Markaz, announced a net profit of KD 4.22 million, or 9 fils per share for the year 2012, as compared with a loss of KD 0.23 million in 2011 (1) fils per share. Markaz’s improvement in earnings came as a result of favorable returns from investments across all asset classes which amounted to a gain of KD 5.2 million compared with a loss of KD 2.2 million in 2011.
As of December 31, 2012, Markaz’s total Equity increased to KD 94.22 million as compared with KD 87.55 million in 2011, an increase of 8 %. Meanwhile, Markaz’s total Assets Under Management (AUM) reached KD 903 million as of December 31, 2012 (Not including the National Real Estate Portfolio), with an increase of 9 % compared to the year 2011.
As for CBK stipulated ratios, the leverage ratio for Markaz stood at 0.32 against the 2.0 ratio set by the CBK. The quick ratio of Markaz arrived at 17%, which is higher than the minimum of 10% imposed by the Central Bank of Kuwait. In June 5, 2012 Markaz repaid all of its USD 100 million bonds issued in July 2007 on the specified maturity date. These ratios and performance reflect Markaz’s ability to honor its obligations due to adequate solvency levels.
Markaz’s Board of Directors proposed to the General Assembly the distribution of a cash dividend of 6% of the par value, or 6 fils per share, for shareholders registered at the time of the AGM.
Markaz Chairman, Mr. Diraar Y. Alghanim, said: “Markaz has sustained strong financial ratios, which reflects the company’s ability to honor its financial obligations on the back of the adequate levels of liquidity we managed to sustain. The financial stability of Markaz as a financial institution amidst the harsh investment climate was due to a prudent approach according to which we altered the allocation of assets during the year to minimize exposure to equity and increase our focus on fixed income tools, hedge funds and real estate.”
Mr. Manaf Alhajeri, Chief Executive Officer at Markaz said: “We expect the process of deleveraging by companies will create new opportunities in the investment banking sector, especially in the area of below-investment-grade bonds and equity hybrids. Furthermore, the new companies’ law number 25 for the year 2012 will allow issuing such investment tools, and Markaz has been the only financial institution active in distressed debt exchange. Markaz also had played key roles in three bond issuance out of eight Kuwaiti issuances in 2012. We also hope the year 2013 will witness the reformation of laws related to companies’ insolvency and their settlements to organize bankruptcy and protect creditors.”
Mr. Ali Khalil, Markaz Chief Operation Officer highlighted the company’s activities during 2012 as follows:
Saudi Arabia, the largest economy within the region is expected to witness a real GDP growth of 5.4%. TASI witnessed significant increase in turnover during the first few months of 2012. Meanwhile, credit growth in Saudi Arabia remained robust.
Kuwait’s political issues were the key focus during 2012, which kept on dragging the potential economic progress. Kuwait and Bahrain ended the year with marginal gains while Oman had marginal losses.
Qatar, the economy which witnessed double digit economic growth during the past decade, lost heat and witness the real GDP growth of 6.3% for the year. The Qatari market ended the year with a gain of 2%. UAE stock markets were among the best performing markets within the region; The Dubai property market reclaimed global spotlight.Egypt was the most volatile market with its high political drama in first half of 2012. Political uncertainty during the last quarter of 2012 did not go well with the market. Despite the recent stock market fall, Egypt was able to pull back the losses it witnessed during 2011.
Markaz funds investing in the Middle East and North Africa region posted positive results for the year 2012. For more details on funds’ performances please visit Markaz website: www.markaz.com
As the year of 2012 ended, most equity indices globally recorded gains. MSCI World Index surged 13.18% and MSCI Emerging Market robustly climbed 15.15%. The Dow, S&P, and NASDAQ climbed 7.26%, 13.41%, and 15.91% respectively in the year. European markets continued its bull march as the MSCI Europe Index rallied 15.15% for the year.
