integrated investment management teams. Each one is, essentially, a private equity firm in itself: they nurture an investment from the very first signs of a possible target right through to final exit. The benefits of this move have been immediate and significant. Our people are developing a huge breadth of knowledge and are even more receptive to the needs of our investors and our investments and of possible future competition.

Keeping ahead of the curve in good governance I believe in our people being entrepreneurs at heart, but business-builders in substance. Within the business, we continue to build the foundations for lasting growth, creating a world-standard, best-in-class model for private equity in the emerging markets. We have always been ahead of the curve in embracing transparency and good governance. From our voluntary DIFC listing to our espousal of the highest codes of ethics, we have defined as well as followed best practice.

At this point in our development, I am pleased to reiterate our strategic positioning as the leading alternative assets investment manager in the region and in our place at the vanguard of regional private equity. As such, we willingly take responsibility for driving industry standards in the region.

During 2007, we further raised the bar of our internal corporate governance. Following last year’s appointment of a compliance officer, we have developed a wide-ranging compliance framework based on the UK Combined Code of Corporate Governance, which shapes all our significant activity.

The global private equity industry as a whole needs to communicate better about what it does and how it does it. Before long it will have no option: greater regulation, demanding greater transparency, will come – and probably sooner rather than later.

Our Year Private Equity

Empowering potential Businesses are about people. Companies controlled by us provide employment to over 50,000 people and I am very aware that decisions made by Abraaj directly affect their livelihoods and the security of their families. I derive enormous satisfaction from seeing the numerous companies we have owned move to a higher level of governance and profitability and the impact that this has on national and regional economies. As these companies have grown, they have acted as catalysts for development and employment, helping to bring the Middle East into the global economy and providing fertile training environments for the young leaders of tomorrow.

Our investments THOUGHT LEADERSHIP

Acting as bridge for international capital One of the great repercussions of our success has been our ability to contribute to the regional economy, particularly in our role as a bridge for international capital. Many international investors have long recognised the opportunities in our region but it was only their trust in our proven ability to deliver superior returns that enabled them to finally gain access to its potential. An impressive 30% of the money raised during the record-breaking US$2 billion fundraising for our IGCF fund came from outside the region. Over the course of our investments, we have been ranked as the leading foreign investor group in Turkey, Egypt, Pakistan and Jordan. This track record has made us a sought-after advisor to many MENASA governments, enabling us to foster a great deal of mutual respect. As a result we are often counselled by governments on their privatisation strategies or job creation initiatives.

“we have been ranked as the leading foreign investor group in Turkey, Egypt, Pakistan and Jordan. This track record has made us a sought-after advisor to many MENASA governments.”

Empowering potential

Improved transparency is just one way of building confidence in our industry. In 2007, we proactively promoted our industry – and our region’s – story around the world. Articles about us ran in the Wall Street Journal, New York Times, Business Week, Private Equity International and the Financial Times. We were asked to voice our views on CNN, CNBC, Bloomberg and the BBC. Our people were invited to every significant international conference that looked at the regional financial services industry, including the World Economic Forum, the Global Competitiveness Summit and the Arab Strategy Forum. We also delivered numerous keynote addresses at major events, positioning the firm among the thought leaders in the region.

Group Chief Executive Officer’s review Continued

“All in all, we returned over US$1 billion in cash to our investors in capital and sales proceeds.”

Abraaj’s commitment to helping people in need is a material part of the group’s culture. We contribute to our region in the form of significant charitable donations for which, on principle, we never seek acknowledgement or publicity. I have been very proud of the way our people have thrown themselves into our Community Partnership Programme (CPP), which funds programmes for the education, medical care and social development of children, as well as responding to individual appeals and natural disasters. The CPP is run by a voluntary staff committee, with a mandate shaped by our whole team. Our people come from 27 nationalities, but their commitment to the CPP spells out their strong loyalty to this region.

14 |15

abraaj Capital annual review 2007

We want to contribute to future generations, as much as to those of today. That’s why, in 2007, we committed ourselves to becoming carbon neutral – and to ensuring that all our investment companies reduce their carbon emissions – by 2010. (As well as driving our business towards sustainability we are, as you would expect, also keeping a steady investor’s eye on opportunities for sustainability funds.) A dynamic structure that pushes forward the boundaries In our mission to seek opportunity where others see risk, our success hinges on our continuing ability to manage that risk with robust processes and investment methodologies, and through an innovative approach to structuring and risk management. This year’s great results, and those of the preceding five years, are just the start of our growth trajectory. To ensure it goes on, in early 2008, we made various exciting changes to our organisation. Our main investment division, Abraaj Capital (Cayman) Limited, was renamed Abraaj Investment Management Limited. It contains three investment teams that will originate, execute and manage investments through to exit. Running teams in parallel means we will be even better at handling multiple transactions at the same time.

A separate company, Abraaj Managers Limited, has been created to work alongside the investment teams. It will identify and manage any potential challenges or issues in the companies we invest in, keeping these investments on track. The third pillar of the business is Abraaj Investor Coverage Limited. This new London-based operation will manage relationships between Abraaj and its growing global community of more than 200 investors. It will also coordinate fundraising and drive timely and effective communication with investors. We are also planning to expand our network of regional offices, taking Abraaj yet closer to the markets we invest in. We expect to add to our Karachi and Mumbai offices by opening in Jeddah, Cairo and Istanbul. In 2008, we are also preparing to launch some innovative new funds, including an ASOF III special opportunities fund; a successor real estate fund; and a new private equity fund which will target both infrastructure and buyout opportunities. As existing funds come towards the end of their natural cycles and are liquidated, these new funds will both give current investors the chance to reinvest and also allow us to welcome new investors.

Our Year

“the sale of our stakes in Arabtec, Maktoob.com, ABANAR, Septech and EFG-Hermes, represented an average exit IRR of 90%.” Private Equity

Outlook Abraaj – and the MENASA region – has been remarkably little affected by the Western economic turbulence of the last few months. This steady state is a promising precedent for the coming year when many signs point to a US recession.

Our investments

I am also confident in the prospects for the wider region. We remain one of the few parts of the world in overall capital surplus. Our regional economies are supported by high oil prices. The World Bank estimates that MENA will grow by 5.4% in 2008 and South Asia by 7.9%; both comfortably ahead of the world average.

Arif Masood Naqvi Vice Chairman & Group Chief Executive Officer

Empowering potential

That is not to say that the region will not be affected by recession. However, I believe our superior access to deal flow and our attractiveness to lending institutions, due to our track record, will mitigate its effect on Abraaj. The key will be in unearthing the right transactions, something we have always proved adept at, and in continuing to focus on diligent execution.

Moreover, we are continuing to see regional governments investing their capital surpluses wisely – and for the long term – mostly in developmental plays. At the same time we are seeing growing intra-regional investment flows. All this bodes well for the future – for our region and Abraaj. I fully expect us to continue our growth trajectory in 2008 and to further cement our leading role in regional markets.

THOUGHT LEADERSHIP

Private equity: a global force for change The influence of private equity is spreading, with investors bringing new vitality to businesses in the Middle East, North Africa and South Asia.

The future of private equity By Josh Lerner

During the 1980s, 1990s and much of the 2000s, there has been a tremendous boom in the private equity industry. In the US, the pool of private equity funds – partnerships specialising in venture capital, leveraged buyouts, mezzanine investments, build-ups, distressed debt and related investments – grew from US$5 billion in 1980 to slightly more than US$530 billion at the end of 2006. The recent growth in many other parts of the globe, including Asia and the Middle East, has been even more spectacular.

What explains this tremendous growth in these funds? What explains the process of boom and bust: the rapid increases in fundraising in the late 1960s, mid-1980s, late 1990s and mid-2000s, and the declines in the 1970s, early 1990s and early 2000s? To what extent is the model developed and refined over the past few decades likely to be translated into other countries and types of investments? To answer these questions, it is worth highlighting the fundamental role that private equity plays both in the American economy and, increasingly, elsewhere around the globe. The types of companies financed by private equity organisations – whether young start-ups hungry for capital or ailing giants that need to restructure – come with challenges and uncertainties that discourage other investors and require special skills to deliver the best returns.

18 |19

abraaj Capital annual review 2007

The role of private equity The financing of young or restructuring companies is a demanding business. Financial information on these companies is limited. Control may largely sit in the hands of one or two entrepreneurial individuals. The products and projects that excite management may not deliver the best returns for investors. All these mean that conventional forms of financing, such as bank loans, come at a high cost. If the information issues could be eliminated, these barriers to financing would disappear. Specialised intermediaries, such as private equity organisations, can and do address these challenges. By intensively scrutinising companies before providing capital and then monitoring them afterwards, they can alleviate some of the information gaps and reduce capital constraints. Thus, it is important to understand the tools that private equity investors use in this difficult environment, which enable companies to receive the financing that they cannot raise from other sources. It is the non-monetary aspects of private equity that are critical to its success. By seconding staff to work with a company, by taking seats on its corporate board and by working hand-in-hand with management, private equity investors can mitigate many of the so-called ‘agency problems’ that might thwart a more passive investor.

Take the example of a bio-technology company founder. They might choose to invest in a certain type of research that brings them great recognition in the scientific community but provides little return for the venture capitalist. Similarly, an entrepreneur may receive initial results from market trials indicating little demand for a new product, but may want to keep the company going because they receive significant private benefits from managing their own firm. By becoming intimately involved with the strategy and decision making of an organisation, the private equity investor will steer that business in a direction that has long-term benefits for both management and investors. It is easy to see why individual investors may not have the expertise to address the challenge of managing a stake in a growing or restructuring firm. But it might be assumed that other financial intermediaries, such as banks, might undertake the same sort of monitoring. Yet even in countries with exceedingly well-developed banking systems, such as Germany and Japan, policymakers today are seeking to encourage the development of a private equity industry to insure more adequate financing for entrepreneurial companies.

Our Year

PE funds raised – MENA (US$ million) Growth to continue with funds under management already exceeding US$20 billion YTD

Private equity (PE) funds raised – US and Europe (US$ million) Russell Investment Group forecast allocations to private equity to reach record levels in all markets

90%

’000’s

264 91 187 74

3,976

780

02

67 24 403

267

03

04

43

05

06

02

MENA

55 27

82 23 59

113

04

05

41% 40%

173

42%

28

03

US

06

Europe

> Significant growth in assets under management > Superior risk-adjusted returns offered by PE resulting in increased asset allocation

Total funds under management (FuM) as a % of GDP (06)

Strong emphasis on development of a superior governance model and alignment of interests

4.59%

65,568 Growth potential

49,875 1.45% 15,693 MENA

MENA PE Funds under management as of 2006

Equity alignment

“Active ownership” Effective portfolio management

Long-term horizon – no short-term pressures

Balance sheet optimisation

THOUGHT LEADERSHIP

US

PE funds under management as a % of GDP

Ability to exercise control

Strategic alignment/ intensive business planning

Best in class corporate governance/risk management

Our investments

> High oil prices and liquidity; reinvestment of funds in MENA > Increasing awareness of PE and higher allocation by regional and international institutions

6.04%

Empowering potential

CAGR 02-06

CAGR 02-06 10,267

Private Equity

Josh Lerner is the Jacob H. Schiff Professor of Investment Banking at Harvard Business School, with a joint appointment in the Finance and Entrepreneurial Management Units. His books, The Venture Capital Cycle, The Money of Invention and Venture Capital and Private Equity: A Casebook, reflect his research into the structure and role of venture capital and private equity organisations. Professor Lerner is also a member of the Advisory Board of Abraaj Capital.

The future of private equity Continued

The limitations of banks stem from several of their key institutional features. First, because regulations in the US limit banks’ ability to hold shares, they cannot freely use equity to fund projects. Taking an equity position in the firm allows the private equity firm to share proportionately in the upside, guaranteeing that the investor benefits if the company succeeds. Secondly, banks may not have the necessary skills to evaluate projects with few tangible assets and significant uncertainty. In addition, banks in competitive markets may not be able to finance higher-risk projects because they are unable to charge borrowers rates high enough to compensate for the company’s riskiness. Finally, private equity firms’ highpowered compensation schemes give these investors incentives to monitor companies more closely, because their individual compensation is closely linked to the firms’ returns. Banks, corporations and other institutions that have sponsored venture funds without such high-powered incentives have found it difficult to retain personnel once the investors have developed a performance record that enables them to raise a fund of their own. The profile of private equity has risen in recent years. As a force for economic transformation, the sector has been involved in increasingly high profile transactions. In some markets this has prompted calls for changes to the way private equity is taxed and regulated. But such siren calls are often based on fundamental misunderstandings. As The Global Economic Impact of Private Equity Report 2008 – a recent report under the aegis of the World Economic Forum –

20 |21

abraaj Capital annual review 2007

highlights, many of the frequently expressed concerns about the industry appear based on misconceptions about its role and impact. And some of the initiatives to rein in the sector seem motivated by a desire by entrenched actors to protect an inefficient status quo. The future of private equity The nature of the evolution of the venture and buyout industries over the next decade will be particularly critical because the growth in the recent past has been so spectacular and the industry’s positive effect on the overall economy has become significant. It is natural to ask whether the gains made in recent years can be sustained; how firms will respond to the current surge of international opportunities, and which approaches will work and which will fail. These are fair questions. Private equity is longest established in the US and a review of its history suggests short-run shifts in the supply of, or demand for, private equity investments can have dramatic effects. A scarcity of capital enhances investors’ returns and periods of oversupply of capital can reduce returns. These patterns have led many practitioners to conclude that the industry is inherently cyclical. This view implies that periods of rapid growth generate problems and that periods of retrenchment are sure to follow. However, capital markets are increasingly international. And this means that factors affecting one market may not be affecting others. As a result, growth in private equity markets such as the Middle East and Asia is no longer entirely dependent on what is happening elsewhere in the world. This means the tides for private equity can

ebb and flow independently in different markets, with growth in one market continuing even while others are slowing. It is also important to consider the long-run determinants of the level of private equity, which is linked to fundamental issues in a nation or region’s economy. They are likely to include the degree of dynamism in the economy, the presence of liquid and competitive markets for investors to sell their investments (whether markets for stock offerings or acquisitions), the pace of technological innovation in the economy, and the willingness of highly skilled managers and engineers to work in entrepreneurial environments. When these more fundamental factors are considered, there appears to have been substantial changes for the better in many respects over the past decade. These include the increasing willingness of boards of directors – who even a few years ago frequently viewed private equity groups as ‘barbarians’ – to consider the sale of an underperforming division, or even an entire company, to a private equity fund.

Our Year Private Equity

Finally, there is the question of the governance of private equity firms. The model of loose governance by limited partners, who rely on incentive compensation to ensure that the general partners ‘do the right thing’, may have reached its limits. Today, there is a changing, broader limited partner base that may require more assurances that its money is being managed prudently.

Much is still not yet known about the future of the private equity industry. It seems clear, however, that this financial intermediary will be an exciting and important feature on the global economic landscape in the years to come.

THOUGHT LEADERSHIP

I believe that the institutionalisation of the industry will continue to accelerate: indeed, private equity is likely to continue to go through a period of rapid globalisation. This process, though, will not be without challenges. Active investing is at the heart of industry returns, but there is no clear template for what active investing means in different industries in different places

Another set of challenges relates to the ‘scaling’ of private equity firms, which is a natural result of growth and globalisation. Some private equity houses, to be sure, have managed to grow while continuing to enhance returns for investors. But other firms are straining the limits of their organisations to invest the assets they already have. Solving the challenges of managing multiple locations, large amounts of money and scores of independent investment professionals is a top priority for the industry.

There is also a rapidly expanding base of private equity professionals who do not have the history and culture that were shared among many of the industry’s pioneers. And, as noted above, regulatory authorities, accustomed to scrutinising public firms with detailed governance structures, are increasingly interested in private equity. All of these point to an increased attention in the way in which private equity groups are governed. Those organisations which can demonstrate leadership and strong standards of governance will be better placed for the decade ahead.

Our investments

In short, the increasing familiarity with the private equity process has made the long-term prospects for such investments more attractive than ever before. At the same time, the pressure for regulatory change in the more developed markets, if enacted in large part, could impede future private equity activity.

around the world. The extent to which the US model will spread overseas and the degree to which it will – or can – be successfully adapted during this process are particularly interesting questions. In the decade to come, private equity managers will have to determine what is universal and what is local.

Empowering potential

The increasing number of professionals and managers familiar with, and accustomed to, the employment arrangements offered by private equity-backed companies (such as heavy reliance on stock options) has also been a major shift. The pool of prospective investors in private equity funds has also broadened beyond the small circle of endowments and pensions that drove much of the activity during the 1980s and 1990s. Finally, the efficiency of the private equity process has been greatly enhanced by the emergence of other intermediaries familiar with its workings. The presence of such expertise on the part of lawyers, accountants, managers and others – even real estate brokers – has substantially lowered the transaction costs associated with forming and financing new companies or restructuring existing ones. While these effects have been seen worldwide, they have been particularly strong in emerging private equity markets such as Asia and the Middle East.

The case for private equity in the MENASA region The regional tide is flowing in favour of private equity. Markets have become more open, while economies are growing strongly and the population expands. Companies and governments are ready for fresh and innovative ideas – the kind of solutions that forward-thinking private equity investors can provide. By Dr Nasser H Saidi

Capital is the ultimate world traveller. It crosses borders with ease, finding its way to the markets and sectors where the potential for profit is greatest. The discerning private equity investor has the entire globe to choose from. And the discerning investor is increasingly being drawn to one region – MENASA.

Despite the international reach of the industry, international private equity firms have until recently focused mainly on Western Europe and North America for deal flow and the most attractive portfolio returns. However, as those markets reach saturation point, the push into emerging markets has widened and hastened. During the same period, MENASA has been forging a fresh identity for itself as a forward-looking powerhouse with a growth rate that is the envy of Western nations. It has begun to successfully shake off its reputation for having a relatively opaque business community, having diversified economies away from an overwhelming dependence on oil and gas and developed a great appreciation for the benefits of public-private partnership in approaching the tremendous infrastructure development required to cater to vastly growing populations.

22 |23

abraaj Capital annual review 2007

Real GDP growth in most MENASA countries is above 5%, putting them among the fastest growing economies in the world, according to the Economist Intelligence Unit. Regional growth has averaged 5.5% over the past ten years; much faster than the rest of the world, which averaged just 3.1%. As the region has changed, so has its private equity market. This is thanks in large part to the pioneering activities of Abraaj Capital, which has delivered exceptional returns to its investors in the six years since its launch. Private equity deals are increasing, both in number and in scale. According to the Gulf Venture Capital Association, the private equity sector in the region doubled in 2006 to almost US$18 billion. Abraaj Capital, which paved the way with groundbreaking deals, such as its US$65 million takeover of logistics company Aramex in 2001, has been joined by other operators, all eager to get a slice of this action. No fewer than 15 new players entered the market between 2006 and 2007. The speed of growth is breathtaking. Private equity funds raised across the Middle East and North Africa have increased at more than double the rate of the US and Europe; between 2002 and 2006 PE funds active in the region increased at a compound annual rate of 90%, compared with 41% for the US and Europe. Regional deal flow has enjoyed even greater growth, at 2.6 times that seen in the US and Europe.

If anything, the pace of growth has increased in 2007; Abraaj alone raised an additional US$1.5 billion for its US$2 billion Infrastructure and Growth Capital Fund, the biggest private equity fund yet to focus on the region. Private equity transactions in the first 10 months of the year totalled US$2.3 billion – already 80% higher than in 2006. Cumulative private equity fund raising is now approaching US$25 billion. Even more impressive is the potential for future growth. While it is developing rapidly, the MENASA private equity market is still young by the standards of the US and Europe. The cumulative value of private equity investments from 2002 to 2006 accounted for just 0.06% of regional GDP. By comparison, in the US the figure was 1.34%. Put another way, private equity in MENASA can grow in volume more than 20-fold before it reaches the same economic level as in established markets.

Our Year Private Equity

Dr Nasser H Saidi is Chief Economist of the Dubai International Financial Centre Authority and Executive Director of the Hawkamah Institute for Corporate Governance. He is a former Lebanese Minister of Economy and Trade and Minister of Industry and, for 10 years, was First Vice-Governor of the Central Bank of Lebanon. He is co-chair, with the OECD, of the MENA Corporate Governance Working Group and established the Lebanon Corporate Governance Task Force. He is a former Member of the UN Committee for Development Policy.

