With private finance still in its infancy in Syria, private equity has yet to get up and running, but the foundations are being laid for a sector that could be as hot as elsewhere in the region.
Spearheading the direction private equity could take in Syria are holding companies, which were introduced to the market over a decade ago by the likes of former Lebanese prime minister and businessman Rafik Hariri.
But it has only been in the past few years that holding companies have started coming into their own, spurred on by the economic reforms implemented since the death of Hafez al-Assad.
The de-regulation of the finance and banking sectors has been the most crucial change, creating a more competitive financial environment as well as prompting businesses to pull up their socks and adapt to the new climate.
“Holding Companies are a new concept entering the terminology here,” said Dr. Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment. “Businessmen are thinking of setting up holdings, but don’t know the benefits and what it’s all about.”
New Company Law
Indeed, holding companies were not mentioned in Syrian law until 2000, in Law No. 7, which allowed for special tax treatment, and the recently enacted New Company Law has a section on holding companies.
Two Syrian holding companies are at the forefront of this fledgling sector. Souria Holding was established by 24 investors in early 2007, with a capital of $80 million, and is behind the entry of international supermarket chain Spinneys into Syria.
The biggest venture, Cham Holding, was established with a starting capital of $360 million by 70 Syrian investors, with business moguls Nabil Kuzbari the president and Rami Makhlouf the vice-president. (How last month’s decision by the US Treasury Department to freeze Makhlouf’s assets in US financial institutions, as well as prohibiting US citizens and firms from engaging in any business contacts will impact on Cham Holding remains to be seen.)
With the management largely consisting of repatriated Syrians who have had professional experience in the Gulf and the West, the company’s mantra is to “lead the private sector into the new era,” said Bahaa Issa, British-Syrian head of communications.
Part of this involves — as always — the creation of a brand identity to put Syria back on the international business map.
“Our vision is to be at the head of the train of the new economy, and we want to position ourselves as the opportune delivery system for the Syrian economy,” said Issa.
Cham Holding is focusing on six industries, including: BENA, for hospitality and property development; the Cham Capital Group, for finance and banking, capital finance and insurance; SANA for energy and power generation; health and education; and a new private airline Cham was recently granted a license to operate, Pearl Airlines.
According to Issa, Cham Holding plans to “create 50,000 jobs in the next five years, which would indirectly create 600,000 job opportunities.”
Since its launch in 2006, Cham has entered into a raft of strategic partnerships and joint-ventures. In December, it inked a $5 million partnership with British-US company Gulfsands Petroleum, which works in the US, Syria and Iraq. Cham has a 65% controlling stake, with the aim of acquiring high-value energy projects in Syria, and possibly Iraq.
In addition, Cham has entered into a joint-venture with three Kuwaiti firms to tender for large utilities and other infrastructure contracts in Syria, and is reportedly in discussions with Siemens to establish a ‘clean-coal’ power station. Encompassing projects valued at over $1 billion, Cham is also behind the Hejaz Railway station shopping mall, which has yet to get off the ground despite the foundations being dug more than two years ago, reportedly due to resistance from heritage groups.
More than greenbacks
Cham is bringing more than greenbacks to Syria, acting as consultants to the government and striving to introduce corporate governance and regulatory compliance through its own example.
“Compared to Dubai the challenges are tremendous,” said Mohanad Moussly, chief Risk and Compliance Officer. “Here the government is working with the mindset that the public sector is the best provider of services to the public, and to go into critical areas of industry. This mindset is changing, but public sector employees are hesitant about change.”
Holding companies as well as private foreign banks in Syria are hopeful that the upcoming Damascus Stock Market — which was slated to open in the first quarter but looks more likely to start later in the year or early 2009 — will spur on greater de-regulation and attract further capital to Syria. That will also include the entry of private equity firms.
Currently, there are few firms capitalizing on the opening of Syria’s economy. The UAE’s SHUAA Partners, a private equity arm of SHUAA Capital, has however invested $100 million in Syria, to enter the mobile telecom sector.
“We want to invest more in Syria. We have $100 million to deploy in equity and more than just equity when you factor in leverage. We want to go into three markets in Syria: telecoms, financial services, and real estate/hospitality,” said Jamil Brair, SHUAA Partner’s senior vice president.
For the time being, Syria has further to go before there is a more profound entry of venture capitalists, private equity firms and the like, but holding companies are giving an idea of the direction a more capitalist Syria will resemble.
