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- “Actual development projects must stimulate the region’s economies in the current phase” Mr. Diraar Al Ghanim, Chairman – Markaz .
- 20% ROI from Exiting Qatar’s Lusail Waterfront Company Investment.
- 9% of IRR distributed to investors from exiting Markaz US Industrial Realty Investment Unit I.
Kuwait Financial Centre S.A.K. “Markaz”, one of the Middle East’s leading investment banking and asset management companies, announced the results of the first half of 2011. Markaz posted a Net Profit of KD 750,000 and a 2 fils EPS in H1 2011 compared to KD 1.44 million and a 3 fils EPS for the same period of 2010. Short term debt is KD 5.02 million where as Total Debt is KD 32.51 million representing 5.6% and 36.6% respectively of Total Equity.The Total Equity grew by 7% compared to the same period of 2010 and accounted to KD 89.79 million. Markaz AUM for H1 2011 is KD 906 million.
Mr. Diraar Al Ghanim – Chairman & Managing Director of Markaz said, “Markets performed well in the beginning of Q2 but market volatility continued due to US debt struggle, Europe’s sovereign debt crisis and the fall of oil prices affected the region’s markets and had a severe negative sentiment on investors. Although regional countries generally are surplus countries and not shortage countries, the big challenge for decision makers in Kuwait and the Gulf is to channel these surpluses to development projects that will help the region’s population and create new investment opportunities.”
Al Ghanim added, “We firmly believe that the Private and Public Partnership (PPP) is the ideal way to achieve an effective and sustainable development in our country. We believe that the development plan, which is achieving a steady progress, can positively stimulate Kuwait stock exchange based on solid fundamentals, as did the current tenders of the two new projects Al Zoor water and energy Plant and Kuwait Health Insurance Company.”
Mr. Manaf Alhajeri – CEO at Markaz also commented , “Concentrating on the fundamentals of corporate governance, risk management and the commitment to ensure a safe financial management practices enabled Markaz to weather and overcome markets’ cycles. Over a period of time these fundamentals have remained the core of Markaz corporate culture and investment approach.”
Alhajeri added by saying, “The nature of market conditions in present times and the fast changing variables require quick actions to provide a highly dynamic investment solutions with the flexibility to move between various asset classes to cater to investors’ demands. We have recently sensed a change in investors’ appetite towards highly transparent and low risk investment tools that will generate more returns than bank deposits.”
MENA EquitiesDuring Q2, MENA equity markets, though volatile, witnessed almost a muted performance as the S&P Pan Arabian Composite Index closed the quarter with a marginal gain of 0.3%.
The quarter had started on a good note as regional markets posted strong gains for the month of April; however the markets could not hold over to those gains, on account of European sovereign debt fears and weaker crude oil prices. Kuwait market had a lackluster performance for the quarter also as investor sentiment remained subdued due to ambiguity over the new Capital Market Authority (CMA) regulations, lower amount of real spending by government despite gigantic plans due to political rifts. Banking sector results though were good for the first quarter in Kuwait, expectations are low for the coming period as economic activity has still not gathered the desired pace with credit growth remaining subdued.
Saudi and Egypt closed with marginal gains of 0.5% and 0.8% respectively. Petrochemicals and Real Estate sectors in Saudi posted strong results for the second quarter of the year. The notable performers for the quarter were UAE and Qatar market with gains of 2.9% and 2.1%, respectively. With better political stability, investor confidence seems to be slowly returning back to the UAE economy, wherein, investors tried to take advantage of the companies trading at cheaper valuations.
Markaz flagship Kuwait funds ‘MIDAF’ and ‘MUMTAZ’ closed the first half of the year with -9.7% and -10.8% returns respectively against the benchmark performance of -13.7%. ‘Markaz Islamic Fund’ closed the period with a loss of 6.6% against a decline of 11.2% in its benchmark while MENA focused ‘Markaz Arabian Fund’ closed the first half of the year with a loss of 5.5% against the benchmark decline of 3.6%. Markaz ‘Forsa Financial Fund’ an options market maker, declined by 11.4% YTD.
