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COVER STORY - RAK SPECIAL REPORT - The man who sold the world.

Summary: Exclusive: Rakia and RAK Ceramics CEO, Dr Khater Massaad, tells KaREn REmO-LiSTana why he's selling global assets for an AA credit rating.

Naturally, Dr Khater Massaad knows the mission of Ras Al Kaimah Investment Authority (Rakia) off by heart: to encourage international investments to the emirate, and not the other way around. And having attracted close to $2.5 billion in investment, no one can say that the Rakia chief hasn't achieved his aim. Today, there are more than 6,500 companies registered with Rakia, representing investors from diverse non-oil sectors, including industrial, commercial, trading, services, consulting and media companies.

But, for Massaad, a deeply ambitious man, it's just not enough. The emirate is hungry for more investments and is willing to divest all its international assets to get 'AA' credit ratings, up from the current 'A'. This nifty set of moves will put RAK on the same footing as its much wealthier sisteremirate, Abu Dhabi. "For the last two years, Ras Al Kaimah has got an A-rating and His Highness Sheikh Saud Bin Saqr Al Qasimi wants to bring this 'A' to 'AA' rating," says Massaad. Describing the deputy ruler as a "very conservative" and "very good" businessman, Massaad said Sheikh Saud's focus now is to "make sure that Ras Al Kaimah is on the right track, no defaulting and financial problems."

At the top of the list for divestment is its investment in the Port of Poti in Georgia, which Rakia plans to IPO next year. "We are planning to exit this port with an IPO... in 2011," he said. "It is not a strategic asset for us. If we can make money from selling something then why should we not do it?"

The divestment may also cover other international assets. Rakia has real estate and shipping developments in Georgia, along the Black Sea coast and around the capital, and a 50:50 joint venture between RAK Ceramics and the Trimex Group from India, which is planning a range of investments in the Indonesian province of East Kalimantan.

Rakeen, its property development arm, is also investing in Georgia, where it has three mixed-use projects in the capital, Tbilisi, amounting to an investment of some $2 billion.

However, the divestment will not dramatically shake up Rakia's portfolio, the said investment in the Georgia port is "small" and even if all of its overseas investments are summed up, they would not make up 10 per cent of Rakia's total assets, according to Massaad.

"Our investment outside RAK is less than 10 per cent," he said. "His Highness has given instruction now to invest only within RAK so all our investments from now on will be in the emirate."

Contrary to popular opinion Massaad says Rakia is not a sovereign wealth fund (SWF) and so is not obliged to invest in various asset classes. "We don't have a fund, we are a company," he says. "To be honest, I don't consider Rakia as an SWF. I consider it as an industrial licensing and promotion agency. We have invested in certain industries but we are not RAK's investment arm."

The emirate's plans to increase its rating by beefing up investment using capital from its own pocket makes sense, given its current debtfreeze policy.

RAK is currently in a deleveraging mood as it looks to reduce its $1.36 billion of debt after funding a development splurge with Islamic bonds.

Jim Stewart, chief executive of the Ras Al Khaimah government's Investment and Development Office, has said previously that the agency would like to reduce the structural debt and then bring in partners later on. Investors will share equity in some of the emirate's 16 government-related companies, which could also sell shares to the public in a few years, or help develop its major projects, said Stewart.

Having weathered the challenges of 2009 quite well, with growth intact and comfortable public finance ratios, RAK is rated 'A/A' by Fitch and Standard & Poor's ratings agencies.

However, with the budget deficit and debt ratios having risen sharply since 2006, albeit to finance important infrastructure development, RAK now needs to demonstrate that the projected improvement in public finances will start to materialise this year, Richard Fox, head of Middle East and Africa sovereign ratings at Fitch, said.

The deficit had been expected to narrow, with no new borrowing envisaged in the 2009 financing plan. However, the government pressed ahead with capital spending plans and financed the resulting deficit with its first foreign currency sukuk for $400 million, issued in July 2009.

This raised the debt burden to 31.4 per cent of GDP at end-2009, compared with 22 per cent one year earlier. This level remains below the 'A' peer group median of 34 per cent.

Fox says the compilation of accounts on a public sector-wide basis has served RAK well, with the authorities able to provide detailed data on the performance of public sector agencies and enterprises. It was also able to exert a high degree of oversight and control.

"This minimises the risk of a Dubaistyle crisis emerging in RAK", Fox says.

To further beef up its buffers, Rakia plans to IPO RAK Ceramics in India by the end of this year or beginning of next year, following its $250 million Bangladesh IPO.

"The size of the issue depends on the laws of India. It may be up to 30-40 per cent and we are probably talking about $40 million to $50 million," Massaad said.

RAK Ceramics supplies up to 75 per cent of the domestic demand for sanitary ware in the UAE and 25 per cent of demand for ceramic tile in Bangladesh. While in India, about three out of every four tiles is from RAK Ceramics.

The world's largest ceramics manufacturer, largely owned by Rakia, is also expecting bigger revenues and profits for this fiscal year. For the fiscal year of 2009, RAK Ceramics posted a 20.2 per cent jump in net profits to Dhs261.9 million compared to Dhs217.9 million in the previous year. Revenues during the same period rose 17 per cent to Dhs3.77 billion from Dh3.23 billion.

Massaad can be forgiven a little smugness as he says total revenue is expected to rise 10 per cent to reach $1.1billion this year from $1billion last year. He's also hoping for the same percentage increase in terms of profits. And judging by his track record, it's likely he'll do it.

"We have not been squeezed. RAK Ceramics is exporting to more than 130 countries," he explains. "If you have a recession in one country, it can be compensated in other countries."

- We are planning to exit the Port of Poti in Georgia with an iPO in 2011. if we can make money from selling something then why should we not do it?

- The many hats of Dr Massad

The driving force behind RAK Ceramics CEO, Dr Khater Massaad, has guided the destiny of what is now the largest ceramic manufacturing organisation in the world - achieved within 17 years.

Massaad was appointed in August 2003 as the advisor to The Crown Prince & Deputy Ruler of the Emirate of Ras Al Khaimah, His Highness Sheikh Saud Bin Saqr Al Qasimi. He plays an important role in the rapid development of the emirate as CEO of the RAK Investment Authority (Rakia), a position he was appointed to in 2005. Rakia has attracted more than $2 billion in industrial investments into RAK.

Massaad has also played a major role in the tourism sector as managing director of Al Hamra Fort Hotel & Beach Resort.

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Publication:Gulf Business
Geographic Code:9INDI
Date:Oct 14, 2010
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