Mas­ter of the turn­around

ADFG (Abu Dhabi Fi­nan­cial Group) found­ing CEO Jas­sim Alsed­diqi on what it takes to suc­ceed – no mat­ter what the eco­nomic con­di­tions

Arabian Business English - - COVER STORY - By Megha Merani

YOU SEE THAT SAND over there?” Jas­sim Alsed­diqi points to an empty plot of land from the win­dow of his 35th-floor board­room over­look­ing the wa­ters from Abu Dhabi Global Mar­ket on Al Maryah Is­land. “If you tell me it’s for sale at one dirham per tonne then I’ll buy it,” he tells Ara­bian Busi­ness dur­ing a lively in­ter­view at the com­mer­cial epi­cen­tre of the UAE cap­i­tal.

The CEO of the Abu Dhabi Fi­nan­cial Group (ADFG) is pre­sum­ably jok­ing, but only to make a very real point about how he’s gone about es­tab­lish­ing and lead­ing ADFG to be­come one of the largest pri­vate in­sti­tu­tional in­vest­ment houses in the Gulf re­gion in just eight years.

ADFG has grown its as­sets un­der man­age­ment to $20bn, with in­vest­ments across plat­forms in­clud­ing debt, pri­vate eq­uity, pub­lic mar­kets, real es­tate and tech­nol­ogy. And of­ten there is a fo­cus on spe­cial sit­u­a­tions. Dis­tressed debt? Bring it on. Event-driven sit­u­a­tions re­quir­ing cap­i­tal? Out comes the cheque book. “At the right price, we buy.” he in­sists.

Alsed­diqi’s mas­tery of the turn­around has be­come ADFG’s sig­na­ture of suc­cess across the re­gion. Most no­tably, the group’s strate­gic in­vest­ments in Shuaa Cap­i­tal and GFH Fi­nan­cial Group have yielded strong re­sults. Post-turn­around, Shuaa has re-emerged as a main player in the re­gion’s fi­nan­cial sec­tor in 2017, record­ing its most prof­itable year since 2007 achiev­ing a net profit of AED74m ($20.15m). In fact, this year, Shuaa pro­posed a div­i­dend of AED 0.02/share, its first div­i­dend in 10 years.

Mean­while, Bahrain-based in­vest­ment bank GFH had lost 92 per­cent of its mar­ket value be­tween 2008 and 2015. But since ADFG ex­e­cuted its turn­around strat­egy, the stock has gained 208 per­cent on a to­tal re­turns ba­sis.

“It doesn’t mat­ter what it is,” Alsed­diqi con­tin­ues. “Be­ing able to ac­quire some­thing – any­thing ac­tu­ally – at the right price could be a good deal. So that’s why you wait and see how mar­kets or com­pa­nies go up and down and then you catch things as they fall.”

Jok­ing this time he adds: “We call them fallen an­gels.”

The mother of in­ven­tion

ADFG’s trade­mark turn­around strat­egy wasn’t ac­tu­ally part of the orig­i­nal plan, Alsed­diqi ad­mits. How­ever, the CEO is no stranger to these fallen an­gels be­cause ADFG is a brand that was born in ad­ver­sity.

In Novem­ber 2010, Alsed­diqi was busy work­ing with two col­leagues to put to­gether plans for a growth fund in the Mid­dle East. “We pre­pared all the doc­u­ments and in Jan­uary 2011 we of­fi­cially started the firm. And then the Arab Spring started,” he re­calls. “So there went our growth the­sis!”

In­stead of rue­ing their bad luck, they piv­oted to work with dis­tressed op­por­tu­ni­ties. “Be­cause we had to do some­thing” he says. “We’d quit our jobs and we had to start this. As a firm we were born dur­ing a cri­sis and we took that as a strength. You couldn’t tar­get growth at that time, things were crash­ing, so we started the other way around with

“We wait and see how mar­kets or com­pa­nies go up and down and then catch things as they fall”

“As a firm we were born dur­ing a cri­sis and we took that as a strength. Ne­ces­sity is the mother of in­ven­tion”

dis­tressed as­sets and so forth. Ne­ces­sity is the mother of in­ven­tion.”

