Exploring New Horizons
Najla Al Shirawi, CEO of Bahrain’s SICO, has been with the 25-year-old investment bank since its very early years. Today she is leading its multibillion-dollar expansion, with Saudi Arabia the next port of call.
Najla Al Shirawi, CEO of Bahrain’s SICO, has been with the 25-year-old investment bank since its very early years. Today she is leading its multi-billion-dollar expansion, with Saudi Arabia the next port of call.
FORa small nation—the smallest in the GCC— Bahrain can still pack a punch. When it comes to its wealth and its potential for growth in several key sectors, the island is an attractive place for investment, even during a crisis. Look at last year as a case in point. As the world woke up to the realities of a new pandemic, Bahrain still managed to attract $885 million in direct investment through companies opening or expanding in the kingdom, according to figures announced last month by its Economic Development Board.
One such homegrown company with its eyes on expansion in 2020 was SICO, a Manama-based regional asset manager, broker, and investment bank with more than $2.3 billion currently in assets under management. CEO, Najla Al Shirawi, led the charge last year as the 25-year-old company plowed ahead with its first steps towards a presence on the ground in Saudi Arabia, negotiating the acquisition of a majority stake in Bank Muscat’s wholly-owned Riyadh-based subsidiary, Muscat Capital. An agreement was signed at the end of the year.
On the cusp of announcing its acquisition approval from Saudi’s Capital Markets Authority (CMA), Al Shirawi says this isn’t the only expansion SICO has in its sights. “We continue to look for opportunities,” she reveals. “This is something that is crucial to our business as we are looking to expand our capabilities. We don’t believe in acquiring businesses just to bring in more assets under management.”
The investment bank is growing off the back of a trying year. 2020 began on an optimistic note, with the bank’s net profit for 2019 increasing by 63% compared to 2018, and its performance fee for 2019 hitting $5.9 million, up from just $1 million the year before. But 2020 pinched. Although Q1 figures for last year are not available as the
Central Bank of Bahrain exempted banks from publishing them, financial reports show that profits for the first nine months of 2020 were down 52% compared to the same period in 2019. A silver lining came in the form of brokerage income, which recorded an increase of about 45% in the first nine months of 2020 compared to the same period in 2019.
But now, as the new year begins, plans are on track. SICO first started looking to Saudi two years ago, kicking things off by buying around 10% of its capital in treasury shares from existing shareholders to attract a new shareholder through an M&A deal. “That was the masterplan,” says the CEO. Muscat Capital stood out as a licensed fullyfunctional investment bank that had been operational in Saudi for over a decade. It had a good track record, clean balance sheet and, more importantly, it was owned by a single shareholder, Bank Muscat. With $1.4 billion in assets under management, it offers a promising opportunity for SICO. “Muscat Capital is quite robust in terms of how they are run, the management, the client base, but also they will complement SICO, and the overlap is minimal,” adds Al Shirawi.
With this initial deal, Bank Muscat will own roughly 9%—or 38,563,894 shares—of SICO, which will in return own 72.7% of Muscat Capital. Al Shirawi reveals that SICO has at the same time agreed to buy the remaining stake in Muscat Capital within the next three years, eventually becoming the sole owner. In the meantime, the transaction offers further diversification for Bank Muscat, which is Oman’s biggest bank with $31 billion in assets. “It doesn’t make sense for a large bank like Bank Muscat to remain invested with just 25%,” says Al Shirawi. “At the same time, for SICO to continue growing the business, we need to have full control and for this company to be a fully-owned subsidiary.”
Along with its current presence in Bahrain and the U.A.E., the new acquisition opens the doors to the Saudi market for SICO— and it’s not hard to see why this is an attractive prospect. According to the CEO, the largest economy in the Middle East will also be the largest growth driver for SICO in the future.
Saudi’s financial markets have matured considerably since June 2015, when the government opened its stock exchange, Tadawul, to foreign investment. It went on to introduce a real estate investment trust (REIT) regime in November 2016. Today, 17 REITs are listed on Tadawul, including the Al Mashaar REIT, which is managed by Muscat Capital and was valued at approximately $117.8 million as of January 2021. In June 2018, Morgan Stanley Capital International (MSCI) upgraded Saudi Arabia from standalone to emerging market status.
At the end of 2019, Saudi Aramco’s recordbreaking IPO sent the kingdom’s markets soaring and set off a wave of public listings. Last year, despite the downturn caused by the pandemic, the Saudi stock exchange saw four new listings. The CMA has also been encouraging many of the country’s smaller family-operated companies and financial services companies to list over the last couple of years, creating a small-cap market called Nomu in February 2017, which saw 10 listings in its first year. These reforms, alongside Saudi’s Vision 2030 plans, will provide a number of opportunities for investment banking. “If you look at the Vision 2030, it’s clear that there will be greater emphasize on the expansion of the Saudi capital markets, which just means direct business to the likes of
SICO,” agrees Al Shirawi.