Markaz’s strategy is paying off well as we adopted a less aggressive approach by altering our asset allocation throughout the year by lowering our exposure in equities and adding positions in fixed income and hedge funds. In fact, Emerging Market fixed income market ended 2012 as the top performing asset class across both EM and DM fixed income and riskier equity markets, providing equity-like returns ranging from 13% to 16%.
Markaz’s portfolios posted positive returns for the year 2012. Both Atlas Diversified Class, investing in a portfolio of global funds, and Atlas Emerging Market Thematic Class Fund, which invests in a portfolio of Emerging Markets equity funds focusing on selected themes, enjoyed a healthy performance during the year. Moreover, Atlas ETFs Program, which allocates its assets into various Exchange Traded Funds globally, and our long/short product, Creative Investment Program, posted positive performance in the same period. For more details regarding Markaz’s international funds and programs, please visit Markaz website: www.markaz.com
The private equity asset class is recovering post-crisis and continues its march forward. The debt markets are healthy, allowing for significant delivering and a moving of the maturity wall. LPs are not reducing but rather increasing their exposure, which is the result of private equity continuing to deliver attractive returns. Net Asset Values are increasing relative to distributions, indicating future distribution, although dry powder remains quite extensive. Nevertheless, the industry continues to make healthy progress toward recovering from its steep contraction following the financial crisis. The number of private placements in 2012 is just slightly below the all-time high for the industry, driven by expansion into new emerging markets and spin outs from existing fund managers. The Markaz Private Equity Portfolio continued to cash in on its tail end funds through secondary sales and overall the portfolio saw positive distributions from the remaining portfolio.
Corporate Finance Advisory
The year 2012 has witnessed a slowdown in M&A activities in the GCC region, down to 50% of the prior average activity. We attribute this to several factors, mainly, an increased level of uncertainty post 2011 political events, increased regulation and lack of acquisition debt with the continuing reluctance of international banks to expand lending in the Region.
In Kuwait, investment banking activity has been adversely impacted by market conditions and the delay in the launch of the much anticipated Private-Public investment initiative led by the Partnership Technical Bureau (PTB). As with the rest of the region, the government has placed greater emphasis on social programs at the expense of infrastructure development, which has fueled consumer spending. The debt crisis continues to linger in Kuwait, with no signs in the horizon of easing up as the current legal environment is not conducive for consensual restructuring plans. This continues to unfavorably impact a large number of real estate and investment companies, requiring more than ever highly specialized advisors to help them restructure their balance sheets.
Notwithstanding, we are optimistic that the market is well poised for recovery. The debt capital market, is witnessing tightening spreads with average yield on investment grade bond narrowing from an average of 4.9% at the beginning of the year to a current 3.21% which is likely to translate to an increased demand for corporate debt in 2013. Also, the New Companies’ Law Number 25 of 2012 provides for the issuance of various debt and quasi debt structures; which allow company to rethink their capital structure and issue new instruments in the market.
Markaz continues to build strong capabilities in distressed debt transactions, restructuring advisory services (either representing creditors or corporations), liquidating non-core assets for our clients, and raising fresh capital [debt and/or equity] for local corporations. We completed six such assignments this year and we are actively working on creating value for our clients in four ongoing and new mandates.
During the year 2012, Markaz successfully launched a KWD26.5 million bonds issued for Al-ARGAN International Real Estate Company K.S.C.C. during the second quarter of the year, and acted as a joint lead manager with KAMCO and Burgan Bank. Markaz also played an active role in the arrangement of the KWD105 million, National Industries Group Murabaha Syndication, which was managed by Warba Bank.
Markaz Fixed Income Fund’s “MFIF” assets were allocated to different sectors across GCC countries and across various sectors including government, Financial Services, Oil & Gas, Power & Utilities, Real Estate, Telecom and Transport. The fund registered positive results for 2012. For more details on MFIF performance please visit Markaz website: www.markaz.com
Markaz Structured Finance team has designed and developed internally a fully-fledged asset management software solution that will integrate the portfolio, fund management and accounting systems of Markaz; thereby enabling Markaz to consolidate and streamline its core operations by means of a single integrated platform that will vastly improve its risk control and management capabilities and its operational efficiency and throughput. The system will be deployed in 2013.