While a “very dif­fi­cult spe­cial­ity”, Alsed­diqi says ADFG has weath­ered the past nine years ir­re­spec­tive of booms and busts sim­ply be­cause of the way the firm started. “Those ini­tial cir­cum­stances made it rel­a­tively easy for us to suc­ceed in the sub­se­quently dif­fi­cult times that we have wit­nessed,” he says.

For this suc­cess, he cred­its his team. Ear­lier this month, Alsed­diqi even ded­i­cated his Ara­bian Busi­ness Achieve­ment award to his em­ploy­ees. “As I look back at my jour­ney of set­ting up ADFG in 2011 to mak­ing it be­come what it is to­day, I re­alise this wouldn’t have been pos­si­ble if it wasn’t for the ex­cep­tional team of peo­ple who have been work­ing with me ev­ery step along the way,” he told the au­di­ence.

To­day, mean­while, he adds that ADFG’s strong net­work, holis­tic plat­form and track record has made it easy to de­vise great op­por­tu­ni­ties that have be­come part and par­cel of the firm’s op­er­a­tions.

“Orig­i­na­tion some­times is more im­por­tant than ex­e­cu­tion and exit,” he adds. “It used to be more dif­fi­cult in the past, es­pe­cially when we started. But since ev­ery­thing was in sham­bles when we started, orig­i­na­tion was re­ally any­thing you touch.”

From sham­bles to suc­cess

But what re­ally goes wrong at these com­pa­nies for them to land in trou­ble in the first place? The mas­ter of turn­arounds chalks it all down to just the one thing: man­age­ment.

“Ev­ery com­pany that we come into needs a change of man­age­ment, be it the board or se­nior man­age­ment level,” he says. “They’re not nec­es­sar­ily do­ing any­thing wrong. But per­haps they are not pas­sion­ate enough or are too laid back. Maybe they don’t know what they’re do­ing or have a lack of di­rec­tion.”

Asked if mar­ket con­di­tions are also to blame, Alsed­diqi’s re­sponse is an em­phatic ‘no’. Com­pa­nies across the UAE and the wider Gulf re­gion have felt the squeeze in the wake of chal­leng­ing macroe­co­nomic con­di­tions in a cli­mate of low crude prices, weak eco­nomic growth and tight liq­uid­ity from banks. The govern­ment has, in re­sponse, been mak­ing sev­eral ef­forts to re­boot growth and re­lieve busi­nesses with ini­tia- tives such as can­celling ad­min­is­tra­tive penal­ties, re­duc­ing li­cens­ing costs and loos­en­ing visa re­stric­tions.

“It’s not about whether the mar­ket is bad or good,” he stresses. “They have as­sets or they don’t have as­sets. It doesn’t mat­ter – and ADFG is proof of that.”

Turn­around tac­tics to weather these storms in­clude the pop­u­lar US-style ze­r­obased bud­get­ing process, lev­er­ag­ing the power of the ADFG net­work and its com­pa­nies for busi­ness de­vel­op­ment, and a man­age­ment over­haul. “Zero-based bud­get­ing means you start from zero and then add in­cre­men­tally to reach a stage where you can func­tion, rather than start­ing with a bud­get and then cut­ting-down from it,” the CEO ex­plains. “Turn­ing around is re­ally two things: stop­ping the bleed­ing – cost cut­ting – and then grow­ing,” he adds.

