Page 65 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

50 PART I Background and Context

visited the potential portfolio company, they presented themselves with little
fanfare and a simple proposition. The company being courted was signifi-
cantly more impressed by the first suitor, whose public presence and elegant
pitch suggested that it was a more sophisticated institution. It therefore chose
to take capital from the newly established institution and declined the offer
from the sovereign wealth fund.
Then, however, came the global financial crisis and worldwide reces-
sion. Although the crisis affected both Gulf institutions, the newer one was
highly leveraged and therefore was more deeply hurt by declining asset val-
ues. The sovereign wealth fund, in contrast, took a hit, but weathered the
storm more smoothly. Seeing the relative health of the suitor it had rejected,
the portfolio company came to regret having chosen its investor based more
on perception than on stability. 1

In introducing Gulf capital and describing its origins and outlook,
we have hitherto looked at the phenomenon as a whole. This is
often done in commentaries on the topic, even those by financial
professionals. More often than not, media reports on transactions
and the parties behind them emphasize either the region overall
(“Gulf-based investors eye XYZ asset”) or the buyer’s country of
origin (“Saudi investor acquires a major stake in ABC company”).
The reasons for this are understandable. First, most Gulf-based
investors are barely known internationally, and many of them pre-
fer to keep a low profile. Historically, they have had little incentive
to engage in active public relations strategies, and thus their names
are not easily recognized. Second, the public discourse regarding
Gulf investors is often more concerned with the political and regu-
latory aspects of transactions than with the “business story” behind
them. In the case of the Dubai Ports World (DPW) acquisition of
P&O, for example, the US public was far more interested in the fact
DPW was a UAE-based entity than in the fact that DPW was
already operating several ports internationally (including in Latin
America). The focus has been more on the countries than on the
institutions involved.
However, such generalizations miss out on important insights
that can be gained though a more sophisticated view. In this chapter,
we offer a categorization of Gulf Cooperation Council (GCC)–based
investors that illustrates the important differences (and commonali-
ties) among them. We review how differences in objectives, typical
size, sources of wealth, investment strategy, and management
approach naturally lead to very different behavior on the part of Gulf