Markaz continues its efforts to provide innovative derivatives solutions to its clients in addition to developing the derivatives market in Kuwait. During 2012 Markaz has agreed with the Kuwait Stock Exchange on the trading rules and regulations for Put Options and the Islamic Call Options (Purchase Through Arboun Contract). The new set of rules and regulations have been approved by the KSE technical committee and were submitted to CMA for final review and approval. Although we continue our drive to expand our derivatives’ capability regionally, dealing with legal and regulatory constraints will remain the primary challenge to our progress.
Mena Real Estate
Residential real estate in GCC countries continue to benefit from strong fundamentals. We expect the residential segment to continue its positive performance in the year 2013, and the commercial and office segments to remain stable.
In November 2012, Markaz obtained the final approval to manage part of the KIA National real estate portfolio valued at KD 250 million, for a period of 10 years targeting investments in Kuwait’s real estate market.Markaz Real Estate Fund “MREF”, which invests in income generating properties in the Kuwaiti Market, was able to attract significant funds from new investors and acquired a number of income generating properties. For more details on “MREF”, please visit Markaz website: www.markaz.com
Meanwhile, Markaz Real Estate Development Company “MREDco”, conceived to benefit from the demand for residential units in KSA, progressed with its 54 villas development in Al Khobar in the Eastern Province of Saudi Arabia. Sales of the units are progressing with 32 villas sold during the year 2012. We expect to exit the investment by Q2 2013.
“Markaz Real Estate Opportunities Fund”, which manages investments in Lebanon, KSA, Jordan, Syria, Abu Dhabi and Qatar, was able to exit Al Falah Land plot in the city of Riyadh in Saudi Arabia followed by Umm El Summaq residential project in Jordan during the year 2012, achieving returns on investments of 32.87% and -0.57% respectively. The fund accordingly distributed proceeds to its investors. For more details about the fund’s performance, please visit Makaz website: www.markaz.com
International Real Estate
Distressed real estate transactions continue to trickle to the market with higher volumes expected in 2013, composed of non-performing commercial mortgage sales by lenders and sale of foreclosed properties to investors. The Federal Deposit Insurance Corporation (FDIC) has been a major agent in this arena, offering for sale pools of commercial mortgages and properties of failed banking institutions in the U.S. within a public-private partnership framework.
Consistent with our outlook and the strengthening core market during 2012, we have started to liquidate the stabilized projects in our apartment development fund, Markaz U.S. Multifamily Realty Investment Unit – IV. Markaz also continues to invest in its U.S. Distressed Debt Program, a program dedicated to investing in sub-performing and non-performing commercial whole loan mortgages. For more details on the performance of these funds and programs, please visit Marakaz website: www.markaz.comOil and Gas
International energy equities traded almost flat with the MSCI World Energy Index and the Oil Service Sector Index (OSX) ending the year by (0.5%) and 1.8% respectively in 2012. Regional energy equities tracked by the Bloomberg GCC Energy Index, surged by 26% during the year. Regional petrochemicals stocks declined with the Tadawul Petrochemical Industries Index losing -6.0% in 2012.
Markaz manages a diversified portfolio within the oil & gas sector through Markaz Energy Fund “MEF”. The fund improved in 2012 with gains stemming from local and regional oil & gas equities which had a positive effect on the Fund’s performance. For more information about the fund, please visit Markaz website: www.markaz.comAbout Kuwait Financial Centre “Markaz”
Kuwait Financial Centre S.A.K. 'Markaz', with total assets under management of over KD903 million (USD 3.2 billion) as of December 31, 2012, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997.-Ends-
Photo caption: Mr. Diraar Y. Alghanim, Chairman, Kuwait Financial Centre, Markaz