Tom Speechley

1
Key Investment Opportunities in Jordan
The Role of the Private Sector
Tom Speechley Executive Director Abraaj Capital
February 20th, 2007
2
The Investment Requirements of the MENASA Region
A confluence of factors are driving the need for
investments in the Middle East, North Africa and
South Asia (MENASA) region.
Infrastructure Investment Requirements

• The Middle East has become the largest project
  finance market in the world, accounting for US
  33 billion, or one dollar in every three, that
  was raised for global infrastructure projects in
  the first half of 2006.
• Research conducted by Abraaj Capital confirms
  that this reflects a structural trend with in
  excess of US 630 billion of infrastructure
  investment required across a broad range of
  sectors over the next 5-10 years.

Sector Liberalization Privatization

• There is a paradigm shift in the mindset of
  regional governments to promote the privatization
  of state-owned enterprises, with a pipeline
  across MENASA in excess of US 1 trillion within
  the next decade.

Regulatory Restructuring

• The improvement in regulatory infrastructure and
  the implementation of WTO commitments are likely
  to fuel the need for more investments.

Source Abraaj Analysis.
3
The Role of the Private Sector Funding the Gap
The private sector plays a vital role in
financing these investments. For example, even
with large budget surpluses in the GCC, there is
still a large deficit in required financing.
GCC Projects ( 5 Years Horizon)
US billion
The Saudi government requires investments of US
624 billion over the next 15 years.
US 325 billion worth of private investments are
required over the next 5 years.
Assuming current GCC production levels of 17.4
mbpd production, and excess price of US 25 per
barrel (25 of excess revenues assumed to be
available for funding projects).
Source MEED Projects Abraaj Analysis.
4
The Role of the Private Sector Implementing
Best Practice
Additionally, the private sector acts as a
catalyst for implementing global business best
practice.
Productivity Gains

• The region recorded the second lowest growth in
  output per laborer in 2005, which is primarily
  attributed to the low private sector
  participation.

Corporate Governance

• The region suffers from poor corporate governance
  characterized by a lack of transparency, absence
  of accurate disclosures, irregularity in public
  accountability, inferior institutional quality
  and inefficiency in internal control systems.

Efficient Capital Structures

• According to the IMF, non performing loans (NPLs)
  represent 15 of total loans in the Middle East.
  This is largely due to inefficient capital
  structures of firms in the region.

Technological Advancement

• The private sector provides the necessary
  technological and project management expertise.

Source Abraaj Analysis.
5
The Role of the Private Sector in Jordan
In Jordan, the private sector has been playing a
greater role in shaping the economy through
local, regional and foreign direct investments.
Source Jordan Central Bank Jordan Investment
Board Jordan, Egypt, Tunisia and Turkey Country
Reports EIU, December 2006.
6
Forms of Private Sector Participation
Private equity and public private partnerships
(PPPs) are two forms of private sector
participation that are increasingly playing a
significant role in the region.
Private Equity

• Private equity has emerged a clear winner from
  stock market volatility in the region.
• A total of 117 private equity funds with assets
  worth more than US 38 billion have been
  announced, are raising funds or already investing
  in the region.

PPPs

• Public-private partnership (PPP) is a system in
  which a government project is funded and operated
  through a partnership of government and one or
  more private sector companies.
• Typically, capital investment is made by the
  private sector on the strength of a contract with
  the government to provide agreed services.
  Government contributions to a PPP may also be in
  kind (notably the transfer of existing assets).
• PPP could take one of the following forms
• Build-Operate-Transfer (BOT)
• Build-Transfer-Operate (BTO)
• Build-Own-Operate (BOO)
• Buy-Build-Operate (BBO)
• Design-Build (DB)
• Design-Build-Maintain (DBM) and
• Design-Build-Operate (DBO).

Source Zawya Abraaj Analysis.
7
Private Equity Long-term Value Creation
Private equity investments drive long-term value
creation.
Performance

• Control Private equity managers often have a
  high degree of control and influence over
  investments.
• Access to information Private equity managers
  often have legitimate access to non-public
  information prior to making an investment in
  private companies.
• Alignment of interest Strong alignment of
  interests between investors and management.

Long-term Value Creation

• Diversification by number of companies,
  industries, managers, strategies and geographies.
• Access to opportunities in a vast and growing
  marketplace of privately held companies.
• Adding exposure to private equity in certain
  portfolios may increase the expected returns and
  reduce risk.

Diversification
Source Deutsche Bank.
8
Private Equity Superior Performance
PE funds have historically outperformed other
asset classes by a significant margin.

