PRIME TIME
NEW EXCITING OPPORTUNITIES IN CROATIA: Real estate
development on the Dalmatian Coast in Croatia
Capital Markets: Building the region’s equity & credit derivative business
Och Ziff IPO: Why did it go sour?
01 January 2008
Jan 08 Editor’s Note Primetime is something that has been born out of Arqaam Capital’s growth into new and challenging frontiers. Its sole purpose is to provide the reader with market insights, briefs on our latest investments and finally a glance inside our company something which I hope you would find interesting and informative.
Features
Writers
Capital Markets 02 IPO Watch List 03 Fosan International Sino-Ocean Land Holdings Xin Xin mining China Railways Group Ltd Bolsa de Mercadorias & Futures Och Ziff
Jonathan Schmitt Principal Finance Associate
Snapshot 04 Sale of Chesterton Stake Issue of second private share placement Trade permission from DFSA
Latest Ventures 05 Real estate development along the Dalmatian Coast in Croatia
Quick byte 07 Mark Gazaleh on the move to Gate Village, DIFC
Ali Khan Capital Markets Director
MESSAGE FROM THE MANAGEMENT
2007
has been an exciting year for the Arqaam Capital team, and we are proud to say there have been some outstanding achievements made over the last few months, all of which have been underpinned by the implementation of a robust infrastructure and the completion of the 2nd phase of our recruitment drive – something which in our minds will ensure we have the best human capital available to achieve our global vision.
As you may be aware, the team has been actively engaging with the markets both regionally and internationally and as a result various financial institutions are now expressing strong interest in our products, as well as wishing to utilize Arqaam Capital as a platform to access investment opportunities in the region. Overall this response has been extremely positive and reassuring, and we look forward to realizing the fruits of our labor. These great accomplishments would have not been possible without the continued support from our valued shareholders and the support of our investors and partners
Out of all the many achievements we have made, obtaining trading consent and the successful exit from our Chesterton venture are particularly worth mentioning. These are examples of Arqaam Capital’s ability to carry out highly profitable investments and complete strategic initiatives within very tight timeframes that will yield positive returns in the future. It is important to recognize that with every achievement exists its own set of challenges, which has helped us to evolve and learn as a business. Such challenges have included relocating 35 professionals and their families to the Middle East from various parts of the world, as well as assisting them in the integration process. There have also been some other challenges closer to home, all areas and teams within Arqaam Capital continue to progress and develop on schedule, and our focus is to identify and capitalize on every synergy opportunity among our business lines and support functions in order to achieve a dynamic and profitable business model for our shareholders.
Riad Meliti CEO
Dennis Wisjmuller COO
Arqaam Capital Limited www.arqaamcapital.com info@arqaamcapital.com Business Centre Office 52, Level 15, The Gate Building – East Wing Tel: +971 (0)4 365 0363 Fax: +971 (0)4 365 0367 Dubai International Financial Centre P.O. Box 125115 Dubai - United Arab Emirates New Offices Building No. 5- the Gate Village Tel: +971 (0)4 5071700 Fax: +971 (0)4 5071701 Dubai International Financial Centre Dubai - United Arab Emirates
This communication is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any investment opportunity or as an official confirmation of any transaction. No information in this communication is warranted. This communication is confidential and should not be copied or used for any purpose or disclosed to other persons without the prior written consent of Arqaam Capital.
Arwa Hamdieh Head of Marketing & Corporate Communication
Editor
Anil Menon Custody & Operations Associate Director
January 07 01
IPO Watch List
Capital Markets
BUILDING THE REGION’S EQUITY & CREDIT DERIVATIVE BUSINESS At the heart of Arqaam Capital is our Capital Markets operation. The objective is to be at the forefront of capital markets structuring and trading activities in the Middle East, across all equity and credit products, using leading risk-management techniques. Our aim is to work closely with our shareholders and clientele, which include leading regional and international financial institutions, funds, corporates and HNW groups, to provide a trading outlet and create bespoke solutions to their investment needs.