Favourable macroeconomic environment and long-term growth initiatives undertaken by regional governments have been primary drivers of the PE industry

Corporate

40.0% 12.6%

US GCC

Growth in IPO listings (%) (02-06)

Market cap CAGR (%) (02-06) 46.7%

41.0% 25.0%

14.4%

US GCC

US GCC

US GCC

US GCC

Regional initiatives Population growth (%) (02-06)

7.8% 3.2%

46.9% 14.0%

Economic demographic Real GDP growth (%) (02-06)

Average daily trading volume CAGR (%) (02-06)

Empowering potential

Corporate earnings growth (%) (02-06)

3.5% 1.0%

Budget balance (US$ billions) (02-06) US

US GCC

308

GCC

Our investments

(1,511)

Reform oriented government initiatives > Need to create 80 million jobs > Reinvestment of oil wealth and long-term economic diversification > Creation of world class ‘off-shore’ special economic zones > Changes to ‘on-shore’ company and property laws

THOUGHT LEADERSHIP

The case for private equity in the MENASA region Continued

The expansion has been supported by a number of important developments. Since 2002, MENASA’s regional equity markets have added significant depth and liquidity, creating sustainable exit opportunities for private equity players. There is a nascent equity culture among retail investors, building a following for IPOs. There were 35 significant IPOs in the region in the first half of 2007. There is also a rising awareness of private equity as an asset class and a higher allocation by local and international institutions to private equity in the region. Crucially, the appetite for deals is obvious: private equity investors are increasingly being welcomed with open arms. The region has a dynamic entrepreneurial culture and a history of family businesses. Many of these are already strong companies; average corporate earnings in the GCC grew by 40% between 2002 and 2006, comfortably outpacing earnings growth in the US over the same period.

24 | 25

abraaj Capital annual review 2007

But there is a growing understanding among company management in these markets that an active partner, in the form of an experienced private equity investor, can give them a fresh perspective. Taking a stake in a company is often as much about injecting human capital in the form of knowledge and experience, as it is about improving its financial strength.

Its origins can be traced back to the oil price crash of the 1990s, when the oil price dipped below US$20 per barrel. This delivered a jolt to the oil-producing nations and forced them to recognise the need to focus on reducing their almost complete dependence on oil and to pursue the long-term diversification of their activities instead.

Even where organisations are already well managed and well structured, private equity in MENASA can often rapidly add value to a company. It may introduce new techniques of financing, risk management, corporate governance and internal accounting that, though established in Europe or the US, are still innovative in the local market. Regional specialists such as Abraaj will also bring an unparalleled network of local and international connections that can help a company grow beyond the expectations of its founders.

Governments have sought to reinvent themselves with new leaders who have been young, articulate and outward looking – and focused on reducing tariffs and barriers to trade. Many have been drawn from the boardrooms of large global corporations: more than a dozen leading executives and members of the Arab Business Council have been given ministerial jobs in governments across the region since 2003.

Demand for private equity is coming from local families keen to expand their businesses, from expatriate entrepreneurs looking for an exit and from local governments seeking to privatise stateowned assets. Latest calculations by Abraaj show the potential for a fourfold increase in private equity funds under management within the next five years. The rise in private equity is inextricably linked with the broader economic transformation that has taken place across the MENASA nations over the past few years.

The 9/11 terrorist attacks on New York gave added urgency to these reforms; investors based in MENASA opted to invest at home, rather than trust their money to the volatile and vulnerable US and European markets. This ‘reverse flow’ of capital is worth many billions of dollars, according to the World Economic Forum’s Arab Competitiveness Report.

Our Year Private Equity

PE transactions – MENA (US$ million) With US$2.3 billion of transactions announced in the first 3 qtrs of 2007, deals have already exceeded 2006 levels by 80%

1,277

CAGR 02-06

’000’s 538 224

111%

254 65

02

120 87

209

178 84

41

03

04

05

06

02

MENA

94

03

US

241 104

43% 27%

363 163

693

314 66%

199

137

04

05

06

Europe

> Larger funds consummating bigger transactions > PE deals accounted for over 25% of global M&A volume in 2006, up from 5% in 1999 > Growing trend of public deals; increasing trend of secondary buyouts as well

GCC spending multiplier Governments spent 30% of additional oil revenues and expected to increase spending in the future

Planned infrastructure spend by state owned entities (US$ billion) Planned non-oil infrastructure spend of over US$358 billion

Our investments

> Increasing deal flow due to change in mindset of private companies > Meaningful increase in average deal size > Privatisations and favourable changes in regulatory framework

153.6

1.4

0.3

0.4

62.9

58.5

19.0

Bahrain Oman Kuwait UAE

73-78 79-84

00-05

04-09E

Oil and gas

Others

27.9 13.5

Qatar

KSA

THOUGHT LEADERSHIP

13.0

113.8

30.6

49.9 17.4 14.1

127.3

134.6

-1.7

15.3 15.0

Empowering potential

CAGR 02-06

PE transactions – US and Europe (US$ million) In the first half of 2007 US$248 billion of deals were completed in the US

The case for private equity in the MENASA region Continued

Today, countries such as Egypt, Jordan, Morocco and Libya are vigorously competing to win foreign investment – a stark contrast to their old protectionist practices. And capital is flowing between nations in the region, moving from those with the greatest wealth to those with the biggest populations as investors from Kuwait, Saudi Arabia or Qatar take stakes in promising ventures in India or North Africa. In Egypt and Morocco, for example, foreign direct investment in 2006 was more than 10 times the level five years earlier, according to the International Finance Corporation, an arm of the World Bank, as the countries lowered investment barriers and sold off government-controlled companies. The creation of ‘offshore’ special economic zones, with world-class regulatory and governance systems, and changes to onshore company and property laws, are further fuelling the economic boom. Again, private equity is at the vanguard of these deals, helping businesses form new regional and international alliances. Three of the biggest transactions Abraaj has participated in during 2006 and 2007 involved investments into Egypt, for example.

Large foreign exchange reserves, budget surpluses, low inflation and high liquidity, are all playing a part in promoting a ‘virtuous circle’ of economic stability and growth. Throughout the region, a burgeoning middle class, with higher incomes at its disposal, is demanding better amenities, products and services. Moreover, governments in the MENASA region have realised that they have to invest heavily in their local infrastructure if they are to stay ahead of international competitors, and nurture favourable economic conditions. In the Middle East, half the total population of 300 million is below the age of 20. Coupled with rapid rates of population growth, this means the MENASA region as a whole will need to create between 80 million and 100 million new jobs by the year 2020. Abraaj is playing its part in job creation. Its high growth-oriented investment strategy has resulted in its portfolio companies experiencing substantial growth, often exceeding 2-3x during the investment period. This growth has accordingly delivered significant job, wealth and skill creation within all of the portfolio companies that Abraaj has invested in. Post-acquisition analysis by Abraaj shows that through streamlined efficiency and business growth, it has created new jobs consistently in all portfolio companies, often to the extent of a 20% increase in employment. Transport, manufacturing, communications, healthcare and education all need to develop and improve if countries are to deal successfully with these pressures. For the first time, regional governments are confronting the issue head-on and systematically using surpluses from higher oil prices to build up their infrastructure.

26 | 27

abraaj Capital annual review 2007

Over the past five years alone, governments of the Gulf Co-operation Council (GCC) – comprising Saudi Arabia, Kuwait, Bahrain, Oman, Qatar and the United Arab Emirates – have built up significant budget surpluses. Rather than being invested outside the region, vast sums are now being ploughed into developing hard infrastructure: the airports, power stations and telephone networks that will support expansion. But capital is also being invested into so-called soft infrastructure: the hospitals, clinics and schools that support the aspirations of a growing population. In the process, this investment is creating jobs, generating profits and giving a massive boost to the region’s economies. Already, state-owned bodies in the GCC are committed to more than US$350 billion of infrastructure projects. Today the MENASA region is the largest source of infrastructure-related project finance in the world, accounting for US$33 billion in 2006. Abraaj expects investment requirements to exceed US$1 trillion over the next 10 years, which cannot be covered by government funding alone. Again, this opens the door for a significant involvement from private equity. In 2007 Abraaj has structured investments in the healthcare, education and aviation sectors, capitalising on expansion in both hard and soft infrastructure sectors.

Our Year Private Equity

The region’s stock and debt markets have been expanding. This is partly because of innovations in Islamic finance, which have found favour with many Muslims looking for financial products that meet religious restrictions on charging interest.

But while oil will remain a key driver of economic growth, each month that goes by sees MENASA developing a more diversified economy capable of sustaining longer-term expansion even in a period of lower commodity prices.

THOUGHT LEADERSHIP

Privatisations are another transforming trend. Governments across the region are seeing the attraction of private sector partnerships, not least as a way to accelerate growth. In the first half of 2007, privatisation deals worth US$11 billion were completed. I estimate that overall US$300 billion to US$400 billion of assets in the region will be moved into private hands in the coming years.

Moreover, there are good reasons to remain bullish about the region’s future prospects too. Real GDP growth is expected to average more than 5% a year in the Middle East and North Africa between now and 2010. Oil and gas prices remain high, bolstering national reserves. And even as extra capacity comes on stream, growing global demand is expected to maintain prices well above their historic long-term average, keeping GCC budgets in surplus for the foreseeable future.

Our investments

New financial exchanges, such as the Dubai International Financial Exchange which opened in 2005, have created fresh platforms for companies to raise capital. Listings such as the US$5 billion IPO of ports business DP World in November 2007 show that these exchanges are now the choice of worldclass businesses, while investors enjoy regulatory standards and transparency on a par with London or New York.

“Today the MENASA region is the largest source of infrastructurerelated project finance in the world, accounting for US$33 billion in 2006.”

Empowering potential

Against this positive economic backdrop, merger and acquisition activity has blossomed. The value of deals has increased exponentially, growing at a compound annual rate of 80% between 2002 and 2005, to reach US$64 billion. The growing confidence in M&A transactions is broadening the choice of exit routes for private equity investors.

Empowering potential A combination of an exceptionally skilled and experienced team, rigorous processes and unparalleled regional knowledge is the root of our success.

Our unique route to unlocking value A clear and structured investment process, from initial contact to final exit, delivers superior returns for our investors.

Abraaj has a track record of delivering risk-adjusted returns well above industry benchmarks to investors. With an average IRR on 20+ exits of over 50% compared to a US top quartile performance of 25% IRR over a comparative period, the figures speak for themselves.

30 | 31

The key to our consistently superior performance is the focused and structured way we approach our business: from the way we source deals and manage investments to the way we secure lucrative exits.

We source deals through an extensive network of influential regional contacts, backed up by a proactive investment team. Our regional knowledge and insight means we are regularly the first to identify a company’s potential, and so can often pre-empt auctions. Our history of returning value to shareholders means we are trusted by the region’s established pension funds, family offices and financial institutions.

Capitalising on regional insight

Investing in high potential companies

> We have strong roots in MENASA, with influential shareholders and extensive local contacts. > We source deals through our in-house professional sourcing capacity. As a result the vast majority of our deals are purely proprietary. > We have established the strongest investor base in the region, ranging from leading family groups to large institutional investors. Our investors include pension funds, family offices, university endowments, insurance companies and financial institutions. > We have been selected to represent our region in global organisations such as the World Economic Forum’s Global Private Equity Task Force and we serve on the Advisory Board of the Emerging Markets Private Equity Association in Washington DC.

> Our strong, long-term relationships mean many companies trust us to take their business to the next level. > We seek to pre-empt an auction process wherever possible. > Investment opportunities are actively identified, often in advance of other potential buyers, across a wide range of sectors, from mining and healthcare to transport and pharmaceuticals. > Attractive candidates for investment are filtered through rigorous investment criteria intended to reduce many of the risks typically associated with leveraged investing. > We only invest in strong, stable, mature and profitable companies where our skills and expertise will create value for the company and our investors. > We maximise value through the optimum use of leverage, strategic and operational support, and by aligning management interests with those of shareholders. > We never invest without a clear and structured plan to create value.

abraaj Capital annual review 2007

Our Year

“We actively contribute to the growth, development and strategic direction of companies.” Private Equity

We buy and build within our portfolio, creating value over a typical three to five year investment period. We use Abraaj’s financial standing and skills to achieve the best financial structure; introduce best practice in corporate governance, reporting and internal processes; and work with, and incentivise, management to help them grow and develop their companies.

Such proactive value creation, along with a disciplined, evolving exit strategy, means we deliver superior returns to our investors, time after time.

> We seek and develop exceptional management teams in acquisition targets. > We grow our businesses organically and through acquisitions. > We develop partnerships over a three to five year period to create value. > We introduce best practices in corporate governance, reporting, internal processes and procedures. > We incentivise management with such means as stock option plans linked to targets.

> We have achieved a gross capital gain of 128% on exited regional investments and an average IRR on 20+ exits of over 50% compared to a US top quartile performance of 25% IRR over a comparative period. > We actively contribute to the growth, development and strategic direction of companies. > We hold comprehensive monthly portfolio reviews. > We produce detailed quarterly portfolio reports. > We compile quarterly performance reports on each fund which are distributed to LPs. > We collate all feedback from monthly and quarterly reports in extensive annual performance reviews.

THOUGHT LEADERSHIP

Delivering superior returns Our investments

Partnering with strong management teams to foster growth

Empowering potential

From the moment we identify a company, we never forget that profitable exit is the ultimate goal. We carry out extensive due diligence on potential investments, identifying a clear strategy for unlocking value and aligning management behind the plan. We make optimum use of debt, balancing the risk by investing in stable, market-leading companies with strong management.

Capitalising on regional insight

Abraaj has strong roots in MENASA, with wide regional contacts, involvement in influential local bodies, a highly respected track record and a 25% Arab staff base.

Our local network, including our shareholders and Limited Partners, includes many of the most important and influential people in the region. Large institutional investors from outside the region joined us in 2007, drawn by our pedigree and the increasing interest in exposure to our region. Our strong reputation has been earned and reinforced by many landmark private equity transactions. In 2007, for example, these included the largest private equityled leveraged buyout in the history of the Middle East and North Africa, with our acquisition of the Egyptian Fertilizers Company and with our exit from Maktoob, the Arab world’s leading internet portal, which generated an IRR greater than 75%. The breadth of our local knowledge and contacts means that, when it comes to sourcing deals, we are not limited to publicly available opportunities. Our Limited Partners are our eyes and ears in their own countries, as well as being our ambassadors. They can provide us with regional insights, access to governments and ways into propitious deals.

32 | 33

abraaj Capital annual review 2007

“Our 100% acquisition of egyptian fertilizers company was the largest private equity-led leveraged buyout in the history of the Middle East and North Africa.”

Our constant awareness of the key trends in our region gives us the edge in identifying opportunities, as with our 2007 investment in education. Here, we saw various factors combining to create a greatly increased need for quality education – and so a great opportunity for quality education providers. There is an acknowledged need to improve regional education to compete globally. Public sector provision is under increasing pressure, as high population growth increases MENASA school admissions by 10% each year. Against such clear need, there is growing awareness that publicprivate collaboration is required, as seen by the Abu Dhabi Education Council’s 2006 initiative to enable private management of selected public schools. Having identified the opportunities for development within the education sector, our existing relationship with the market leader enabled us to efficiently explore a potential investment. In 2007, we invested US$124 million for a 25% stake in Global Education Management Systems Education (GEMS), a growing network of 35 schools in five countries. Our investment will allow aggressive expansion to 350 schools in the next decade, and help standardise primary and secondary education in the region. Our focus on healthcare followed a similar trajectory. We identified five key drivers that were putting pressure on public services: population growth, income growth, increases in chronic lifestyle diseases, medical innovation and technical progress, and increasing growth in medical insurance. Seeing the great potential for private health providers (IGCF) took a stake in Acibadem Healthcare in August 2007. This leading Turkish private healthcare provider is rated fourth out of the top 10 global companies in its sector outside the US.

Turkey, in itself, has particularly strong healthcare potential for several key reasons: >A  new law provides health insurance cover for the entire 70 million population. The law, which enables private health care, should create additional market demand of US$8.5 billion > It is a growing medical tourist destination, with 2005 GCC medical tourism alone at around US$2 billion > The country has both an increasing population and a growing GDP. Such points make Turkey – and Acibadem – a highly attractive choice for regional development. In turn, Acibadem felt that Abraaj – among the many PE firms who were interested in the business – was the ideal partner to help them accomplish their growth ambitions, due to its regional and sector understanding.

Our Year Private Equity

2007 Acquisition A vision to grow a high-quality pharmacy business across the region Country

Saudi Arabia

Sector

Healthcare

Acquisition date

December 2007

Stake

40%

Transaction size

US$177 million

Recognising that an expanding MENASA private healthcare market must go hand in hand with an escalating demand for pharmaceutical products, we structured an investment in a 40% stake in Saudi Arabia’s leading distributor and retailer of pharmaceutical products, Tadawi. This family-owned business offers spectacular opportunities for growth across the GCC. The opportunities in Saudi Arabia alone are enormous: the country accounts for 65% of the region’s drug expenditure, the government is committed to spending

over US$1.86 billion in the next five years on new healthcare facilities and Tawadi already has the largest wholesaler and retail network in the kingdom. Abraaj was chosen, above three other contenders, as Tadawi felt that Abraaj had the best pan-regional network to grow the business regionally. Our success in helping our investors win this unique growth opportunity speaks volumes about our strength and standing.

Empowering potential

Tadawi

Our investments THOUGHT LEADERSHIP

Investing in high potential companies

Abraaj is only interested in the very best. We invest in the strongest and most profitable companies, operating in growing and lucrative sectors. Potential investments go through a rigorous filtering process, to ensure they are stable, mature, profitable and well managed. We carry out intensive financial, legal and operational reviews, looking at everything from management information systems to product strategy and we do so within unprecedented timeframes. Our value creation starts with an initial 100-day plan to communicate our proposals and galvanise the workforce. The following years are shaped by a strategic expansion plan: we never invest without knowing how we will leverage the company, and how we will exit. This strategic plan is adjusted and evolved throughout the life of the investment, as required. Uniquely, we look to buy-andbuild, not asset strip. We aim to develop exceptional management teams, aligning shareholder and management interests. In 2007, we demonstrated our ability to identify, and invest in, outstanding businesses with several striking acquisitions. One of which was Air Arabia, the leading low cost carrier (LCC), in which we took strategic co-founder shares. The Sharjahbased airline carries two and a half times as many passengers as its closest rival, and has a highly efficient business model. Air Arabia’s potential for growth is enormous.

34 | 35

abraaj Capital annual review 2007

Due to factors such as economic growth, high demand and the liberalisation of the airline sector, intra-regional air passenger traffic is forecast to grow annually by 7% until 2010. LCC traffic – which is currently less than 5% of regional traffic – is expected to significantly outpace this industry average. This increase would reflect global patterns: in Europe, for example, LCC traffic has increased annually by 40% since 1999. All of our new investments have one thing in common. They are leading their sector – and their sectors are booming. Tapping into our expertise and ability to leverage gives them the capacity to move ahead even more strongly, while the extra capital maximises the value of the company. As well as benefiting our business and our investors, such activity benefits the region too, in terms of sustainable economic development. We are, of course, always in active discussions about further investments – a shipyard in South East Asia, three dairy companies in Pakistan and a leading waste management company in India are just some of the deals in our pipeline. However, in these, as in all our deals, we will only ever commit our investors’ money if we are absolutely sure the potential – and pedigree – is unbeatable.

“Our investments have one thing in common. They are leading their sector – and their sectors are booming.”

Our Year Private Equity

2007 Acquisition Reinvigorating a profitable fertiliser manufacturer and driving the company on to global leadership Country

Egypt

Sector

Urea production

Acquisition date

June 2007

Stake

100%

Transaction size

US$1.46 billion

Egyptian Fertilizers Company is the largest private sector fertiliser manufacturer and exporter in Egypt, with two state-of-the-art production lines and strong relationships with leading global fertiliser traders. Its products are in high demand. Egypt is one of only two urea-manufacturing countries in Africa, where demand is set to increase significantly; EFC has the lowest cost of production and greatest scope for distribution among urea-producing countries.

EFC had all the hallmarks of high potential: robust global demand, a clear business strategy and strong management. The same team that worked on the acquisition is now developing the business. We have brought efficiency up to 110%, commissioned a project to add extra production capacity, and laid expansion plans that include factories in Nigeria and Algeria.

Empowering potential

EFC

Our investments THOUGHT LEADERSHIP

Partnering with strong management teams to foster growth

We unlock value through partnership. We look to buy-andbuild, taking the business to the next level before delivering the rewards to our investors. That is why we look for strong, profitable companies with good people. Since most of our deals are proprietary, senior management will be working with us from start to finish. Our aim is to develop the team, grow the business organically and introduce best practice and, by doing so, take the company to new heights.

