Osool & Bakheet Investment to use IPO proceeds for business expansion: CEO

Mazin Al Dawood, CEO of Osool & Bakheet Investment Co.

Osool & Bakheet Investment Co. (OBIC) through its planned initial public offering (IPO) aims to expand the current product portfolio and invest 50% of the share sale proceeds in future products, CEO Mazin Al Dawood told Argaam in an exclusive.

The total IPO proceeds will be injected in various activities and in an employee stock incentive plan. The existing shareholders will not receive any portion of the funds, Al Dawood added.

OBIC’s revenues catapulted 107% year-on-year (YoY) in H1 2023 to around SAR 32.5 million. Its profit also surged 94% YoY to nearly SAR 13 million, with a solid profit margin of about 40% of total revenues.

OBIC adopts a policy that focuses on investment diversification and reconcentration, in addition to going in tandem with economic developments and investing in various opportunities to grow in new sectors, such as fintech and venture capital. This enabled the company to maintain its profit trajectory since its merger in 2014. OBIC has distributed SAR 27 million dividends since merger.

Al Dawood added that OBIC was among the first companies that invested in real estate assets, through Al Maather REIT Fund. It has also established and managed a group of real estate funds.

Post-IPO, 60%, or 4.86 million of the company’s shares, which are owned by existing shareholders before the offering will be subject to a lock-up period of no less than 24 months starting from the company’s debut on Nomu-Parallel Market.

Al Dawood unveiled that OBIC targets assets under management (AUMs) of SAR 2.4 billion by the end of this year. It also targets an increase in the number of the current funds and those operated by the company to 13 from eight by 2023-end. It aims to raise the number of funds, to which it provides custody and management services to eight with target assets of SAR 4 billion.

Here's the full interview with Mazin Al Dawood:

Q: Can you give us more details about the company’s establishment and key milestones?

A: The company was created in 2005. Osool Capital Co. was the first financial institution licensed by the Capital Market Authority (CMA). After its its merger with Bakheet Investment Group, the company was rebranded to Osool & Bakheet Investment Co. Bakheet Investment Group was among the first financial institutions licensed by the market regulator in 2006. The merger between both entities was approved by CMA.

The company expanded its services and products. It started with the management of investments and financial activities, then boosted its offerings to go in line with the Kingdom’s goals for the financial sector development. As an integrated asset manager and financial institution, OBIC plays a leading role in this development, as it provides various financial services, such as investment management through private equity and investment funds, fund management, securities custody services, real estate funds, trading and fintech services, crowdfunding services, venture capital investments, etc.

It is the first financial institution that was created by a merger in 2013. It was the first institution licensed by CMA in 2005. The company created a digital brokerage platform and received the first license from the Saudi Central Bank (SAMA) in Q1 2023. OBIC is expected to be the first financial institution listed in the Saudi market.

Q: What is OBIC’s revenue breakdown and what are the most profitable activities?

A: OBIC’s operations are diversified, which enabled it to maintain its profit trajectory since 2014. The company has paid almost SAR 27 million dividends since the merger date. It also undertakes sound investment decisions and enters into new sectors. Revenues are balanced. Portfolio management revenues accounted for almost 17.5% of total top line, while fund management represented about 23.9%. Investment valuation at fair value contributed almost 25.1% to total revenues, compared to around 10.8% for operation management, custody, brokerage, dealing and margin finance. Dividends and profit from sale of investment at fair value represented about 13.2% of top line, while other income made up nearly 9.5%. The company’s current capital stands at SAR 60 million.

Q: How did the funds managed by Osool & Bakheet perform?

A: Funds managed by Osool & Bakheet made several achievements, the latest of which was that Osool & Bakheet Parallel Market Trading Equity Fund won Argaam Recognition Award 2022 as the Top Performing TIER II Fund over five years, with an annual return of 296.16%.

