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Markaz announced its 2010 financial results, reporting a net profit of KD 8.17 million, or 18 fils per share; a 222% increase over last year’s results of KD 2.54 million in net profit, or 6 fils per share. The operating income posted a growth of 70% over the same period of 2009 to reach KD 15.27 million. Total shareholders equity reached KD 93.89 million, a growth of 14%. Markaz Assets Under Management totalled KD 1.03 billion as of end of December 2010, which represents a growth of 29% compared to the same period of 2009.
Markaz’s Board of Directors proposed the distribution of a cash dividend equivalent to 10% of the par value, or 10 fils per share, and a bonus share distribution of 5% for shareholders registered at the time of the General Assembly.
Diraar Y. Alghanim, Chairman and Managing Director of Markaz said: “Kuwait’s Investment sector witnessed a number of developments that will develop and enhance its competitiveness. The Central Bank of Kuwait announced tightened regulations to enhance supervision of the sector. Markaz is fully compliant with CBK’s new criteria on limits pertaining to financial leverage ratio, quick ratio and foreign liabilities exposure. The year 2010 also witnessed the declaration of the Capital Market Authority Law after a long wait. We look forward to seeing its role materialize in supervising securities trading and promoting the principles of transparency, efficiency and fairness."
“We see signs of new expansionary policies as exemplified by Development Plan which aims to enhance the country’s competitiveness in the region. We encourage this positive move, and believe that healthy financial institutions are well equipped with experienced national human resources to perform their role in the execution phase.”
Mr. Manaf Alhajeri, Chief Executive Officer of Markaz said “Markaz is positioned to benefit from the attractive opportunities stemming from the sale of assets at commercially attractive prices by distressed companies. Additionally in investment banking, restructuring opportunities are growing as companies seek debt and equity-linked debt instruments.”
“Markaz is also one of a handful of qualified players that can offer advisory services to government projects, especially infrastructure, which will be executed through the Public Private Partnership framework.”
Alhajeri highlighted the Company’s activities in 2010, as follows.
Markaz Activities - Asset Management
MENA Equities
Regional markets closed the year 2010 on a strong note as S&P Pan Arabian Composite Index returned 15.3% while KIC Index gained 17.4%. Most Markaz equity funds continued to deliver returns outperforming their benchmarks. Markaz Fund for Excellent Yields “Mumtaz” posted 22.8% for the year. Markaz Investment and Development Fund “MIDAF”, one of the biggest funds in Kuwait returned 20.5%, while “Markaz Arabian Fund”, previously called Markaz Gulf Fund, yielded 14.9%. Markaz Islamic Fund posted 8.6% compared with 25.31% posted by Almadar Islamic Index. The discrepancy in its performance is due to provisions and the incompatibility of the index’s asset allocation strategy with the Fund’s risk management investment policy, due to the index’s allocation of 35% of its weight to one company. Forsa Financial Fund , an option market maker, posted 15.5%.
Markaz received numerous awards in 2010. Markaz won the “Best Asset Manager in Kuwait” award by Global Investor magazine, a Euromoney publication. The judges granted the award taking into account the company’s healthy balance sheet, performance and diversity of its product offerings, innovation, investment approach to navigate market cycles, high level of corporate governance, and sustainable growth in market share, assets under management and client base.
Additionally, three funds collectively won four Lipper Awards for best risk-adjusted performance during the year. Markaz “Mumtaz Fund” won two awards for Best Kuwaiti Equities Fund for the periods of three and five years. ‘Markaz Arabian Fund’ won Best MENA Equities Fund and “Markaz Islamic Fund” won Best Islamic Kuwaiti Equities Fund, both for the period of three years. Furthermore, Standard and Poor’s renewed its “A” rating for both “Mumtaz” and “Arabian” Funds.
“Mumtaz Fund” was awarded “Best Equity Fund - Kuwait” for the year 2009 by the leading regional publication “MENA Fund Manager”. “Markaz Arabian Fund” has been ranked as the top performing MENA Equities Fund by Zawya, the leading Middle East business information company.
International Investments
Markaz continued with its bias towards emerging markets and commodities, which paid off when markets rallied in the final quarter. For the year 2010, Markaz’s international investment funds achieved positive performance and were in line with their respective benchmarks. The International flagship fund “Atlas Diversified Class” returned 10.6% compared to 10.9% posted by Markaz Global Securities Index. The “ETFs Program”, which invests in a slew of exchange traded funds, has beaten the benchmark handsomely by about 4% and was up 13.9%. Creative Investment Program, which is modeled on hedge fund style of investing, has returned 7.2% bettering the benchmark by around 2 ppts. The themes based fund, “Atlas EMT Class” was up 7.4% for the year. Markaz’s international proprietary investments achieved 9%.
For 2011, it is planned to launch “Markaz Capital Preservation Portfolio service” in Q1, which preserves capital to the extent of 90% using Constant Proportion Portfolio Insurance.
Markaz Activities - Investment Banking
Corporate Finance
The region’s business landscape has undergone a significant transformation in the last three years. Consistent with emerging trends, in 2010, the Department successfully delivered on several advisory mandates, including: lead managing the capital increase of a listed investment company, providing restructuring services for a petrochemicals company, and assisting several real estate and holding companies in restructuring their liabilities. We have also secured several sell-side mandates from clients to divest their ownership in listed and unlisted companies, which we expect to successfully execute in early 2011.
