Assessing the Impact of Declining Oil Prices on EM PE – Two Views from MENA
Amjad Ahmad, Chief Executive Officer, NBK Capital Partners
Are you seeing the decline in oil prices impacting your portfolio companies?
We are definitely recalibrating capital expenditures and focusing on strengthening the core business of each portfolio company. Our portfolio companies are well capitalized; therefore, we are reviewing several bolt-on opportunities during this challenging period. Given the social pressures, I do not believe regional countries can afford to stop their investment programs in the short-term; however, reality will set in if they experience persistently low oil prices. With diminishing surpluses or in certain cases deficits, everyone will scale back to some degree. The spending rate of the past several years cannot continue indefinitely. The consumer is feeling a bit jittery, and many would rather wait and see what happens during 2015. Everyone is taking a deep breath given the uncertainty, especially in the Gulf.
It is important to note that the fundamental investment thesis of the region has not changed; therefore, this is an opportune time to invest if you have a long investment horizon. Business owners are nervous about the next few years, leading some to consider monetizing their businesses at a time when pricing pressure has subsided given the negative sentiment and the considerable drop in public markets over the last few months.
Nabil Triki, Co-Head of Private Equity, Swicorp
Do you think the recent decline in oil prices will lead to a shakeout in the region’s private equity industry?
Following the consolidation that took place in the MENA region as a result of the 2008-2009 global financial crisis, there is not much left to shake. If you look at the Middle East, where oil prices have a huge effect, there are maybe ten GPs who manage significant amounts of money. And all of those firms have gone through the cycle, and are now much more experienced and mature than they were a decade ago.
I think the decline in oil prices will change valuations, and will therefore create an interesting environment for investors. Given the liquidity and growth in Saudi Arabia, the United Arab Emirates and Qatar over the past few years, stock market indices have developed enormously in the past two years, and asset prices have increased quite a bit. If the recent decline in oil prices lasts, it will have an impact on valuations and could potentially create opportunities for investors like us in these markets.
The LP View
Richard Rincon, Investment Officer, EM PE, UTIMCO
The Global View
Erik Bethel, Managing Director, Darby Private Equity
The View from Russia
Mike Calvey, Founder and Senior Partner, Baring Vostok Capital Partners
The View from Southeast Asia
Andrew Affleck, Managing Partner, Armstrong Asset Management
The View from Nigeria
Cyril Odu, Executive Partner and Head of Energy, African Capital Alliance
Two Views from MENA
Amjad Ahmad, Chief Executive Officer, NBK Capital Partners, and Nabil Triki, Co-Head of Private Equity, Swicorp