ALSHALL Weekly Economic Report

Volume 21 – Issue 13 – 3rd April 2011

 

1  

This Week 1. The Real Estate Portfolio 2. Oil and Public Finance – March 2011 3. Kuwait Stock Exchange Performance – First Quarter

2011 4. Kuwait International Bank Financial Results FY

2010 5. The Weekly Performance of Kuwait Stock Exchange

Prepared by Economic Research Unit ALSHALL Consulting Co. Salhiya – Sahab Tower – Floor 9 – Kuwait Tel: + 96522451535 – Fax: +96522422619 Email: info@alshall.com Web site: www.alshall.com

1. The Real Estate Portfolio The main Kuwaiti experience lingering in memory is the direct governmental intervention in 1978 -AlManakh Seed- when it randomly bought shares worth of KD 150 million to pass the Constitution revision proposal; a political and financial corrupted intervention. After AlManakh crash in 8/1982, another unsuccessful intervention which was also a random purchase of assets with prices to support and compensate undeserving investors and debtors and was afflicted by political and financial corruption. It lasted until the issuing of the unsuccessful Difficult Debt Settlement Law in 1993. This was followed by 3 financial major and medium crises in 1997, 2006 and 2008. The public administration did the right thing in non-intervention in the first and second crises; recovery from their consequences was realized quickly contrary to the AlManakh crisis and other earlier crisis. In the third crisis which occurred in 2008, direct and indirect intervention occurred but with caution. During 2008 crisis, the government guaranteed banks’ deposits and provided adequate liquidity and issued

the financial stability law in 2009. All of these were indirect, deserved and preventive measures as a precaution from potential slip of the global economy into the worst case scenario or deep and longer recession which did not occur, therefore it did not benefit from both. Direct intervention occurred to support the capital base of the Gulf Bank after its derivatives crisis in inappropriate timing in terms of the reflections of the crisis on the rest of the banking sector. It however was successful. The government then established the so-called the National Portfolio to provide additional liquidity to the stock exchange. It entrusted its management to a number of professional companies, a good thing, though the aim remained focused on the commercial return which, despite its significance, did not achieve what public funds are assumed to achieve under such circumstances. The real estate portfolio came two and half years after the global financial crisis and 3 months after the quake which hit the Arab world. It is supposed to follow the national portfolio steps -stocks portfolio- in terms of management and controls.

ALSHALL Weekly Economic Report

Volume 21 – Issue 13 – 3rd April 2011

 

2  

While stressing the non-employment of public funds except after guaranteeing achieving economic competitive return, which means a pure investment and not a support, we believe in some compounded thinking, i.e. achieving some economic return in addition to current return. After two years from the global crisis, options of buying real estate assets became quite broad. Buying option should be subject not to the ability of the owner to bargain but to achieving a number of goals for the country, or to all people. An example is the mortgaged properties under a number of adequate provisions and their price became tempting and attractive. Their purchase relieves a debtor and a bank provisions whose deposits were guaranteed by the government; this would also raise the margin of available funds for lending which moves the economic wheel and indirectly supports other realtors. It reduces the supply surplus and would save the state building new headquarters for its public institutions and as such would reduce pressure on the public finance with a lower cost compared to a new building. We believe that no one alone has the right to benefit from a public interest; therefore, the real estate portfolio should achieve a competitive commercial return on investment and should alienate itself from any suspicion of abuse and should be severely punished if it occurs. But similar to all the advanced world in the

literature of dealings with the current crisis benefitting from the literature and errors of dealing with the 1929 crisis, we should bet on magnifying the overall return, the financial and economic, through maximum benefiting from each spent fils which would be positively and directly reflected on funds employment and indirectly on the performance of the macro economy. 2. Oil and Public Finance – March

