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Al Salam unit to focus on European private equity

LONDON: The European subsidiary of Al Salam Bank-Bahrain, which last week bought prime real estate in London's financial centre, will focus on private equity rather than property, its chief executive said.

Mohammed Paracha said Al Salam Europe is shopping around for Continental European mid-cap private equity deals in Spain, Portugal and France. It has also considered Italy and nearly sealed a deal in the UK, which fell through, he said.

London-based Al Salam Europe was set up in January, in line with the Islamic bank's expansion plans.

Western countries with Muslim populations are seen as a key growth area for the Islamic finance industry, whose assets are estimated at up to $1 trillion.

Al Salam acquired London Milton Gate office tower from UBS Triton Fund in a deal worth more than $220 million.

That deal reflects the relatively weak sterling as well as low property valuations, Paracha said, adding it does not represent the core of the bank's European activities.

"The purpose of us being here primarily is private equity and it is reflected in our deal team, we have recruited expects with background at 3i, Bridgepoint," Paracha said.

"Real estate is something we cannot ignore because GCC investors do like it, so we will look at real estate," he said.

Real estate and private equity are seen as the mainstream finance asset classes lending themselves best to the principles of Islam, which encourages a split of risk and rewards between investors and entrepreneurs as well as the use of tangible assets.

Both real estate and private equity deals will be considered by the Western Europe private equity unit of six, whose members Paracha declined to name.

Depending on markets' development, the executive could recruit a further team, either dedicated to the European emerging markets or the US. Paracha said this decision will be made in November, when the bank's annual strategy is reviewed.

Paracha said Al Salam was eyeing a number of private equity deals across different Islamic compliant sectors. These sectors included aviation - especially logistics and cargo handling - renewable energy and some niche services in the shipping sector.

"We have been inundated because our selling point is we can write a cheque and not rely on leverage," Paracha said.

At the end of the first quarter, the bank had assets of over BD600m ($1.59bn).

"When you have a balance sheet of $1.5bn and you are only going in the mid-market writing an equity cheque of $50 to 70m you can do quite a lot of deals," he said.

The bank is interested in deals yielding annualised returns of 20 per cent to 25pc.

Private equity firms traditionally target returns of about 20pc a year, but have seen those targets hit by the credit crisis and falling company valuations. "There are many opportunities in the market, but for us it is about doing a few but very good deals."

Paracha said Middle East investors are potentially interested in Europe, but they are beginning to require dividends, as a reward for their commitment.



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