Interview with Daniel Schenker, CEO, Swicorp
Brief profile of the company indicating when it was set up, its strengths and its aspirations.
Swicorp is a leading investment banking, private equity and asset management firm with a specific regional focus on the Middle East and North Africa (MENA).
From its headquarters in Riyadh and regional offices in Jeddah, Geneva, Tunis and Dubai, Swicorp provides corporations and investors with independent advice and assistance on key strategic financial and investment issues. Founded in 1987 by current chairman Kamel Lazaar, and licensed by the Capital Market Authority of the Kingdom of Saudi Arabia, and the Dubai Financial Services Authority of the United Arab Emirates, Swicorp today has grown to be one of the region’s premier financial services providers.
Swicorp has an extensive track record over more than 25 years of pioneering mergers and acquisitions, advisory and real estate transactions across MENA for regional and international clients. Swicorp has also developed into one of the leading players in the private equity sector in MENA, raising over US$ 1 billion in private equity funds since 2005. Leveraging its extensive investment expertise and network, Swicorp also offers a range of asset management services across various asset classes to allow investors to benefit from the substantial opportunities arising from the attractive fundamentals and strong growth prospects of the MENA economies.
Major milestones in the company’s history and key projects it has developed to date.
During the 1990’s Swicorp was associated with many innovative transactions across a very-wide spectrum of sectors, including many mergers, acquisitions and joint ventures for leading Saudi companies (the merger of Savola Company with Azizia-Panda, both publicly-listed at the time, is one example), some of the first equity private placement transactions in the Kingdom and project finance raising for several privately-held companies and real estate development projects. Swicorp also advised on other notable and innovative transactions, such as the leveraged buy-out acquisition of Arabian Company for Detergents (DAC), and subsequent joint-venture with Henkel (Germany), and the merger of Savola and Sime Darby’s edible oil businesses in Egypt, and subsequent Initial Public Offering (IPO) on the Cairo Stock Exchange.
Starting in the year 2000, Swicorp became even more active in regional markets outside of Saudi Arabia with successful acquisitions in Algeria for Henkel and Danone and multiple acquisitions, divestitures, debt and equity raising transactions also in Saudi Arabia, Syria, Egypt and Tunisia.
Still on the advisory front, shortly after the CMA was established for the development of the Saudi capital market, Swicorp applied for the relevant licenses and started developing its capabilities in the equity capital market by successfully assisting several Saudi clients in their rights issues or IPO transactions.
Gradually, Swicorp also developed a particular advisory expertise in the field of real estate developments, especially in the Holy Cities of Makkah and Madinah, where Swicorp has acted and continues to act as one of the leading financial advisors to the largest developers.
Swicorp initiated its private equity activity in 2005 by launching corporate venture funds for the MENA region, first with the Danone Group of France and then the Savola Company in Saudi Arabia. This activity grew steadily in size and importance and today Swicorp has also developed into one of the leading players in the private equity sector in MENA, raising over US$ 1 billion in private equity funds for Joussour, Intaj I and Intaj II since 2005. More recently, and to serve the interest of certain investors, Swicorp has earmarked some of its own funds to co-invest in club-deal transactions, that it is identifying, structuring and placing equity investments in leading privately-owned companies on a case-by-case basis.
To complement its advisory and private equity offerings, Swicorp established a new Asset Management division with the vision to build on its strong track record in managing proprietary listed equity portfolio, as well as launching Real Estate Funds to capitalize on our edge in Real Estate Advisory.
On the corporate side, a major milestone in Swicorp’s history occurred in 2007 when, following receipt of the CMA’s approval, Swicorp restructured its organization and moved its corporate headquarters to Riyadh. Managed from Riyadh, the group now consists of offices in Riyadh, Jeddah, Tunis, Dubai and Geneva.
What are the major projects currently being developed by the company?
Due to the confidential nature of our assignments, specific project or client names cannot generally be disclosed. However, it can be said that Swicorp remains very much involved in advising the promoters of several large-scale real estate development projects and also expects to announce the completions of several mergers and acquisitions transactions in the next few months .
On the investment side, Swicorp has just completed an important club deal via the acquisition by Sadeed Investment Limited (an investment vehicle created by Swicorp and its investment partners) of a 30% equity participation in BRC Industrial (Saudia) Limited. Founded in 1974, with a top line poised to exceed SAR 1 bn this year, BRC is one of the leading long steel products manufacturing and processing companies in Saudi Arabia and has been growing steadily over the past 30+ years on the back of strong investment in infrastructure in the Kingdom. Through the ongoing commissioning of its new Dammam plant and the establishment of a new facility in Jeddah, the company is expected to double its capacity and is confirming itself as the partner of choice for all concrete reinforcement needs and fencing solutions across the Kingdom.