International InvestmentsMarkets have experienced turbulent moments and volatility in the first half of the year 2011 as major markets moved sideways. It absorbed several shocks including political unrest and revolutions from the Middle East, supply chain disruptions from the Japanese tsunami and continuing Euro zone sovereign debt worries. Head winds were also caused by government interventions through monetary tightening which affected global markets lead by two interest rate hikes from the European Central Bank and three from the People’s Bank of China to curb inflation. In addition, precious metals and the Swiss Franc enjoyed a rally throughout the first six months of the year as investors fled to “safe havens.”
For H1 2011 our proprietary portfolio returned 0.91%. Atlas Emerging Market Thematic Class Fund, which invests in a portfolio of Emerging Markets equities focusing on selected themes, grew 0.11% in H1. Atlas ETFs Program, which allocates its assets into various Exchange Traded Funds globally, returned 0.32% in H1. Atlas Diversified Class, investing in a portfolio of global securities, fell 2.40% H1.
We remain optimistic for the rest of the year as we expect solutions for the European debt crisis and we also presume that the U.S. will raise its debt ceiling, which currently stands at USD 14.3 trillion, in upcoming period. We remain cautious on China as consumer prices have risen at quick pace in the past couple of months, by 6.4% in June from a year earlier.
Private EquityThe Private Equity market has been buoyant in Q2 2011. Secondary transactions have reached a record high, valuations have also picked up as demand for private equity products increased. Markaz’s Private Equity portfolio has realized a stellar year to date return of 9.98% as of Q2 2011.
Corporate Finance AdvisoryThe region’s business landscape continues to undergo a significant transformation, with a pressing need for deleveraging and/or restructuring the debt of companies for better sustainability. Notwithstanding the political events in the region, there has been a strong appetite from regional and foreign financial institution to acquire distressed debt, and few transactions have taken place. This was encouraging as it provided the market with benchmarks to price credit default, and helped banks and creditors to agree on realistic debt restructuring plans.
Markaz continues to build strong capabilities in distressed debt and restructuring of creditors, providing advisory services related to restructuring liabilities of companies, disposing non-core assets for clients, and raising fresh capital for local corporations which is helping in winning asset management as well investment banking mandates in the distressed space.
Fixed IncomeWhile high oil prices and subdued political tension in GCC formed positive force to push GCC fixed income performance upward, events in Europe coupled with negativity stemming weak US economic data affected the activity and depth of the market. Total return of the GCC bond and sukuk index (GCCB) increased by 4.05% to 137.39 basis points in Q2’11, compared to the first quarter increase in returns by 1.16% by 132.04 basis points, bringing YTD total return to 5.2%. GCC sovereign CDS spreads tightened in Q2 following the widening it witnessed in Q1. In Q2’11, total GCC bonds & sukuk issued was USD 26.20 billion.
Markaz Fixed Income Fund (MFIF), which aims at investing in high quality bonds and sukuk issued by GCC government and highly rated corporations, recorded 2.37% increase in returns during the second quarter of 2011, bringing the year to date increase in total returns of the fund to 2.21%. Over 67% of the fund’s assets enjoy high composite rating of an A- with an average maturity of three years. The fund’s assets are allocated to different sectors across GCC countries, including government, financial services, oil and gas and telecommunication.
Structured FinanceMarkaz is still the only Options market maker in the region since 2005. The Options market witnessed a noticeable setback in terms of liquidity due to the decline of the activity and level of the main market indexes. During the half year the weighted index of Kuwait Stock Exchange was down 10.35% YTD.
The Options market witnessed 2,630 buying contracts in H1 totaling KD 1,768,317 a decline of 46.8% in sold contracts and setback of 66.9% in the amount of contracts traded compared to the first half of last year. In the same period 94.325 million stocks were traded for KD 22.764 million in the Options market.
MENA Real EstateKuwait real estate market continued with its upward trend in case of investment property sector both in terms of transaction activity and property values during H1 2011. The residential real estate market in Saudi Arabia continued to remain the most attractive market in the GCC. Residential properties in Qatar remained stable in general and posted moderate increases in rentals and prices in expat residing localities. While rentals and prices of both residential and office properties in Abu Dhabi continued its decline although moderate compared to the previous year. Generally in the GCC, office markets are showing no signs of recovery in rentals and prices mainly due to an oversupply.
