Kuwait

Case Studies

Asset Allocation and Investment Management Strategies

The Client is one of the prominent investment companies in Kuwait which operates a wide range of investment and financial activities, including direct investments, asset management, and corporate finance services. The Client had a strong foothold in the Kuwaiti market with an asset base of KD 289.38 Million as of Sep 30, 2009. The asset base was skewed heavily towards Kuwait and other G.C.C countries, with minimal investments spread across U.S, Asia, North Africa and European Market. Additionally, significant amount of the Company’s assets were in privately held companies.

The Challenge

Economic downturn impacted the asset prices, and the liquidity of the company. Over a period of time, the Company’s portfolio had significantly drifted to suboptimal levels. The management of the company felt the need for an optimal allocation of its portfolio which would reduce the risk levels, meet target returns, and provide sufficient liquidity. The Client was also looking for developing effective and suitable portfolio management strategies and in developing performance measurement standards.

Our Approach

We analyzed the existing portfolio of Client, the strengths and weaknesses of the Company, and the current investment environment regionally, and globally. Further, AB sat with individual departmental heads and asset managers, circulated questionnaires and assessed the feedback in terms of suitability of the asset allocation to the Company.

Our Approach

After assessing the investment environment, returns expectations, risk capacity, liquidity requirements, expertise, and other advantages and constraints, AB developed a framework for strategic and tactical optimal asset allocation of its portfolio, and periodical rebalancing. In the strategic asset allocation, recommendations were made to increase its investment in Fixed Income Assets in order to meet the liquidity of the company and also recommendations were made for the inclusion of additional asset classes like commodities which would enhance the risk return tradeoff, and diversification of the portfolio. The tactical asset allocation aimed at an optimal allocation amongst sectors across different regions.

Conclusion

We assisted the client by developing portfolio management strategies and guidelines spanning from investment screening, monitoring to exiting its investments. We also advised on adopting a synthetic credit scoring mechanism for arriving at the appropriate fixed income asset pricing since a majority of its fixed income assets were priced arbitrarily. Further, AB suggested appropriate benchmark against which the investment performance should be analyzed, and developed a mechanism for measurement and attribution analysis of its Investments and portfolios’ performance.

Fund Reporting for International Funds

Our client is a leading investment company and a subsidiary of Kuwait’s sovereign wealth fund, who manages a number of local and international funds and also manages investments on behalf of clients and for the government represented by Kuwait Investment Authority.

The Challenge

Due to the sudden exit of related personnel, the company could not manage the back office operations of the International Fund department. The International Funds encompassed 5 International funds invested into North America & Europe. The total size of USD denominated funds was around $80Mn and the Euro denominated funds was Euro 15 Mn. The client approached AB to manage the back office function, till suitable recruits could be identified.

Our Approach

AB seconded a specialized consultant to understand the precise activities and responsibilities of the back office team. This period was critical as there was no outgoing staff to enable an appropriate handover process. AB had to liaise with the Operations department and the Front Office to documenting the existing processes and process flow for standard reporting and accounting system updation.

The routine activities viz., periodic NAV computation, accounting for trades, standard and adhoc reporting to Fund Managers, management fee computation, liaising with brokers and custodians to resolve multiple queries were successfully managed and regulatory reporting were performed on a timely basis.

Conclusion

We managed the transition smoothly without impacting the operations of the company and to the satisfaction of all fund’s unitholders, managers, custodians and brokers. Various functional departments of the Client (Finance, Operations & Risk) were also appreciative of the professionalism and quality of our support.

Managing back office operations

Our client is a leading investment company managing a number of local and international funds and also managing investments on behalf of clients and for the government represented by Kuwait Investment Authority.

The Challenge

Due to corporate restructuring, several key employees were vacating their positions and the company was striving to replace its outgoing employees to manage its back office operations of the Asset Management.

The client approached AB to support its back office operations for a smooth transition.

 Our Approach

 AB seconded its specialized team to work along with the Client’s outgoing staff to understand their precise activities and responsibilities. Upon documenting the existing processes, AB worked on streamlining the process to cater to the restructured lean departmental structure. The routine activities viz., Client interaction, Client account maintenance, reporting, NAV computation, management fee computation were successfully managed and regulatory reporting were performed on a timely basis.