As mentioned above, Swicorp has been actively developing and broadening the products and services of its asset management division. In addition to managing funds invested in regional stock markets, Swicorp has been expanding its asset management offering by entering the real estate fund activity. We are very pleased to have been able to launch the Al Dhawahi fund earlier this year, in partnership with Al Nesaj DevelopmenT. This marks our first real estate fund and, with several others in the pipeline, we are greatly encouraged by the future prospects of this activity.
Which areas are the most vibrant for your projects in Saudi Arabia? Do you intend on expansion towards other areas?
Following on from the successful launch of the Al Dhawahi fund, investor appetite for such investment products is very strong and we are working towards the structuring and launch of several new funds in the near future. We are confident that this will develop into a very important activity for Swicorp in the coming months and years.
Aside from real estate, we have also launched Tharwa fund, an equity fund investing in the main regional stock markets. This fund was launched by our asset management team following several years managing Swicorp’s own portfolio very successfully with returns consistently exceeding local and regional indexes.
In addition, we have just secured a client portfolio management license, which will allow us to offer tailored asset management services to our clients in addition to our fund offerings.
Do you exclusively focus on the Saudi market, or are you similarly interested in other foreign markets?
The Saudi market has always been and will remain the Swicorp’s most important focus in view of the tremendous attractions and opportunities of the market in the Kingdom. However, Swicorp has historically also been highly active right across the MENA region, with a track record of transactions in North Africa, Egypt, Turkey and the Levant and across the Gulf. These regional capabilities are reflected by the presence of dedicated staff located in strategic areas in offices across the Gulf and North Africa.
Whilst we do not intend to stray too far from our primary geographic focus, we are also assessing opportunities to develop some form of presence in adjacent emerging markets where we may leverage our knowledge, expertise and network for the benefit of our valued clients and investors.
What are the major initiatives to further the company’s growth and drive its vision?
See (G) below
What are your plans and strategy targets for 2015?
Swicorp is driven by the desire to leverage its financial and intellectual capital to help our clients and investors realise their objectives. We know that if we succeed in this aim, Swicorp will also be successful. We believe that Swicorp has built a special, indeed, unique platform in MENA, and over the past two years, all our businesses have grown stronger. The core blocks which will drive future growth are already largely in place and established. In summary these are: as follows
- Investment banking will look to continue the growth of its corporate finance advisory business, including in mega real estate and advisory projects, an area where Swicorp has established clear market leadership.
- Private Equity will look to grow the ‘club deal’ activity was well as sourcing and structuring initiatives to develop new PE funds with a specific geographic or sector focus
- As explained before, we will look to expand our asset management activities by developing new products and increasing the level of assets under management
- Elsewhere, we will continue to look for additional opportunities to grow and diversify our activities by leveraging our strong platform in the Middle East and North Africa, and maybe developing partnerships and joint ventures in other markets where our expertise and abilities may add value.
What about issuance of stocks and bonds; any successful transactions in this field? Any special way of dealing with the investment funds and have you actually started Funds that are capable of financing as well as mergers and acquisitions?
Swicorp was very active early on when the markets started opening up for new listings under the CMA’s guidance and a new regulatory framework. We were successfully involved in the rights issues of Savola, Fitaihi, MCDC and the IPOs of Red Sea Housing and Knowledge Economic City. However, being an independent investment bank without the balance sheet size of the large commercial banks, we are inevitably more restricted in terms of the underwriting capacity we can offer if we wish to maintain the required levels of capital adequacy. Hence whilst we are occasionally prepared to participate in underwriting equity securities, we typically choose to be involved in these types of transactions only on a selective basis as part of a wider relationship with key clients.
As we are still in the early stages of developing our asset management activity, we have not yet offered specialized funds, such as mezzanine funds, although these type of funds are likely to be considered in due time. However, the recent changes in CMA’s rules for allocating shares during IPOs, clearly favouring public funds, provides a window of opportunity to launch a new IPO fund that we will offer in the near future.
In your opinion and based on your experience, what do the investment and brokerage companies need most?
The key driver of success for any investment banking firm anywhere in the word is the quality of its people. In a highly-competitive but still developing investment banking market like Saudi Arabia, the ability to recruit and retain talented professionals is critical and I strongly believe that the quality of Swicorp’s people sets us apart from our competition in the region. Initially, with the Saudi investment banking industry in its infancy, Swicorp and most other investment banking firms in the Kingdom, had to bring in much of the investment banking knowledge and experience required to develop the industry from outside. I am very happy that in recent years Swicorp has been able to hire and develop an increasing number of talented and committed Saudi investment banking professionals who play important roles across all Swicorp’s activities and projects. It is the continued growth and development of local talent that represents the best security for firms like Swicorp to keep on being successful in the years to come
What are the challenges for the investment companies and brokerage in the GCC region?
