Gulf Finance House (GFH) stands out from regional and global banks by the simple excellence this past year of the steady and successful application of its business model. It has engaged business, commerce and risk in the raw.
GFH, Bahrain’s largest Islamic investment bank by market value, has aggressively expanded its infrastructure business globally over the past year while diversifying its capabilities in pioneering energy projects. Some three-quarters of its revenues are derived from its work master-minding large infrastructure projects.
In December, it announced the development of a $10 billion, 1,600-acre Mumbai Economic Development Zone in India as well as a landmark deal to create an offshore financial centre, the $3 billion Tunis Financial Harbour. This follows the blistering three-year pace of large commercial developments in Bahrain, Dubai, Jordan and Morocco.
“The great thing about our business model is that we act as the turnkey development authority on behalf of governments,” says Peter Panayiotou, acting chief executive of the bank. “We provide a unique service as we analyze the economics of a project and then mother them by imposing penalties if contractors don’t fulfil their developments on time.”
The institution buys cheap land from government and then markets this infrastructure to its band of 3,000 high net worth private clients, who pay for the development. It then earns a commission for structuring and arranging the project and for the sale of each portion of land to developers and companies. This model has lately proved extremely lucrative with half-year profits this year standing at $220 million, up 51% over the same period in 2007.
It ensures the equity risk is diluted through its pool of investors and fees are unleashed from the moment projects hit the ground. Panayiotou expects to raise around $2–3 billion of equity for infrastructure projects this year alone. “Our projects are largely unleveraged. We claim the equity space not the credit space. Our debt to equity ratio is one to one.”Panayiotou claims GFH is an oasis of calm amid the US financial maelstrom. “We do loan syndications from Gulf banks that are full of liquidity, and although we may need to go to the capital markets to refinance some existing debt, higher credit costs will not impact our growth,” he says.
Panayiotou says the key near-term challenge is to execute successful sales for projects due to be completed in the next three years, such as the 600-acre Energy City Project in India.
In July, GFH also set its sights on fulfilling the rising commodity demand in the region with the creation of steel company HadeedMENA, which will eventually raise $5 billion of capital. In a bid to boost efficiency and diversify its franchise, GFH is to be re-organized into five separate companies, concentrating on private equity and venture capital, asset management, infrastructure and commercial banking, under the holding company Gulf Finance House Group.
If GFH builds its way out of the global storm, that will be a monumental achievement.