We have endless examples of the success of this partnership approach: >W  e have worked with JorAMCo, the Jordanian aircraft maintenance, repair and overhaul (MRO) business, to develop and strengthen the business. According to the strategic plan it opened a new maintenance hangar in 2007, doubling capacity. Together with an expanded workforce and operational savings, this gave JorAMCo the edge to secure longterm repair contracts with expanding European airlines who transferred their business to the Middle East. The company is now greatly exceeding its revenue and net income targets and was named 2007 MRO Company of the Year at the ITP Aviation Business Awards.

> In 2007 we helped create a new management committee at ART Marine. During the year, the business was named Best Azimut Yachts Dealer for the second year in a row and launched an innovative fractional yacht ownership programme. >O  ur support for MS Forgings, the leading Pakistan steel forging house, has had impact across the company. A roadmap for the next two years has been agreed by the board; a CEO designate to ensure succession, a CFO and a head of forging have been appointed; and we have worked with management on business development, customer selection and the mitigation of energy and raw materials shortages. By developing our investee companies in this way, all parties – Abraaj, the companies themselves and our investors – benefit.

How we track companies’ progress feedback

Portfolio Reviews monthly > Monthly reviews of individual portfolio companies with an emphasis on management accounts > Analysis of individual investment risk and performance ratings, analysis of appropriate industry, sector, geographic and other pertinent concentrations > Assessment of all factors relative to post-acquisition strategies and plans.

36 | 37

abraaj Capital annual review 2007

Portfolio Reports Quarterly > Portfolio reports containing cost basis, carrying values, estimated fair values and valuation discounts of all individual investments > Documentation of any departures from or variations to post-investment plans > Review of reports by senior management.

Portfolio Performance Quarterly > Performance reports on the Fund > Clear statement of management fees, profit share and carried interest > Clear statement of related party transactions, benefits and fees > Complete reports ready for distribution to LPs > Consider exit options and strategies for each investment.

Strategic Review Annually > Collation of all feedback for an extensive annual performance review > The review includes financial and management performance of portfolio companies and forecasts and other key performance metrics > Revisit and assess exit strategies for each investment, and modify them if necessary.

Our Year Private Equity

2007 Acquisition Inspiring an excellent oil and gas service business to fulfil its potential Country

UAE

Sector

Oil and gas

Acquisition date

May 2007

Stake

100%

Transaction size

US$69 million

When we bought Gulf Marine Maintenance & Offshore Company (GMMOS) in May, CEO and industry veteran Ellias Nassif had already built up a world-class business in oil and gas, marine and fabrication services. We worked with Ellias and his team to help make GMMOS even better. We focused on growing capacity in all divisions – adding 400 more employees to the existing workforce of 1,200; securing an 80,000 sq m shipyard and workshop in one of the largest ports in the UAE; and acquiring additional vessels and cranes.

We helped create the optimum management environment; developing a group manpower plan that will strengthen second tier management to focus on dayto-day operations, while freeing senior management for strategic development. The results have been immediate. In 2007, all parts of the business were growing, with sales up almost 40%.

Empowering potential

GMMOS group

Our investments THOUGHT LEADERSHIP

Delivering superior returns

50

>

Average IRR across 20+ exits compared to a US top quartile performance of 25% IRR over a comparative period.

Superior returns are at the heart of what we do. With a gross capital gain of 128% on exited regional investments and an average IRR on 20+ exits of over 50%, we believe our track record is second to none. Such returns are not just about the way we exit, or the way we secure a deal. They are the result of the strength of our entire investment process – from identifying unique opportunities and systematic due diligence to partnering with managers to our rigorous exit strategies. The robust and systematic way that we monitor the progress and development of our investment companies against our post-acquisition strategies is intrinsic to our success. Monthly portfolio reviews are a key part of the process. At these, we study management accounts, analyse key areas, such as individual investment risk and performance ratings, and review post acquisition strategies and plans. Quarterly portfolio reports are produced which summarise the status of individual investments. As part of this process, senior management reports are assessed and action plans developed, if required.

38 | 39

abraaj Capital annual review 2007

We also compile quarterly performance reports on each fund for our Limited Partners. These summarise their overall position, identify key events in each investment’s development and flag up pipeline opportunities. Extensive annual performance reviews, which collate all feedback from monthly and quarterly reports, are another key milestone. At the reviews, exit strategies for each investment are formally reassessed and, if circumstances have evolved, modified. The past year’s exits have again demonstrated the strength of this rigorous approach as, following our stewardship, investments have secured exceptional returns. Exits have included: >A  rabtec, the UAE-based construction contracting company, which after three years generated an IRR of 116%, returning 12x invested capital >A  mwal, the leading investment banking firm in Qatar, which provided an IRR of 101% and 6.8x gain on invested capital > Maktoob, the leading Arab internet company, which generated an IRR of more than 75% > Septech, a waste water treatment company, was exited after three years, generating a 39% IRR.

Such success creates a virtuous circle for Abraaj and its investors. Because we deliver, they trust us with their investments and their companies. This, in turn, enables us to keep delivering. Abraaj’s strategy is built on a systematic approach; strong regional relationships, knowledge and expertise; innovation; and a proven track record. Our success in 2007, in delivering risk-adjusted returns that outstripped the norms, showed how well this strategy works. As we continue to grow our business across MENASA, we are confident that our strategy will continue to deliver, for the prosperity of our investors, ourselves and our region.

Our Year Private Equity

2007 Exit Growing a good idea into the region’s leading internet portal and a profitable investment Country

Jordan

Sector

Internet services

Acquisition date

January 2005

Stake

34%

Transaction size

US$5.2 million

Back in 1998 two young men decided to set up an internet portal for the Arabic-speaking world. Maktoob became such a success it spawned further businesses, scooped major awards – and generated an internal rate of return in excess of 75% for Abraaj investors. We exited from Maktoob in December 2007, selling out to a hedge fund that was already a 30% shareholder.

Under our care, Maktoob developed to become the 102nd most visited site on the internet; it grew to include the first Arabic-language search engine, araby.com, an interactive TV joint venture, and the largest Arabic matrimonial website. We helped find a chief financial officer, open a Cairo office and enhance its product development team. Higher advertising and auction revenues also meant better-thanexpected revenues for Maktoob.

Empowering potential

Maktoob

Our investments THOUGHT LEADERSHIP

Our investments Abraaj’s five funds leverage the huge potential of the MENASA region, driving investments across a vast geographical footprint from Morocco to India.

EFG-Hermes 2007 Exit Abraaj Capital Holdings Limited Country

Egypt

Sector

Financial services

Acquisition date September 2006 Stake

25%

Transaction size US$505 million

42 | 43

abraaj Capital annual review 2007

EFG-Hermes was established in 1984 and is the Arab world’s premier investment banking firm and the market leader in securities, brokerage, asset management, investment banking and private equity. In September 2006, its shareholders approved the subscription of 25% of its holding stock by Abraaj with the resolution receiving a 99.9% endorsement. Over 18 months, Abraaj provided strategic guidance and financial support, fortifying the company during a transformative period as it sought to further consolidate its leading regional position.

Abraaj helped see EFG-Hermes through a key period of expansion and helped the bank identify new markets. In November 2007, Dubai Financial Group (DFG), the financial holding company of Dubai Group (a member of Dubai Holding) agreed a transaction for DFG to acquire 100% of Abraaj Egypt Limited and Abraaj SPV 26 Limited (which collectively own a 24.62% stake in Cairo-based EFG-Hermes) from Abraaj Capital for a total consideration of approximately US$1.1 billion, representing an IRR of 93% for Abraaj Capital Holdings.

Our Year

Abraaj funds year in review All our funds had a stellar financial year and without exception ended 2007 substantially up on their individual net asset values compared to its start.

Private Equity

Abraaj’s range of five funds provides investors with access to a diverse range of dynamic companies, operating in more than 14 nations. The funds genuinely span MENASA, from airlines in Saudi Arabia to petrochemicals in Egypt; from hospitals in Turkey to manufacturing and infrastructure companies in Pakistan and India. Investments vary from heavy industries, such as shipbuilding, to service sectors, such as investment banking and education.

The performance during 2007 demonstrates our ability to deliver returns through execution of our strategy and attention to detail. The year saw six significant acquisitions completed, or agreed to, by the funds. Several of these investments are already showing substantial gains. Alongside the important fundraising and investment activities during the year, we also realised highly profitable exits, the sale of our stake in EFGHermes alone doubling investors’ capital in less than 18 months.

Our investments

We only invest in companies that meet our strict criteria – which we assess through rigorous due diligence and exhaustive screening processes. But that is only the beginning. A huge portion of the returns generated for investors comes from Abraaj’s ability to help a company’s management realise the full potential of their business.

“The performance during 2007 demonstrates our ability to deliver returns through execution of our strategy and attention to detail.”

empowering potential

2007 consolidated our track record in terms of strong investment performance and growth in asset values across our established funds and the year ended with the successful completion of a US$2 billion fundraising campaign for IGCF, the largest private equity fund focused on the MENASA region – 40% of which has already been deployed.

THOUGHT LEADERSHIP

Abraaj funds year in review Continued

five funds covering the traditional Private equity spectrum buyouts

Growth capital > Equity to fund growth in established businesses via organic growth or acquisition > Often in the form of a minority stake acquisition

Buyouts > Acquisition of a majority stake with significant involvement from the private equity firm > Includes LBOs, MBOs, etc

Pre-IPO > Target to go public within 6-18 months of PE investment > Participation in the founder shareholder block

Abraaj Buyout Fund LP

Abraaj Special Opportunities Fund III Limited

Abraaj Funds

Infrastructure and Growth Capital Fund LP

Abraaj Buyout Fund II LP

Infrastructure

Hard infrastructure > Private equity participation in the construction of hard assets such as power plants, water and roads > Leveraged nature of these projects is ideal for private equity

Soft infrastructure > Infrastructure investments such as education and healthcare

Real estate > Investments into real estate developments, construction firms and related companies

Infrastructure and Growth Capital Fund LP

Abraaj Real Estate Fund LP

Abraaj Funds

Infrastructure and Growth Capital Fund LP

Abraaj Buyout Fund II LP

44 | 45

abraaj Capital annual review 2007

Private Equity

Closed in June 2003 with commitments of US$116 million. Fully invested by end-2004. Target IRR of 30%. To date ABOF has exited five investments at an average of over four times the multiple of cost and an IRR of 70%.

BMA Capital Financial services, Pakistan Spinneys Holdings Retail, regional JorAMCo Aircraft maintenance repair and overhaul, Jordan

Exits during 2007

Exits during 2006 Amwal Capital Financial services, Qatar. IRR of 101% and 6.8 times gain on invested capital

Exits during 2005

Exits during 2004 ONIC Insurance and financial services, Oman. Gross IRR of 84% and 1.7 times gain on invested capital

The sale of leading Arabic internet portal Maktoob shows the positive role of Abraaj Capital’s involvement in the business. In less than three years Maktoob significantly grew its product areas, revenue and profits, with Abraaj helping to identify the best opportunities, such as online auctions. Similarly, Abraaj has guided supermarket chain Spinneys to discover new markets, opening in Egypt and planning expansion across the region. Abraaj led restructuring at waste water treatment company Septech to focus the business on five key areas, partnering with global

technology leaders to help the company gain significant penetration in regional markets. This paved the way for a successful sale back to management in September. JorAMCo continues to progress well along the development track agreed with Abraaj. It opened a new maintenance hangar in 2007, doubling capacity. Together with an expanded workforce and operational savings, this gave JorAMCo the edge to secure long-term repair contracts with expanding European airlines. Abraaj expects to have divested from the fund’s remaining portfolio by 2008, making it a six-year cycle of completion at very profitable terms to all investors, well in excess of the best performing funds globally.

> Two further profitable exits in 2007 > Three ongoing holdings all report growing income and revenues > Supermarket chain, Spinneys, successfully concludes a US$180 million financing package to support future growth > Fund well positioned for further profitable exits during 2008

THOUGHT LEADERSHIP

Aramex Logistics, international. IRR of 68% producing a 5.7 times gain on invested capital

An excellent year saw a further two profitable exits, boosting overall returns on the fund. Investors, who had already seen the return of all their original capital from three prior transactions, have now seen five exits successfully concluded.

Our investments

Septech Holdings Limited Waste and waste water management, UAE. IRR of 39% over a three-year holding period Maktoob.com Online regional portal, IRR of over 75% over 35-month holding period

Fund year in review

empowering potential

Ongoing investments at start of 2008

Our Year

Abraaj Buyout Fund LP (ABOF)

Abraaj Buyout Fund LP (ABOF) Continuing investment BMA Capital Management Ltd

Country

Pakistan

Sector

Financial services

Investment date May 2004 Transaction size US$7.3 million Stake

50%

www.bmacapital.com

Acquisition structure A rights issue for 3.3 million BMA shares, 100% financed by equity. Profile BMA Capital Management Ltd (BMA) is one of the leading firms in Pakistan’s securities market and has been a corporate member of the Karachi Stock Exchange (KSE) since 1992. The firm provides a wide range of services with particular focus on capital markets and is one of the leading brokers in the equity, fixed income and inter-bank foreign exchange markets. Investment rationale BMA is well established in its field with a solid track record and a strong management team. It works with leading institutions including banks, domestic and international fund managers and public and private sector corporations. With the exception of its first year, the company has been profitable in each year of its operations. BMA provides an opportunity in an attractive industry in Pakistan with substantial growth potential. Post-acquisition strategy A focus on aggressively expanding its core business activities, by adding new revenue lines in retail brokerage, asset management and private equity investment, to diversify the overall revenue stream and develop into an integrated investment bank.

46 | 47

abraaj Capital annual review 2007

Highlights of the year BMA Capital enjoyed a dynamic year of achievement and growth, cementing its position as Pakistan’s top securities and investment banking firm. It was a year of record income as BMA doubled the market share of its institutional equity business and was the joint leader of Pakistan’s largest international equity listing for a decade. Eight retail broking offices opened, growing revenues by 570%. The corporate finance division achieved international prominence. A particular highlight was the US$813 million listing on the London Stock Exchange of Pakistan’s top energy firm, Oil and Gas Development Company Limited, jointly lead managed with Goldman Sachs and Citigroup. This was Pakistan’s largest equity-raising in more than a decade. Institutional equity business saw revenues surge, doubled market share and captured over 20% of the international portfolio flows into Pakistan. This makes BMA the leading domestic brokerage house for foreign portfolio investors. BMA’s share trading platform now attracts 1,500 customers, with 10 flagship branches throughout the country. Its latest branch was officially opened in December by Caretaker Federal Finance Minister Dr Salman Shah, in Lahore. A vigorous flow of major new mandates, which included beating 10 rivals to win the Pakistan Human Development Fund, contributed to a 31% increase in assets under management. A newly launched fund, the BMA Chundrigar Road Savings Fund, attracted US$20 million in just one month.

Other initiatives included the BMA Pakistan Opportunities Fund, the first ever open-ended offshore country fund for Pakistan, and the BMA Principal Guaranteed Fund, Pakistan’s first capital guaranteed fund and the only closed-ended fund to be oversubscribed since 2005. Meanwhile, BMA’s Financial Research Portal, launched at the beginning of the year, established itself as an indispensable tool for Pakistan’s fast growing investment community. The portal at http://research. bmacapital.com was enhanced by a daily service, the BMA Research report, which clients receive via email. The company’s national profile continued to rise. When CNBC launched its broadcast service in Pakistan earlier this year, it selected BMA Director Muddassar Malik to chair a studio debate featuring 200 captains of Pakistani industry and government. The centrepiece of the show, which was linked by satellite to global business leaders in London, Singapore and the Middle East, was Mr Malik’s interview with Pakistan’s prime minister Shaukat Aziz. BMA’s reputation as financial leaders was underlined by the Securities & Exchange Commission of Pakistan’s request for assistance in drafting real estate investment trust (REIT) regulations. The company is structuring and listing Pakistan’s first ever REIT.

Jordan

Sector Aircraft maintenance, repair and overhaul Investment date January 2005 Transaction size US$58 million Stake

80%

www.joramco.com.jo

Profile JorAMCo is a well-established aircraft maintenance, repair and overhaul (MRO) provider operating out of Jordan with a solid track record, a range of relevant certifications and strong management. JorAMCo offers industry standards for quality and turnaround time at competitive prices.

During 2007 JorAMCo became a true force in the global market for aircraft maintenance repair and overhaul (MRO). By opening a second hangar at Queen Alia International Airport, Amman, the company doubled its capacity. This excellent new facility, built by the Royal Jordanian Government and leased to JorAMCo, gives an extra 25,000sq metres of repair space. That’s enough room to handle four narrow-body aircraft such as an Airbus A320.

The company also completed implementation of its Mxi IT project in the autumn, a new electronic workflow system to streamline production. Financially, JorAMCo had an excellent 2007, not only showing phenomenal growth over 2006 but comfortably exceeding its targets for revenue and net income. Employees, too, shared in this success, through a new employee share ownership plan.

THOUGHT LEADERSHIP

The hangar came into use in September and was officially opened by His Excellency the Minister of Transport Saod Nsairat in November. When added to JorAMCo’s ongoing programme to improve efficiency and a near doubling of the workforce, this extra capacity allows the company to compete for bigger repair contracts and expand its customer base.

In June, the first students started at JorAMCo’s new training academy. The academy, which trains staff in the complex technicalities of aircraft repair, is one of the few outside Europe to be certified to European Aviation Safety Agency standards. As well as ensuring that JorAMCo itself has a good supply of highly qualified staff, the academy will also act as another revenue stream for the business, providing third party training.

Our investments

Investment rationale The investment provides an entry into the lucrative and growing MRO industry through a well-established player with potential for tremendous growth and operational enhancements. JorAMCo offers airlines an attractive option for outsourcing maintenance work, in a regional and global market which is growing strongly. Moreover, there is scope to improve operational efficiencies and marketing to enhance revenues.

Highlights of the year Revenues and net income increased by 61% and 64% respectively in 2007. Long-term contracts have been signed with new customers, including European airline Veuling from Spain and FlyNiki from Austria; both companies have ambitious plans to grow their fleets. JorAMCo was named ‘MRO Company of the Year’ in the first Middle East Aviation Business Awards, held in Dubai.

This strategy is clearly working, with JorAMCo winning a series of long-term repair contracts during 2007. Landmark deals include an agreement signed in February with Spanish airline Vueling to handle all heavy maintenance on the airline’s fleet of 21 A320s. Another high profile new customer is FlyNiki, the Austrian low cost carrier founded by Formula 1 motor racing legend Niki Lauda. JorAMCo has signed a five-year agreement to handle MRO work on the airline’s Airbus fleet. Both airlines have ambitious plans to grow their fleets in the next few years, enhancing the value of these long-term agreements. Other European customers include TUIfly, Air Mediterranné and Eagle Aviation.

empowering potential

Acquisition structure Leveraged investment with US$33 million of equity, including one co-investor, and US$25 million of debt.

Post-acquisition strategy The post acquisition strategic plan for JorAMCo aims to develop the company into a major player in the aircraft MRO business by building on its strong reputation for quality and competitive pricing. An aggressive post acquisition efficiency improvement programme has already increased levels of capacity utilisation. A number of internal workflow processes have been implemented including IT systems, man-hour and inventory management, and service and training capacity has been greatly increased.

Private Equity

Country

Our Year

Abraaj Buyout Fund LP (ABOF) Continuing investment Jordan Aircraft Maintenance Ltd (JorAMCo)

Abraaj Buyout Fund LP (ABOF) 2007 exit Septech Holdings Limited

Country

UAE

Sector

Waste and waste water

Investment date September 2004 Transaction size US$12.8 million Stake

78.5%

www.septechemirates.com

Acquisition structure US$5.8 million of equity, including one co-investor, plus US$7 million of mezzanine finance. Profile Founded in 1997 and headquartered in Sharjah, UAE, Septech’s main activity concentrated on packaged waste water systems in 2004, at the time of acquisition. Today, Septech is active in water and waste water related systems, products and services, including water and waste water treatment, landscaping and environment, pre-cast concrete products and marinas. Its activities span consultation, design, manufacturing, installation, operation and maintenance. Investment rationale In 2004, Septech was an attractive acquisition candidate due to its profitability, significant market potential, operational strength and exceptional management. Rapid population growth, water shortages, increasing environmental awareness, and congestion in the main municipal sewage networks mean that waste water treatment is a vital requirement in the Gulf region. With its proprietary technology and years of experience, Septech is ideally placed to continue to deliver value-added solutions to the wastewater treatment and disposal challenges faced across the region.