• Private equity funds continue to outperform other
  asset classes in developed markets, such as
  Europe and US.
• The difference is even more pronounced when
  comparing top quartile funds, which offers
  returns of up to 39 in excess of public markets.
• Importantly, private equity funds are not
  perfectly correlated to either public markets or
  real estate, thereby providing investors with a
  hedging instrument.

Source Deutsche Bank.
9
Recently Announced Investments in Jordan
Private investments in excess of US 3 billion
have been recently announced in Jordan.

• Total investments of US 1.25 billion.
• Sponsor Gulf Finance House, Kuwait Investment
  and Finance Company, and the Greater Amman
  Municipality.
• Project A residential and commercial village
  15km from the center of Amman.

Royal Metropolis

• Total investments of US 700 million.
• Sponsor Saudi Oger.
• Project A mixed-use development in Aqaba,
  including shopping, dining, entertainment,
  freehold accommodation and culture activities
  and adding around 1.5 km of beachfront to the
  Gulf of Aqaba.

Saraya Aqaba

• Total investments of US 500 million.
• Sponsor Emaar Properities.
• Project Residential, retail and leisure
  communities.

Dead Sea Company

• Total investments of US 400 million.
• Sponsor Al Rajihi Investment Group.
• Project Cement factories in Mafraq and Qatraneh.

Mafraq Qatraneh Cement

• Total investments of US 200 million.
• Sponsor Omnix Group.
• Project Real estate project at the Dead Sea.

Crystal City
Source Jordan Country Report Economist
Intelligence Unit (EIU), December 2006.
10
PPP Investment Opportunities in Jordan
Additionally, a number of announced large scale
infrastructure projects in excess of US 5bn are
expected to attract massive foreign investments
in the form of PPPs.

• Total estimated investment cost of US 1 billion
  (1st phase).
• Project Water transfer from Red Sea to Dead Sea.

Red Sea-Dead Sea Water Transfer

• Total estimated investment cost of US 300 - 500
  million.
• Timeframe 2006 - 2009.
• Project Expand existing terminals.

Expansion of Queen Alia Intl Airport

• Total estimated investment cost of US 150
  million.
• Project Establish a passenger transport system
  between Amman and Zarqa.

Light Railway from Zarqa to Amman

• Total estimated investment cost of US 1 billion.
• Timeframe 2006 - 2012.
• Project Relocate the main port area and
  construct a multipurpose cargo terminal.

Aqaba Port Relocation Development

• Total estimated investment cost of US 700
  million.
• Timeframe 2006 - 2008.
• Project Expand the existing refinery to meet
  demand for oil products.

Jordan Petrol. Refinery Expansion
Source Jordan Investment Board Jordan Country
Report Economist Intelligence Unit (EIU),
December 2006.
11
PPP Investment Opportunities in Jordan (Contd)
Additionally, a number of announced large scale
infrastructure projects in excess of US 5bn are
expected to attract massive foreign investments
in the form of PPPs.

• Total estimated investment cost of US 500 - 600
  million.
• Project Provide additional water supply from
  Disi aquifer to greater Amman area.

Disi Water Conveyance Project

• Total estimated investment cost of US 1.1
  billion.
• Project Generate 1,500 MW to meet the local and
  regional demand.

4 Electricity Generation Plants

• Total estimated investment cost of US 700
  million.
• Timeframe 2006 - 2008.
• Project Construct natural gas pipelines.

Gaz Distribution Networks

• Project Build an industrial area within Aqaba
  Special Economic Zone (ASEZ) through seeking a
  technically and financially qualified joint
  venture partner with Aqaba Development
  Corporation (ADC) for development, marketing and
  management on a landlord basis.

Southern Industrial Zone (SIZ)

• Timeframe 2006 - 2010.
• Project Establish a cluster around Jordan USD
  1.4 billion fertilizer chemical industries
  located in the South Industrial Zone of Aqaba
  Special Economic Zone (ASEZ).

Fertilizer Chemical Cluster
Source Jordan Investment Board Jordan Country
Report Economist Intelligence Unit (EIU),
December 2006.
12
Conclusion
Abraaj Capital
Private equity firms to raise dedicated
infrastructure funds.
Significant need for private sector investment in
infrastructure across the MENASA region including
the KINGDOM of JORDAN.
Middle East Private Equity Investing in Foresight
The Infrastructure and Growth Capital
Fund Co-Sponsored by Abraaj Capital, Deutsche
Bank Ithmaar Bank
US 2 billion