KUWAIT - Finance
Faisal M. Sarkhou joined KAMCO in the year 2000 as part of a dedicated team of analysts. He spearheaded the Corporate Finance Department from 2006 to 2010 and was later put in charge of the Financial Services and Investment Division starting in 2010. Within three years, he was promoted to Acting CEO of KAMCO in 2012 and was later confirmed by the Board of Directors as CEO in early 2014. Starting his career as part of KPMG’s Corporate Finance Team in the late 1990s, he gained more than 16 years of extensive industry experience in the fields of investment banking, asset management, financial products, and services. He also served and continues to serve on the board of several reputable companies and investment management committees. He is also the Treasurer & Board Member of the Union of Investment Companies in Kuwait and a member of the advisory board of the College of Business & Economics at the American University of Kuwait. He graduated with honors from the University of Birmingham, UK with a Bachelor’s degree in Economics and holds an EMBA with distinction from HEC Paris, France.
After 2013, KAMCO emerged from a difficult period following the financial crisis. We undertook significant restructuring and focused on building our core business areas: asset management and investment banking. We returned to profitability in 2013 and started achieving several key objectives and set milestones. The markets also supported us in their upwards tends. The key geographical focus areas for our clients were the MENA region including Kuwait, the GCC, as well as other targeted parts of the region. Several of our clients are increasingly observing Europe, North America, and the Far East but remain cautious and highly selective. The first half of 2014 was also positive while the second was more volatile due to a loss of investor confidence stemming from the drop in oil prices and increasing geopolitical instability, reasons that continue to affect markets to date. Despite numerous positive indicators, especially in the GCC, we see that capital market activity remains volatile, leading to a downward trend. This has affected the investment sector and KAMCO in our Capital Markets business. However, we successfully launched a new Fixed-Income Fund in March 2015 that is focused on the MENA region investment grade bonds and sukuks. KAMCO achieved KD5.1 million in Fee Income in 2014 compared to KD5.3 million in 2013. The company reduced its debts by 17% to KD24 mil in 2014 compared to KD29 mil in 2013. Our AUM registered a significant growth of 23% in 2014 to reach KD3.5 billion ($12.2 billion) in 2014, compared to KD2.9 billion ($10.1 billion) in 2013. KAMCO’s results during 2014 reflected the company’s balanced and consistent performance at the operating income levels in our main activities. By the end of 2014, we had successfully completed over 82 cumulative investment banking transactions worth over $12 billion.
We believe that by creating products that give investors market access at lower costs with proper management and appropriate risk measures, we can benefit from tapping into the significant liquidity that is already there with medium to high-net worth individuals and corporates, as well as sovereign and semi-sovereign investing entities in the region. The product cycle we launched and are continually developing primarily focuses on these types of clients.
Kuwait has been actively pursuing this strategy through significant upgrades in the regulatory framework and improvements in the laws that allow companies to be established or privatized under a new private-public sector framework. Processes such as these take time and issues related to fine-tuning regulations and making sure people adapt to and abide by the new codes of corporate governance and ethics may delay development. The government is taking the necessary steps to expedite this process. Unfortunately, market conditions are bearish in general, which appear to be affected by the regulations, but in reality they may show some kind of reaction as people adjust, it is more about a lack of investor confidence than anything else. Some of the initiatives taken recently by the CMA were aimed at encouraging investment, building investors trust, increasing the capital and encouraging creativity among investment companies. The CMA is working on making the financial market follow international measures in all of its activities by cooperating with specialized international organizations. The National Assembly recently passed a law amending several articles in the capital markets law to boost transparency in bourse dealings, provide more independence to the CMA and grant it more power to stop irregularities. Under the new amendments, the authority is trusted with the power to regulate the stock market based on justice, transparency, and competitiveness. They also provide the authority with the sufficient power to guarantee the protection of dealers and reduce typical risks expected in capital markets. The authority will ensure full disclosures to achieve transparency, prevent conflict of interests, and the use of insider information for personal gains. The authority is also trusted with uncovering crimes and referring cases to the public prosecution.
The Kuwait Stock Market is one of the oldest in the region. There are still some structural issues regulators and major players are looking into. The loss of liquidity in the past few years since the financial crisis has resulted in the Kuwait market possibly becoming less competitive than others in the Gulf. The Kuwaiti market was second in the region in terms of size and liquidity but it is now fourth. There is an opportunity for Kuwait to capitalize on its positioning in the frontier market segment. If that is carried out appropriately then whenever the transition to emerging market status happens and the corresponding rules and regulations are established, competitiveness will grow rapidly.
The whole investment sector is still young in Kuwait and the region and the managed fund space is still small. Kuwait is probably one of the most active in terms of managed fund activity. If you compare the percentage of managed funds to GDP, the region is one of the lowest in the world, so there is ample potential for professional asset management products and services. That is where we see the greatest opportunities being presented and where people like us basically manage and hire the appropriate teams, establish the correct risk frameworks, and offer opportunities and access to investors they cannot easily identify.
Having one of the highest GDP per capita rates in the world means that the country’s spending ability is greater than its size. This provides opportunities for multiple international companies to look at areas in which they can invest and receive a reasonable return. The areas that we see are centered around placed government development plans such as infrastructure and defensive projects. Healthcare and education are two key industries that require significant development and investment. Consumer spending and retail opportunities emerging from this are another area of potential. There is still scope for the industrial sector if more commercial land is released and the development plans are allowed to prosper. Great potential for growth remains in the industrial sector as labor regulations remain quite flexible in Kuwait. The tax environment is attractive, allowing for competitive manufacturing and industrial activity especially in oil and gas. More investment in infrastructure would be beneficial in healthcare, education, and transport. There is also a major push for housing at present to resolve the populations pent up demand. The government is working on resolving the lack of land supply with the increasing availability of residential and commercial land in effort to allow for more home ownership in the country. International businesses can look into these exciting new prospects in the Kuwaiti market. In addition, according to the UNCTAD’s World Investment Report-2015, Kuwait approved new rules permitting foreign banks to open multiple bank branches in the country. According to the report, Kuwait attracted inward FDI flows of $486 million during 2014 resulting in a total inward FDI stock of $15.4 billion by the end of the year. Kuwait has also put in new measures to attract major multinationals to establish fully owned operations in Kuwait with IBM recently being one of the first to actually do so.
We believe that the government plans will produce a strong trickle down effect to the private sector and will further allow businesses to focus on efficiency and the enhanced delivery of products and services. To kick-start an economic revival, the government approved a new five-year development plan for Kuwait, which envisages spending KD34.15 billion on development projects in the years 2015/2016-2019/2020. The plan is part of Kuwait’s long-term vision of becoming a regional trade and financial hub. It includes projects like the construction of a metro system, a railway network and a large number of mega oil projects, along with a new refinery. We expect KAMCO to be heavily involved in the capital market transactions that will result from this, possibly on the advisory, mergers, and acquisitions side. We hope that this increased investment activity will result in more investment banking activity.
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