48 | 49

abraaj Capital annual review 2007

Post-acquisition strategy Abraaj mapped out the evolution that aided Septech’s plans to expand beyond the UAE, and then to accelerate that growth across the region. Septech is now serving clients in Oman, Qatar and Saudi Arabia, as well as being involved in major UAE projects, including the Palm Atlantis, Festival City Marina, Al Qarsana Island and Dunes Golf Course. Three years after Abraaj first invested in Septech, it is a stronger organisation. It has been restructured into five divisions around its core activities of waste and waste water treatment. Each division has formed partnerships with world leaders in key construction techniques and treatment technologies, giving Septech an essential edge over other local rivals. Highlights of the year A 114% increase in revenues during the first half of the year showed the strategy was working. Revenues in the first half of the year more than doubled, with profits growing too. In the three years of Abraaj’s investment, revenue has grown at a compound annual rate of 86% and net income by a CAGR of 29.7%. 2007 was another excellent year of contract wins for Septech, which has benefited from the continuing construction and real estate boom in the Gulf. The company found a profitable niche in providing treatment plant or infrastructure for new developments in the leisure sector.

For example, it was awarded a contract to install berths at a new marina in Dubai Festival City. Cast concrete pontoons, constructed at the company’s facility in Ajman, will provide berths for more than 100 medium and large vessels. The business also won an order to build a reverse osmosis plant to supply water for the Tilal Resort golf course being developed in the Emirate of Ras Al Khaimah – a venture of Emirates Heights Development, one of the investments in the Abraaj Real Estate Fund. Septech is making good progress with its prestigious contract to install a water processing plant at Atlantis, the US$1.5 billion marine and water resort being constructed at The Palm, Jumeirah, and due to open in autumn 2008. This resort is a development by the team behind Sun City in South Africa and is poised to attract visitors from all over the world, making it a stunning showcase for Septech’s expertise. Such successes show the benefit of the reorganisation of the business during the three years of Abraaj’s stewardship.

Our Year Private Equity empowering potential

In 2004, Septech’s main activity was packaged waste water systems and it was positioned well to serve the growing needs of the Gulf region’s rapidly increasing population.

2007 Exit

39

IRR

Abraaj guided Septech in developing new product and service divisions. These proved extremely successful in serving the expanding real estate and leisure sectors in the region. We are extremely pleased to have contributed to making the company a more profitable, pan-regional organisation.

This was achieved through the diligent application and review of our postacquisition strategy and the close alignment we developed with the company’s leaders: a close relationship which was reflected by our exit through a buy-back from the management.

Our investments

Septech

THOUGHT LEADERSHIP

Abraaj Buyout Fund LP (ABOF) Continuing investment Spinneys Group Ltd

Country

Regional

Sector

Retail

Investment date April 2004 Transaction size US$27.1 million Stake

45%

www.spinneys.com

Acquisition structure Equity holding. Profile Spinneys was founded in 1924 in Alexandria, Egypt, by Arthur Rawdon Spinney. One of the leading independent retailers of consumer goods in the Middle East, Spinneys currently operates fullyowned stores in Egypt and Lebanon and, through a franchise agreement, in the UAE. Investment rationale Opportunities to grow based on Spinneys’ enviable record of entering new markets and securing its target segment. It has achieved its success due to the qualitative values maintained across all its outlets, combined with its flexibility to meet the needs of its varied consumer base with a range of store formats, becoming a premier retail brand within the MENASA region. Post-acquisition strategy The opportunities in the retail segment across the MENASA region have never been greater, and the injection of funds will allow Spinneys to increase its presence significantly and rapidly, taking advantage of the many opportunities within the wider region. By utilising the management expertise of Abraaj Capital and the financial placement strength of NBD Investment Bank, the upcoming share issue will be completed rapidly and Spinneys will continue to develop into the leading company in the sector across the wider region.

50 | 51

abraaj Capital annual review 2007

Highlights of the year The company and the brand have been preparing for this aggressive expansion opportunity for the last 18 months. In July, the first phase of fundraising was completed, giving the group the resources to open up to 50 stores over the next five years. Spinneys has signed an US$80 million four-year loan with the National Bank of Dubai. This will be followed by a US$100 million preference share issue, with NBD acting as the sole placement agent. Together, these initiatives will give the group the capital to accelerate its growth plans and move beyond its three current markets. Spinneys Group owns six stores in Lebanon and one hypermarket in Egypt. Spinneys branded stores in UAE are operated under licence by an independent franchisee. It trades as a distinctive, high-end retailer, meeting the needs of an aspiring and increasingly wealthy middle class. The group’s first Egyptian outlet, at the Citystars Mall in north eastern Cairo, has entered its second year of trading on course to grow revenues by 25%. Encouragingly, customer loyalty surveys have found a staggering 97% of respondents expressing a preference to shop at Spinneys rather than its competitors. Negotiations for sites for expansion in Cairo, Sharm el-Sheik and Hurghada are proceeding to closing. A site for a second hypermarket in Egypt has been identified, with a planned opening in the second half of 2008. Refreshing Spinneys’ range of own-label products was another key achievement this year. The new range was introduced in Egypt, before being rolled out in Lebanon, where sales have been encouraging.

The Lebanese stores are posting month-on-month sales growth, despite challenging political and economic circumstances. Customers have appreciated the company’s ability to keep stores fully stocked and open whenever possible, providing essential support to the community and building long-term loyalty. The group has been recruiting key staff, such as an experienced supermarket architect, to ensure that new stores being opened will retain Spinneys distinctive high-quality look and shopping experience. Negotiations with joint venture partners and potential sites have progressed well. JV partners in Qatar include Nabeel and Adel Ali Bin Ali and and Sons whereby Spinneys will hold a 49% stake in a Qatari entity which will develop and operate supermarkets in prime locations. Our JV partner in Syria is Souria Holdings, the first Syrian Holding company, chaired by Hayssam Joud. Spinneys will hold a 50% stake in the Syrian entity which will lease and operate supermarkets and hypermarkets in prime locations. A franchise agreement was signed with the Abdul Mohsin Al Hokair & Sons Group in Saudi Arabia which is expected to deliver more than 20 new outlets over the next five years. The JV agreement with Kazimir Group for entry into Kazakhstan is in final legal review with openings currently planned for late 2008. 2008 will also see further progress in MOUs already signed for expansion into Pakistan and Jordan, together with significant progress in North Africa and India in securing JV partners and sites.

Our Year

Abraaj Buyout Fund LP (ABOF) 2007 exit Maktoob.com

Regional

Sector

Online portal

Investment date January 2005 Transaction size US$5.2 million Stake 34% www.maktoob.com

Investment rationale Maktoob was a very attractive acquisition candidate in 2005. The company had a strong brand and firstmover advantage in a growing market. It was already successfully developing revenue from premium content and payment services.

Maktoob Group comprehensively strengthened its position as the Arab world’s premier online community during the year. Maktoob.com reached a significant milestone when it was ranked as the 102nd most visited site on the internet globally, the most visited Arabic site in the Arab world and among the top 10 most visited global sites in each of the six GCC states. In Saudi Arabia Maktoob.com is the sixth most visited global website and it is among the top 20 in Egypt. Increased use was matched by higher revenues, which grew ahead of budget during the year. Revenue came both from advertising and from online auction site souq.com, which launched into Saudi Arabia during 2007.

Maktoob pressed ahead with continued enhancements to the portal, and in the final quarter of the year it launched Maktoob TV, a joint interactive television venture with MBC. This takes Maktoob into one of the fastest growing sectors of digital entertainment. It has also added a music search facility to its araby.com search engine and is developing travel websites in both Arabic and English. Behind the online presence, Maktoob opened a new office in Cairo, expanded its operations in Saudi Arabia to support the growth of souq.com and enhanced its management team with key technical and financial appointments. Abraaj’s strategic support has been critical, providing guidance and counsel as well as capital used for the introduction of a broad range of new services that have proved extremely successful. Since 2005, Maktoob has grown significantly and further cemented its position as the leading internet portal, community site and e-commerce provider in the Arab world. Through both its organic expansion and mergers and acquisitions, we are confident that the company will continue to demonstrate sustained growth.

THOUGHT LEADERSHIP

Maktoob has taken a lead in reassuring its advertisers – and challenging its competitors – with the highest standards of transparency and disclosure. In June it invested in an independent audit of its websites by respected UK media agency ABC Electronic. This confirmed that Maktoob is the most popular Arab online community with almost seven million unique visitors each month. Maktoob’s CashU online payments business has also

In another highlight, the group was honoured as the Information and Knowledge Portal of the Year in May at the 12th Middle East Information and Communications Technology Excellence Awards.

Our investments

Profile Founded in 1998 and headquartered in Amman, Jordan, Maktoob is the leading internet portal in the Arab world, providing a variety of online services to millions of users, including the most visited Arabic-language auction facility (souq.com), the first Arabic-language search engine (Araby.com), an interactive TV joint venture with MBC (Maktoob TV), the largest Arabic matrimonial website (Bentelhalal.com), the leading online Arab sports community (Sport4ever.com), and Arabic and English web-based email and chat rooms. Maktoob also offers pre-paid online payment cards under the brand name CashU.

Highlights of the year Unique monthly visitors reached nine million and monthly page views of Maktoob.com 227 million during the fourth quarter of 2007. Abraaj’s stake was acquired by an existing shareholder in December 2007.

continued to grow, becoming the Middle East’s largest internet payments service.

empowering potential

Acquisition structure Equity investment.

Post-acquisition strategy Over the past 35 months, the company has realised the promise of growth, significantly expanding its web-based offerings, revenues and gross profits. The leadership status of Maktoob across the Arab world is demonstrated not just by higher page views and user numbers, but also by increased revenues through online advertising. It is extremely well placed for continued growth.

Private Equity

Country

The Abraaj Real Estate Fund LP (AREF)

AREF closed in December 2004 with total commitments of US$113.5 million. The fund is fully committed, having sought controlling positions or influencing stakes in distinctive real estate, construction and leisure investments across the MENASA region. It has a target IRR of 15%.

Ongoing investments at start of 2008 The Dead Sea Company for Conferences & Exhibitions Convention complex, Jordan Marine Hospitality Holdings (MHH) Marine and leisure services, MENASA Emirates Heights Development Company Golf-oriented residential and leisure community, RAK Signature Clubs International Ltd (SCI) Private members clubs, MENASA Enshaa PSC Real estate, MENASA Seraii Holdings Limited Hotel management, MENASA

Exits during 2007 Arabtec Holdings PJSC Construction, UAE. IRR 116% and a 12 times gain on invested capital ABANAR LLP Real estate, UK. IRR 8% and a 1.2 times gain on invested capital

52 | 53

abraaj Capital annual review 2007

Fund year in review An extremely productive year, 2007 saw AREF continuing to gain from its early investment in companies benefiting from the ongoing construction and real estate boom in the region. The fund’s exit from its signature investment in Arabtec, a UAE-based construction contracting firm, marked the end of the holding period and natural conclusion of the investment cycle for this investment in December. With this first exit for AREF, approximately half of the original capital of the fund has been returned with the remaining assets in the fund continuing to perform extremely well. During the year, Abraaj successfully completed a restructuring of its investment in Enshaa where three existing businesses were folded into a single entity, enhancing efficiency, with a fresh capital raising expanding the shareholder base to include Emirates Investment Group and the Majid Al Futtaim Group. The company is poised to take its distinctive development projects, such as Palazzo Versace, to new markets.

It was an exciting year for the fund’s holdings in the hospitality sector. Abraaj’s support at Seraii Holdings Limited has been instrumental in refining their vision for the provision of a range of Shari’a compliant hospitality, a concept with huge potential across the region. Signature Clubs International has a thriving membership with numbers exceeding expectations prior to launch and the monthly ‘Last Tuesday’ gathering a fixture on the business community’s social calendar. This is another example of Abraaj’s investment foresight, identifying an exciting growth business ahead of the market.

Jordan

Sector

Convention complex

Investment date September 2004 Transaction size US$2.1 million Stake

4.7%

www.dscc.jo

Profile The company was formed to develop the King Al Hussein Bin Talal Convention Centre on Jordan’s Dead Sea coast. It is also developing residential accommodation and leisure facilities in the surrounding area.

Post-acquisition strategy Abraaj has worked with management to attract high profile and profitable conferences and events to the Centre and to develop complementary projects in the area to facilitate the growth of a complete leisure and business traveller destination.

In 2007, the Dead Sea Company acquired an additional 2.45 million sq ft of land for a residential phase of the project. Detailed planning is now under way and will be revealed in 2008 by the company’s new chairman Said Darwazeh, a former health minister of Jordan, who was appointed to take over from Fadi Ghandour. The US$500 million project is due to be completed within five years and is being developed by EMAAR. The King Hussein Bin Talal Convention Centre, the flagship conference destination for the Dead Sea region, played host to a series of internationally important events, including the World Economic Forum’s Middle East Summit, the Jordan Youth Conference and the Jordanian Upper House of Parliament meeting.

Abraaj Board member Fadi Ghandour was co-chair for the summit and spoke at the opening session on the role private equity can take in charting and enhancing the region’s future. In 2007, Convention Centre bookings were substantially higher than in 2006. The location has proved the perfect venue to demonstrate both the enormous opportunities and world-class excellence currently co-existing in the Middle East. As King Abdullah said at the World Economic Forum: “This is our year of opportunity. The future begins here and now.”

Our investments

Investment rationale Jordan’s tourism industry is forecast to grow at 10% per year, and there is a demand for high-quality facilities on this spectacular and historic coastline. As well as the Convention Centre, the company is also investing in the Samarah Dead Sea Golf & Beach Resort, a new mixed-use development.

This exciting project was officially unveiled by His Majesty King Abdullah bin Al Hussein of Jordan in May. This mixed-use luxury development will include housing, shops and a golf and beach resort and aims to strengthen the growing tourism industry in Jordan. It will generate employment opportunities, as well as offering a world-class commercial and residential environment.

The World Economic Forum met under the theme of Putting Diversity to Work, to highlight the importance of diversifying Arab economies. More than 1,200 government and business leaders from 56 countries met to discuss how to turn the region’s religious and ethnic diversity to advantage, to achieve peace, stability and economic growth. King Abdullah bin Al-Hussein called on participants to think about ‘the day after peace’, and the infrastructure and economic needs that will be required.

empowering potential

Acquisition structure Direct equity investment.

Highlights of the year The official launch of the Samarah Dead Sea Golf & Beach Resort was a key highlight of the year for the company, helping it towards its objective of developing the Dead Sea coast into a thriving economic region.

Private Equity

Country

Our Year

The Abraaj Real Estate Fund LP (AREF) Continuing investment The Dead Sea Company for Conferences & Exhibitions

THOUGHT LEADERSHIP

The Abraaj Real Estate Fund LP (AREF) Continuing investment Emirates Heights Development Company (EHDC)

Country

Ras Al Khaimah

Sector Golf-oriented residential and leisure community Investment date September 2005 Transaction size US$20 million committed Stake

50%

Acquisition structure Direct equity investment. Profile EHDC is a development company incorporated in the UAE to create a world-class golf resort on a 500-acre site in the Emirate of Ras Al Khaimah. Investment rationale The Tilal Resort – or, in English, Dunes Resort – will be a landmark leisure destination designed to capitalise on the growing demand for real estate in the northern Emirates. The resort will include an 18-hole championship golf course, 900 residential units, a hotel and other associated facilities and offers the potential for an IRR of 50%. Post-acquisition strategy Abraaj has management control of the project and has worked with international experts to bring a distinctive high quality vision to the resort. EHDC also expects to secure Royal decrees allowing the residential units to be sold on a freehold basis to expatriate buyers.

54 | 55

Highlights of the year An independent market and financial feasibility study was carried out by Economic Research Associates, a leading leisure, real estate and hospitality consultant. This study confirms the project’s viability and potential for significant returns on investment.

abraaj Capital annual review 2007

A master plan for the resort was finalised during the first half of the year and leading international companies were appointed as project managers and architectural consultants. Preparatory construction work started on site and the design of the residential villas and apartments was progressed towards a sales launch in 2008. Additionally consultants were engaged for design of a variety of other components – Halcrow International Partnership for infrastructure works, Badri & Bensouda for landscaping and Godwin Austen Johnson, for the golf clubhouse and academy. Septech, a leading international golf course contractor and a former Abraaj investee company, was contracted to construct the course and install the reverse osmosis plant that will supply water.

Discussions were held and commercial terms agreed with a five-star hotel operator for managing the hotel which will include a spa and conference centre. The project, when complete, is expected to capitalise on the growing market for real estate in the northern Emirates, and will initially target second-home buying resident in the GCC, as well as international investors looking for a holiday home. With its cloudless skies, high quality accommodation and leisure facilities, Tilal Resort is expected to be a popular choice for buyers.

Our Year

The Abraaj Real Estate Fund LP (AREF) Continuing investment Enshaa PSC

MENASA region

Sector

Real estate

Investment date December 2006 Transaction size Original investments in predecessor companies US$29.7 million Stake

22%

Investment rationale To profit by participating in developments of exceptional quality throughout the region with selected joint venture partners.

It will target niche real estate projects, forming joint ventures with wellestablished property companies. The company’s existing investments had a great year. In February, it launched what will be Pakistan’s tallest structure, Karachi Financial Towers, at a glittering event attended by President General Pervez Musharraf. The three-year project, which is being constructed by Arabtec Pakistan, will develop two identical 37storey towers connected by a three-floor glass skybridge – a truly stunning landmark for the city’s financial district. The Towers will be built on a 15-acre site that is already home to the Karachi Stock Exchange, State Bank of Pakistan and Citibank. Palazzo Versace Gold Coast, the luxury hotel chain developed with the globally acclaimed designer Donatella Versace, goes from strength to strength and continues to trade above expectations. The first Versace hotel, on Australia’s Gold Coast, in which Enshaa has a 50% stake, continues to attract high accolades; the second, Dubai, is now being built in the Culture Village development, with a residential tower, D1, alongside. Condominium reservations are ahead of forecasts, as are average sales prices; completion is due in June 2009.

It is exploring further opportunities with joint venture partner Sunland Group, which has a contract to develop up to 15 Palazzo Versace resort projects. Major cities are currently being evaluated, and the conclusions will be announced in 2008.

THOUGHT LEADERSHIP

Post-acquisition strategy Abraaj has worked to maximise potential returns by restructuring and financing investments in the most effective way and by seeking out experienced development partners.

The new company capitalised at US$249 million, with major shareholders including Majid Al Futtaim Group, Emirates Investments Group and Abraaj.

Enshaa continues to strengthen and develop its management team, recruiting additional professionals with expertise in real estate, construction and project management. Raza Jafar, a leading entrepreneur with extensive experience in real estate, was appointed managing director.

Our investments

Profile Enshaa is fast becoming one of the MENASA region’s leading real estate development companies, with a reputation for innovation and quality. Investments include a 50% stake in Palazzo Versace resorts in Queensland, Australia and in Dubai, upscale residential and commercial property developments in Dubai, the D1 and the Emirates Financial Towers and a landmark project to create Pakistan’s tallest building, Karachi Financial Towers.

It was an exciting year for the business as a major restructuring and capitalraising exercise saw the emergence of Enshaa PSC from Emirates International Holdings and Enshaa Holdings.

On the commercial side, about 70% of the office space in Emirates Financial Towers in the Dubai International Financial Centre has been taken.

empowering potential

Acquisition structure In 2007 the fund restructured its investment in Emirates International Holdings, Emirates Financial Towers and Enshaa Holdings Limited by folding these businesses into Enshaa – an existing LLC company which was converted into a UAE private joint stock company.

Highlights of the year Sale revenues from D1 and Palazzo Versace Dubai are both ahead of target and construction started for delivery in 2009. The potential was identified for up to 15 more Palazzo Versace developments globally.

Private Equity

Country

The Abraaj Real Estate Fund LP (AREF) Continuing investment Marine Hospitality Holdings (MHH)

Country

MENASA

Sector Marine and leisure services Investment date February 2005 Transaction size US$10.6 million Stake

45%

www.artmarine.net

Acquisition structure Direct equity investment. Profile Through its wholly-owned UAE subsidiary ART Marine, Marine Hospitality Holdings is a driving force in the developing market for luxury yachts and associated marine leisure activities. It holds the exclusive franchises to distribute Azimut and GobbiAtlantis boats and yachts and is involved in luxury charter and marina development. The company’s highly professional and experienced marine team also provides after-sales maintenance service. Investment rationale The GCC leisure boating sector is growing strongly on the back of increased oil revenues and growing tourism. Waterfront and marina developments are providing additional berth spaces and creating the essential infrastructure to support the expanding leisure market. ART Marine has a pre-eminent position in the luxury yacht industry in the region due to the strength of the brand names it represents, strong investor backing and the extensive experience of its management team.

