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. Last Updated: 07/27/2016

Gulf Firms Failing to Keep it in the Family

MANAMA, Bahrain -- Multimillion dollar family businesses like those founded by Osama bin Laden's father still dominate the Arabian peninsula but are finding it harder to keep their companies strictly within the clan.

Rising competition, tougher bank lending rules and disputes over succession are some of the factors that could force more of these private family firms to restructure into publicly listed corporations.

This is especially true in a business environment where transparency is at a premium as international regulators hunt for financial links to "terrorist" activity and attempt to prevent a recurrence of events like the Enron debacle.

"There's a lot to be done in our region: Restructuring, taking companies public, maybe even mergers," said a senior Gulf-based banker, who asked to remain anonymous.

Bishr Bakheet, an independent Saudi stock market consultant, said the succession issue was of particular concern in Saudi Arabia where the progeny of multiple marriages can often result in dozens of claimants on the death of a company founder.

At stake are the fortunes built during the oil boom years of the late 1960s and 1970s, often by the now-ageing scions of powerful merchant families whose names remain the bywords for enterprise, financial clout and influence in the region.

"We cannot afford to have an economy which depends on companies where there can be such a threat of having trouble or going under," Bakheet said.

The Saudi royal family stepped in to safeguard the fortunes of the more than 50 sons of construction tycoon Mohammed Bin Laden, including Osama, when the founder of the multibillion dollar construction empire died in a plane crash in 1967.

"We have seen several situations where it is a family business built by one man who has a dozen kids and it can blow apart if he doesn't plan what happens when he dies," said a senior Europe-based banker, who estimates private clients from the Middle East hold $600 billion to $1 trillion overseas.

Several family concerns in Saudi Arabia, Oman and the United Arab Emirates have already ventured into public territory by floating parts of their companies, participating in management buyout schemes or inviting in private investors, but they remain the exception, bankers say.

Saudi-born Ahmed Nazir, general manager of Bahrain International Bank, said his offshore investment bank had recently helped one Saudi family firm, which he declined to name, consolidate, restructure and prepare to go public.

"Right now we are looking at another company that we are about to make a very significant investment in and if you look at the real reason why they are selling, it is clearly succession driven," Nazir said.

Financiers dealing closely with family-run businesses say they are often riven with debate over which direction to go to in order to maintain their wealth.

"The parents worked hard for the money and they were very conservative in managing it and now the younger generation are far more aggressive in their outlook and the way they manage the business and the funds," said the Europe-based private banker, who offers the sons and daughters of wealthy families asset-management seminars.

Pressures on the clans that dominate private business in every Gulf Arab state also come from outside the family.

"One of the things a family-held business could always do is keep its books closed because it didn't have to tell outside stockholders what was going on. That's more difficult now," said Gregory Gause, who focuses on the Middle East and its politics at the University of Vermont.

Gause cited pressures for transparency in business dealings imposed by new trading rules as well as heightened scrutiny of company finances since the Sept. 11 attacks.

"The company's books are not just the company's business anymore because the United States wants to know where all the money is going," Gause said.

One bank regulator in Bahrain said that even without Washington's push to hunt "terror" funds, banks were already operating under new banking and accounting rules that favor dealings with companies with open books.

Bankers like Nazir and stock specialists like Bahkeet say more and more family companies are likely to restructure into corporations and list shares publicly in coming months.

There are various restrictions on foreign investment across the Gulf Cooperation Council grouping Saudi Arabia, Kuwait, the United Arab Emirates, Oman, Qatar and Bahrain, including curbs on stock market participation by investors who are not GCC citizens.

Nazir said a new interest in Middle East investment by locals following Sept. 11, progress in developing capital markets as well as a recovery in business confidence was already spawning new thinking.

Bakheet said a main obstacle to the valuation and public listing of companies in Saudi Arabia -- the lack of regulation -- should end with the expected enactment of a new capital markets law in the next six to nine months.

"The new capital markets law will definitely unleash it because it has already started with two or three companies the hard way and the minute prices start going up, more will jump on to it," Bakheet said.