Kuwaiti damsels in distress

In an effort to stay true to it’s stated objectives, ‘Direct credit policy to assist social and economic progress’ [1], the Central Bank of Kuwait met with banks and financial institutions last week. The purpose of the meeting called for by the CBK Governor Shaikh Salem Abdulaziz Al-Sabah was to inform the attendees that the CBK will extend all ‘necessary aid’ to institutions facing problems stemming from the current global credit crisis. The Governor also reassured his audience by stating that the government will not allow Kuwaiti institutions to fail. Although the CBK oversees both the Banking and Financial sector, they are not treated equally as financial institutions cannot access CBK liquidity.

The three institutions facing trouble and being supported by the CBK include:

  • Global Investment House . The stock has returned -43% from its 52 week high and currently has a market cap of KD 875 mm. [Bloomberg symbol: GLOBAL.KK EQUITY]
  • The Investment Dar. The stock has returned -36.5% from its 52 week high and currently has a market cap of KD 639 mm. [Bloomberg symbol: TID.KK EQUITY]
  • Al-Madina. The stock has returned -54% from its 52 week high and currently has a market cap of KD 98 mm. [Bloomberg symbol: ALMADINA.KK EQUITY]

I think it will be interesting to see how things play out within the next few months and how this will effect the markets. I also think that it is unfair for institutions that have not been prudent to receive special treatment and bailout packages while those who have behaved merely get a pat on the back. For those of you invested in the local markets, expect downward pressure for the upcoming months as more dirt is uncovered. I hope that the markets punish the feeble and reward the strong, as they should.

All numbers are as of Oct 16 closing prices.

[1] Central Bank of Kuwait. www.cbk.gov.kw

6 thoughts on “Kuwaiti damsels in distress

  1. KTDP

    where is all the money going.

    if everyone is in the minus. somebody must be in the plus. I think the money is stuck in the jam3iyas and once it gets to the central bank everyone will be in the plus.

  2. MAR

    Well im not sure which money you are referring to but this the markets are a zero sum game, for each loss there is an equal gain. Plus we are not allowed to ‘short’ stock in the GCC markets (take advantage of falling stock prices). But in general people are keeping their money under the mattress for now, awaiting positive news before they redeploy. Or for the unfortunate, paying off their debt.

    But most of all you are right about the jam3iyas, there is so much money they stopped giving out offers.

    I want the rubber ducky with my purchase of soap and free samples of chicken nuggets dipped in mayo!

  3. Volvic

    I agree with you 100% that ‘markets should punish the feeble and reward the strong.’
    Putting in mind that the money used to fund these investment corporations is mainly from oil returns. The price of oil barrel dropped by more than 50%, meaning that the returns are as half of what it should be, and the Minister of Finance is still willing to support these entities as seen today. The Union of investment companies released a document today to the Minister of finance suggesting creating a financing fund to support investment companies that have availed loans in foreign currencies, if certain mentioned criteria are met. Why?

    I think the whole point is being missed. The loss of Kuwait stock exchange market is not even compared to the effect of 50% loss in oil returns. The government should be more distressed and affected by this subject matter instead of thinking of funding investment companies. Fall in revenue in Kuwait, almost entirely made up of oil exports, means that the government cuts the spending and revise downwards its 2009-2014 five year development plan which includes improvement in various sectors such as education, health, in addition to creating a regional financial centre with an estimated cost of KD 35 Billion.

    Saving the economy does not mean supporting capitalists; rather, the central bank should make use of this opportunity by attracting foreigners to invest in Kuwait. This will not only boost the Kuwait stock exchange market, it will also enhance consumers’ confidence levels and Kuwait will be considered one of the safest and least volatile countries to invest in.

  4. MAR

    @Taymoor: Im sure there are many others, only time will tell if they survive this.

    @Light lover: I dont have enough insight into the company but I do know this, a major portion of their earnings were derived from the IPO market. In addition they have exposure to Pakistan, and things are not looking good there both politically and economically. To be frank I prefer the name Noorah. Lets file for a name change.


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