Kuwait Investment, Global Investment House
|Wednesday, 10 February 2010 00:00|
The International Monetary Fund expects Kuwait to report a negative real GDP of 1.5% in 2009 and growth of 3.3% in 2010, which is the lowest growth among Kuwait’s peers. What is the cause of this and how well is the Kuwaiti economy insulated from the effects of the global economic downturn?
Global Investment House, Mrs. Maha Al Ghunaim: I think Kuwait was effected because of the low oil prices we witnessed in the first half of 2009 where we saw prices decline to somewhere in the range of USD 30.00, which obviously ended up effecting the production levels. Following that, I think things will get back on track, as we are still extremely bullish about oil prices and our expectation that they will stay in the range of $70 to $80.00. This means that Kuwait will enjoy a very impressive budget surplus of around USD 20 billion, which, along with the KD 25 billion fiscal spending package that was recently introduced by the government, should help steer Kuwait in the right direction. Global Investment House expects that the fiscal year 2010 will see Kuwait get back on the right track for around 3% growth.
How do you assess the situation of Kuwait’s investment banking sector and its ability to overcome the financial crisis?
Global Investment House, Mrs. Maha Al Ghunaim: Obviously the years 2008 and 2009 have been very difficult for both investment banks and companies. We have seen a lot of the assets they invest in finance and real estate depreciate in value as these industries have been hit the hardest and this has taken a toll on those investment companies. In addition to that, many of these companies have suffered from liquidity problems when banks became more conservative in lending. Hence, a lot of them had to report huge realized or unrealized losses on their balance sheet in an effort to accommodate the new prices after the huge correction we witnessed in the market. We are hoping that in 2010 most of the companies will have ironed out their problems, just like Global Investment House did. Global Investment House is a good example of entity in the region that was able to resolve its problems by signing a debt restructuring agreement with its l. We are optimistic that more companies in the region will be willing to take a more proactive and positive stance in reassessing their problems and restructuring. There are many investment companies considering merging and this would be a positive move to minimize costs, improve efficiency, and improve their capital base. If we are not subjected to any more negative surprises in the market in 2010, I expect the second half of 2010 to see the positive swing of the market.
Can you describe the key challenges and opportunities of investing during the global economic downturn?
Global Investment House, Mrs. Maha Al Ghunaim: The worldwide economic downturn presented many opportunities resulting from the serious correction in asset prices in both equity and the real estate markets. Many people however were very nervous and preferred to take a “wait and see” attitude. I believe there is some cash available with certain parties who are waiting for the dust to settle before re-entering the market. They would like to see more sustainability in the good economic figures we have heard about from developed markets and ensure that there will be no more surprise announcements. They are also waiting for all the companies to announce their earnings so they can make more informed decisions. Hopefully we will see the money go back into the market and into new opportunities following the fiscal stimulus and the current very low interest rates that are not sufficient as a savings rate for the cash rich investors.
On Kuwait’s stock exchange most listed companies are highly exposed to the stock market. When do you forecast the stock market and economy to stabilize and reach new growth?
Global Investment House, Mrs. Maha Al Ghunaim: Some markets in the GCC have performed very positively due to the steps undertaken by their respective governments. For example, the Saudi market is performing about 25% year-to-date (December 2009) and the UAE is around 15.8%. Kuwait and Bahrain are the only countries to have generated negative returns as an equity market from year-to-date, affected by negative corporate earnings for the year. The corporate earnings of Kuwaiti companies have decreased by more than 70% for the first nine months of 2009 and this obviously had a negative toll on the performance of the market. What we need to see is oil prices staying in the range above $70 dollars because this gives enough cushion to enable the government to continue its fiscal stimulus program. We need to see the announced fiscal stimulus turn into action for the equity market to rally. The last leg will be good corporate earnings. I do not think this is going to happen before the second half of 2010 subject to not receiving any more bad news from the local, regional and international markets.
Global Investment House has rescheduled its USD 1.7 billion debt with its creditors, making it the first Kuwaiti investment firm to come to a deal with creditors. If it fails to repay USD 700 million of debt in two years the creditors can convert the amounts short of the sum into shares. You have had KD 5.6 million net losses in the third quarter of 2009; how confident are you that Global Investment House will be able to repay its debts?
Global Investment House, Mrs. Maha Al Ghunaim: The agreement we have reached with the banks is a great success and we are very pleased with the results of the hard work the team has done in the last year from December 2008 to December 2009. So far the program with the banks has focused on asset disposal with USD 1.4 billion moving into the Global Macro Fund established in Bahrain 50% of which are actually listed companies, and USD 800 million are in the listed form meaning they are in minority and majority controlled companies. The current market conditions are difficult but it is easier to exit listed companies than exiting real estate. In our asset disposal program, we left real estate to the last year (year three) considering how difficult it is today to exit real estate. On the other hand, Global Investment House generated KD 25 million profits for our operations in asset management, investment banking, and brokerage business during the first nine months of 2009. This demonstrates a very strong influx of cash flow for our operations in the asset management, investment banking, and brokerage business. We are looking forward to 2010 to enhance this operation and to catch as much as we can in that line of business. Third, we are looking to do a capital increase that was previously postponed by the GM in June 2008 because we thought it would be a better case for our share holders to consider once we have restructured. We have many options to move forward and meet out obligations for year one and hopefully by 2011 the market environment will continue to improve and allow us to continue our disposal program.