In the case of Shuaa, for in­stance, ADFG took over the com­pany’s board in the De­cem­ber of 2016 when it bought a 48 per­cent stake. Be­tween 2009 and 2016, Shuaa had lost a to­tal of AED2bn. “We looked at the cost of the firm,” Alsed­diqi dis­closes. “Then we elim­i­nated al­most all the fat. But that doesn’t mean you are fir­ing peo­ple. In fact, we have more peo­ple in Shuaa

“Turn­ing around a com­pany is re­ally about two things: stop­ping the bleed­ing and then grow­ing”

to­day than two years ago. We go for cost ef­fi­cien­cies, and we also started us­ing our plat­form to give it the busi­ness. Plus we shut down some non­per­form­ing units and re­vived oth­ers that were fail­ing.”

Due to be cut was Shuaa’s Egypt op­er­a­tions, he says. “But when we came in, we re­vived it again. SME fi­nanc­ing was a dis­as­ter. It was los­ing AED100m ev­ery year. Maybe Shuaa was mak­ing money, but the loss of the SME busi­ness or the fi­nanc­ing was eclips­ing any prof­its. We’ve turned it around. How? By putting in the right man­age­ment and im­ple­ment­ing cost ef­fi­cien­cies.”

Sim­i­larly, in the case of a dis­tressed GFH, the ac­qui­si­tion al­lowed the in­sti­tu­tion to play the ace up its sleeve – that is, ADFG’s abil­ity to tap into its re­la­tion­ships to bring in new busi­ness for the firm. “We pushed and re­cov­ered as­sets from ex-man­age­ment of about $500m, and we gave it a lot of busi­ness,” Alsed­diqi says. “We sup­ported their in­vest­ment prod­ucts by bring­ing clients to in­vest in them.”

The re­sult, he adds, is that GFH is to­day the most prof­itable listed in­vest­ment bank in the Mid­dle East.

Abraaj mi­rage

Even with po­ten­tial green shoots of growth start­ing to emerge, Alsed­diqi be­lieves more cases of mis­man­age­ment and con­se­quent dis­tress are on the hori­zon. “We have to un­der­stand that in a cap­i­tal­ist sys­tem you will al­ways have both strong and weak man­age­ment,” he says. “That’s why com­pa­nies live and com­pa­nies die; it’s the eco­nomic cy­cle. Mis­man­age­ment will al­ways be there but it’s a mat­ter of when it’s a lot and when it’s a lit­tle bit. Now, it’s a lot.”

The most re­cent ma­jor case that has made head­lines and rat­tled mar­kets is that of em­bat­tled pri­vate eq­uity firm Abraaj Group. ADFG is one of the top con­tenders com­pet­ing for the man­age­ment rights of the firm’s Mid­dle East funds. But Alsed­diqi says he be­lieves his firm is the strong­est con­tender. “It’s not about the price on this one. We’re in a very strong po­si­tion be­cause we have the ma­jor­ity sup­port,” he says. “We’ve been ap­proached by a lot of the lim­ited part­ners (LPs) in the Mid­dle East funds to work on this for them.”

That, in essence, is the crux of the sit­u­a­tion. Un­like the other parts of the Abraaj plat­form where there are 30 or so LPs, the Mid­dle East por­tion has 200 dis­tinct LPs. “How do you rally them?” Alsed­diqi asks. “Only the per­son who has 75 per­cent of the LPs can win the deal. So it’s not an open and shut case. It’s not about money. It’s about get­ting the trust of three quar­ters of those 200 in­vestors.”

ADFG’s bid in­cludes up to $6m for the au­dit and lit­i­ga­tion fi­nanc­ing, as well as a $10m credit fa­cil­ity to fund the op­er­a­tions of the re­gional funds, $1m al­lo­cated to the joint pro­vi­sional liq­uida­tor upon clos­ing and a sep­a­rate $10m ear­marked for li­a­bil­i­ties. “This sit­u­a­tion is very con­vo­luted,” he adds. “The Mid­dle East part is not re­solved yet. We are still work­ing on that so­lu­tion. What I can tell you is that I urge all stake­hold­ers to re­solve this mat­ter promptly be­cause the more it drives on, the more painful it be­comes.” He adds: “Noth­ing will be fi­nalised be­fore next year.”