2011 Last Thursday, the fiscal year 2010/2011 ended. As a reminder, expenditures were increased to KD 17.4563 billion to cover the KD 1,000 gift to each Kuwaiti citizen compared to the forecasted expenditures of KD 16.310. Total budget revenues were estimated at KD 9.7193 billion, of which oil revenues were estimated at KD 8.6166 billion (88.7% of total revenues). Oil revenues were estimated based on the following principles: crude oil production of 2.2 million barrels per day; price estimate at US$ 43 per barrel, as a precautionary measure after deducting production and marketing costs; and exchange rate used is at 292 fils per US dollar. Non-oil revenues were estimated at KD 1.10275 billion. As such, budget hypothetical deficit scored about KD 7.737 billion without deducting the 10% of total revenues for the Future Generation Reserve Fund. What matters however is the actual result in the final account.

ALSHALL Weekly Economic Report

Volume 21 – Issue 13 – 3rd April 2011

 

3  

Preliminary statements indicate continued rise in total received revenues which came mainly from the increase in oil revenues due to the sustained rise in oil prices. Average oil price for the fiscal year 2010/2011 scored about US$ 81.9 per barrel which is US$ 38.9 per barrel higher (90.5%) than the budget hypothetical price. This represents an increase by US$ 13.2 (19.2%) per barrel compared to the average price for the preceding fiscal year (2009/2010) of US$ 68.7 per barrel. According to published figures in the follow up report for the state’s accounts -February 2011- published by the Ministry of Finance, actual oil revenues until the end of last February reached about KD 17.4792 billion, thus total oil revenues for the entire fiscal year might reach KD 19.5 billion. Non-oil revenues might reach KD 1.3 billion, therefore total budget revenues would reach KD 20.8 billion vis-à-vis actual expenditures of KD 16.6 billion assuming 5% saving similar to the last fiscal year. Without deducting transfers to the Public Social Securities, a mere estimate, the public budget for the fiscal year 2010/2011 would realize a surplus of KD 4.2 billion making it the 12th year in a row with surplus. 3. Kuwait Stock Exchange

Performance – First Quarter 2011 KSE performance during the first quarter of 2011 should be read with special care. Although the beginnings

of the political earthquake started from Tunis in December 17, 2010, the core events were in Egypt on January 25, 2011. With them, performance changed from recovery with a fluctuating pattern in 2010 to sharp a downward fluctuation which changed the performance not only in Kuwait but in the entire Arab region despite some official support. AlShall index dropped by 11.8% between the beginning and the end of the quarter, and may decrease to 7.4% if distributed cash dividends or announced distributions until now were deducted. The official market index, price index, indicates a drop by 9.5% knowing that it implicitly deducts cash distributions. The difference between the drops of the two indexes is explained by the continued tilt against small and paper companies, which are more influential in the market’s price index. It was logical for market’s liquidity to decline. In times of uncertainty and higher risks, investment appetite drops and investors prefer to retain liquidity. Therefore, the quarter’s trading decreased to KD 2037.6 million, a 55.3% drop below the first quarter level of 2010 at KD 4556 million. Liquidity decrease becomes less sharp or by 24% if compared with the 4th quarter of last year whose liquidity scored about KD 2680.3 million. Liquidity reduction was slightly higher if compared with the average daily trading of KD 75.9 million in the 1st quarter of 2010 and KD 45.4 million for the 4th quarter in

ALSHA

 

 

2010. Tmillion natural to drop comparequarterswith thdeals bycomparaGraph (among t

Capital scored calculat(214 onDecemb1st quartKD 32.5billion (the end capital vAlShall the mindicate

ALL Wee

This averafor the 1st for the volby about

ed its leves of 2010 rehe decreasey 56.5% anable period(1) displaythe 8 secto

value of 2about KDe value of

nes) betweeber 31, 201ter of 2015 billion, u(10.4%) ab

of 2010. value is cl

index andmarket’s pes that pri

Industria9.1%

ekly Eco

age scored quarter of

lume of tra60.2% an

els in the espectivelye in the n

nd 22.3% fod. ys market’ors. Becaus

216 listed 32.6 billi

f common en the per10 and the 1, it will sup by abouove its couThe rise inose to the d quite remprice indeice index