56 | 57

abraaj Capital annual review 2007

Post-acquisition strategy Abraaj has helped the business to expand to have a presence in five nations. It has also overseen expansion in the scope of services. Abraaj’s successful development of the company attracted additional investment from Dubai International Capital in 2006 when it injected a further US$10 million into the business. Highlights of the year High levels of professionalism and a growing global presence helped Art Marine to continue its strong growth in 2007. Azimut chose to partner with MHH in Dubai for the world premiere of the Azimut 103 S, marking the first inauguration outside of Italy and the US in the yacht manufacturer’s history. Strong sales and the servicing of a growing customer fleet means that investment in people is a priority for the company. Pricing policies and strategies were reviewed during the year, leading to the launch of a fractional ownership scheme, Club Azure. This innovative project lowers the access threshold to luxury yacht ownership, introducing a new group of people to the joys of life afloat. Club Azure enables eight individuals to have part-ownership of an Azimut 68 E, with an initial joining fee, plus an annual maintenance charge, allowing for four weeks of top-class sailing every year, for five years. After the huge success encountered with the Azimut range, ART Marine also made available the first Benetti yacht in the waters of the Middle East.

Art Marine continued to build its global presence, attending boat shows in Monaco, Cannes, Genoa, El Gouna, Barcelona and Düsseldorf. It also formed links with carefully selected companies to boost its profile; the charter division formed alliances with a number of exclusive private members clubs such as Quintessentially and Platinum Concierge, while a partnership with Laser Middle East and Volvo Cars Middle East led to the launch of the Volvo Laser SB3 Middle East Grand Prix, a six-round sailing race. Art Marine is the exclusive dealer for Laser in the UAE. The company opened its first office outside the UAE, at Abu Tig Marina, El Gouna, in Egypt. The office, which has a team of six dedicated professionals, offers yacht sales and after-sales service to the Egyptian market.

Our Year

The Abraaj Real Estate Fund LP (AREF) Continuing investment Seraii Holdings Limited

MENASA region

Sector

Hotel management

Investment date July 2006 Transaction size US$2 million Stake 90% (fully diluted, pre private placement) www.seraiihospitality.com

Profile Seraii was formed to operate a portfolio of Shari’a compliant, Middle Easternthemed hotels to be developed in the region. It intends to build a contemporary brand capturing a strong regional presence and catering to the Islamic/Arab, intra-regional traveller and others seeking an authentic Islamic/Arab experience.

The hotels will be world-class and Shari’a compliant; with the accent on Islamic living, with a strong regional flavour. Seraii hotels will embody the values of Middle Eastern culture, but in a modern, progressive context. Each will include high tech facilities alongside a dedicated prayer room; modern architectural themes with Middle Eastern specialist restaurants; hammams alongside women-only facilities (including swimming pools and beach clubs, with entire floors reserved for female guests, served by qualified female staff). An extensive brand consultation was undertaken in the third quarter of 2007 to ensure the brand would resonate with the target audience in the MENASA region. This concluded that there should be two five-star brands: the premier Royal Seraii, and the core Grand Seraii. In addition there will be a three-star brand, Caravan Seraii, and a boutique chain, Tijan, of individual hotels developed in the region’s most historic cities.

THOUGHT LEADERSHIP

Investment rationale With a projected 25 million tourists travelling among Arab countries by 2020, there is a strong demand for culturally sensitive hotels. A growing number of Western travellers are also looking beyond the bland experiences offered by many luxury destinations. Seraii Hospitality is set to capitalise on – and even enhance – the unprecedented growth in travel and tourism in the Middle East and beyond.

This unique concept includes 11 locations in its management contract pipeline, with negotiations under way on sites in Mecca, Medina, Tripoli, Muscat, Egypt, Morocco, Jeddah and Dubai. Additional sites in Doha, Qatar and Bahrain are even further advanced.

The fund is currently in the last phase of finalising a property investment and development arm – Seraii Properties – into which it is intended that operating hotel assets and lands will be transferred in exchange for share capital, as well as a private placement. The fund concluded from an extensive research programme that Seraii Properties is a more attractive and flexible market proposition over creation of an equity fund, which had been considered previously. The initial target capital of Seraii Properties will be up to US$500 million and the company will invest in attractive hotel and related real estate projects which Seraii Hospitality will manage under contract.

Our investments

Seraii is one of the first Shari’a compliant, Middle East-themed hotel chains in the world. The hotels will be in a modern architectural style with an accent on historic Middle Eastern and Islamic living. The goal is to create a unique identity that strikes a chord with target customers.

Highlights of the year The business has adopted Seraii as its central brand name, with Grand Seraii as its core hotel brand and Royal Seraii as its premium brand.

The present pipeline of potential projects includes two Royal Seraii projects in progress in Jeddah and Riyadh; 14 Grand Seraii hotels; seven Caravan Seraii properties primarily in Pakistan; and two Tijan projects in major, regional cities.

empowering potential

Acquisition structure Seraii Holdings Limited is a joint venture between Abraaj and company CEO Sami Zoghbi.

Post-acquisition strategy Abraaj has been working with management to sharpen the brand concepts and business plans for this exciting venture. It has also assisted in identifying and prioritising markets for development.

Private Equity

Country

The Abraaj Real Estate Fund LP (AREF) 2007 exit ABANAR LLP

Country

UK

Sector

Real estate

Investment date April 2005 Transaction size US$11.5 million Stake

33.3%

IRR

8%

Acquisition structure Investment in property fund, plus a 25% stake in the fund’s manager Swanbourne Development Services (SDS). Profile ABANAR is a UK property fund, investing in and developing specialist housing for niche markets such as students, nurses and other key workers. Investments include properties in London and Yorkshire. Investment rationale The company’s target areas of the UK housing sector have not been well served by other developers and offer attractive opportunities to develop profitable residential accommodation. SDS has good experience in this arena. The longer-term aim was to raise successor funds, where Abraaj would also benefit from a share in the management revenue. Post-acquisition strategy Abraaj has been providing investment and financial advice to SDS. It has also been helping the management to formalise some of their business processes and raise their profile among potential investors.

58 | 59

abraaj Capital annual review 2007

Highlights of the year Two major property purchases this year have helped take the portfolio of properties close to £200 million, or about 4,000 units. The Pavilions in Lincoln, bought in March, is high standard accommodation with fitted kitchens, flat-screen TVs and internet connections. Operated under the Mezzino brand by managing agents Mainstay, this purpose-built block provides state-of-the-art student living next to Lincoln University’s main campus. Mainstay has become an ‘approved provider’ of accommodation for the university, and with facilities such as free broadband access, en-suite bedrooms and a choice of apartments from studios to six bedrooms, The Pavilions is proving popular with students. In Sheffield, the new Pinnacles facility is currently under construction but will provide 666 student study bedrooms in the city centre. With the same high quality of accommodation, it is expected to meet great demand when it opens for lettings in August 2008. Storthes and Ashenhurst Halls in Huddersfield are proving popular, with Ubrique, the manager of the properties, the University’s preferred, recommended and approved provider of student accommodation. SDS has identified opportunities throughout Britain to improve centrally located urban housing for key workers and students. There remains a significant gap between supply and demand for affordable accommodation, with the strength of the property market and insufficient level of construction driving up prices.

Our Year Private Equity empowering potential

2007 Exit

1.2x return on investment

Abraaj provided investment and financial advice to the fund manager, Swanbourne Development Services (SDS), leading to two major property purchases in 2007, greatly increasing its portfolio of properties. SDS is managed by a team of highly experienced UK property development and investment professionals.

Following Abraaj’s exit in December 2007, the fund continues to identify opportunities to improve urban housing throughout Britain. We are pleased to have contributed to the development of formal management processes for the fund and to have helped raise its profile for other potential investors. We are confident of its ongoing successful expansion. This second exit from the Abraaj Real Estate Fund has contributed to the return of nearly half of the original capital of the fund to investors.

Our investments

Abanar

THOUGHT LEADERSHIP

The Abraaj Real Estate Fund LP (AREF) 2007 exit Arabtec Holdings PJSC

Country

UAE

Sector

Construction

Investment date August 2004 Transaction size US$11.4 million Stake

10%

Return on Investment

12x

Acquisition structure US$6.4 million equity investment, and co-investment of US$5 million. Profile Arabtec is one of the leading contracting and construction businesses in UAE. Fifty-five per cent of the business was sold through an IPO in 2004, with Abraaj the largest institutional shareholder of the remaining founding shareholders. Investment rationale Economic expansion has fuelled a construction boom in the UAE. Arabtec is a highly respected business, with a 10-year track record of satisfied customers, and is ideally positioned to profit from the construction boom. Post-acquisition strategy Giving Arabtec access to additional capital and helping the business to further develop a regional expansion strategy that has already seen it develop operations in Pakistan. Founding shareholders were locked in until September 2007. Abraaj exited in December through an orderly sale on the Dubai Financial Market.

60 | 61

abraaj Capital annual review 2007

Highlights of the year Arabtec operated at full capacity throughout 2007. In October, the company’s industry leadership was recognised when Goldman Sachs initiated coverage on Arabtec and recommended it as the only company in the contracting sector on its ‘buy’ list. In a year of great achievement, 2007 saw Arabtec consolidating this leading position, winning enough work to take a temporary moratorium on seeking new contracts. Among several high profile contracts, it won a US$1.25 billion deal to build the Meydan horseracing complex in Dubai, in a joint venture with WCT Engineering, a Malaysian-based contractor. This ambitious racing complex, with a grandstand for 60,000 spectators, restaurants, and a museum and gallery, will be completed in 2010 to host the Dubai World Cup. Projects such as Burj Dubai, the tallest building in the world; Dubai World Central, a major logistics centre built around the world’s largest international airport; and the luxury resort of Palazzo Versace, at Culture Village, have all demonstrated Arabtec’s skill and experience, making it the contractor of choice for leading property developers.

This expertise will be put to good use in Pakistan, where Arabtec will be building the Karachi Financial Towers, the country’s tallest building. The contract was one of five won in the first half of 2007, worth around US$1 billion. During the year, Arabtec also bought a 55% stake in Emirates Falcon Electromechanical Company, which specialises in electromechanical, air conditioning and building services contracting. The construction sector is experiencing unprecedented growth across the region, and Arabtec will remain at the forefront of this expansion. Today, Arabtec has firmly established its reputation as one of the region’s leading construction companies, providing high-quality work, on time and within budget. The strategic support provided by Abraaj Capital over the past three years has proved instrumental to its success.

Our Year Private Equity empowering potential

2007 Exit

116

IRR

Arabtec was established as a public joint stock company in 2004 to invest in and acquire companies in the UAE’s booming construction and contracting sector, having originally been founded as the Arab Technical Construction Company in 1975. Abraaj acquired a strategic stake in August 2004 and, until the investment was exited in 2007, remained the largest institutional shareholder. In the fourth quarter of 2007, Arabtec posted its second-biggest quarterly profit ever. At the Arabian Business Awards in

December 2007, Arabtec won the ‘Company of the Year’ and it is now Dubai’s largest construction firm, by value. The Arabtec exit by the Abraaj Real Estate Fund marks the end of the holding period and natural conclusion of the investment cycle for this investment. We are extremely pleased to have made a significant contribution to the success of Arabtec and, of course, to be able to continue to generate such strong returns for our investors.

Our investments

Arabtec Holding PJSC

THOUGHT LEADERSHIP

The Abraaj Real Estate Fund LP (AREF) Continuing investment Signature Clubs International Ltd (SCI)

Country

MENASA

Sector

Private member clubs

Investment date February 2006 Transaction size US$20 million committed Stake

80%

www.signatureclubs.com

Acquisition structure Abraaj has the majority stake in SCI, which in turn will own 51% of each club established. Profile SCI will develop, own and operate private member clubs in key cities across MENASA. The business model includes business-related clubs and those designed for family and leisure membership. Both will operate to the highest standards, creating a respected market brand. Investment rationale Founded by two experienced managers of private clubs, SCI has a unique opportunity to create a network of high quality clubs. There is a lack of supply, while demand is growing as more international businesses expand in the region. Post-acquisition strategy Abraaj has enabled the management to realise their vision, identifying possible locations and managing negotiations with developers.

62 | 63

abraaj Capital annual review 2007

Highlights of the year SCI’s flagship private club, the Capital Club in Dubai, saw first tier, gold founder membership completely sell out by the end of June, being oversubscribed by 30%. The Capital Club membership itself reads like a directory of the local business community, including Morgan Stanley, Halliburton, Landmark Properties, Noor Capital and Zabeel Investments among other prominent companies in the region. Of the first 400 people to sign up, half were CEOs, managing directors or senior partners; 24% were presidents and chairmen; and 14% were regional directors or directors. The Capital Club is the first of Signature’s proposed chain of regional private clubs, which will be located in the premier business districts of major cities. It aims to open 12 sites in the next five years, with the potential for a further 10. With the rapid growth in multinationals looking to expand into the MENASA region, there is a corresponding demand from internationally-travelled professionals for clubs with high standards and facilities. At the Capital Club’s inaugural event, His Excellency Dr Omar bin Sulaiman, Governor of the Dubai International Financial Centre, said the private business club met an important social and cultural demand in the Middle East. He compared it to the majlis, a place where “like-minded people can meet, talk and balance their professional and personal aspirations”. Throughout the year Capital Club has held a series of high-profile events, with visits from internationally-renowned figures such as former President of Costa Rica, José María Figueres, and the management guru Ram Charan. The ‘Last Tuesday’ event, where members get together on the last Tuesday of each month to socialise, network and meet new members, has become a regular pre-opening tradition.

Personnel announcements included the appointment of Jerry Bastiaan, whose previous restaurant won a Michelin star, as executive chef. Members can be sure of a superlative dinner to rival any other restaurant in Dubai when they visit the Club. SCI is actively looking for further sites. Additional clubs have been finalised at Jafza and in Bahrain and Istanbul. Negotiations are currently under way for a site in Abu Dhabi and are in final stages for sites in Doha, Karachi, Mumbai and Kuwait. Final approval is pending for an Amman location. The company is also looking for 20,000 – 50,000 sq metres sites for family clubs.

Private Equity

Closed in July 2005 with total commitments of US$128 million, ASOF II’s mandate covered the entire MENASA region with a target IRR of 30%. The fund focused on IPOs and pre-IPO opportunities and on taking ‘strong minority’ positions in quoted companies.

Fund year in review

ASOF II compared with peer funds (with approximately similar inception dates, similar geographic focus and approximately similar size) since inception.

ASOF II NBKMF GGLCF ABGEF

empowering potential

In 2007, the fund carried on where it left off in 2006, a year in which ASOF II defied regional stock markets by producing positive returns for investors against the backdrop of overall market falls. It continued this out-performance through a period of market recovery in 2007, with gains over the year again superior to both regional stock markets and peer group funds.

Our Year

Abraaj Special Opportunities Fund II LP (ASOF II)

AAGF RGF ABMF ARGEF

Companies held during the course of 2007 included El Sewedy Cables – which the fund exited in the second quarter for a gain of 56.7% – Dana Gas, Emaar Properties and the Ahil United Bank.

MATF NMF GCF

0%

10%

20%

30%

Source: Zawya GCF Gulf Companies Fund NMF NBD Mena Fund MATF Makaseb Arab Tigers Fund ARGEF Al Rajhi GCC Equity Fund ABMF Aran Bank Mena Fund RGF Riyad Gulf Fund AAGF Al Ahli Gulf Fund ABGEF Al Basha'er GCC Equity Fund NBKMF NBK Gulf Equity Fund GGLCF Global GCC Large Cap Fund

40%

50%

60%

Our investments

ASOF II followed the successful philosophy of its predecessor fund ASOF, identifying companies that Abraaj believes are undervalued and where growth or corporate activity can have a dynamic effect on the investment’s value. Equity investments during the year were mainly focused on the banking, oil and gas, and infrastructure sectors.

THOUGHT LEADERSHIP

Abraaj Special Opportunities Fund II LP (ASOF II)

Abraaj followed a clear strategy to reduce volatility and risk in the portfolio by investing in convertible bonds. For example, the fund profited handsomely from its investment in Dubai Ports Sukuk, a bond issued in 2006. This investment, which was leveraged, converted into shares in DP World when the company listed through an IPO in November. Shares were priced at the top end of expectations. Rising commodity prices were a global investment theme throughout the year. The fund successfully invested in commodity-linked instruments, both as an asset in their own right and as a hedge to volatile stock markets in some regional nations. Abraaj took advantage of improving markets to gradually unwind most of the fund’s holdings in the third and fourth quarter, locking in gains ahead of the full liquidation of the fund in December.

ASOF II compared with regional markets since inception Oman ASOF II Bahrain Kuwait Dubai Jordan Abu Dhabi Qatar Saudi Arabia -40%

-20%

0%

20%

40%

60%

80%

Comparison of ASOF II’s performance with the weighted average of the regional indices since inception 60% 50% 40% 30% 20% 10% 0%

ASOF II

Wt.Av.Reg. Index

Weighted based on market capitalisation

> Fund liquidated at year end, delivering substantial gains (net gain of 45%) to investors within a three-year investment cycle > Stunning results against a backdrop of turbulent regional stock markets > Abraaj contained risk and enhanced growth with diversified exposure to convertible bonds and commodities

64 | 65

abraaj Capital annual review 2007

Private Equity

The fund closed in November 2005 capped at US$500 million, after huge investor interest left it substantially oversubscribed. Its mandate covers the entire MENASA region with a target IRR of 30% on invested capital contributions.

Acibadem Healthcare, Turkey AFHL Aviation, Saudi Arabia EFC Urea production, Egypt GMMOS Oil and gas services, UAE Mannan Shahid Forgings Steel forging, Pakistan Saudi Tadawi Health Care Company Healthcare, Saudi Arabia

In May, ABOF II acquired 60% of the shares in Gulf Marine Maintenance & Offshore Company, an oil and gas service company headquartered in the UAE. GMMOS has been operating at full capacity and Abraaj has been able to facilitate an expansion of the workforce and move to new sites to help the business grow. Post-acquisition strategies are progressing well for GMMOS and the company has delivered strong financial performance.

ABOF II also holds a majority stake in MS Forgings, Pakistan’s leading steel forging house. During 2007 it strengthened the management team with world-class recruits and helped the business to target its most profitable customers. At the end of December, the fund agreed to buy a 40% stake in Saudi Tadawi Health Care, a leading retailer and wholesaler of pharmaceuticals in Saudi Arabia, giving the fund exposure to the rapidly expanding health market in the most populous GCC nation.

In another significant deal, the fund agreed to participate in an acquisition to buy up to 50% of Acibadem Healthcare, Turkey’s leading private health business along with co-investors including the Infrastructure and Growth Capital Fund. This stake was increased to 69.6% in January 2008 and a related 50% stake was acquired in leading Turkish health insurance company, Acibadem Sigorta. Acibadem owns its own hospital network, as well as providing health insurance and management services, and is already enjoying strong growth as the sector expands in part due to health regulation reforms enacted by the Turkish Government.

THOUGHT LEADERSHIP

> Fund participates in the region’s biggest leveraged buyout deal > Driving force behind vibrant new Saudi airline > Successful investments in established shipbuilding and automotive firms > Strong deal pipeline to support further investments in 2008

Our investments

Fund year in review

It was an exciting year for the fund’s investment in regional aviation through Aviation Fund Holdings, which includes NAS. Nas Air, its low cost carrier, was launched ahead of its competitor SAMA and grew its network to more than 20 routes by year-end.

empowering potential

Ongoing investments at start of 2008

Our Year

Abraaj Buyout Fund II LP (ABOF II)

Abraaj Buyout Fund II LP (ABOF II) 2007 acquisition Acibadem Healthcare

Country

Turkey

Sector

Healthcare

Investment date Deal agreed August 2007 Transaction size Up to US$585 million Stake

Up to 50%

www. acibadem.com

Acquisition structure Investment by ABOF II, IGCF, co-investors and additional acquisition finance. Profile Acibadem was founded in 1991 and is the only healthcare institution to have shares traded on the Istanbul Stock Exchange. It is part of a premium integrated healthcare platform that provides secondary and tertiary private healthcare services, laboratory services, health and life insurance, hospital project management and hospital facilities management services. It is the only hospital group worldwide to be accredited by Joint Commission International (JCI), which certifies private hospitals, and is affiliated with Harvard Medical International. Acibadem Healthcare Services operates six premium hospitals with a bed capacity in excess of 700, two outpatient clinics, a central laboratory, a genetic and cell therapy lab, an ophthalmology centre and five specialised medical centres. It is currently building another eight hospitals, which will take the total number of beds to 1,595.

