Kuwait investment companies under pressure
Posted on 13 May 2009 with no comments from readers
Kuwait has more than a hundred investment companies of which around half were established over the past couple of years.
No other Gulf State has seen this type of mushrooming of investment companies which took advantage of cheap and freely available credit to make numerous investments in the GCC and overseas.
Bond default
Yesterday’s $100 million Islamic bond default by one of the largest concerns, Investment Dar has sent ripples through the regional financial community. Investment Dar promises a restructuring plan which will doubtless be closely monitored, as there is little precedent to follow in Islamic debt defaults.
Another leading Kuwait investment company, Global Investment House, was also in the news yesterday with an announcement that it had started to restructure the $2.5 billion debt on which it defaulted last December. Last month Global posted a $885 million loss for 2008, after its investment book lost 36 per cent in value.
After taking the loss for 2008 Global has net assets and positive equity of just over $1 billion, according to a report in Gulf News today. Global told the newspaper it has taken ‘continued and decisive action’ particularly in its loan portfolio and that efforts to create a long-term financing solution are on track.
What both Investment Dar and Global Investment House would clearly welcome is a recovery in equity valuations. But for investments made during the recent global economic boom that could prove problematic.
Aston Martin
Investment Dar is the proud owner of Aston Martin, the luxury car maker favored by James Bond, but its sales have slumped since September due to the global financial crisis. The same group also owns the continent of Australia on The World, an artificial archipelago of islands off Dubai, and plans for off-plan property sales there are on hold.
Stock markets local and global have also been unkind to Kuwait investment companies, whose tacit assumption that the government would always come to their rescue is perhaps now going to be put to the test.
In the past the Kuwait Government has shown itself disposed to bail out investors in trouble, and it may feel that it has no alternative in this case when the full extent of losses by local investment companies becomes known.