See (I) above
What are your future plans, specifically in the field of real estate investment Funds?
Swicorp is committed to developing and growing each of our main areas of expertise. For asset management specifically, we intend to capitalize on our strong track record to offer existing and new clients tailor-made solutions that may benefit from our investment philosophy and insights.
In terms of new products, we tend to be every selective and avoid chasing the latest trend or hype. We rigorously assess each opportunity and need to be fully convinced that the product will bring real value to clients and that the timing of such launch is appropriate. In listed equities, for example, we decided to go to the market and meet clients only after testing our approach and philosophy by managing our own capital successfully for over three years and after ensuring we had the right capabilities to manage third party money. This is reflected in the nature of the products we launch: We look to add real value to clients and demonstrate our confidence in and commitment to each product by having ‘skin in the game’.
In the near term, we are working on launching multiple new products. In listed Equities, the recent favorable activity in IPOs and the relative advantage that public funds have in the allocation process offers a window of opportunity to launch a fund that benefits from this trend. Also, we are working on launching an innovative fund that would invest based on internally developed models and takes advantage of ‘short-lived’ anomalies in the market
In real estate, we have a good pipeline of projects and we expect to shortly announce additional new products that capitalise on the attractive real estate markets in various regions of the kingdom
What are your comments on the potential offered by the real estate market now and what are your recommendations to drive further growth in the market?
The Real Estate Fund Management sector is very promising and we believe Swicorp has a competitive edge, as we were involved in many of the major Real Estate Projects in the Kingdom, and have built an unparalleled Advisory expertise in this sector. Leveraging the knowledge, insights and experience we have gained in the real estate sector over the past decade, we already secured two funds for 2014, the first of which (Al-Dhawahi) has just closed. The second one is related to a large project in Mecca and we are very confident on the prospects it brings to clients.
The real estate fund pipeline is very strong and of a very high quality. Swicorp has the capability to source attractive projects, combining interesting Real Estate locations and high standard partners and developers. We believe these are the keys to a successful real estate fund.
Saudi Arabia is currently witnessing numerous changes in the projects and work market, how does this impact your projects?
We are monitoring closely what’s happening in the labor market and, more generally, in the economic and regulatory environments we operate in. Overall we see the latest initiatives and changes as beneficial to business participants committed to the long run. We also believe that the short term uncertainties and dislocations created in some areas of the economy are actually opportunities for investors, as they are accompanied with some mispricing in certain assets.
Regarding our ongoing projects, we are always careful to identify, assess and mitigate any risks which could arise during the ‘structuring’ and design phase of each project, so do not have any major concerns in this regard.
How attractive is the Saudi stock market and why? How do you evaluate the performance of the Saudi equity funds?
Compared to the rest of the GCC, KSA has a much deeper and diversified market, driven by a population of just under 30 million. It is by far the largest market in size and in liquidity. The level of corporate governance and investor communication is higher than other countries, making the stock market more investor friendly. These factors make investing in Saudi Arabia a compelling proposition.
Compared to mature markets or other emerging markets, the Saudi economy has shown good resilience in the past and offered prospects for more dynamic growth. The recent positive performance has put the Saudi stock market in the spotlight and attracted more inflows from foreign investors.
Funds in KSA have generally enjoyed a positive performance in 2013 and this has continued into 2014. Markets across the region rebounded strongly on the back of a normalization of risk premiums and better fundamentals, and equity funds have benefitted from this improving environment.
The industry as a whole is becoming more and more professional. After the 2008 crisis and the market downturn of 2006, many Investment Managers strengthened their operations and capabilities in order to offer robust investment services to clients. These efforts have paid off in 2013 and 2014, and hopefully, will prove beneficial in the future, and in less favorable environments. This represents the real challenge for fund managers in KSA: regaining the trust of investors and constitute a credible and reliable alternative to other investment vehicles.
In your opinion, what are the challenges that face the Saudi stock market particularly in the field of regulations and legislations?
Local equity markets suffer from some of the same problems we find in other emerging and frontier markets. These are mainly a relative lack of liquidity in parts of the market, some governance issues and financial reporting and communications that are still not optimal. We believe that these obstacles for the development of local markets are diminishing and that they will increasingly resemble and conform to the standards of more developed markets. Actions from regulators, like CMA in KSA, are oriented in that sense and are helping the markets develop. Events like UAE and Qatar’s access to MSCI Emerging Markets Status will accelerate this shift to more dev