66 | 67

abraaj Capital annual review 2007

Investment rationale Acibadem is a world-class health provider already operating in an attractive market. Regional demand for healthcare services is being driven by a range of factors, including high levels of population growth, changing socio-economics, prevalence of health risk factors, medical innovations and increasing insurance spend. In response to this growing demand, governments in the Middle East are increasingly focused on the provision of broadly available, high-quality services. Post-acquisition strategy Abraaj’s strategic support will accelerate the development of the healthcare group in Turkey and facilitate the long-term expansion of its healthcare services in the MENASA region, where the existing supply of high-quality medical services is generally insufficient. There are currently twice as many physicians per 1,000 people in the 30 countries within the OECD than there are in Turkey and in the GCC, and nearly three times the available hospital beds. In the GCC states alone, demand for treatment is expected to grow more than twofold by 2025, to approximately US$60 billion per annum. Highlights of the year The increased demand for private medical care is already feeding through to Acibadem’s performance and profitability. There was a positive market reaction to the Abraaj investment, with a ‘Buy’ recommendation on Acibadem from KBC Securities. This was a landmark year for the health market in Turkey as the state-backed General Health Insurance (GHI) Fund was launched. This initiative gives patients a wider choice of where they are treated, using public money to pay for up to half the cost of selected private treatment. It has also helped to drive an exciting year of growth for Acibadem, the nation’s premier private health group.

The hospitals business continued its expansion, with the construction of two new hospitals in 2007, including a joint venture with Besiktas Sports Club in Istanbul and a wholly owned hospital in the Maslak district of Istanbul. Development plans were announced for hospitals at Izmir, Eskisehir and Bodrum. The medical laboratories division also expanded with the opening of two stem cell laboratories in April. The arrival of the GHI is increasing the scope for private medical insurance as companies start offering voluntary top-up plans which pay the difference between the GHI contribution and the total cost of treatment. This will benefit Acibadem’s A-Insurance business, Turkey’s fifth largest health insurer. Overall growth in the healthcare market is also leading to new business for the Acibadem healthcare project management division and the A-Plus catering and laundry service. Both were on track to grow revenues strongly by year-end. Since the acquisition of an initial stake in August 2007, Abraaj has been working with management on a strategy to expand into other markets in the Middle East. Possible ventures in Saudi Arabia, Kuwait and India are already being assessed.

Our Year Private Equity empowering potential

2007 Acquisition

50

up to

stake

Middle Eastern governments are increasingly responding to demand for widely available, high quality healthcare. They are encouraging private sector participation in the sector by creating an environment and regulatory framework conducive to investment. Private sector organisations, such as Acibadem, will play an important role in providing healthcare services. Abraaj will work with Acibadem as it expands provision across Turkey and the region. Our investment is an important diversification of our portfolio and demonstrates the importance we place on Turkey, an increasingly

prosperous nation of more than 71 million, and the healthcare sector. Acibadem’s partnership with Abraaj will provide both expansion capital and the benefit of an unparalleled regional knowledge and network. Together, we can help the people of the region live longer, healthier lives.

Our investments

Acibadem

In January 2008, Almond AS, a 50:50 joint holding company formed by Abraaj Capital and Mehmet Ali Aydinlar, one of the founders and the chief executive officer of Acibadem, acquired additional shares in Acibadem, bringing the holding company’s stake up to 69.6%. THOUGHT LEADERSHIP

Abraaj Buyout Fund II LP (ABOF II) Continuing investment Aviation Fund Holdings Ltd (AFHL)

Country

Saudi Arabia

Sector

Aviation

Investment date May 2006 Transaction size US$75 million Stake

100%

www.nasaviation.com

Acquisition structure The fund structured a transaction whereby US$75 million was committed to the regional aviation sector and set up AFHL to deploy these funds. Abraaj identified this unique opportunity in the regional aviation sector and has acted as the catalyst for this transaction, which has been structured as a subscription totalling US$250 million (including recapitalisations), by a consortium of investors into National Air Services (NAS). Profile NAS is an established aviation business in Saudi Arabia. It operates a range of businesses including the private aviation service, NetJets Middle East, the Al Khayala luxury shuttle and charter service and the low-cost airline Nas Air. Investment rationale A growing demand for air travel, combined with the opportunities afforded by the liberalisation of the Saudi aviation market means there is huge potential to grow a profitable airline business.

68 | 69

abraaj Capital annual review 2007

Post-acquisition strategy The capital raised from the consortium alongside funding from Abraaj has provided NAS with the necessary resources to expand its existing activities and complete its investment in identified new business lines. An initial focus on the growth and strategic development for existing brands and renewal of the fleet was followed by the recruitment of key individuals to help with the launch of Nas Air. The medium-term aim is to position the business for a public listing, possibly during 2008/09.

NAS is also seeing exciting transformation in its NetJets Middle East private aviation operation. The business was restructured and the franchise was renegotiated during the year.

Highlights of the year NAS launched Nas Air, Saudi Arabia’s first low-cost airline, in February 2007. The business has expanded to add more than 300 weekly flights, more than 20 routes, and signed orders for 58 new aircraft. NetJets Middle East ordered 60 new aircraft and won the franchise rights to expand into new markets across the region.

The Al Khayala executive airline and charter business continues to operate well from its Riyadh base and NAS remains Saudi Arabia’s leading aircraft management business.

Nas Air’s inaugural flight from Riyadh to Jeddah marked a new chapter in the history of flying in the Kingdom, giving travellers the choice of using a modern and efficient low cost carrier. The total number of passengers carried was approaching 500,000 by year-end, and international routes are expected to be added in 2008. One facet of Abraaj’s involvement with NAS has been to help in recruiting key professionals to guide the business forward. Ed Winter, former COO of low cost pioneer easyJet joined NAS as chief executive officer during the year. He and president Taher Agueel, formerly of Deutsche Bank, have drafted an exciting new strategy for the business.

The NetJets fleet is being transformed, with orders and options signed during the year for 60 new executive jets from three manufacturers; Gulfstream, Dassault and Hawker. Deliveries from these and previous orders started during the second half of the year, more than doubling the core fleet size by year-end.

Our Year

Abraaj Buyout Fund II LP (ABOF II) 2007 acquisition Egyptian Fertilizers Company (EFC)

Egypt

Sector

Urea production

Investment date June 2007 Transaction size US$1.46 billion Stake 100%

Profile Largest private urea manufacturer and exporter in Egypt, producing 1.3 million tons annually.

Higher world prices have given a flying start to Abraaj’s ownership of the business. The initial investment was based around long-term wholesale price forecasts of US$230 per ton but they have actually been in excess of US$400 per ton. Extra revenues from the higher than predicted prices will allow for early repayment of some of the debt associated with the buyout, enhancing returns for investors. Such extra returns have not distracted Abraaj or EFC’s management from the need to make the business more efficient, or to plan for future growth. Essential maintenance on both production lines at EFC’s site in the Northwestern Suez Economic Zone near the port of Sokna was finished in the second half of the year, allowing the plant to operate at 110% of design capacity.

THOUGHT LEADERSHIP

Post-acquisition strategy Abraaj’s involvement with EFC will focus on both further increasing the capacity production of the current facility as well as expanding into new markets, including Nigeria, Algeria, Bangladesh, Pakistan and Kazakhstan. Other opportunities include diversification into related products, such as melamine, urea ammonium sulphate, nitrogen phosphate potassium and urea ammonium nitrate.

The business, which exports more than 90% of its output, saw big rises in market prices for granulated urea, valued by farmers for its high nitrogen content. Part of the growth in demand has come from the US ethanol industry, which relies on corn as its feedstock. Biodiesel producers, meanwhile, are increasingly buying soya beans, encouraging farmers to boost output.

EFC is also continuing to explore opportunities to expand in other locations where low-cost energy is available. It owns a 20% stake in Notore Chemical Industries, a urea and ammonia plant in Nigeria, where production of ammonia started at the end of the year. EFC has also been shortlisted for a joint venture to create a new fertiliser production plant on a greenfield site in Algeria.

Our investments

Investment rationale Global demand for fertiliser for food crops continues to increase, while an emerging demand for biofuel crops is providing a secondary growth market. There is limited manufacturing of urea in Africa, creating a further market opportunity. Low production costs are locked in through long-term gas contracts at favourable rates.

A hunger for environmentally-friendly fuels in the US helped drive world fertiliser prices to record levels, creating an excellent year for the company.

Management has also already started on a more fundamental overhaul of the production process. This will involve removing production ‘bottlenecks’, increasing output by up to 220,000 tons a year. The German company that originally installed the production lines has been commissioned to advise and has already submitted an engineering study for the project, which should be complete in 2010.

empowering potential

Acquisition structure US$75 million investment by ABOF II, US$300 million by IGCF plus co-investment and debt.

Highlights of the year EFC’s performance continues to exceed projections driven by a better than projected urea selling price and lower costs. Revenues have exceeded expectations and EBITDA is 20% higher than forecast. This will enable the company to pay down a larger portion of its outstanding debt and will enhance returns.

Private Equity

Country

Abraaj Buyout Fund II LP (ABOF II) 2007 acquisition Gulf Marine Maintenance & Offshore Company (GMMOS)

Country

UAE

Sector

Oil and gas services

Investment date May 2007 Transaction size US$69 million Stake

100%

www.gmmos.com

Acquisition structure Equity investment, with co-investor. Profile The GMMOS group is a regional oil and gas services group, operating in the Gulf and Caspian markets. Divisions include the Grandweld shipyard, a leader in offshore supply vessels, and GMMOS Fabrication, which makes pressure vessels. The group also contains an offshore charter business and a crane hire division. Investment rationale High energy prices are supporting unprecedented levels of spending on oil and gas production and exploration. As a key supplier, the group is well positioned to benefit from this growth, as well as from growth in general construction projects in the region. Post-acquisition strategy An increase in capacity through an expansion of the workforce and extra shifts was an immediate first step. Abraaj is now helping develop new talent from within the business to take on more day-to-day management responsibilities, freeing up senior executives to consider strategic expansion, including new operations elsewhere in the MENASA region.

70 | 71

abraaj Capital annual review 2007

Highlights of the year Sales were up almost 40% on 2006, with new capacity for Grandweld repair operations coming on stream in Dubai. Ship charter and crane hire utilisation was above 95%, with rates up to 20% higher than those seen in 2006. The fair valuation of investment is already showing substantial gains. High oil prices and continued investment by the oil and gas sector helped propel GMMOS to a spectacular performance in 2007. Group revenues increased sharply. Profits in the first three quarters of the year were up by more than a third, despite major investment in new facilities. Following the acquisition in May, Abraaj has been helping the GMMOS group to manage the challenges of growing a business that is already running at near full capacity. GMMOS has grown its operational knowledge at group level, with recruitment in support areas such as human resources, legal services and procurement. There has been a focus on developing talented second level managers to take more responsibility for day-to-day decisions, freeing time for each division’s executives to work on strategic projects. Extra shifts have been added at Grandweld and GMMOS Dubai to speed production and an extra 400 workers are being hired. Grandweld, the region’s leading aluminium shipbuilder is operating at full capacity, with 13 vessels under construction. A highlight in 2007 was a significant order from Bourbon of France for four tugs and two crew boats. GMMOS secured a US$75 million syndicated loan facility from 11 regional banks to finance production of this order. Grandweld also made good progress on its planned move to a new site at Dubai Maritime City during 2008, which will double capacity.

GMMOS Fabrication too continues to benefit from high levels of investment by oil producers. It delivered US$15 million of pressure vessels in the first half of the year alone, winning orders for a similar amount. It achieved this while successfully managing a move to a new workshop at Jebil Ali. Its sister business GMMOS Kazakhstan, operating from the Caspian port of Aktau, is close to breaking even only two years after being set up. The potential oil infrastructure market in Kazakhstan is estimated at US$140 billion and GMMOS won important contracts for Petrogaz and Dragon Oil this year. GMMOS’s charter division Stanford focused on keeping its fleet busy, typically now earning revenue more than 95 days out of 100 on every boat. Rates also increased by more than 20% during the year. Stanford acquired two new crew boats in September, taking the fleet to 20 vessels; both have already been chartered on a three-year contract. The ongoing construction boom has seen demand remain high at Gallagher International, GMMOS’s crane rental business. Hire-out rates have exceeded 96% and Gallagher expanded its fleet to 54 cranes during the year.

Our Year

Abraaj Buyout Fund II LP (ABOF II) Continuing investment Mannan Shahid Forgings (MSF)

Pakistan

Sector

Steel forging

Investment date November 2006 Transaction size US$16.3 million Stake

80%

www.msforgings.com

Profile MS Forgings is Pakistan’s largest steel forging house, catering mostly to the booming automotive industry, with strong shares of both the domestic and export markets.

Post-acquisition strategy Abraaj is streamlining production, which is forecast to improve capacity by more than one third. Improved marketing and sales processes will boost sales to both existing and new customers. The management team is actively evaluating strategies to expand through acquisitions, both domestic and internationally.

One of the most important tasks in 2007 has been to develop a succession plan for chief executive officer Shahid Khan, who retires in 2008. After a rigorous search, Saeed Zaman accepted the company’s offer to be COO and CEO designate and joined in December. The two will work side by side prior to Shahid Khan’s retirement. As well as this key position, the management team has been strengthened by hiring experienced professionals such as the new chief financial officer and new head of human resources. During the year, MS Forgings invested in a new enterprise resource planning system to better integrate its information and process planning, so giving the management a clearer day-to-day perspective on performance.

Management has also successfully addressed inefficiencies in the production process as part of a programme to boost capacity by one third without significant expense. Enhancements adopted over recent months include induction heating processes and the use of flood welding to produce component dies.

Our investments

Investment rationale MS Forgings is well placed to benefit from the dynamic growth in Pakistan’s own automotive sector. It also identified the global outsourcing trend early and operates at international quality standards. Almost 45% of its production is exported to clients in Europe, the US and South America.

MSF clients include Pakistan’s leading motorbike and tractor manufacturers as well as suppliers to some of the biggest names in the world automotive industry. MSF remains cost-competitive against global rivals for car companies wishing to outsource manufacturing. Abraaj worked closely with management during the year to identify its most profitable customers and focus efforts on deepening and expanding these relationships.

The international automotive market is fiercely competitive and maintaining high quality production is essential. The business has recruited a new head of forging and has also invested in new forging simulation software to keep MSF at the leading edge.

empowering potential

Acquisition structure US$16.3 million investment.

Highlights of the year MS Forgings has enjoyed its fifth successive year of increasing sales. Satisfyingly, this growth was translated into higher profits with net income for the 2007 fiscal year up by almost one fifth.

Private Equity

Country

THOUGHT LEADERSHIP

Abraaj Buyout Fund II LP (ABOF II) 2007 acquisition Saudi Tadawi Health Care Company (Tadawi)

Country

Saudi Arabia

Sector

Healthcare

Investment date Deal agreed December 2007 Transaction size US$177 million Stake

40%

Acquisition structure Direct equity investment including co-investors. Profile Tadawi is a premier retailer and wholesaler of pharmaceuticals and personal care products in the Kingdom of Saudi Arabia. It has an integrated business, made up of DarMarwa, the Kingdom’s largest pharmaceutical wholesaler, and Tadawi Pharmacies, a retail pharmaceutical business with the widest footprint in the country. It also owns Pharma Tech, an agency that helps suppliers to register, promote and distribute their products. Investment rationale Both the population and the demand for healthcare in the Kingdom is growing, with spending on drugs and pharmaceuticals projected to grow by more than 10% annually. Tadawi is ideally positioned to take a substantial share of this market, by expanding and developing its retail chain. The group is also a leader in the growing sector of managed pharmacies, in locations such as clinics and hospitals.

72 | 73

abraaj Capital annual review 2007

Post-acquisition strategy There is a strategy for expansion, building up scale in both the pharmacies and the distribution network. This could also see Tadawi grow into other GCC markets, with Abraaj able to help the business bridge national boundaries. Abraaj has identified scope for operational improvements and for improvement of operating margins. The ambition is to grow Tadawi towards an eventual IPO. Highlights of the year The company’s growth continued with the purchase of Saggaf, a well-established chain of 47 pharmacies in Riyadh. DarMarwa has constructed two new warehouses, increasing its capacity and improving its geographic reach.

Our Year

Infrastructure and Growth Capital Fund LP (IGCF)

Air Arabia Aviation, UAE Acibadem Healthcare, Turkey EFC Urea production, Egypt Global Education Management Systems Education, MENASA

Fund year in review

A highlight was the fund’s acquisition in June of the Egyptian Fertilizers Company. The US$1.46 billion deal, completed with co-investors including

Other key deals during 2007 included the purchase of a strategic minority stake in low-cost airline Air Arabia, ahead of its IPO in March 2007. This transaction is already yielding positive returns, as Air Arabia shares have near doubled in price since listing on the Dubai Financial Market. Abraaj has also been partnering the airline through its rapid expansion plans, including a management agreement with a Moroccan carrier which will allow Air Arabia to open a second hub in Rabat. IGCF is witnessing a strong deal pipeline, and it is expected that the fund will be fully invested within two years of launch.

> A record closing, making IGCF the biggest MENASA private equity fund > Lead investor in the region’s largest leveraged buyout deal > Key stakes in profitable education, healthcare and transport companies > Exciting deal pipeline to provide further investments in 2008

THOUGHT LEADERSHIP

At US$2 billion, this is now the largest private equity fund focused on the MENASA region. Almost one third of the money committed has come from institutions outside the region, significantly broadening Abraaj’s investor base. Even while the fundraising was taking place, Abraaj used its own capital to commit to investments worth US$1.4 billion, with IGCF’s stake in these worth US$800 million. This gave investors an early opportunity for upside gains.

Abraaj has already put in place a long term engineering programme to enhance production at EFC by removing bottlenecks. Extra maintenance has raised capacity in the short term, allowing EFC to capitalise to the full on high world fertiliser prices. In another significant deal, the fund agreed to buy up to 50% of Acibadem Healthcare, Turkey’s leading private healthcare business. This stake was increased to 69.6% in January 2008 and a related 50% stake was acquired in leading Turkish health insurance company, Acibadem Sigorta. Acibadem owns its own hospital network, as well as providing health insurance and management services, and is already enjoying strong growth as the sector expands, in part due to health regulation reforms enacted by the Turkish Government.

In June the fund invested in GEMS Education, acquiring a 25% stake in the company’s MENASA business. GEMS MENASA owns or manages 55 schools across MENASA and is well placed to grow its share of the US$10 billion market for private education in the region.

Our investments

2007 was quite simply a spectacular year for IGCF. Two further rounds of fundraising attracted another US$1.5 billion of commitments.

the Abraaj Buyout Fund II, was the largest ever private equity-led leveraged buyout transaction in the Middle East and North Africa.

empowering potential

Ongoing investments at start of 2008

Private Equity

IGCF’s mandate spans the MENASA region, investing in a broad range of industries integral to bringing the economy to its next level of development, including education, healthcare, aviation, petrochemicals, power and ports, among others. The fund’s first closing was in December 2006 at US$500 million; its second was a record closing in September 2007, with additional commitments of US$1.2 billion, with a fund closing of US$2 billion in December 2007. It has a target IRR of 20% on invested capital contributions.

Infrastructure and Growth Capital Fund LP (IGCF) 2007 acquisition Air Arabia

Country

UAE

Sector

Aviation

Investment date March 2007 Transaction size US$113.2 million Stake 16.6% prior to IPO, diluted to 6.4% in public offering www.airarabia.com

Acquisition structure Pre-IPO subscription to 300 million founder shares with minority rights, including board appointees. Profile Air Arabia is the Middle East’s first and leading low cost carrier (LCC). Founded in 2003, it operates to 35 destinations from a main hub at Sharjah in UAE. It has already carried more than 3.5 million passengers. The airline raised an extra US$700 million of capital to fund future development through an IPO in March. Investment rationale Air Arabia is a pioneering LCC, with focused plans for expansion in a rapidly growing regional aviation market. Costs are kept low by the use of a single aircraft type – the Airbus A320 – and high utilisation rates. It has been operating profitably since its second year in business.

Post-acquisition strategy The investment made by Abraaj will support the airline’s regional expansion plans and aircraft acquisition strategy, as well as provide capital for infrastructure development at Sharjah Airport, where passenger traffic increased more than 36% last year. Abraaj will also support Air Arabia by conducting detailed assessments of each potential investment. Deals in the pipeline include investment opportunities in aviation and airport infrastructure sectors. Highlights of the year IPO completed in July. Third-quarter profits were up 244%. Expansion plans were underlined in November with an order for up to 49 more Airbus A320 aircraft. Air Arabia shares were listed on the Dubai Financial Market in July and investors saw the price almost double in value by the year-end. Operationally, 2007 was another year of growth. The route network expanded from Air Arabia’s Sharjah hub to serve 35 destinations and extra flights were added on established routes. New destinations include Chittagong in Bangladesh, Bangalore and Coimbatore in India, and Karachi and Peshawar in Pakistan. Air Arabia continues to change the perception of travel in the region. Passenger numbers grew strongly, up 55% to 1.9 million in the first nine months. The airline celebrated its five-millionth passenger in October. Unlike rivals, Air Arabia is not growing at the expense of profit. Net profits for the first nine months of the year were US$76 million, up 331% on the same period in 2006.