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One of the key features of our unique structure is to offer a seamless integrated capital markets business across the equity and credit product platform which is very different from what the international investment banks have traditionally offered. We have also established focused and dynamic front-office teams supported by strong mid and back office functions. Our eventual aim is to achieve a global platform that will service all our clients’ needs in the most efficient and effective manner
Adnan’s initial focus is to establish the Debt and Credit Derivatives business for Arqaam Capital. The main area of focus is to arrange funding for clients either via private placement or securitizations, as well as provide basic trading and risk management products such as bonds, sukuks and credit derivative swaps. Ali is responsible for equity trading execution for the Capital Markets business line, as well as running the Special Propriety Trading book (cash equity). We have also established offshore and onshore issuing vehicles for our clients which allow us to create specialized documentation and products. We will eventually move onto other areas of capital markets based on our clients’ requirements.
Fosun International (Hong Kong listing)
XinXin Mining (Hong Kong listing)
A diversified conglomerate with business interests in steel, property, pharmaceuticals and financial services.
It’s a mineral exploration company in China. The company also owns smelting and refining assets as well as processing assets for iron ore, copper, cobalt, gold & silver. The company is a good commodity play, with some vertical-diversification adding to the value chain. It has good long-term purchase agreements with buyers, which eliminates marketing risk, and its entire production is consumed domestically.
This IPO gained tremendous interest in the market due to the solid foundation and reputation of the group. The group includes businesses in areas like financial services, pharmaceuticals and real-estate but the company’s largest exposure is in steel which is experiencing tremendous demand in the country due to the development boom that is happening across China. The principal owner, Guo Guangchang, is one of the richest and most successful entrepreneurs in China. The IPO was heavily over-subscribed and the investment made 43% over a 17 day-period.
Our aim is to work closely with our shareholders and clientele to provide a trading outlet and create bespoke solutions to their investment needs. The Capital Markets division is headed up by the Capital Markets Committee which includes Laurent Dambly, Adnan Haidar and Ali Khan who together oversee all equity, credit, rates, foreign exchange and cash management for the business. Laurent’s initial focus is to establish our Equity and Equity Derivatives product lines. This includes trading the cash markets as well as providing pricing and structuring on GCC stocks. For example, we are keen to trade options and forward contracts on local stocks, as well as provide exposure to the regional indices. We are also in the midst of listing Warrants and Delta One products such as Exchange Traded Funds and Index-Trackers, amongst other things.
This section will take you through a highlight of some of the most interesting IPOs that took place during the past few months both in emerging and developed markets.
The investment made 121% over a 15-day period.
China Railways Group Ltd (Hong Kong Listing) The group offers transportation systems & construction services. The company builds railroads, roads, tunnels and bridges. This deal was attractive because it is a direct proxy for the massive infrastructure deals in China. Furthermore, the company will be included in various tracker indices such as FTSE China Index. Fundamentally, the company is expected to secure on-going large infrastructure-related deals in China, despite inflationary concerns or rising interest rates possibly affecting consumer spending related stocks or property stocks. The investment made 32.43%.
Bolsa de Mercadorias & Futures S.A. (Brazil Futures Exchange)
A key feature in our structure is offering seamless integrated capital markets business across the equity and credit product platform.
Sino-Ocean Land Holdings (Hong Kong listing)
Capital Markets Committee
This company is a pure real estate developer of commercial real estate in northern China, a province that is experiencing major industrial development and growth and quickly becoming the “Detroit” of China. The company possesses a considerable land bank and strong domestic presence with provincial governments.
From left to right
Laurant Dambly Executive Director Ali Khan Director Adnan Haidar Director
This IPO was received very well, the company is in a market that is growing rapidly, the demand for commercial and residential real-estate is on the rise, and thus prices of housing are rising and following an increasingly affluent middle class, all due to the economic boom in northern China.
Bolsa de Mercadorias & Futures develops and manages securities and derivatives trading and settlement systems based on financial assets, equity and inflation indices, financial indicators, rates, commodities (including environmental commodities), foreign currency, energy prices, transportation and climate. This deal was interesting for three reasons. Firstly, there is tremendous growth potential for the futures market in Brazil. Secondly the BOVESPA bourse listing was a tremendous success and this exchange was widely expected to follow suite – especially when one considers the possibility of a merger between the two exchanges. Thirdly, very strong Brazilian macro fundamentals suggest continued strong economic growth will support volumes on the exchange. The investment made 25.70%.
The investment made 49% over 10 days.
January 07 02
03
Latest Ventures
IPO Watch List
Och Ziff (New York Listing)
Result:
Deal Details:
The stock opened up only 2.3% before sliding down almost 30% in 7 market days. Considering the blue-chip quality of management and their excellent realised performance, there is a real disconnect between management performance and share-price performance.
