Manama: Bahrain-based investment firm Gulf Finance House (GFH) hopes a leaner balance sheet and a revamped business model can revive the fortunes of a firm which once symbolised growth of the kingdom’s Islamic finance sector.
GFH’s new strategy calls for it to become more involved in its investments, and to hold projects until completion rather than passing them to third parties to develop as was done in the past, its acting chief executive said in a telephone interview.
For several years a hands-off approach worked well for the shariah-compliant investment house, which was founded in 1999. Strong global markets allowed it to book healthy premiums in the stakes it sold in real estate projects.
Profits poured in, totalling $343.3m in 2007 and $291.9m in 2008. But the global financial crisis then made it hard for GFH to sell assets and in 2009 it posted a net loss of $728.4m. Last year, it booked a profit of $10.05m and in the first quarter of this year, $1.5m.
“Because the market was hot everything was sellable, but now we are looking at fundamentals and more calculated risks,” said Hisham Al Rayes, who took the helm at GFH in April last year. Formerly chief investment officer, Al Rayes has been with GFH since May 2007.
“We have changed the model — instead of using sub-developers we are now going vertical in the development of our projects.”
The credit crunch piled up liabilities of over $2bn, and GFH was forced to restructure some of them more than once to avoid defaulting in the years after 2008. But Al Rayes said the company had now slimmed down its debt to $223m, with maturities extended until 2018 via two-year grace periods.
GFH completed the takeover of English soccer club Leeds United in December through its Dubai-based subsidiary, GFH Capital; it hopes the deal will vindicate its new way of doing business.
It did not give a value for the deal, but its cashflow statement indicates GFH has so far paid over $33m for Leeds, with a further $42.7m in liabilities. The statement values the club at $88m. “I think it was a transaction that to a certain extent confirmed the recovery of GFH,” said Al Rayes.
Because of its debt burden, GFH may not be able to put as much money into Leeds as other Gulf investors have showered on European soccer clubs such as Manchester City. Reuters