Markaz continues to target resultant opportunities, especially as liquidity slowly returns to capital markets. In particular, we are focusing on providing advisory services related to restructuring liabilities of companies, disposing non-core assets for clients, and raising fresh capital for local corporations.
Fixed Income
GCC Fixed income market witnessed an increase in bonds and Sukuk issuance activity in 2010. However, aggregate value decreased by 25% due to a drop in the value of government and government-related issues. This helped maintain a strong demand for fixed income securities, tightening of spreads, and positively impacting bond prices. Markaz Fixed Income Program refocused its investment strategy from investing opportunistically in 2009 to investing in low-risk sovereign and quasi-sovereign issues in 2010, achieving an attractive annual return of 8.8%. As of end of 2010, Markaz was in the final stages of launching Markaz Fixed Income Fund which seeks to provide investors with steady returns and reduced risks by investing in high grade bonds and sukuk in the GCC countries.
Structured Finance
Markaz continues to be the only market maker for Options at the Kuwait Stock Exchange (KSE) since 2005. The number of stocks covered in the Options Market at the Kuwait Stock Exchange (KSE) was increased to 57 in 2010. The list of companies traded on the options market remains dynamic, and depends on demand, risk and liquidity measures.
The total number of traded contracts declined by 23.68% from 9,000 contracts in 2009 to 7,277 contracts in 2010, and the underlying value for those contracts also declined by 37.44% from KD 117 million in 2009 to an underlying value of KD 85.125 million in 2010; indicating a decline in risk appetite by investors in Kuwait.
With the launch of the Capital Market Authority, Markaz hopes to speed up the approval process on a number of proposals presented earlier to Kuwait Stock Exchange, which are aimed to diversify the offerings in the market and keep pace with the global developments. Although Markaz continues its drive to expand its derivatives’ capability regionally, dealing with legal and regulatory constraints will remain the primary challenge to its progress.
Real Estate Investments
Markaz Real Estate Fund, which invests in income generating properties in the Kuwaiti Market and has no exposure to the weakened office sector, was able to attract significant funds from new investors and acquired a number of attractive income generating properties. The fund continued to pay monthly cash distributions to investors amounting to 7% per annum.
During Q2 of 2010, Markaz launched a new residential development investment portfolio in Al Khobar, KSA. The investment is targeting a 40% return over two and a half years from the development and sale of villas tailored for the local Saudi mid-level employees who constitute the segment of population with the largest demand.
Aradi Development Ltd, which is managed by Markaz, exited one of its two investments achieving 21.5% returns to investors, and distributed the proceeds of the exit to investors in Q3 of 2010. Efforts are now focused on exiting the second investment. Markaz continues to work with Masaraf AlRayan towards improving the potential returns on our investments in Lusail Waterfront Development at Qatar.
“Markaz Real Estate Opportunities Fund” which manages investments in Lebanon, KSA, Jordan, Syria, Abu Dhabi and Qatar returned 20% of the fund’s capital to investors as a result of presales from one of its Lebanon projects. Additionally, progress has been made towards completing one residential development in Lebanon. The fund also acquired a land plot in Abu Dhabi Reem Island to be developed into a residential building, and efforts are in place for exiting residential developments in Jordan and land development in KSA and Qatar, while work continues for the remaining investments as planned.
International Real Estate
The International Real Estate Department focused on preserving the capital values for the existing funds by maintaining the tenant occupancy and by proactively working with lenders to extend maturities. Towards this, despite challenging debt market conditions, the Department successfully refinanced a total of $169 million of maturing debt for “Markaz U.S. Industrial Realty Investment Unit – I” and projects in the “Markaz U.S. Multifamily Realty Investment Unit – IV”.
To capitalize on the prevalent distress in real estate debt markets, Markaz launched the “Markaz U.S. Distressed Debt Program” with the objective of investing in non-performing and sub-performing commercial mortgages in the U.S. To date, seven commercial real estate loans were acquired which are collateralized by properties in California, Arizona and Nevada at significant discounts to underlying property values. Within seven months since inception, the first investment was liquidated at a significant premium over acquisition costs and Markaz received attractive offers for the second investment. Markaz expects to develop this program into an investment fund to offer to its investors in 2011.
Oil and Gas
“Markaz Energy Fund” (MEF), with its diversified oil and gas investment portfolio, achieved 3.4% as of end of 2010. In line with the Fund’s investment strategy, which allocates some assets to private equity investments, and due to favorable oil prices, MEF invested more than 10% of its assets in Kuwait Energy Company, which works in the exploration and production sector. The Fund plans to focus its investments in the oil mines service sector, due to its potential growth in the near future.
Kuwait First Transportation Company (KFTC), which works in the area of leasing equipment to contractors in the energy sector with both Markaz and MEF investing in it, achieved 8% return on investment in 2010 and 44% since inception. KFTC has recently hired an international advisor to restructure its strategy in order to achieve its expansionary plans. The company has already started implementing of the advisor’s recommendations. In investment services, Markaz is in the final stages of a capital increase mandate for a logistics services company in the oil sector.
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About Kuwait Financial Centre “Markaz”
Kuwait Financial Centre S.A.K. “Markaz”, with total assets under management of over KD 1.03 billion (USD 3.6 billion) as of December 31, 2010, 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.
Photo Caption: Mr. Diraar Y. Alghanim - Chairman and Managing Director of Kuwait Financial Centre S.A.K. "Markaz"