Gulf banks launch three Islamic investment firms

DUBAI - Three Gulf Arab banks will launch a specialised bank to finance infrastructure projects, an agriculture firm and a hospitality fund as rapid growth in the Middle East and North Africa lures billions in new investment.

The consortium aims to set up three new Islamic financial institutions with total starting capital of $2.8 billion and authorisation to raise up to $10 billion to invest in roads, sewage treatment, farms, schools and the hospitality industry.

The ambitious plans, the latest in a string of multi-billion-dollar projects, come as a five-fold rise in oil prices since 2002 fuels breakneck growth in the energy exporting nations of the Gulf, Middle East and North Africa.

Project leader Gulf Finance House, the Bahraini Islamic investment bank, said it would launch a specialised investment bank called InfraCapital to tap an expected $545 billion in projects in the world's biggest oil-exporting region.'These are megasized projects with long gestation periods and it requires specialised institutions that can invest large amounts of capital and can syndicate and can manage complexity,' Mehran Jamsheer, Gulf Finance House deputy chief executive, told Reuters by telephone Wednesday.

Bahrain's Ithmaar Bank and Abu Dhabi Investment House are equal shareholders in the venture, which will seek to raise $1.5 billion in equity capital through private placements with institutions and rich people.

The Gulf financial sector is widely viewed as too fragmented to handle the massive financing needs required by the rapidly growing region, with consolidation expected to accelerate or risk letting big Western banks win much of the business.

The Gulf consortium would also set up a $1 billion agricultural investment firm, authorised to raise up to $3 billion and focusing on food production, livestock and biofuels, and a $300 million hospitality fund authorised to raise up to $1 billion to invest in hotels and apartment complexes.

The three firms could have collective authorised capital of up to $10 billion, the companies said.

The announcement comes one month after a Gulf consortium including Gulf Finance said it would set up a $5 billion steelmaking firm to meet soaring construction demand in the region.

Gulf Arab oil producers are putting the investment windfall revenues from rising oil prices into developing infrastructure, real estate and industry to diversify their economies away from a reliance on oil exports.

The size of the six Gulf economies, including Saudi Arabia and the United Arab Emirates, will surge past $1 trillion this year on high oil prices, a Reuters poll showed last month.

In May, Gulf Finance, which is also building energy operations in places like Libya, said it would start a $2 billion cement company.

Islamic companies comply with sharia law which bans, among other things, the payment or receipt of interest.