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Since the initiation report on the Kuwait investment sector in June 2009, things have changed a lot. Results published for the financial year 2009 gave a clear picture on the state of affairs in the sector according to a new report by Kuwait financial Centre “Markaz” on the Kuwait Investment Sector. According to the authors of the report, M.R. Raghu and Layla Al-Ammar, 27 out of 34 investment companies reported their 2Q10 earnings. The group reported a net loss of KD 103 mn in 2Q10, almost double that which was reported in 2Q09. However, on a half year basis, the losses narrowed; 1H10 net loss was at KD 105.4 mn, 46% lower than 1H09.
Assets under management for the sector have declined at a CAGR 12% between 2007-2009 while Equity at the end of 2009 was almost half that of 2007.
The vulnerabilities that led to the contraction in major metrics are still very much in place (lower oil revenues, tighter credit access, asset liability mismatch, lackluster stock market performance, etc). In a recent action by the Central Bank, investment companies are now subjected to stress tests on leverage and liquidity. For e.g., CBK guidelines stipulate a debt to equity ratio of 2x, with the sector average as a whole meeting the CBK guidelines (1.84). However, the largest investment firms still remain highly leveraged.
Furthermore, the new IFRS 7 classification of assets/liabilities point that nearly 40% of investments at fair value are grouped under level 3, inputs for which are not based on observable market data. Followed by 35% in Level I, i.e. quoted while the remaining KD 578 mn (25%) were within Level II.
However, all is not lost. The sector managed to contain its investment losses (major source of wealth destruction) from KD (176) mn in 2008 to just KD (1) mn in 2009. Also, conventional investment companies were reasonably successful in restructuring their short-term debt to medium-term debt so much so that only 49% of total debt in 2009 is now short-term as against 74% in 2008. While the sector may not limp back to profitability during 2010, the scale of loss will certainly be lower paving the way for hope in 2011.
Please contact [email protected] to obtain the full report.
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Kuwait Financial Centre S.A.K. 'Markaz', with total assets under management of over KD928 million as of June 30, 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.