Sector Fund Raise Listing Issue Price Current Price Sole Book Runner
Hedge Fund Single Manager (Asset Management) US$1.152bn NYSE $32.00 $22.85 (as of 21/11/07) Goldman Sachs
The deal was attractive and generated a lot of international interest because: Daniel Och (founder) has excellent pedigree. Over a decade at Goldman Sachs (GS), before setting up Och Ziff, with GS support. Over the last ten years his fund has consistently done well, generating an average return of 16.6%. Substantial AUM of $30bn, with plans to grow this significantly over the next few years, (thus increasing fees). Dubai Holding invested an additional US$1.26bn at the same terms, therefore Och Ziff raised US$2.412bn – which was a positive surprise to the market, and helped to create further positive momentum to the fund-raise.
REAL ESTATE DEVELOPMENT ALONG THE DALMATIAN COAST IN CROATIA
The main reason is the market’s continued reluctance to pay attractive valuations for asset-management companies irrespective of the asset class, i.e. private equity versus more liquid hedge fund investments. Interestingly, Och Ziff generated positive monthly returns during the summer’s sub-prime related volatility. Clearly “the good is being swept out with the bad”. Given the issue price was at $32, it is difficult to explain who is selling stock at prices substantially below issue price, and possibly indicates that there is considerable short-selling taking place
Ali Khan Capital Markets Director
Snapshot Arqaam Capital announces the successful sale of its stake in Chesterton Global Limited and achieves a return on the investment in excess of 50%. Chesterton, the UK’s oldest and renowned real estate brokerage business, restores its former reputation and achieves revenue in excess of $50 million after partnership with a consortium led by Arqaam Capital. Arqaam Capital invites shareholders and interested eligible investors to participate in its second round of fundraising by issuing 60 million shares in treasury shares through a restricted private placement. The completion of test-trading was successfully concluded on November 21st 2007 by receiving Trading Consent from the Dubai Financial Services Authority allowing the Capital Markets business line at Arqaam Capital to offer full trading capabilities to all interested institutional and individual investors in the market.
Arqaam Capital has established a real estate development platform in Croatia to develop luxury master planned tourist resorts and communities along the Dalmatian coast. Croatia possesses one of the most beautiful coastal landscapes in Europe, and attracts an average of 6 million visitors per annum. The tourism industry contributes around 20% to the country’s GDP and that contribution is expected to grow to 85% over the next decade according to the Croatian government. The industry employs around 23% of the total workforce in Croatia.
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Croatia possesses one of the most beautiful coastal landscapes in Europe, attracts an average of 6 million visitors per annum and the infrastructure needed to support the influx of tourists is inadequate.
Despite the growth of the industry, the infrastructure needed to support the influx of tourists is inadequate, and the luxury hospitality and leisure industries are underserved. For example, the only newly developed five-star hotel and resort presently in the pipeline along the Croatian coast is the Kempinski Isteria hotel & resort, which has shown strong pre-sales for both apartments and villas, and will be open for business in summer 2008.
Croatia is expected to ascend to EU membership in 2010, which will likely increase the value of land there by at least 30%, a figure seen in the Baltic countries of Estonia, Latvia and Lithuania which joined the EU within the last five years. Because of the intricacy of Croatian property laws, there is also a premium available for developers who are able to establish large parcels of developable land by buying up individually owned adjacent properties and combining them. This is a complicated process which Arqaam Capital has mastered through the establishment of strategic partnerships with strong local companies.
Looking at the property market in Croatia, there is great value in the price per square meter for coastal land when compared to other more established Mediterranean destinations like France, Greece and Italy.
January 07 04
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Quick Byte
Latest Ventures
Arqaam Capital recognized the investment opportunity, and through strong partnerships on the ground, managed to create a single Tourism Development Platform which will include residential, leisure and hospitality facilities. Brezenica, on the beautiful island of Hvar, is the first parcel of land that Arqaam Capital has purchased and the development plan includes a five star hotel, villas, apartments, and retail & leisure facilities. The development is geared towards
the luxury market and will utilize strong partnerships with high-end brands while safeguarding the pristine nature of the coast that the Croatian government is keen on maintaining. In Q1 2008 Arqaam Capital will invite eligible investors, who are interested in participating in the growth opportunities available in the development of Croatian tourist resorts, to participate in a private placement of shares in its development platform
Ganesh Subramanian Managing Director
ON THE MOVE TO THE GATE VILLAGE, DIFC. Mark Gazaleh Mark Gazaleh has been involved in change management and new builds for both US and European Trading houses over the last 10 years. He is currently completing his third degree, an MSc in Electronic Business.