R

al

Servi24.4

KSE Secto

onomic R

KD 33.4f 2011. It isaded stocksnd by 18%1st and 4th

y associatednumber ofor the same

s liquidityse financial

companiesion. If wecompaniesiod endingend of the

score aboutut KD 3.77unterpart inn market’srise in the

mote fromex whichis wrong

Insurance0.09%

Real Estate10.4%

ices4%

Food0.6%

orsTrading Va

Report

4 s s

% h d f e

y l

staterecoof tooktookliquandandNonremliqu

s e s g e t 7 n s e

m h .

Valperivalu25%the 34.6Numcapithe (outdropdid com

Investm13.6%

Non-Kuwaiti2.0%

alue Distributi

Volume

ements indovery, the liquidity, wk 24.4% ok about 6uidity. Quid insuranced took less tn-Kuwaiti

mained weauidity.

ue of traiod equaleue, a hypo%. Trading market’s c6% in 2010mber of coital value current ye

t of 214) vepped value

not champanies w

Banki39.8%

ment%

ion as at 31/03

e 21 – Issue 1

dicate the bsector tookwhile the of liquidity64.2% of te to the

e were withan 0.6%

compaak with 2%

aded stocked 6.25% othetical an

value, as acapital valu0. ompanies during the

ear scored ersus 152 c

e and 32 coange. Exwhich in

ng %

3/2011

13 – 3rd April

anking seck about 39service se

y; both secf total maopposite,

ithout liquor about 0

anies se% of mark

ks during of that cannual valua percentag

ue, scored a

with incree 1st quarte

30 compacompanies mpanies’ vcept for

ncreased

l 2011

4 

ctor’s 9.8% ector ctors arket food

uidity 0.1%. ector ket’s

the apital e by ge of about

eased er of anies with

value the

their

ALSHALL Weekly Economic Report

Volume 21 – Issue 13 – 3rd April 2011

 

5  

capital, Educational Holding Group recorded the highest increase in capital value among rising stocks list by 254.2%, followed by Safwan Trading & Contacting by 116.7%. Mena Holding Group recorded the highest loss in value among the list of losers by 78.6%, followed by Real Estate Trade Centers by 76.2% loss. The total market capitalization for all 8 sectors in the market decreased, the industry sector scored the highest decline in its market value by 16.9% followed by the investment sector by 16.1%. 4. Kuwait International Bank

Financial Results FY 2010 Kuwait International Bank announced its results for the period ending December 31, 2010 which indicate the bank achieved KD 16.7 million profits (losses by KD 8.3 million in 2009). This means it increased by 303.4% vis-à-vis 2009. The net profit margin reached 36% in 2010.

The rise in net profits is attributed to the retreat in impairment losses and other provisions by 94.9% from KD 27.4 million in 2009 to KD 1.4 million in 2010. Total revenues declined by KD 9.6 million to KD 46.6 million (KD 56.1 million in 2009). The justification for this plunge is the noticeable drop in the items of Murabahat revenues and Islamic financing revenues by 16.6%, or KD 8.5 million; a drop from KD 51 million in 2009 to about KD 42.6 million in 2010. While the net income from fees and commissions and the net

profit from foreign exchange went up by KD 546 thousand and KD 232 thousand respectively.

The bank’s operational expenses dropped by 15.1% due to reduced item of depositors’ distributions by KD 6.5 million to KD 14.9 million in 2010 (KD 21.4 million in 2009).