How would you characterize Global Investment House’s investment strategy and how do you plan to bring the bank into green numbers?
Global Investment House, Mrs. Maha Al Ghunaim: It is very important to realize that throughout the last quarter of 2008 and the first three quarters of 2009 Global Investment House has adopted a very conservative strategy for provisioning and impairment and ensuring that we keep everything aligned with its true value. As a result, we are still carrying a positive shareholders’ equity north of USD 720 million and that gave the lending banks a lot of comfort. Also our losses during the third quarter of 2009 have declined by 80% compared to the second quarter, which means that we are close to hitting the bottom. We hope that any appreciation in the value of our assets will reflect positively on our income statement as we continue to service our debt and improve our operations income to enhance our profitability.
How would you define you major challenge now?
Our main challenge is to reposition the Global brand. The weak macroeconomic environment impacted Global Investment House operations negatively and in 2008 we recorded our first loss in the company’s history. We are now working to deleverage the company, while maintaining our clients’ trust. We have revised our strategy to focus on our asset management, investment banking and brokerage activities and enhance our products and services.
What is the lesson learned from the default?
Global Investment House, Mrs. Maha Al Ghunaim: This unprecedented worldwide economic crisis has taught us many lessons. We learned that no matter how much attention you pay to risk and regardless of the tight compliance and corporate governance, you need to have the flexibility to alter your business model to meet new challenges. We had enjoyed the boom and taken many risks, but that approach is no longer suitable and we have to focus more on our core business and on providing value-added service. We need to communicate this to our shareholders so they continue to understand what their expectations can be from earnings.
You mentioned that one of your major challenges in maintaining trust. What is your communication and brand strategy to improve your image domestically and internationally in order to regain the trust of the stakeholders?
Global Investment House, Mrs. Maha Al Ghunaim: Over the last year, despite the turbulence we faced, we continued to focus on our stakeholders’ needs.
Our commitment to our clients has not wavered as we continue to enhance our products and services. Our various funds distributed more than USD 50 million to clients and most of our funds outperformed their respective benchmarks and peers. We have also enhanced our corporate governance by introducing a new organisational structure, forming various committees and reviewing the company’s processes and procedures.
We believe that our efforts will pay off in the end as we continue to demonstrate our commitment to our stakeholders through our actions
How does Global Investment House address corporate social responsibility?
Global Investment House, Mrs. Maha Al Ghunaim: Corporate social responsibility has always been a primary concern for Global Investment House and we have implemented a social responsibility program that organizes and participates in many events, including internship programs for students, seminars at various universities, and blood donation drives. We are also focusing on two particular issues: empowerment of women and the environment. Global Investment House has organised several seminars covering topics in investment, legal rights, and protective guidelines to address their financial needs of our large base of women clients.
With regard to Global Investment House going green, how do you address environmental concern in terms of both investment procedures and investment that you are making?
Global Investment House, Mrs. Maha Al Ghunaim: Although we are not in the business of direct investment, we believe that we can play a role by raising awareness about environmental issues. We have recently made a decision to go “green” by addressing three main issues: paper, electricity and environment. We have started automating our processes to create a paperless operation. We have also started implementing several schemes to reduce power consumption, such as installing energy saving light bulbs in its office tower, switching off the lights after 7 pm and encouraging employees to switch off their computers at the end of each day.
What are your expansion plans and strategic goals for 2010?
Global Investment House, Mrs. Maha Al Ghunaim: Global Investment House has licenses to operate in in most of the GCC countries. However, with today’s business environment it is very important that we allocate resources only in markets that offer us the highest potential rather than spreading ourselves too thin all over the place. Our focus will continue to be Saudi Arabia, Egypt, Jordan and Kuwait as our home.
How do you envision Global Investment House in 2015?
Global Investment House, Mrs. Maha Al Ghunaim: I wish I could envision it that far. All I can say is that because we are such a dynamic company and we are always moulding ourselves to the accommodate the environment we operate in to create value for our shareholders and clients, it is difficult to tell you what this will be in 2015 given the dynamic nature of the markets. The only thing I can say is that Global Investment house is going to continue to work with certain priorities and the most important one is to create shareholder’s value and second, to provide our clients with the best products and best returns to ensure they take advantage of the financial markets. In addition, we would like to play a disciplined role in what we have agreed on with our investors with regard to asset management, investment banking, and brokerage and until 2015 I don't believe we will diverge from this strategy.
To finalize the interview, do you have any final messages about Kuwait or Global Investment House that you would like to address to our international viewers and readers?
Global Investment House, Mrs. Maha Al Ghunaim: We are looking at 2010 with a lot of optimism and that the GCC region should be viewed differently than the developed markets. I think that the current crisis has been exaggerated due to several factors such as the slow initiatives and some default issues in the region. Going forward I believe that the current economic situation of the GCC countries, their budget surpluses, fiscal plans, and demographics, offer a lot of potential that should not be ignored- I am very optimistic. With Kuwait in particular, I am much more optimistic than I was six months ago. We have finally diffused the bomb between the parliament and the government and this has boosted optimism in the country and on the stock exchange. Furthermore, the economic situation of Kuwait is going to look much better with the current surplus of USD 20 billion it is much higher than in 2007-2008 with USD 9 million and this is a huge improvement. With the current oil prices Kuwait should continue to do well and the fiscal spending announcement was very encouraging. The worst is behind us.