Three years ago, International Holding Company was a little-known company that managed fish farms, food and real estate. It employed only 40 people. Today, the Abu Dhabi-listed group has a market capitalization of $240 billion, more than double that of global giants Siemens and GE, and employs 150,000 people.
This is an extraordinary transformation that has largely gone unnoticed outside the United Arab Emirates and little understood even by bankers based in the region.
“No one knows,” said one international banker from the Gulf states when asked to explain the IHC surge. This is a common response to questions about the conglomerate, despite the fact that it accounts for a third of the FADX 15, the Abu Dhabi Securities Exchange’s ADX benchmark index. As its share price has risen 42,000% since 2019, it has become the second largest company in the Middle East after state oil company Saudi Aramco.
Even Syed Basar Shueb, who took over as chief executive of IHC in mid-2019, admitted that “it’s amazing.”
In an interview with the Financial Times, he insisted on a simple explanation for the company’s growth – the move of more than 40 companies, worth $4.7 billion according to IHC, from the Royal Group, another Abu Dhabi conglomerate. Most of the businesses were handed over at a face value of one dirham each, Shueb said.
However, this only explains part of the story: IHC’s total assets rose from $215 million at the end of 2018 to $54 billion in the third quarter of 2022.
This is due to the growth of businesses it now controls, according to the IHC. “We do not give any dividends, the profits we received in 2020, 2021, basically. . . invested back,” Shueb said. “We are trying to create a giant here. . . world giant.
Others, however, see the IHC as an example of the increasingly blurred relationship between business and government in Abu Dhabi, the UAE’s capital and the federation’s wealthiest member. It also raised questions about transparency.
“This is probably the biggest threat to ADX because we don’t know what’s going on,” the banker said. “A lot of great things are happening on ADX, but there’s one more thing no one knows about.”
Concern over IHC’s spectacular market cap growth is so great that officials in neighbouring Dubai are no longer considering reopening discussions about a future merger of its stock market with ADX, people familiar with the matter say.
Ernst & Young said its audit of last year’s third-quarter IHC financial report was “significantly less in scope” than an audit to international standards, and therefore E&Y was unable to obtain assurance “on all material matters.”
The IHC said: “Due to the limited amount of information to be presented in the interim financial report. . . external auditors do not normally perform a full audit of these financial statements.”
The company’s transformation can be timed to coincide with Sheikh Tahnoun bin Zayed Al Nahyan, one of the most powerful figures in Abu Dhabi, taking over as chairman in 2020. In addition to being the UAE’s national security adviser, he is the brother of its president, Sheikh Mohammed bin Zayed Al Nahyan, and he oversees an expanding business empire.
In addition to his role at IHC, he leads ADQ, a new and increasingly active public investment vehicle, First Abu Dhabi Bank, the UAE’s largest lender, and Group42, an Abu Dhabi-based artificial intelligence and cloud computing company.
He also controls the Royal Group, the holding company that owns 62 percent of IHC. About 24% of IHC’s shares are in free float, and more than 90% of the shares are owned by investors from the Gulf countries.
Shueb said Sheikh Tahnoun’s vision for IHC was “limited to creating value for shareholders.” “How do we create [value] handed over to management,” he said.
He dismissed scepticism about what caused the stock price to soar, saying it was “a little ignorance of the bankers who don’t look at it properly”.
“An investor who is willing to invest in this market cap just because they have done their homework well, because they see that these assets have significant value,” he said. “I believe that people expect that certain assets that are still out of [with Royal Group] will come to the IHC group. . . which I do not deny, it is quite probable that they will come.”
Shueb tried to explain the group’s purpose as “one simple thing – [to] create value for our shareholders by investing in different portfolios, not in one investment stream.” “We make an acquisition, we make a synergy, and then we diversify right away,” he said.
As an example, he said that if IHC bought a telecommunications company, it would integrate it into IHC’s service business and expand into “solutions” and “equipment sales.” In agriculture, it was planned to supply products “from the farm to the table.”
He added that the company has a $10 billion investment reserve and aims to grow the group’s revenue from $7.7 billion in 2021 to $27 billion in 2023, mostly through acquisitions.
“Our five-year plan is to reach 1 trillion dirhams. [$272bn] at least in revenue, in acquisitions, and our own businesses are doing well,” Schueb said.
IHC deals in 2022 include a $2 billion investment in three Mumbai-listed companies that are part of the empire of Gautam Adani, Asia’s richest man, $500 million to buy a 50 percent stake in a Turkish clean energy company, and $2 billion offer. buy up to 31.25% of the Colombian food group Grupo Nutresa.
Shueb attributed IHC’s $6.5 billion profit in the first nine months of 2022, up 236% from the same period in 2021, largely through investments, including its stake in Adani companies.
Shueb said the IHC is focusing on technology, healthcare, real estate, construction, food and agribusiness, and general investment. Geographically, his focus has been on Asia and Latin America, and he is looking for deals in markets as diverse as Turkey and Indonesia.
“These are emerging economies; they have a population; they have smart systems in place to support all this growth and in the end, since we are from Abu Dhabi and the population of the UAE is only 10 million, I can’t. . . reach 100 million people, but I can reach 100 million through these companies,” he said.
He added that IHC is also “looking at certain deals” in the US, where it already has some assets, including a stake in Elon Musk’s SpaceX. However, he saw Europe as “a very uncertain market right now”.
“We get a lot of very good offers [in Europe]but [we] I don’t know if these good deals will stay in place,” he added.
When asked why there was no independent study of the group, despite its size and dominance in the ADX, Schueb replied that “it’s up to them whether they want to do it or not.”
“When I enter the market for any IPO of my companies, I get enough questions from the local investor base. . . they have enough information about our financial performance,” he said. “Our books are very open.”
IHC was in talks with the credit agency about the rating, but the process ran into a stumbling block when the agency asked what to compare the group to, Schueb said.
“The team continues to work [on the rating and] most likely, a solution will be found,” he added.
He said that IHC’s debt is around AED10 billion, excluding operating debt of portfolio companies, and will seek to increase borrowing as it expands. He added that the group had begun developing relationships with international banks, including a “multi-billion dollar” loan from Standard Chartered and partnerships with Goldman Sachs and UBS.
Others still need to be convinced of the group’s strategy.
“I don’t understand this because it is a company with a $200 billion market capitalization that discloses less information than much smaller companies and the whole complex of listed and unlisted subsidies that are very active,” said another banker from Persian Gulf.
However, “it’s such an important source of deal flow that I’m sure some banks are looking into what they can do” to get involved, he added.