On the other hand, the bank maintained its total assets volume which increased by KD 1.5 million (0.1%) to score KD 1141.9 million (KD 1140.3 million in 2009). The reason for the non-change is the resemblance of drop and rise in the assets’ items which led to an insignificant increase. Item of due from banks and other financial institutions rose by 17.8%, or KD 47.6 million, to KD 314.8 million vis-à-vis KD 267.2 million in 2009 and real estate investments item by about 107.8%, or KD 6.4 million to score about KD 12.4 million in 2010 versus KD 5.9 million in 2009, while financing receivables declined by 6.7%, or KD 50.7 million, to KD 711.1 million in 2010 vis-avis KD 761.9 million in 2009.

KIB’s profitability indexes recorded clear growth. Return on equity index (ROE) reached 9.1% in 2010 and the return on assets index (ROA) scored 1.5% in 2010 and the return on capital index (ROC) reached 16.2% in 2010.

The International Bank’s management announced its intention not to distribute profits for the second consecutive year. Closing share price scored 340 fils on

ALSHALL Weekly Economic Report

Volume 21 – Issue 13 – 3rd April 2011

 

6  

31/12/2010 (182 fils in 2009). EPS scored 17.94 fils (8.82 fils loss per share in 2009). This means that the bank moved to making profit after one year of losses, which is an achievement. If the bank continues in

achieving similar results, it will add power to the recovery of the local banking sector which seems to have overcome all consequences of the global financial crisis.

5. The Weekly Performance of Kuwait Stock Exchange The performance of Kuwait Stock Exchange (KSE) for the last week was less active compared to the previous one, where all the major indices including the general index showed a decrease. Al-Shall Index (value weighted) closed at 509.9 points at the closing of last Thursday, showing a decrease of 6.5 points or about 1.3% compared to previous week’s closing, and decreased by 67.9 points or about 11.8% compared to the year end 2010. The following tables summarize last week’s performance of KSE

Description Week 13 Week 12 Diff

31/03/2011 24/03/2011 % Working days 5 5 Al Shall index (41 Companies) 509.9 516.4 -1.3% KSE index 6,295.6 6,285.0 0.2% Value Trade (KD) 131,866,270 156,295,350 Daily average (KD) 26,373,254 31,259,070 -15.6% Volume Trade (Shares) 754,132,500 856,840,000 Daily average (Shares) 150,826,500 171,368,000 -12.0% Transactions 12,126 16,718 Daily average 2,425 3,344 -27.5%

Most Active Sectors & Companies % of Total Value Traded Description

Market KD Sectors 33.8% 44,513,250 BANKING SECTOR 29.2% 38,541,240 SERVICES SECTOR 12.2% 16,038,830 REAL ESTATE SECTOR

% of Total Value Traded Description Market KD Companies 16.2% 21,381,450 ZAIN 12.0% 15,868,950 KUWAIT FINANCE HOUSE 10.9% 14,344,200 NATIONAL BANK OF KUWAIT 4.8% 6,295,550 PORTLAND CEMENT 4.1% 5,377,950 KUWAIT INTERNATIONAL BANK

48.0% 63,268,100 Total

24/03/2011 31/03/2011 15 13 Increased Value (# of Companies) 18 17 Decreased Value (# of Companies) 8 11 Unchanged Value (# of Companies)

41 41 Total Companies  

ALSHALL Weekly Economic Report

Volume 21 – Issue 13 – 3rd April 2011

 

7  

 

Company Name

THU THU DIFF CLOSE DIFF 31/03/2011 24/03/2011 % 2010 %

1 The National Bank Of Kuwait 450.9 459.1 (1.8) 520.3 (13.3)2 The Gulf Bank 341.0 334.3 2.0 381.1 (10.5)3 Commercial Bank Of Kuwait 681.4 674.2 1.1 666.9 2.2 4 Al-Ahli Bank Of Kuwait 355.5 355.5 0.0 407.9 (12.8)5 Kuwait International Bank 323.1 328.3 (1.6) 354.3 (8.8)6 Bank Of Kuwait & The Middle East 412.4 420.0 (1.8) 360.0 14.6 7 Burgan Bank 348.0 348.0 0.0 388.2 (10.4)8 Kuwait Finance House 1,330.5 1,355.7 (1.9) 1,348.2 (1.3) Banking Sector 495.8 501.4 (1.1) 538.8 (8.0)9 Commercial Facilities Co 270.7 274.3 (1.3) 274.3 (1.3)10 International Financial Advisors 352.6 393.1 (10.3) 486.3 (27.5)11 National Investments 346.0 339.8 1.8 572.5 (39.6)12 Kuwait Investment Projects 683.4 770.0 (11.2) 797.5 (14.3)13 Coast Investment & Development 117.6 116.2 1.2 164.0 (28.3) Investment Sector 344.8 365.0 (5.5) 426.5 (19.2)

