Jeddah project gets 4bn riyals of funding

Saudi Arabia's biggest property developer, Dar Al Arkan, said the kingdom's public investment fund approved a 4 billion riyal loan to finance a Jeddah project.

The 400-hectare Qasr Khozam project, a town that is to include malls, hospitals and schools, is a joint venture between Dar Al Arkan and Jeddah Development and Urban Regeneration, a company owned by the municipality of Jeddah.

"This funding will contribute to the project by accelerating the development operations," the company said.

Dar Al Arkan rose 3.4per cent, its biggest advance since the start of last month, to 6.35 riyals on the Tadawul exchange yesterday.

The stock has lost more than 30 per cent so far this year on concerns that the company may struggle to pay 7.6bn riyals of debt due over the next five years, of which 5bn is due in the next two years.

Retail investors, who make up the bulk of trading in Saudi Arabia, said the news was a positive signal for the company's financial health, said Hesham Tuffaha, the head of asset management at Bakheet Investment Group,in Riyadh.

The company had 1.8bn riyals of cash and 1.7bn of short-term receivables, according to financial statements published during the second quarter.

"The receivables should move to cash during the third quarter," said Mostafa El Maghraby, an analyst at Global Investment House in Kuwait.

"The additional financing gives a strong signal they are being backed by the government, in one way or another, and that it would not allow them to default on their sukuks coming due," Mr El Maghraby said.

For now, the company can utilise its rental income portfolio after Al Qasr Mall in Riyadh started operations last month, Mr El Maghraby said.

Al Qasr Mall features a gross leasable area of 75,584 sq metres - or about half the size of Dubai's Mall of the Emirates - including 8,780 sq metres already leased to the French retailer Carrefour. The Al Qasr project, estimated to be worth 1.8bn riyals, involves more than just the mall, with more than 1,700 homes for sale, 1,318 residential units for rent, and significant commercial space.

halsayegh@thenational.ae

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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The Bio

Favourite vegetable: “I really like the taste of the beetroot, the potatoes and the eggplant we are producing.”

Holiday destination: “I like Paris very much, it’s a city very close to my heart.”

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