Hybrid Equity Structure for a school in Muscat, Oman
Challenge
The Education Operators from UAE was looking to set up a flagship school in Muscat, Oman on a Capex Light Model as they were not ready to invest heavily in the school assets. The major challenge was to identify the right partner for investing in the school project as it was their first school in Oman. Their entry needed to be a landmark project as it would open doors for future projects in the country. An additional challenge we encountered was with regards to the local regulations of having a local partner with at least 25% shareholding in the operating company of the school, that is, OpCo.
Strategy
ICREA conducted extensive market research on the ongoing trends within the country in the Education Sector. Through our strong network, we then identified the right investment partner who had an appetite for such investments, had access to land parcels in strategic locations, and could invest 100% in the PropCo for the school and at least 25% - 30% as an Equity in the OpCo for the school. Due to our relationship with the investor in the region, we were successful in sourcing an investor which is one of the largest investment funds in Oman where we structured the transaction on a Hybrid Equity Structure with various risk management implementation strategies for both the OpCo and the PropCo.
Result
ICREA successfully executed the transaction in midst of the CoVid pandemic with a Hybrid Equity Structure. The Education Operator benefited by incurring less capital expenditure and the Investor benefited by gaining fixed income for the next 25 years. ICREA was successful in delivering results and achieving the vision of the client.
Capex Light Expansion for an Education Operator in Dubai
Challenge
The Education Group wanted to expand its presence in Dubai, United Arab Emirates by operating K-12 Indian Curriculum School. The group was very reluctant in investing any capital in the real estate asset of the school as their major focus was education and not real estate. Identifying a suitable land parcel located strategically for a student capacity of 5000+ was an additional challenge.
Strategy
ICREA developed a multifaceted structure over the course of various discussions with the Landlords and Potential Investors, that is, a Tri-Party Transaction. Firstly, the land was leased from a Local Landlord for 25 Years after conducting a detailed location study. Subsequently, ICREA sourced a PropCo investor who invested approx. AED 90 Million in the construction of the school. To mitigate the risk for the investor the lease rights of the land were assigned. Once the broad structure was in place the Potential Investor had an additional risk due to this investment being the first one in the Education Sector. To mitigate this risk, we structured this particular transaction with a buy back option for the Education Group.
Result
ICREA successfully delivered results by keeping in mind the vision of both the client and the investor by structuring the tri-party transaction. Hence, the school is successfully operating and as of today, it is rated as one of the leading schools in Dubai.