Mar 11, 2023
Mideast Spymaster’s Hot AI Stocks Rely on Related-Party Sales
Two high-flying AI companies backed by an influential Middle Eastern royal have been opening up to the public markets for the first time. Behind the scenes, their rise has been predominantly powered by business with connected parties.
Data analytics firm Presight AI Holding Plc said this month it’s seeking 1.82 billion dirhams ($496 million) in an Abu Dhabi IPO. It’s hoping to repeat the success of sister company Bayanat AI Plc, a geospatial intelligence provider that has more than tripled since it listed in October last year and is now worth about $2.4 billion.
They’re both part of the sprawling business empire of Sheikh Tahnoon bin Zayed Al Nahyan, who’s known as the spy chief of the United Arab Emirates. He chairs their parent company G42, which is rapidly expanding as it builds up a portfolio of firms involved in everything from cloud computing to vaccines and driverless cars.
Presight booked $347.9 million of revenue from related-party transactions in 2022 or about 82.3% of total sales, according to its IPO prospectus, which notes the Abu Dhabi government is considered a related party. The year before, 99.8% of its revenue came from related parties.
The company doesn’t specify precisely which clients those sales came from. Other sections of the prospectus note Presight provided pandemic management tools for the UAE amid the spread of Covid-19 and supplied video analytics for Expo 2020 in Dubai. The listing documents warn Presight is “highly dependent” on its domestic operations, though it has plans to boost its international business.
“Investors look for recurring revenue from a diverse set of customers,” said Nirgunan Tiruchelvam, head of consumer and internet at advisory firm Aletheia Capital. “It is not common for the related-party transactions to be of this magnitude.”
Accounting rules require companies to disclose the amount of business with related parties, which can include clients with links to their major shareholders or top management. Backers of Presight’s parent company include Abu Dhabi sovereign wealth fund Mubadala Investment Co. Sheikh Tahnoon’s older brother—Sheikh Mohammed bin Zayed Al Nahyan, known as MBZ—is ruler of Abu Dhabi and president of the UAE.
Jay Ritter, a finance professor at the University of Florida, said foreign fund managers tend to be the most concerned about the business mix when evaluating investments. Having related entities as clients can be seen as positive if they’re reliable customers, but it can sometimes indicate the companies aren’t making products that others want to buy, he said.
“Investors would generally prefer a mix of arms-length clients to related parties,” said Simon Kitchen, head of strategy at EFG Hermes. “However, it may be difficult to avoid related-party revenues in Abu Dhabi, where much of the economy is in the hands of state-owned companies.”
Bayanat, which grew out of the UAE’s Military Survey Department and was acquired by G42 in 2020, has relied even more heavily on business with related entities. For the first nine months of 2022, 100% of its sales came from connected parties, its IPO prospectus shows. That’s up from 99.97% the year before and 97.7% in 2020.
Bayanat is the UAE’s main supplier of geospatial products with customers including the Ministry of Defence and Department of Municipalities & Transport, as well as Abu Dhabi’s Environment Agency. While reliance on large contracts is unusual in developed markets, the situation in Gulf countries is different, said Al Dhabi Capital senior investment analyst Dahlia Sabaayon.
That’s particularly true for sensitive industries where arms of the government play a key role, she said. Solutions By STC, an IT services unit of Saudi Arabia’s biggest telecom company that listed in 2021, got roughly three quarters of its revenue from the parent company and its subsidiaries last year, according to its annual report.
Bayanat had a strong debut in October, even though its share sale came at a time when investors were dumping growth stocks. The IPO attracted a cornerstone investment from tech buyout firm Silver Lake, which was already a shareholder in Bayanat’s parent company. Bayanat nearly quadrupled on its first day of trading, marking the best debut performance of any major tech IPO globally in 2022, according to data compiled by Bloomberg.
Bayanat’s shares fell as much as 5.2% on Monday, the most in more than six weeks, before erasing those losses. The stock is up about 218% from its IPO price, compared with a 5.3% rise in the MSCI World Information Technology Index and a 4.5% decline in the Abu Dhabi benchmark index over the same period.
International Holding Co., a listed conglomerate chaired by Sheikh Tahnoon, signed up as a cornerstone investor for the IPOs of Presight and Bayanat. IHC’s brokerage arm, International Securities LLC, is lead placement agent for both deals while Dubai Islamic Bank PJSC is lead manager.
G42 and the UAE government media office referred queries to the companies. A spokesperson for Bayanat said it has “the most discerning customers” and is focused on areas including international expansion and inorganic growth after completing its IPO.
A representative for Presight said it has delivered projects of growing significance to key domestic customers since its founding in 2020. The company’s World Expo work opened up more international opportunities, and Presight expects to diversify its sales even further this year, the spokesperson said.
Presight is taking investor orders for its IPO from March 13 through March 17 and will start trading at the end of the month. It’s led by Thomas Pramotedham, the former CEO of mapping software developer Esri’s Singapore business. While 20% of Presight’s sales last year came from overseas, it aims to get over half its revenue from international contracts starting in 2026.
The company will invest to expand its footprint across four continents, according to the prospectus. Pramotedham said in an interview Presight is working with the Abu Dhabi Accountability Authority to bring its technology to the audit sector and is looking at “relationships with central banks.”
“The key things to our success moving forward is, one, we set up relationships at the federal government level in the international space,” he said. “We have seen us sign MOUs for digital transformation in Angola, in Zambia, and these types of agreements give us a long-term programmatic approach to unlock opportunities.”
The listings come as Abu Dhabi ratchets up efforts to plow oil revenue into the tech industry and boost trading on the local exchange. G42 recently set up a $10 billion tech fund which will scout for opportunities across Asia as well as in Saudi Arabia and Egypt, Bloomberg News reported.
After Bayanat and Presight, G42 is considering IPOs for its other businesses including its health-care unit and a joint venture with state oil producer Adnoc, people familiar with the matter have said.
--With assistance from Ben Scent, Ben Bartenstein and Abeer Abu Omar.
(Corrects Bayanat’s market cap in second paragraph of story first published on March 12)
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