As pres­sure has in­ten­si­fied on Abraaj over al­le­ga­tions that it had mis­han­dled in­vestors’ money, the firm’s woes have also put the Gulf’s cor­po­rate gov­er­nance in the spot­light. But Alsed­diqi, a ma­jor pub­lic ad­vo­cate for cor­po­rate gov­er­nance, says he be­lieves the in­sin­u­a­tion is with­out ba­sis. “There’s noth­ing Mid­dle East­ern about Abraaj,” he as­serts, ad­ding that it is “un­for­tu­nate” and “dis­ap­point­ing” that the scan­dal is be­ing linked with the re­gion.

“In a cap­i­tal­ist sys­tem you will al­ways have both strong and weak man­age­ment. That’s why com­pa­nies live and die” “What is Mid­dle East­ern about Abraaj? It’s like say­ing Bernie Mad­off rep­re­sents the en­tire pri­vate eq­uity in­dus­try in the US”

“It’s not like a gang of Mid­dle East­ern peo­ple are run­ning Abraaj. The board is made up mostly of West­ern fig­ures and the team is not ma­jor­ity Mid­dle East­ern. They have an of­fice in New York, in Lon­don, in Columbia, Brazil, Sin­ga­pore... the base is in the Cay­man Is­lands. So what is Mid­dle East­ern about Abraaj? It’s like say­ing Bernie Mad­off rep­re­sents the en­tire pri­vate eq­uity and hedge fund in­dus­try in the US.”

More growth to come

As the year draws to a close, ADFG is close to in­vest­ing in “big stakes” in two com­pa­nies to lead a turn­around. “By the end of the year we will an­nounce ma­jor stakes in two com­pa­nies on the UAE stock ex­change,” Alsed­diqi re­veals of the plans.

The firm, while sec­tor­ag­nos­tic and op­por­tu­ni­ty­driven, is also eye­ing deals in the en­ergy and in­sur­ance space. “In­sur­ance, be­cause there are so many changes hap­pen­ing to reg­u­la­tions right now,” Alsed­diqi says, ad­ding that he ex­pects home in­sur­ance to be­come more pop­u­lar, which presents sig­nif­i­cant op­por­tu­nity.

He’s also op­ti­mistic as he looks for­ward to 2019, pre­dict­ing that the mar­ket will climb out of its re­cent eco­nomic slump. “We’re see­ing the green shoots of re­cov­ery. I think we’ve bot­tomed out and won’t see fur­ther de­clines or con­trac­tions. We’ll start to see sta­bil­ity, job cre­ation and more liq­uid­ity in the mar­kets.

While turn­arounds re­main a part of its core and DNA, Alsed­diqi ad­mits that, while the strat­egy was born out of ne­ces­sity, the ful­fil­ment he finds in the process is the “de­sire and ne­ces­sity to change”, which in turn con­trib­utes to the econ­omy.

“If you in­vest in a grow­ing com­pany then you keep on grow­ing,” he says. “But what’s spe­cial is turn­ing around some­thing. It proves that what was coal can also be­come a di­a­mond.”

“By the end of the year we will an­nounce ma­jor stakes in two com­pa­nies on the UAE stock ex­change”

Abu Dhabi Global Mar­ket on Al Maryah Is­land is the base for ADFG

Jas­sim Alsed­diqi speaks at the Ara­bian Busi­ness Achieve­ment Awards

Abu Dhabi Se­cu­rity Ex­change cel­e­brated its 18th an­niver­sary last week

Alsed­diqi pre­dicts growth in the UAE econ­omy next year, with job cre­ation and in­creased liq­uid­ity

Jas­sim Alsed­diqi was re­cently elected to the board of Dana Gas

ADFG this year in­vested in 500 Star­tups, a Sil­i­con Val­ley ven­ture fund

ADFG bought a 48 per­cent stake in Shuaa Cap­i­tal in 2016

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