74 | 75

abraaj Capital annual review 2007

Net income in the three months to December 31 surged to 89.52 million dirhams (US$24.38 million) from 32.65 million dirhams in the year-earlier period. The number of passengers rose almost 50% to 745,000 pushing revenue up 62% to 349.3 million dirhams. Average load factor for the year – the percentage of seats occupied on each flight – was 86% compared to 81% in 2006. In November, Air Arabia took another transforming step forward, signing a deal with Moroccan carrier Regional Air Lines (RAL). Air Arabia will take on management control of RAL, applying its low cost business model, and will invest to develop Rabat as its second hub. The venture opens up development of new routes across North Africa and into Europe. The business’s growth plans were underlined by placing an order with Airbus for 34 new A320 aircraft, with options signed on a further 15. The US$3.5 billion deal will ultimately triple the size of Air Arabia’s fleet. The airline is also diversifying its income, investing in improving infrastructure at Sharjah airport. It is building a 300-room hotel at the airport, to be managed by Rotana Hotels. Air Arabia is also setting up a joint venture aviation academy to train the next generation of pilots for the region. Air Arabia’s achievements have not gone unnoticed. It was named Low Cost Airline of the Year at the Aviation Business Awards in November, with chief executive officer Adel Ali named Airline CEO of the Year at the same event. This follows Skytrax’s award for Best LowCost Airline in the Middle East, given in August – especially gratifying as it is based on an independent survey of passengers.

Our Year Private Equity empowering potential

2007 Acquisition

In Q4

Profits tripled

Intra-regional passenger traffic in the Middle East is predicted to grow by 7%, annually, until 2010. In particular, the low-cost carrier (LCC) model is set to repeat its global success story and achieve strong and rapid regional growth. As an established airline with world-class management, Air Arabia, is especially well positioned to benefit as an LCC pioneer.

The company offers a simple and efficient service at affordable and competitive ‘value for money’ fares. By offering flights of less than five hours, best practice operational reliability and high aircraft utilisation, Air Arabia keeps its planes in the air, not on the ground. Even more importantly, the airline is able to elevate its financial performance to equal heights. Abraaj will work with Adel Ali, Air Arabia’s chief executive officer, to ensure that the company remains the leading LCC in the region.

Our investments

air arabia

THOUGHT LEADERSHIP

Infrastructure and Growth Capital Fund LP (IGCF) 2007 acquisition Acibadem Healthcare

Country

Turkey

Sector

Healthcare

Investment date Deal agreed August 2007 Transaction size Up to US$585 million Stake

Up to 50%

www. acibadem.com

Acquisition structure Investment by ABOF II, IGCF, co-investors and additional acquisition finance. Profile Acibadem was founded in 1991 and is the only healthcare institution to have shares traded on the Istanbul Stock Exchange. It is part of a premium integrated healthcare platform that provides secondary and tertiary private healthcare services, laboratory services, health and life insurance, hospital project management and hospital facilities management services. It is the only hospital group worldwide to be accredited by Joint Commission International (JCI), which certifies private hospitals, and is affiliated with Harvard Medical International. Acibadem Healthcare Services operates six premium hospitals with a bed capacity in excess of 700, two outpatient clinics, a central laboratory, a genetic and cell therapy lab, an ophthalmology centre and five specialised medical centres. It is currently building another eight hospitals, which will take the total number of beds to 1,595.

76 | 77

abraaj Capital annual review 2007

Investment rationale Acibadem is a world-class health provider already operating in an attractive market. Regional demand for healthcare services is being driven by a range of factors, including high levels of population growth, changing socio-economics, prevalence of health risk factors, medical innovations and increasing insurance spend. In response to this growing demand, governments in the Middle East are increasingly focused on the provision of broadly available, high-quality services. Post-acquisition strategy Abraaj’s strategic support will accelerate the development of the healthcare group in Turkey and facilitate the long-term expansion of its healthcare services in the MENASA region, where the existing supply of high-quality medical services is generally insufficient. There are currently twice as many physicians per 1,000 people in the 30 countries within the OECD than there are in Turkey and in the GCC, and nearly three times the available hospital beds. In the GCC states alone, demand for treatment is expected to grow more than twofold by 2025, to approximately US$60 billion per annum. Highlights of the year The increased demand for private medical care is already feeding through to Acibadem’s performance and profitability. There was a positive market reaction to the Abraaj investment, with a ‘Buy’ recommendation on Acibadem from KBC Securities. This was a landmark year for the health market in Turkey as the state-backed General Health Insurance (GHI) Fund was launched. This initiative gives patients a wider choice of where they are treated, using public money to pay for up to half the cost of selected private treatment. It has also helped to drive an exciting year of growth for Acibadem, the nation’s premier private health group.

The hospitals business continued its expansion, with the construction of two new hospitals in 2007, including a joint venture with Besiktas Sports Club in Istanbul and a wholly owned hospital in the Maslak district of Istanbul. Development plans were announced for hospitals at Izmir, Eskisehir and Bodrum. The medical laboratories division also expanded with the opening of two stem cell laboratories in April. The arrival of the GHI is increasing the scope for private medical insurance as companies start offering voluntary top-up plans which pay the difference between the GHI contribution and the total cost of treatment. This will benefit Acibadem’s A-Insurance business, Turkey’s fifth largest health insurer. Overall growth in the healthcare market is also leading to new business for the Acibadem healthcare project management division and the A-Plus catering and laundry service. Both were on track to grow revenues strongly by year-end. Since the acquisition of an initial stake in August 2007, Abraaj has been working with management on a strategy to expand into other markets in the Middle East. Possible ventures in Saudi Arabia, Kuwait and India are already being assessed.

Egypt

Sector

Urea production

Investment date June 2007 Transaction size US$1.46 billion Stake 100%

Profile Largest private urea manufacturer and exporter in Egypt, producing 1.3 million tons annually.

Higher world prices have given a flying start to Abraaj’s ownership of the business. The initial investment was based around long-term wholesale price forecasts of US$230 per ton but they have actually been in excess of US$400 per ton. Extra revenues from the higher than predicted prices will allow for early repayment of some of the debt associated with the buyout, enhancing returns for investors. Such extra returns have not distracted Abraaj or EFC’s management from the need to make the business more efficient, or to plan for future growth. Essential maintenance on both production lines at EFC’s site in the Northwestern Suez Economic Zone near the port of Sokna was finished in the second half of the year, allowing the plant to operate at 110% of design capacity.

THOUGHT LEADERSHIP

Post-acquisition strategy Abraaj’s involvement with EFC will focus on both further increasing the capacity production of the current facility as well as expanding into new markets, including Nigeria, Algeria, Bangladesh, Pakistan and Kazakhstan. Other opportunities include diversification into related products, such as melamine, urea ammonium sulphate, nitrogen phosphate potassium and urea ammonium nitrate.

The business, which exports more than 90% of its output, saw big rises in market prices for granulated urea, valued by farmers for its high nitrogen content. Part of the growth in demand has come from the US ethanol industry, which relies on corn as its feedstock. Biodiesel producers, meanwhile, are increasingly buying soya beans, encouraging farmers to boost output.

EFC is also continuing to explore opportunities to expand in other locations where low-cost energy is available. It owns a 20% stake in Notore Chemical Industries, a urea and ammonia plant in Nigeria, where production of ammonia started at the end of the year. EFC has also been shortlisted for a joint venture to create a new fertiliser production plant on a greenfield site in Algeria.

Our investments

Investment rationale Global demand for fertiliser for food crops continues to increase, while an emerging demand for biofuel crops is providing a secondary growth market. There is limited manufacturing of urea in Africa, creating a further market opportunity. Low production costs are locked in through long-term gas contracts at favourable rates.

A hunger for environmentally-friendly fuels in the US helped drive world fertiliser prices to record levels, creating an excellent year for the company.

Management has also already started on a more fundamental overhaul of the production process. This will involve removing production ‘bottlenecks’, increasing output by up to 220,000 tons a year. The German company that originally installed the production lines has been commissioned to advise and has already completed an engineering study for the project, which should be complete in 2010.

empowering potential

Acquisition structure US$300 million investment by IGCF, US$75 million investment by ABOF II, plus co-investment and debt.

Highlights of the year EFC’s performance continues to exceed projections driven by a better than projected urea selling price and lower costs. Revenues have exceeded expectations and EBITDA is 20% higher than forecast. This will enable the company to pay down a larger portion of its outstanding debt and will enhance returns.

Private Equity

Country

Our Year

Infrastructure and Growth Capital Fund LP (IGCF) 2007 acquisition Egyptian Fertilizers Company (EFC)

Infrastructure and Growth Capital Fund LP (IGCF) 2007 acquisition Global Education Management Systems (GEMS)

Country

MENASA

Sector

Education

Investment date June 2007 Transaction size US$124 million Stake

25%

www.gemseducation.com

Acquisition structure Equity investment with a meaningful portion of the deal conditional on profitability and exit targets. Profile GEMS is a long-established operator of private schools throughout the MENASA region and is currently educating more than 58,000 students across 55+ schools. In addition, GEMS has a growing business managing schools on behalf of third parties, including state authorities. Investment rationale A market leader, with a strong brand built over 39 years of successful operation, GEMS is well placed to gain from an increasing demand for private education in the region. There is also potential to earn significant revenues from managing public schools and growing the brand into new markets. Post-acquisition strategy There is an aggressive expansion plan to grow the business across the region, involving running as many as 350 schools and boosting student numbers by up to 500,000. Growth will come in a variety of ways, including joint ventures and partnerships with real estate developers.

78 | 79

abraaj Capital annual review 2007

Highlights of the year Revenues are already showing year-on-year growth in excess of 28%. New school openings are under way in UAE. Detailed expansion plans have been finalised for new openings in India, Egypt, KSA and Pakistan. GEMS strengthened its position in 2007 as the region’s top provider of high quality education. The business saw revenues grow 28% as it expanded its network of schools. GEMS now owns 30 schools across the Middle East, North Africa and South Asia, and has contracts to manage another 25. It is responsible for educating almost 60,000 students. Among schools to open in the year was the first GEMS World Academy in Dubai in September. This school, catering for ages 4 –18, is the first school from GEMS based around the teaching of the International Baccalaureate qualification. The GEMS American Academy in Abu Dhabi, a venture endorsed by the government of Abu Dhabi, was also opened in September. Just a month earlier, GEMS announced a new specialist school in partnership with the Dubai Silicon Oasis Authority, which is developing a high-technology hub. The GEMS DSO Smart School, due to open in September 2008, will focus on developing essential technology skills alongside a core curriculum. Managing schools on behalf of state and national governments is expected to represent a growing market for GEMS. At the start of the year it agreed to collaborate with Edison Schools, the largest manager of public schools in the US, which has licensed GEMS the right to use its proprietary school management systems across the MENASA region. This makes GEMS a compelling proposition as it competes for school management contracts.

High standards are at the heart of the schools GEMS runs. Several pupils won international awards for their performance in public exams this year. Meanwhile, Cambridge International School in Dubai was awarded Fellowship status by University of Cambridge International Examinations (CIE). This recognises the high quality of education given at the school to candidates preparing for the CIE exams. High profile guests at GEMS schools during 2007 included José María Figueres, former president of Costa Rica and, from the UK, HRH Princess Michael of Kent. In May a group of pupils from the Dubai Modern High School visited New Delhi as the personal guests of India’s president, Dr APJ Abdul Kalam. In a proud moment for the company, Sunny Varkey, founder and chairman of GEMS, was named Outstanding Asian Businessman of the Year at the Asian Business Awards, Middle East in December.

Our Year Private Equity empowering potential

GEMS plays a vital role in providing primary and secondary quality education throughout MENASA. It offers a range of internationally recognised curriculum programmes, including International Baccalaureate, National Curriculum for England, American Curriculum, and various Indian curricula.

2007 Acquisition

25

stake

In its continued efforts to enrich the lives of students and teachers at GEMS schools, the organisation also undertakes various not-forprofit initiatives. These include, among others, the GEMS Scholar programme, the provision of career counselling, and teacher

training services. GEMS also participates in the MENA Learning & Leadership Programme, a three-year initiative designed to develop and deliver sustainable solutions for learning and development in the Middle East and North Africa region.

Our investments

GEMS

Abraaj’s entry into the education sector, as one of the first investments by IGCF, strengthens GEMS growth potential and the region’s education infrastructure. It also contributes significantly to the stability and diversification of our own portfolio: a case of doing well by doing good.

THOUGHT LEADERSHIP

Our responsibility to thought leadership Spreading the highest standards of corporate governance and social responsibility will help our region flourish.

A beacon for good corporate governance Good corporate governance is essential to the way we work. Open and transparent standards of governance reinforce trust and reduce business risk. Abraaj leads by example and – by insisting on similar high standards in every business that we invest in – we are helping to raise the bar across the region.

Abraaj’s success is built on trust: of our investors, of the governments in the countries in which we operate, of the media, and of the wider community. Such trust reflects the integrity and honesty that has always been part of our culture.

We instil change in all of the businesses that we invest in across the region by improving their operating processes, governance and systems. This allows them to perform better in their marketplace vis-à-vis their competitors – performance which is ultimately recognised by all stakeholders. In any efficient marketplace, market participants always strive to adopt ‘best practices’. Both Abraaj and its portfolio companies have played, and will continue to play, a meaningful role in establishing best practices across our region.

In March 2006, Abraaj voluntarily came under the regulation of the Dubai Financial Services Authority, and in doing so became one of the first private equity firm to be regulated anywhere in the world. Our reasoning for doing so was simple: without constricting our business practices in any way, being regulated by the DFSA would help to further strengthen our governance system and demonstrate the transparency of our business model. In 2007, we further institutionalised our corporate governance system to ensure that such qualities become a formal, mandatory part of the way we work. Following the 2006 appointment of a compliance officer, we put in place new processes and developed a wide-ranging holistic compliance and governance framework. This covers such matters as our board of directors, committees, internal controls and procedures, and risk strategy. The framework is based on the UK’s Combined Code of Corporate Governance – an internationally recognised standard. It was also shaped by guidance from the UK Institute of Chartered Secretaries and Administrators. We also laid the groundwork for the publication of our Principles of Governance, which sets out our corporate governance policy. The Principles outline our shared values, objectives, processes and procedures. In line with our strong commitment to transparency and open communication, the Principles are accessible to all on our website. We believe their dissemination will promote common standards among our staff and inspire trust and confidence among stakeholders.

82| 83

abraaj Capital annual review 2007

The Principles represent the practical foundation of the way we work: not just a theoretical document. To ensure our people keep the Principles in mind, we have linked certain declarations (arising from our corporate governance system) to the computer system. In order to log on, and so start work, staff must (once a month) confirm that they are aware of, understand and agree to adhere to our procedures. Staff members must also confirm that there is no undisclosed information that might affect their fit and proper status. These self-directed steps build on Abraaj’s track record of voluntarily pursuing best practice. In addition to our voluntary regulation, our Advisory Board maintains a direct dialogue with our regulator, the DFSA. Our strong commitment to corporate governance goes right to the top of the company. Our compliance officer reports directly to the CEO, who ensures that the compliance officer has full resources to perform his duties objectively. These duties include documenting our compliance function; monitoring processes and procedures, and keeping records of any breaches of legislation – all proof of our desire to govern Abraaj according to the highest possible standards. Our Board and committee system The structure of Abraaj’s Board and committee system also formalises the ethical conduct that underpins our work and reflects global best practice in corporate governance.

Our Year Private Equity

>A  compensation committee, composed of the Chairman, CEO and a non-executive director, advises on all compensation, including that of the CEO (who abstains from discussion of, and voting on, his own remuneration package). It meets at least once a year, with a quorum of two, to include the CEO (unless the business concerns his remuneration).

THOUGHT LEADERSHIP

>A  n executive committee, chaired by the CEO and composed of up to five senior executive directors. On the recommendations of the investment committee, the final investment decisions are approved by the CEO. It meets at least once a month, and decisions are by majority (the quorum is three, to include the CEO). The CEO may decide to refer some decisions up to the Board level.

“In 2007, we further institutionalised our corporate governance system to ensure that such qualities become a formal, mandatory part of the way we work.”

Our investments

Responsibility for investments by the Funds and the day-to-day running of Abraaj rests with the CEO assisted by executive management. There are also a number of committees:

>A  n audit and corporate governance committee, composed of three nonexecutive directors appointed by the Board, meets at least four times a year. It continually reviews our internal controls, recommends appointment of external auditors and receives their reports, reviews the performance of internal audit function, advises the Board on meeting the highest standards of corporate and financial governance and ensures we meet all our regulatory requirements. The quorum is two, plus the attendance of the CEO, CFO and compliance officer.

Empowering potential

The Board of Directors Leading the company is, of course, the Board of Directors. Significantly from a corporate governance perspective, we have always kept the functions of Chairman of the Board and CEO separate. The Board has the job of maintaining Abraaj’s prosperity and balancing the interests of all our stakeholders. It provides entrepreneurial leadership, sets our strategic aims, and reviews management performance. It is required to meet at least four times a year (but meets more frequently in practice) and is limited by statute to 17 members, each serving an initial three-year term. One third of the Directors retires every year according to the articles but can be re-elected for another term. Currently, the Board consists of 15 members including two executive directors.

A beacon for good corporate governance Continued

> An investment committee, composed of all executive directors, recommends investments to the Executive Committee. Our head of compliance, chief risk officer, and chief financial officer attend (but do not have a vote). Individual investment teams evaluate opportunities and present their findings and recommendations to the committee at various stages of the investment process. The committee meets on a regular basis and has a quorum of five directors. Executive committee approval is needed for all investments. > A portfolio review committee, composed of all executive directors evaluates the performance of the investments on a monthly basis. In-depth analysis of at least three investments is undertaken in each meeting and the actual performance is compared with the original investment case. The progress against the value creation plans is measured and issues are thrashed out. The exit strategy and synergies between various businesses are regularly evaluated by this committee. >A  n Advisory Board, composed of five (currently) external independent experts, advises the Board of Directors and Chief Executive Officer of Abraaj Capital Limited on global best practice in the private equity industry, as well as risk management and compliance issues in respect of the company’s business and the Funds managed by it.

84| 85

abraaj Capital annual review 2007

Our holding company Abraaj Capital Limited (ACLD) is a wholly owned, licensed and regulated subsidiary of Abraaj Capital (Cayman) Limited, which in turn is a wholly owned subsidiary of Abraaj Capital Holdings Limited (ACHL), the group’s holding company. ACHL has an issued share capital of US$1 billion and a shareholder base that includes some of the most influential people and institutions in the region. ACLD is incorporated in the Dubai International Finance Centre, a financial free zone and is regulated and licensed by the Dubai Financial Services Authority (DFSA). ACLD holds a Category 3 Authorisation, enabling it to deal in investments as agent, manage assets, arrange credit or deals in investments and advise on financial products or credit. ACLD is also authorised to provide fund administration services to any fund established by the Abraaj group. In its development of a world-class corporate governance system, as in many other cases, Abraaj has shown itself as a best practice-inspired pioneer. We derive enormous satisfaction from seeing the numerous companies we own move to a higher level of governance and profitability. Moreover, it is very pleasing to see how such success boosts national and regional economies: acting as a catalyst for development and employment; helping to bring the Middle East into the global economy and equipping the young leaders of tomorrow. We believe our corporate governance is of the highest importance in our success, now – and that it will continue to be so in the future.

“In its development of a world-class corporate governance system, as in many other cases, Abraaj has shown itself as a best practice-inspired pioneer.”

Our Year

Our Advisory Board

Sir Paul Judge

Mr Cleary is a research associate of the South African Institute of International Affairs, a Fellow of the World Economic Forum and Strategic Adviser to the executive chairman, a member of WEF’s African Task Force and a senior adviser to the Arab Business Council.

His recent professional awards include selection as a Fellow of the Academy of International Business Professional Leadership from 2001 to 2005 and President of the Academy of International Business from 2001 to 2002. He has been a Fellow of the World Economic Forum since 1995. Professor Josh Lerner Josh Lerner is the Jacob H. Schiff Professor of Investment Banking at Harvard Business School, with a joint appointment in the Finance and the Entrepreneurial Management Units. Much of his research focuses on the structure and role of venture capital and private equity organisations. (This research is collected in The Venture Capital Cycle and The Money of Invention.) He also examines the impact of intellectual property protection, particularly patents, on the competitive strategies of firms in high-technology industries, as addressed in his new book Innovation and its Discontents. In the mid-1990s, Prof Lerner introduced an elective course for second-year MBAs on private equity finance.