The real estate market in North African countries were in a stagnant mode during H1 2011 with market players adopting a wait and watch approach. The outlook for countries amidst mass demonstration could be better assessed once stability is in place, however the longer term potential is more likely to be positive.
Markaz successfully exited its investment in Lusail Waterfront Investment Company with a positive gross return on investment of 20%. The investment was exited through a share repurchase with a purchase price of USD 24 million, equal to 120% of the invested amount. Markaz distributed the exit proceeds to the investors during June 2011.
‘Markaz Real Estate Opportunities Fund’ is managing its investments in Lebanon, KSA, Jordan, Syria and Abu Dhabi. Progress has been made towards completing one of our residential developments in Lebanon; while work continues for the remaining investments as planned and efforts are in place for exiting residential developments in Abu Dhabi, Jordan.
‘Markaz Real Estate Fund' deployed KD 10.1 million in acquisition of new properties and made six acquisitions in investment and industrial properties raising its portfolio of properties to 26, while still progressing in developing Dasman property. The fund managed to attract new investors looking for a low risk investment opportunity. While on the financial side, the fund continued to make steady monthly cash distributions to investors generating a return of 4.11%p.a for the period inclusive of improvement in property valuations.
Markaz is focusing its efforts towards the exit of the second of its two investments in the KSA Eastern Province investment ‘Aradi Development’ after completion and exit of its first investment during the previous year. Markaz is also proceeding with the development of ‘Al Nawras’ residential villas a little ahead of the planned schedule in Al Khobar,KSA. The development targets local Saudi mid-level employees who constitute the segment of population with the largest pent-up demand and aims to generate gross returns in the tune of 30%.
International Real EstateSeveral factors in the last 18 months have contributed to the stabilization of commercial real estate values in the U.S; fundamentals have started to improve, driven by signs of an economic recovery led by Government stimulus and a stronger corporate sector, and lower yields driven by competitive bidding activity for premium assets. Notwithstanding the above, over USD 1.2 trillion of commercial real estate mortgages mature in the next four years, and leveraged borrowers and lenders will continue to face challenges refinancing maturing debt going forward.
Consistent with this outlook, we have concluded the sale of Markaz U.S. Industrial Realty Investment Unit I’s portfolio of warehouse properties for approximately USD 170 million. The sale generated a net IRR to end investors of approximately 9.0% and a total return on investment multiple of 1.75 times over the life of the fund.
Furthermore, in order to capitalize on the prevalent distress in real estate debt markets, we are continuing to grow our U.S. distressed debt activity, seeking to invest in non-performing and sub-performing commercial mortgages in the U.S. In the second quarter, we added four new transactions to our portfolio, bringing the total number of distressed debt acquisitions to eleven. Of these acquisitions, two investments have been liquidated at attractive premiums over acquisition costs.
Oil and GasThe Oil & Gas sector performance was negative during Q2 2011 when compared to that in Q1 2011. ‘Markaz Energy Fund’ (MEF) was able to capitalize on the gains in the international markets during Q1 2011. MEF’s investments in international energy equities supported the fund’s performance gaining 4.17% during H1 2011, reducing its YTD loss to 10.44%. MEF continues to examine potential investment opportunities with growth potential, in the drilling and oilfield services segments in the MENA region.
MEF’s investment in Kuwait First Transportation Company (KFTC), having achieved a 1% return on investment in Q1, announced and distributed a maiden dividend of 4% during Q2. KFTC has recently completed a strategy exercise conducted by an international consultant to identify expansion opportunities, and recommendations exploring acquisition opportunities.
Furthermore, the Oil & Gas department is currently evaluating the launch of new products that will cater to niche segments of the energy value chain, including the industrial SME sector.
#END#Photo: Mr. Diraar Al Ghanim – Chairman & Managing Director – Kuwait Financial Centre S.A.K. “Markaz”###
About Kuwait Financial Centre “Markaz”
Kuwait Financial Centre S.A.K. 'Markaz', established in 1974 with total assets under management of over KD 906 million as of June 30th, 2011, is the leading and award winning asset management and investment banking institution in the Arabian Gulf Region. Markaz is listed on the Kuwait Stock Exchange (KSE) since 1997 under ticker Markaz.