DOHA: Qatar Development Bank (QDB), the 100 percent government entity which plays an active role to develop investments within the local industries, has launched a direct equity investment (Istithmar) to support Qatari entrepreneurs and SMEs. QDB also announced a ‘SME Equity Fund’, the first product under ‘Istithmar’.
The ‘SME Equity Fund’ is a landmark new initiative and is a first of its kind in Qatar. Worth QR365m, the fund is designed to provide valuable investment to innovative start-up companies and SMEs. The initiative will play significant role in developing private sector business opportunities for Qatar, Abdulaziz bin Nasser Al Khalifa, CEO of QDB, said at a press meet here yesterday.
The aim of the fund is to provide the capital needed for Qatari entrepreneurs or start-up owners. The initiative is designed to encourage new and innovative projects that will contribute to the country’s economic diversification, generating value neutral returns that can be re-invested in subsequent funds to help and support the economy.
The QR365m would be split into two with a target allocation of 20 percent for innovative start-ups and 80 percent for SMEs, although exceptions will be reviewed on a case-by-case basis. The life term of the equity fund is 8-10 years, 5 years for deployment and 3-5 years holding period, Mohammed Al Khater, Executive Director of Investment at QDB, said while speaking on the sidelines of the press meet.
During the investment transaction phase, the SME Equity Fund and the candidate company owners (Owners) may agree on a share repurchase option (SRO) to be included as part of the investment documentation such as the Share Purchase Agreement (SPA).
The SRO allows the owners to buy back the shares owned by the SME Equity Fund at the time of the fund’s exit at a pre-determined and agreed upon discount from the fair market value (FMV) of the company.
“What make the SME Equity Fund initiative unique is its ability to provide direct investments in equity which are typically reserved for higher risk business with high growth potential. Investors in this type initiative take up an equity stake in the business with the objective of selling the stake in the future at a profit once the business has experienced growth and expansion,” said Al Khater.
In addition to financial support, equity investors are more actively involved in the business, and have a seat on the board for example, in order to support and guide the entrepreneur in growing their business. Asked whether the Fund would be listed on Qatar Exchange (QE) at some stage, Al Khater said: “There are no plans to be listed per se. In future, if we get further investments from other entities, the fund may be listed. But currently we don’t have any plans”.
Al Khater, however, added that the QDB’s decision to launch the SME equity fund could give a big boost to the Qatar Financial Markets Authority’s (QFMRA) and the QE’s plans to launch a junior stock market.