The CEO has a unique perspective on SICO’s future, having worked there for most of its existence. Al Shirawi joined the company in 1997, just two years after it was established. At the time she was fresh from her international MBA, having first studied civil engineering at the University of Bahrain. “I’ve always been very good at Math and interested in analytics,” she says. The MBA sparked an interest in corporate finance, and the young graduate applied to SICO, intrigued by an opportunity to work in financial markets. She quickly got an interview with the CEO and was offered a job the next day.
She joined the corporate finance team at a pivotal time for the young company. In 1997, SICO obtained its investment banking license, established its investment banking division, and served as advisor and manager on its first two IPOs, for the Arab Insurance Group and Bahrain Duty Free. “What I remember from those early days is that we were a very small team, and we were trying to build our identity in the market,” Al Shirawi reminisces. “The corporate finance team was basically two—it was myself and my boss, the head of the department—so you can image the amount of work we did and how much satisfaction we got from the successes achieved.”
Her diligence paid off. She grew with the company, moving from corporate finance to asset management to property investment and treasury. She entered the C-suite as Chief Operating Officer before being named Deputy CEO in 2013 and CEO a year later. As a result, she has witnessed almost all of SICO’s milestones, including its listing on the Bahrain Bourse stock exchange in 2003. Other more recent achievements include listing Bahrain’s first REIT in 2015, followed a year later by the launch of the Bahrain Liquidity Fund, the kingdom’s only liquidity fund. Then, in 2017, SICO launched SICO LIVE, the investment bank’s online trading platform.
Under Al Shirawi’s leadership, SICO’s current moves are the first time that it has
pursued growth this aggressively, according to the CEO. Traditionally it has taken a more conservative approach. “At the peak of the market, back in 2007, everyone went into establishing on-ground presence in regional markets, everyone had a flag somewhere,” she explains. “We have not gone into that.” This means that, although the bank has always been well-capitalized, it has only raised capital once before, in 2008, when it needed a bigger balance sheet to apply for a wholesale banking license. Even then, much like for the Saudi expansion, this excess capital was raised from existing shareholders.
Today the Social Insurance Organization of Bahrain is the largest shareholder in SICO, with 50.3%. Other shareholders include Bahraini banks, and around 5% of the company is owned by its employees. This risk-averse attitude makes SICO one of the oldest independent investment banks (not a subsidiary of a larger local or international bank) in the region not to have been recapitalized or acquired. It has also meant that growth outside its home country has been relatively slow—its first foray outside Bahrain came in 2012 when it established a brokerage business in the U.A.E. Despite this, the CEO asserts that they are not just a local player. “We look at the region as a whole, and we look at ourselves as a regional player,” she insists.
SICO could still face some challenges ahead. Like all other countries, Bahrain’s economy was adversely affected by the pandemic. Its budget deficit almost doubled in the first half of 2020 due to the twin hammer blows of COVID19 and low crude oil prices. The country is also in the process of borrowing more funds through a bond issue. Pandemic-driven challenges, however, will likely affect much of the region. “The biggest challenge short term for investment management companies is the inability to travel and have face-to-face time with both existing and potential investors,” says Khurram Akram, Head of Institutional Sales for MENA at Union Bancaire Privée. “The inescapable longer term challenge will always be the volatile oil price and the impact this has on government spending and budgets within certain countries in the GCC.”
And the industry remains highly competitive, despite some high-profile failures. In 2018, Abraaj Capital—one of the region’s biggest asset management companies, with $14 billion in assets under management— collapsed amid controversy. And more recently, in 2020, Al Masah Capital was placed in liquidation after being fined for allegedly misleading investors about fees. Upcoming consolidations in the commercial banking sector will also streamline the industry, such as with the merger of NCB and Samba Financial Group in Saudi Arabia, as well as the likely merger of their investment banking arms, NCB Capital and SAMBA Capital. “The asset management industry in the region will continue to witness consolidation. Smaller players are finding it increasingly harder to grow their AUMs as they face tougher competition from global banks offering a larger suite of products,” agrees Sherif El-Haddad, Head of Asset Management at Al Mal Capital.
None of this phases Al Shirawi. “On the surface, the market is very crowded, however, there is an opportunity for a niche player,” she says. “We have a lot to achieve in the next three to five years—you put a plan for yourself, and you put a plan for your team and your organization.
“Any success that SICO achieves is a success for all of us.”