José María Figueres José María Figueres was President of Costa Rica from 1994 -1998, creating a sustainable development strategy combining strategic investment in human development and innovative environmental policies. Mr Figueres helped create and lead the United Nations Information and Communication Technologies Task Force (ICT). In 2000, he joined the World Economic Forum, ultimately serving as its first CEO. He is currently CEO of Grupo Felipe IV, in Spain, promoting development and democratic values around the world. He recently worked with former US Vice President Al Gore on the Oscar-winning environmental documentary, An Inconvenient Truth. He holds an industrial engineering degree from the US Military Academy at West Point and a Masters in Public Administration from the John F. Kennedy School of Government at Harvard.

THOUGHT LEADERSHIP

He is currently Chairman of Teachers TV and of Schroder Income Growth Fund plc. Sir Paul also chairs the UK Marketing Standards Setting Board, the Enterprise Education Trust, Digital Links International and the British-North American Committee and is President of the Association of MBAs and Deputy Chairman of the American Management Association and of the Royal Society of Arts.

Stephen Kobrin Stephen Kobrin is the William H Wurster Professor of Multinational Management at the Wharton School of Business and was the Director of the Lauder Institute of Management and International Studies from 1994 to 2000.

José María Figueres

Our investments

Sir Paul Judge Sir Paul was a director with Cadbury Schweppes plc where he led the buyout of its food companies to form Premier Brands Ltd. He was subsequently a ministerial adviser at the UK Cabinet Office and director general of the Conservative Party.

Professor Josh Lerner

Empowering potential

Sean Cleary Sean Cleary is Chairman of Strategic Concepts, Managing Director of the Centre for Advanced Governance and Chairman of Atlantic Holdings. A former South African diplomat and naval officer, he is a member of the faculty of the Parmenides Foundation and lectures on global corporate strategy at leading universities and business schools.

Stephen Kobrin

Private Equity

Sean Cleary

Sustainable development Abraaj aims to be among the top private equity firms in the world in adopting and promoting sustainability management. That is, in running our organisation in a way that meets the needs of today’s generation without compromising the ability of future generations to meet theirs.

Abraaj has a uniquely influential position in the region. We can change and evolve not only our own business but, through our influence, the businesses that we invest in.

In 2007, an assessment of sustainability trends on Abraaj’s business strategy highlighted the links between sustainability and performance excellence. Subsequently, we concluded that embedding sustainability principles within Abraaj would help maximise value from our investments, reinforce the reputation and trustworthiness of our brand and enhance our ability to attract future funds. Going forward, we will focus on eight priority areas:

Creating value for investors We will play a thought leadership role to encourage the widespread take-up of sustainability management. By May 2008, we expect that at least four of our portfolio companies will have committed to adopting sustainability management. To our knowledge they will be the first in their sectors in the Arab world to adopt sustainability. We will also continue to integrate sustainability messaging into all of our major forums. Incorporating sustainability into all investments We will integrate sustainability considerations in our investment decisionmaking criteria. As well as reducing risk and identifying new avenues for value creation, there is the opportunity to attract the fastgrowing body of investors who support a sustainable investment philosophy. We have approached three majorityowned portfolio companies – Egyptian Fertilizers Company, GMMOS and JorAMCo – to request that each undertake a sustainability benchmarking and assessment, followed by the establishment of a sustainability strategy and a baseline sustainability report. This work will take place in 2008. If results are positive, we will actively expand the adoption of sustainability management across our majority-owned portfolio companies.

86| 87

abraaj Capital annual review 2007

Abraaj also believes that sustainabilityoriented innovation will be a major catalyst for growth. We have the opportunity to invest in companies that will excel in a sustainability economy. We will consider the merit of a focused investment fund in a specific area of this emerging sustainability economy. Fostering good governance We will be a leader in good governance, setting an example for our portfolio companies. In 2007 we made significant governance strides in-house. We introduced ‘The Abraaj Group’s Holistic Compliance and Governance Framework’ which builds upon our existing code of conduct and incorporates principles of governance. In 2008 we will ensure that sustainability issues are integrated into the boardroom agenda for both Abraaj and our majority-owned portfolio companies. Improving accountability to stakeholders We recognise that there are increasing pressures on private equity to increase accountability and transparency. In addition to our own sustainability reporting three of our portfolio companies will issue sustainability reports in the first half of 2008, with others to follow later in 2008 and early 2009.

Our Year Private Equity

We will evaluate in 2008 whether a macro indicator would aid stakeholder analysis of our overall economic value creation.

Clearly, we can leverage our impact by influencing the environmental performance of our majority-owned companies. We aim to have all of these reducing real carbon emissions by 2010. Community Partnership Programme (CPP) We have a long-standing history of supporting the communities in which we operate. In 2007, we made significant donations to charity, focusing our investment on helping children through social, educational and health initiatives. We also established guidelines for our majority-owned companies to invest a minimum of 1% pre-tax profit in community initiatives, in line with international best practice.

Above left Four members of the Abraaj investment team completed a sponsored climb of Kenya’s Mount Kilimanjaro to raise funds for children in Africa. Above right Richard Geary, Director of Family Education Services, with members of the deaf community who will benefit from a new school sponsored by Abraaj in Hyderabad, Pakistan.

Our investments

Attracting, developing and retaining the best people Our success as a business is primarily a product of the quality and talents of our people. During the year we began introducing systematic human resource management systems. We increased training and financial assistance and other support for employees seeking specific certifications. An online survey by a third party confirmed 98% of our employees were happy and proud to be working at Abraaj. We want the employees of our portfolio companies to feel the same way. During 2008/2009 we will assess the health, safety and human rights performance of all majority-owned portfolio companies, beginning with any that may have a higher level of risk.

Developing environmental sustainability In 2007 we conducted a preliminary assessment of our own environmental impact and carbon footprint. We have set a goal of a 15% reduction in 2008, becoming carbon neutral by end of 2010. In 2008 we will initiate paper recycling and water conservation schemes as we move into our new offices.

Empowering potential

Generating broad economic value We create wide-reaching economic value by strengthening the companies in which we invest. As part of the sustainability reporting efforts of our portfolio companies, in 2008 they will begin reporting on their economic impacts following the suggested direct economic impact indicators of the Global Reporting Initiative. This includes data such as salaries paid, procurement, taxes paid and investments in communities.

THOUGHT LEADERSHIP

Sustainable development Continued

“Charitable contributions have been central to Abraaj’s culture since it was first established. ”

The mandate of the CPP was developed with the input of the entire Abraaj team and is funded by Abraaj and employee contributions. The CPP is run by an independent, volunteer staff committee, representing various levels across the firm, and is headed by an elected chairperson. Committee members seek out opportunities to fund the education, medical care and social development of children in the MENASA region as well as assisting individual cases of need and responding to natural disasters. In 2007, donations were made to a wide range of causes, including the Dubai Cares initiative. The CPP supported holistic educational improvement initiatives in Egypt, India, Sri Lanka and Nepal, through the international organisations Save the Children and Room to Read. It also sponsored individual scholarships for young girls, who would otherwise have abandoned their schooling due to financial hardship, through the Dominic Simpson Memorial Trust. In another initiative, the CPP joined forces with the Palestinian Children’s Relief Fund to sponsor multiple medical missions, focusing on open-heart surgery, cleft lip and palate operations, and spinal health treatment. The Programme also identified a project with the Family Education Services Foundation in Karachi to open a new school for deaf education in Hyderabad.

88| 89

abraaj Capital annual review 2007

In Dubai, computer equipment was donated to Al Manzil, a non-profit centre for individuals with special needs, and a children’s physiotherapy machine and pediatric wheelchair were presented to Al Noor, a centre for children with special needs run under the auspices of the Dubai Ministry of Social Affairs. In addition to the CPP’s work with regional and international charities, it has helped individuals facing urgent healthcare needs. Donations have ranged from life-saving operations and simple medicines to funds for life-enhancing equipment and therapies. Charitable contributions have been central to Abraaj’s culture since it was first established. As the business continues to grow, we are committed to expanding our corporate responsibility programme at the same meteoric rate. For more comprehensive coverage of our sustainability performance, please see our 2007 Sustainability Summary, downloadable at www.abraaj.com.

Our Year

Connecting with our stakeholders Transparent and open communication is at the heart of all our relationships.

Private Equity

Our corporate communications department, which was established over two years ago, is responsible for implementing our communications strategy. But every employee at Abraaj has a role to play.

Our investments THOUGHT LEADERSHIP

Each of our Limited Partners receives quarterly reports (as per EVCA Guidelines) to keep them up to date with the progress of our portfolio of investments, the fund performance and deals in the pipeline. Audited financial and internal due diligence documents are also always available to our Limited Partners on request. Detailed information on our investments, exits and portfolio companies are sent out on a real-time basis, ensuring that investors are informed of any developments ahead of the wider world. We use technology to its fullest extent, giving investors secure online access to investments and providing potential investors with virtual data rooms which contain all our due diligence and valuation methodologies to transactions.

Stakeholders benefit from our regular newsletter Engineering Success, which is a platform for updates on our work, developments within the firm and our views on interesting sectors of growth. We also hold an Annual Investors’ Conference, to which we invite all those that we touch and work with in one way or the other. This annual event gathers a powerful network of decision makers from the MENASA region, which forms the foundation of our stakeholders. In-depth information sessions on our funds, investments and corporate strategy allow our investors to meet faceto-face with portfolio company CEOs, financial services executives, government leaders and the entire Abraaj team. Panel discussions take place with regional industry leaders about critical developments in our region that may impact our business or that of our Limited Partners. Plenty of time is set aside for questions, bilateral meetings and networking, allowing a new investor to feel rapidly part of the Abraaj community.

Empowering potential

Effective communication is fundamental to the way we operate. It is at the heart of our close relationships with our investors, portfolio companies, governments, the media and all the stakeholders that form part of our world. Our Limited Partners are at the core of this universe; we stay in regular contact, always seeking to provide value to their objectives. Transparency, openness and dedication underpin all our relationships, as we believe that the more private equity and our firm are understood, the greater the value we can deliver to our Limited Partners.

Abraaj wants to stay ahead of the curve in increasing transparency in our industry. We believe open communication encourages understanding of our growing industry, raises regulatory standards and, critically, satisfies global best practice trends. In our communication with investors, we voluntarily abide by the European Venture Capital Association’s reporting guidelines. By linking our firm with innovative thinking and best practice, our communication strategy has also established Abraaj as thought leaders in our region and beyond.

Connecting with our stakeholders Continued

“We believe that the breadth and depth of the information we offer provides a valuable window on Abraaj, our region and our industry.”

Our website demonstrates that our commitment to communication extends beyond regional or industry groups. We freely offer an unrivalled amount of information on Abraaj and our industry: speeches, presentations and research are all available and constantly updated. Issues covered range from the investment opportunities in Jordan to China-Middle East economic relations. Visitors from all parts of the world can also find out about what funds we offer, what our current investments are (and what we plan to do with them) and what our track record demonstrates about our expertise and abilities. Our performance, both in the past and in the present, is also openly shown – though we do, of course, take confidentiality very seriously. Client identities and investment in the funds are kept confidential, as are coinvestors in the portfolio companies. We believe that the breadth and depth of the information we offer provides a valuable window on Abraaj, our region and our industry. Investor relations and business development Traditionally, our investor base comprised leading family groups, pension funds, financial institutions and high net worth individuals from the MENASA region. During 2007 this has been augmented to include large institutional investors from Asia, Europe and North America, due to the increasing global appetite for exposure to our region.

90| 91

abraaj Capital annual review 2007

Our investor coverage team drives our investor relations efforts, although every Abraaj employee has a responsibility to be accessible to our investors. We fundamentally believe that our Limited Partners are much more than a source of capital for our funds; we seek to establish long term, value added partnerships with every investor. They represent our best ambassadors in their countries and networks, and their understanding of what we do, how we do it and what we look for is a critical factor behind our success. In addition, due to the unique social and economic fabric of our region, Limited Partners represent a formidable source of regional insight; access routes to highest-level government officials and, ultimately, deal flow. Throughout 2007, the investor coverage team paid regular visits to investors, introducing them to senior members of our investment teams, explaining our recent acquisitions and deals in the pipeline, offering co-investment opportunities and discussing ways in which to strengthen relationships.

Our Year Private Equity

In 2007 the business development team also led in depth industry trips to Turkey, Algeria, Nigeria and Azerbaijan, meeting key business and government leaders.

THOUGHT LEADERSHIP

Each Forum gathers 50 participants from the MENASA region for a focused information session. The informal atmosphere we create allows us to present effectively the case for private equity in our region and to demystify the asset class on many occasions. We also share and discuss forthcoming business opportunities we see in our region and, in some instances, ask our portfolio companies to speak about their strategic objectives and challenges.

The Forums are proving to be extremely useful, allowing the business development and investor coverage teams to establish new relationships and gain new insights on developments in our vast region. We also invite a diverse group of speakers which has included global warming expert José María Figueres, former President of Costa Rica; Dr Nasser Saidi, Chief Economist of the Dubai International Finance Centre, Harvard Business School Professor Josh Lerner, Mark Gallagher, Formula 1 expert and team building coach, and Robin Sharma, author of the bestselling spiritual awakening novel The Monk Who Sold His Ferrari.

Our investments

Another innovation launched in 2007 was a monthly Abraaj Private Equity Forum, gathering together decision makers in MENASA from all walks of life, such as lawyers, diplomats, real estate developers, industrialists and the media, because they are stakeholders in our success, and continuing to broaden the understanding of the industry in our region.

“we fundamentally believe that our limited partners are much more than a source of capital for our funds; we seek to establish long term, value added partnerships with every investor.”

Empowering potential

An important investment of time was also made by our business development team throughout the year to introduce the MENASA region and our track record to 200 international fund managers, pension funds and financial institutions in Asia, North America and Europe, kickstarting new relationships that will flourish over the years to come.

Our people Our exceptional team is the key to our success. Private equity, as we see it, is a people business.

It is our people who interact with the region’s leadership, who find the deals and who partner with senior management of our portfolio companies to take them to the next level. It is thanks to our collective efforts that we are able to provide our Limited Partners with riskadjusted returns well above global industry benchmarks.

In 2007, our team continued to grow, rising from 96 to 135. We sourced our new colleagues from a global pool of talent, cherry-picking the best and brightest to work alongside our existing team. As our reputation grows and as the region continues to develop, increasingly we are finding that people are seeking us out ahead of other, longer-established names in the West. We have thus been able to create an international success story, blending long-serving team players with knowledge and contacts in our region and fresh thinkers with the appetite to shape our company’s future. Our diversity is one of our key features: 25% of our people are Arab, but we have 27 nationalities represented on our staff. Among us we speak 16 languages including all those most relevant to regional business relationships. This wide range is a valuable asset; it gives us a deep pool of contacts, cultures, opinions and experience.

92| 93

abraaj Capital annual review 2007

Our team members have degrees from educational establishments such as the London School of Economics, Harvard and the Sorbonne. They have worked for major blue chip companies – Citigroup, EFG-Hermes, Goldman Sachs, Coca-Cola and McKinsey – and learnt their trade in the Middle East, Hong Kong, New York and London. The representative quality of our people was demonstrated last year when Mustafa Abdel-Wadood, Chief Executive Officer of Abraaj Investment Management Limited was named a Young Global Leader by the World Economic Forum. He joins a prestigious group of 416 exceptional individuals from 90 countries. A number of our team have published works on private equity. Executive Director Tom Speechley has written various pieces for industry publications on infrastructure investment and private equity in the GCC, including a practitioner’s guide to acquisition finance. Tom was recently named as one of ‘40 rainmakers’ in the UK by Legal Business magazine. Vice President Saqib Rashid was a founding member of the Wharton Private Equity Review publication and received a US Fulbright Scholarship to study the Egyptian private equity industry.

However, our success comes not only from individual experience, but also from inspired teamwork. Our executive directors have a long history of working together on some of the most successful leveraged acquisitions in the region, both before and after the founding of Abraaj in 2002. These have included deals such as the leveraged buyout of Inchcape’s Middle East businesses; the de-listing from NASDAQ of Aramex International (and its subsequent IPO on the Dubai Financial Market); and the US$1.41 billion buyout of Egyptian Fertilizers Company. We are committed to developing our people: to stretching them professionally and empowering them to build on their existing skills and talents. Our company is a meritocracy. We like to delegate authority, giving our people responsibility early; but we also provide support with best practice performance reviews (this year has seen the introduction of 360-degree reviews, with feedback from colleagues both above and below) and informal feedback on their work. Clear reporting lines are in place, so our staff know where senior responsibility lies.

Our Year Private Equity

In 2007, we continued to develop our organisation to ensure that we have the right structure and processes to support our growing business. As part of this, we have created centres of expertise within the firm, organised along nine sectors, five regions and 18 functions. We also created three investment teams integrating portfolio managers and investment professionals, giving each team the resources for the entire deal cycle – seeing it through from origination to exit. This innovative approach gives us greater synergies and speed of execution; the teams are flexible and agile, but also able to develop both depth and breadth of understanding of any sector.

“In 2007, our team continued to grow, rising from 96 to 135. We sourced our new colleagues from a global pool of talent.”

Our investments

Attracting talent means maintaining world-class employment contracts. We set compensation at a competitive level, with benefits and packages to attract and retain the best in class. There are also long-term compensation incentives to help maintain the quality of work over time. Incentive schemes reward success directly, with clear targets for teams to meet and clear personal returns as a result.

To maintain our reputation we are committed to personal and professional integrity. Avoiding conflicts of interest and sticking to the highest ethical standards is extremely important. (For further details, see the corporate governance section of this review.)

Empowering potential

In terms of training and self-development, Abraaj has strong academic links. We offer general management and leadership training via partnerships with the London School of Economics, Harvard University and the IMD business school in Switzerland. Our investment analysts are provided with regular updates and courses on the latest valuation tools and techniques. We also hold regular workshops and sessions reserved for our employees with various authoritative experts such as this year’s presentations by IMD Professor Peter Killing on ‘Must Win Battles’, global warming expert and former President of Costa Rica, José María Figueres, Silicon Valley computer security guru, cyber terrorism expert and bestselling author, Ankit Fadia, and virtuoso violinist Miha Pogacnik who has pioneered a unique business development methodology, bringing music to business to enhance understanding.

The focus of our investment teams, alongside our deep regional understanding, helps explain why we have been so successful in sourcing a long line of proprietary deals ahead of our competitors.

THOUGHT LEADERSHIP

With outstanding employees and experience, constantly developing skills and innovative investment structures, we have the right human resources formula in place to continue grow.

Management team Executive Directors

94| 95

Syed Farrukh Abbas

Sari Maher Anabtawi Chief Executive Officer Abraaj Investor Coverage Limited

Yaser Gamali

Jonathan Hall

Omar Lodhi

Arif Masood Naqvi Vice Chairman and Group Chief Executive Officer

Waqar Siddique Chief Executive Officer Abraaj Managers Limited

Tom Speechley

Mustafa Abdel-Wadood ­ Managing Director Abraaj Capital Chief Executive Officer Abraaj Investment Management Limited

abraaj Capital annual review 2007

Tabish Gauhar

Frederic Sicre

Selcuk Yorgancioglu

Our Year

Senior Vice Presidents

David Donaldson

Sameh Hassan

Marwan Lutfi

Hilton McCann

Brett Morris

Talat Naseer

Abdullah Shahin

Adnan H Siddiqui

Purshotam Ramchandani

Omar Syed

Mohamed Semary

Michael Wright

THOUGHT LEADERSHIP

Narayanan Rajagopalan

Marc Philippe

Our investments

Nadir Qureshi

Teegan Lindsay

Empowering potential

Achmed A Al-Shahrabani

Private Equity

Zulfiqar Ali

Our shareholders Alongside Abraaj Capital’s management, our shareholders include prominent institutions, business groups, leading entrepreneurs and business people.

Our shareholders include: Nasser Bin Khalid & Sons Holdings Company

Al Qudra Holdings P.J.S.C. Zabeel Investments

Al Jaber Energy Services LLC Mashreqbank GIBCA Limited Sheikh Abdulrahman Ali Al Turki

General Retirement and Pension Authority

Hamid D Jafar

Hussain Jasim Al Nowais

Arif M Naqvi

Emirates Bank International PJSC

Deutsche Bank AG London Branch

Abraaj Capital Co-Investor Limited*

DIFC Investments LLC Wafra International Investment Company

Citicorp International FInance Corporation Sanabria Holdings Inc Abdul Aziz Abdulla Al Ghurair

* This company is a holding vehicle for equity interests of 37 Limited partners who invest actively through Abraaj funds.

96

abraaj Capital annual review 2007