 AB assisted the Company in recruitment of appropriate resources and provided them with appropriate training to handle the streamlined processes. AB gradually handed over the function to the newly recruited team.  

 Conclusion

 We managed the transition smoothly without impacting the operations of the company and stakeholders satisfaction. We also built in the best practices within the processes and ensured it supported the proposed lean structure as endeavored by the management.

We managed the transition smoothly without impacting the operations of the company and stakeholders satisfaction. We also built in the best practices within the processes and ensured it supported the proposed lean structure as endeavored by the management

Restructuring a retail telecom operator

Founded in 1993, our client is one of the leading retailers of telecommunication products and services in Kuwait. Apart from being the authorized exclusive provider of one of Kuwait’s major telecom operator’s products and service, our client is also the authorized retailer for major smart phone devices in Kuwait.

The Challenge

Our Client had been an authorized exclusive agent with one of the leading Telecom operator in Kuwait since the past 2 decades, offering services through its 40 retail outlets, and in terms of revenue generation, was the largest distributor for company.

The partnership with the telecom operator came to an unexpected closure in 2010. This was in part a result of the corporate change in the company, and a dispute as to the terms of the contract. The Client had outstanding guarantees provided to the operator that was liquidated following the dispute.

The liquidation of the guarantees, the loss of business, and the disruption of the financial and operating cycle has impacted the operations in 2010. The Client was in the process of reassessing and reviving its business for which it required services of AB to develop a Re-Organization plan. The main purpose of the assignment undertaken was to set out a re-organization plan, and consequently requesting banks to:

• Renew the Existing Facilities
• Reschedule the payments & interest rate.

Our Approach

AB worked along with the Client’s marketing & finance department to analyze performance of existing products through its 40 showrooms in Kuwait & further exploring the options for opening up new showrooms in prime locations. A detailed analysis of the Client’s business activities & products range was performed by AB.

 During this exercise, certain areas were identified where the costs could be reduced. AB also identified the target working capital requirement in order to capture the market share & to meet the increasing demand in the mobile market.

 AB projected the cash flows to meet the future debt obligations based on 3 different scenarios i.e. if the Client receives the required funding, less than required funding or no funding.

 Conclusion

We assisted the client in numerous meetings & correspondence with different banks, presenting the Internal Reorganization Plan which would enable the client to meet the existing & future debt obligations.

 AB was successful in renewal of the existing bank facilities of the client on healthier terms & conditions.

Restructuring an investment and financial services firm

Founded in 2000, our client is a leading finance and investment company in Kuwait, listed on multiple stock exchanges. In addition it had also floated funds and manages substantial Assets under Management portfolio.

The Challenge

Our Client was initially incorporated as a finance company and had operated successfully with this business model. The Client received an Investment license which allowed them to establish their Assets under Management division as well as float multiple funds. Shareholder confidence and market appetite allowed the company to increase its equity through multiple increases in the last ten years.

 However the Client gradually invested into private equity during FY 2007 to FY 2008, which was majorly funded using short to medium term debt. The global financial meltdown led to major asset value declines. This in addition to the lack of liquidity led to the Company facing the prospects of a major default on debt due to both Local as well as International banks and possible liquidation.

 The Client was in the process of reassessing and reviving its operational departments and identifying assets to be exited for which it required services of AB to develop a Re-Organization and an extensive Capital Restructuring plan under multiple scenarios. The main intention included:

• Allowing the Client to continue as a going concern
• Preserve Shareholder reputation by avoiding default
• Capital, Assets & Operations restructuring to ensure sustainability of the Client.

Our Approach

AB worked along with the Client’s investments, operations & finance department to analyze performance, identify inefficiencies and sub-optimal utilization of resources as well as means to improve revenue generation. Investment exits were discussed and ways to increase economic value of strategic stakes were also considered to improve exit values.

During this exercise, certain areas were identified where the costs could be reduced. AB also arrived at a sustainable debt level post assets & operations restructuring.

AB projected a major revamp of the current capital structure based on multiple scenarios that considered major debt to equity swaps, additional capital increase by current shareholders and assess overall returns to both the debt holders as well as the equity holders.

Conclusion

We assisted the client in their numerous meetings & discussions with different banks and presenting the Reorganization Plan which would enable the Client to meet the Restructured Debt obligations that were proposed to the Banks.

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