14 Kuwait Insurance Company 69.5 68.4 1.6 81.6 (14.8)15 Gulf Insurance Company 336.2 310.3 8.3 310.3 8.3 16 Al-Ahleia Insurance Company ِ 173.7 158.4 9.7 180.5 (3.8)17 Warba Insurance Company 131.1 131.1 0.0 142.6 (8.1) Insurance Sector 145.4 136.7 6.4 149.6 (2.8)

18 Kuwait Real Estate Company ِ 82.1 88.6 (7.3) 95.2 (13.8)19 United Realty Company 159.1 171.3 (7.1) 195.8 (18.7)20 National Real Estate Company 206.0 217.9 (5.5) 332.8 (38.1)21 Salhiah Real Estate Company 807.6 823.7 (2.0) 952.9 (15.2)22 Pearl Of Kuwait Real Estate Co 34.6 33.9 2.1 54.6 (36.6) Real Estate Sector 151.0 158.5 (4.7) 204.3 (26.1)

23 The National Industries 217.0 229.7 (5.5) 293.6 (26.1)24 Kuwait Metal Pipe Industries Co 76.6 76.6 0.0 120.2 (36.3)25 Kuwait Cement Co 700.6 677.7 3.4 804.0 (12.9)26 Refrigeration Industries Co 81.9 81.9 0.0 74.1 10.5 27 Gulf Cable & Electrical Industries 623.5 615.5 1.3 799.4 (22.0)28 Contracting & Marine Services Co 127.8 134.6 (5.1) 182.1 (29.8) Industrial Sector 318.9 320.2 (0.4) 404.4 (21.1)

29 Kuwait National Cinemas 596.3 596.3 0.0 546.1 9.2 30 Kuwait Hotels Company 140.3 140.3 0.0 140.3 0.0 31 The Public Warehousing Co 1,257.2 1,273.9 (1.3) 1,743.3 (27.9)32 Kuwait Commercial Markets Complex 316.1 353.3 (10.5) 396.7 (20.3)33 Mobile Telecommunications Co - ZAIN 3,381.9 3,444.4 (1.8) 4,006.3 (15.6)34 Kuwait Computer Co 40.8 40.3 1.2 50.5 (19.2) Services Sector 2,237.0 2,277.5 (1.8) 2,677.8 (16.5)

35 Livestock Transport & Trading Co 254.2 254.2 0.0 245.8 3.4 36 United Fisheries Of Kuwait 84.9 90.0 (5.7) 112.5 (24.5)37 Kuwait United Poultry Co 40.7 40.7 0.0 40.7 0.0 38 Kuwait Food Co 1,458.3 1,458.3 0.0 1,616.0 (9.8) Food Sector 547.2 547.8 (0.1) 598.4 (8.6)

39 Sharjah Cement Co 299.5 295.6 1.3 342.3 (12.5)40 Gulf Cement Co 443.5 427.4 3.8 508.1 (12.7)41 Umm Al-Qaiwain Cement Industries 360.5 360.5 0.0 412.0 (12.5)

Non Kuwaiti Companies 229.9 226.6 1.5 249.3 (7.8) General Index 509.9 516.4 (1.3) 577.8 (11.8)

ALSHALL Weekly Economic Report

Volume 21 – Issue 13 – 3rd April 2011

 

8