The developer of a long-delayed US$8.8 billion (Dh32.32bn) project in the heart of Mecca has signed a deal to start construction on a large portion of the development.
Jabal Omar Developmentsays it has it awarded a 3.4 billion riyal (Dh3.3bn) contract to Nesma & Partners Construction for a phase of the development to be built near the Grand Mosque. Nesma was given a 24-month contract to start work on a section of the project overlooking Ibrahim al Khalil Street, according to a statement Jabal Omar issued to the Saudi Arabia bourse yesterday.
Plans for the overall development call for at least three luxury hotels, hundreds of shops and air-conditioned prayer facilities for 100,000 worshippers, as well as housing for 87,000 people. The first phase is expected to include nine towers along Ibrahim al Khalil and Umm al Qura streets, overlooking the Grand Mosque.
The project is considered a key element in the redevelopment of Mecca, which analysts say has been long overdue for an upgrade in services. Six hundred properties have reportedly been organised for Jabal Omar's redevelopment project.
"By consolidating land holdings, they now have the opportunity to develop large-scale tourist facilities," said John Harris, the head of the Saudi Arabia office for Jones Lang LaSalle.
Jabal Omar was formed in 2006 by the Makkah Construction and Development Company to undertake the project. The company raised $537 million in 2007 by offering a 30 per cent stake in the company in an initial public offering. Initial construction of 15 towers started in September 2008.
But the company struggled to raise financing to fund the bulk of the project because of global credit tightening and a drop in oil prices.
The company's prospects were also hampered by fallout from the troubles at Saad Group and Ahmad Hamad Al Gosaibi and Brothers, which left Saudi Arabia exposed to billions of dollars of losses.
In 2008, Jabal Omar hired Jadwa Investment to raise funds but replaced the company in April with Al Rajhi Financial Services, a subsidiary of Al Rajhi Bank, the world's largest Islamic lender.
"The new developments proposed for Mecca are of such a scale it takes a long time to put financing together," Mr Harris said.
But analysts say demand for new facilities in Mecca is high.
The number of pilgrims is expected to double within the next decade, according to a Jones Lang LaSalle study, which also found that only 10 per cent of the hotels in Mecca met international standards. In October, Jabal Omar announced 1.35 billion riyal of bridge loans from five banks, as well as plans to issue sukuk worth 3bn riyals.
In a statement issued when the funding was announced, Abdul Rahman bin Abdul Qadir Faqih, the Jabal Omar chairman, said: "We are fully committed to completing this mega-project, which serves visitors to the [Masjid al] Haram, a landmark so precious to the hearts of all Muslims around the world."
On Sunday, the company reported an 11.3m riyal loss for the fourth quarter compared with a 1.5m riyal loss in the same quarter last year. For the nine months ending on September 30, the company said it lost 25.7m riyals compared with a loss of 21.53m riyals for the same period last year.
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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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