Funds managed by the brokerage firm have continued their performance during the first nine months of 2023, as Osool & Bakheet IPO Trading Fund Sharia Compliant realized a return of 30.29%, Osool & Bakheet IPO Fund saw a 29.12% yield and Osool & Bakheet Parallel Market Trading Equity Fund reported a profit of 18.46% while Osool & Bakheet Saudi Trading Equity Fund added 18.43% income.

Q: Tell us about the company's investments in the real estate sector in the Kingdom?

A: The company thinks highly of investment in the real estate sector in the Kingdom, which represents about 6% of the Kingdom's GDP, and, therefore, established and managed in 2017, Al Maather REIT Fund with a capital of SAR 613.7 million, a real estate investment traded fund managed by the firm.

Al Maather REIT was the fifth real estate traded fund offered publicly in the Saudi market in 2017, with an investment portfolio that varies between office, residential and commercial segments.

Meanwhile, the brokerage firm set up Tilal Al Malqa Residential Complex Fund as a closed real estate development fund. Established as a private placement, with a net asset value of SAR 180 million, in addition to some other funds.

The company considers investments in real estate, according to market conditions, in a way that serves the interests of its shareholders and reflects on its profitability. Accordingly, we are currently working on launching a number of real estate funds that are expected to complete their statutory procedures and be launched before year-end.

Q: Why does Osool & Bakheet seek to list its shares on Nomu?

A: The firm is characterized by high governance levels due to the need to meet the CMA licenses as a capital market institution requiring to adopt the best practices in transparency and disclosure. That being the case, it was easy for it to proceed with the listing and offering plan in the capital market. Osool & Bakheet seeks, through offering in the Saudi capital market, to increase its capital via the public offering to SAR 81 million, to be able to continues achieving leadership and innovation in providing advanced investment services and increasing the spread of its trademark.

Q: How will the company use its IPO proceeds?

A: Unlike most current offerings on Nomu, the company will use the IPO to increase its capital. It will use all the offering proceeds to expand its current products and investment funds, establish and launch new funds, in addition to supporting future products in the financial segment, namely fintech products.

Moreover, the company will also use a portion of the IPO proceeds in favor for the Employee Incentive Program and the employees’ ownership of a portion of the company’s shares.

Therefore, current shareholders will not receive any amounts from the initial offering proceeds.

Q: Can you give us insight into the additional lock-up period imposed on current shareholders?

A: Osool & Bakheet is a capital market institution licensed by the CMA. The application to offer and list the company on the market is subject to CMA’s non-objection, which was successfully obtained, thereby, conditional on applying an additional ban on current shareholders.

Accordingly, shareholders approved, during the ordinary general meeting, the ban of 60% of the company’s shares post IPO (a total of 4.86 million shares) of the current shareholders’ stake before IPO, for a period of at least 24 months as of the date of debut on Nomu.

Prior approval from CMA must also be obtained before disposing the aforesaid stake by current shareholders, following the end of the ban period.

Q: What are the company’s key goals in the short and medium term?

A: Osool & Bakheet is working to expand its investment activities, including venture investment through Osool & Bakheet - iMENA Rua Growth Fund, which focuses on

investing in innovative early-stage and growth-stage startups. Also, it invests in FinTech, e-commerce companies and those use technology to support their operations, in addition to companies that provide technical solutions for enterprises and software services.

The company will utilize 50% of the initial offering’s proceeds in targeted future products and investment in FinTech opportunities, while 21.5% will be used in expanding current products, to maintain the qualified and distinguished human resources and attract more to the company.

Since its establishment, Osool & Bakheet believes that investing in human capital is one of the most important components of its continuity and distinction in the market. Thus, the remaining 28.5% of the initial offering’s proceeds will target the employee stock ownership plan (ESOP).

In the short term and before 2023-end, the company aspires that the volume of managed portfolios and funds that are targeted to be launched to reach SAR 2.4 billion while raising the number of funds from eight funds to 13 funds. In addition, it targets increasing the number of funds that provides custody and operations management services to eight funds with a targeted asset size of SAR 4 billion by the end of 2023.