Tell us about the project? The Arqaam Capital project has been a really exciting and challenging one. It involved creating a representative and functional space suiting an aggressive business case. The key requirement was to provide a high performance environment for Arqaam Capital’s high caliber team. My involvement began soon after the space was acquired, continued through a detailed tendering process, and through technology and infrastructure integration, implementation and space hand-over upon completion in December 2007.
Why the Gate Village? Arqaam Capital required a quality presence at the DIFC. Its Gate Village office provided the earliest opportunity to be present within the DIFC campus and its critical mass of financial activity. This choice has been very successful given the enormous demand from institutions to relocate to DIFC. Arqaam Capital successfully achieved the acquisition of the space and it now neighbours directly some of largest financial institutions, such as Deutsche Bank and Commerzbank.
What were you aiming at creating when you started designing the space?
fit-for-purpose. The company required an environment that would foster dynamic and fast moving team work. It should offer a healthy, safe and comfortable working environment to facilitate performance from its staff. The infrastructure will provide a flexible platform allowing the business to adapt as necessary.
What do you think worked very well in this concept when implemented? A great deal of effort went into controlling the technological aspects of the new office, to ensure we planned for the considerable environmental stresses that the operation may face in the future. The design was only constrained by the huge competition for resources required to serve the office – be it space, power and/or cooling.
How did your design deal with some of the key issues financial institutions are concerned about like security, risk and so on? From the earliest stages of the design, industry best practice was employed to ensure the establishment of a secure and robust trading environment. The design meets industry standards to ensure the resilience of Arqaam Capital’s operations and requirements to meet best practice and regulatory compliance are being met. Furthermore, planning anticipates that critical systems will be further strengthened in time.
What were your biggest challenges and greatest accomplishments in this project? I would say amongst many, the most notable has been harnessing finite resources to provide for an optimal working environment. The challenge with any project on this scale is often found in adapting the built space to the client’s demanding requirements
The company’s key business drivers included: flexibility, gearing for growth, technological neutrality and to be
DEVELOPMENT OF THE PROJECT OVER THE MONTHS
Aug 07
Sept 07
Nov 07
TIme Line
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Our Team
Our team at Arqaam Capital continues to expand with notable hires this quarter in distribution, operations, trading, compliance and human resources. With such a small team each member brings a multitude of skill sets and experience – all of which is key to our continual growth. The executive management and Principal Finance combine over 30 years of investment banking and private equity experience. The Capital markets include some of top talents in equity and credit derivatives trading, in addition to young talents from the Indian Institute of Management, one of top academic institutions in the world.
On the support service side, the Finance, information technology, legal & compliance, human resources, corporate communication, executive support and operations include experienced professionals possessing expert knowledge in their respective areas with over 70 years of collective experience
CREATING SOLUTIONS INVESTING IN EXCELLENCE Arqaam Capital is a new financial institution, with a strong base of institutional shareholder from across the GCC. Operating out of offices in Dubai and London, its headquarters is located in the United Arab Emirates within Dubai International Financial Centre (DIFC) district with category 2 authorisation from the Dubai Financial Services Authority (DFSA). Arqaam Capital offers investment banking services with a unique business model concentrating on four business lines: Capital Markets, Principal Finance (Private Equity & Real Estate Investments), Asset Management and Corporate Finance. Arqaam Capital’s vision is to design, customise and deliver innovative product offerings that cater to the market’s current and anticipated requirements. www.arqaamcapital.com 08
Arqaam Capital Limited Office No. 52, Level 15 The Gate Building – East Wing Dubai International Financial Centre P.O. Box 125115, Dubai, U.A.E. Tel: +971 4 365 0363 Fax: +971 4 365 0367
Arqaam Capital (UK) Limited 8 Chesterfield Hill Mayfair London W1J 5BW United Kingdom Tel: +44 20 7182 1400 Fax: +44 20 7182 1651
Arqaam Capital Limited is regulated by the DFSA © 2008 Arqaam Capital Limited