Monday, August 2, 2010

Al Joman: Analysis of Loans by Kuwait Economic Sectors

Last month the fine folks at Al Joman Center for Economic Consultancy published a series of reports analyzing loans by economic sectors (as defined on the KSE) except for the Banks Sector.

Looking at aggregate sector data, we can get an idea of the relative size of a sector and thus its relative importance in the national economy. 

Also by looking at the relative borrowings by firms within a sector we can get a better understanding of the dynamics of that sector. Is the sector dominated by one or a few firms? Or is competition fairly widespread? Which firms are the major players in a sector? 

In several sectors the largest firms (measured by debt) are fairly small.  This is a reflection of the overall size of the Kuwaiti economy as well as government dominance in certain economic activities.

But, and there is always a "but" with AA, there are some factors which mean any conclusions we draw are imperfect: 
  1. Al Joman's reports are based only on companies whose shares are traded on the KSE. Private firms are not included. 
  2. We're using debt as a proxy for asset size. This ignores equity, though one might argue in a land devoted to OPM debt is not a bad proxy. 
  3. Not all firms have released current financial reports. 
  4. Companies in certain sectors have borrowed for offshore business and investments. Examples are companies in the Investment Sector or in the Services Sector, e.g., Zain or Agility. Thus, there is some external "noise" in the numbers.
But, (a word used almost as often on SAM as "interesting"), we can get a reasonable macro idea or directional perspective from the data we have.

Before we do, some technical "directions" to make your navigation of the reports as useful and easy as possible.  This KSE link will take you to the English language drop down menu for Sectors and the list of companies comprising each Sector. Each company is shown and its Stock Symbol Number. Those SSN's are important (especially for those who don't read Arabic, the language of Al Joman's reports) because the data in Al Joman's report for each Sector is roughly in SSN order. A click of the language button on the right عربي will get you to the Arabic language page. And this link to Al Joman's report page.

Let's begin with an overview via Al Joman's 7 September report - their initial report meant as a macro summary.

All amounts are in KD millions.

Sector31 Mar 1030 Jun 09
Investment  5,747  5,937
Insurance       17       30
Real Estate  1,978  1,835
Industry  1,845  1,853
Services  3,916  4,347
Food     171     198
Parallel Market       65       33
As you look in the individual Sector reports, you'll notice that the total loans do not exactly agree to those shown in the above table. The differences are relatively minor and, to repeat myself (another common occurrence at SAM) can be ignored as we are looking for a macro perspective and general "directional" trends. 

For those, like AA, for whom no nit is to small to pick, here is an updated table. No, in an uncharacteristic move, I didn't refoot the detail to make sure these totals tally to the detail.

Sector31 Mar 1030 Jun 09
Investment   5,668  5,937
Insurance        17       30
Real Estate   1,963  1,838
Industry   1,845  1,853
Services   3,936  4,355
Food      171     198
Parallel Market        66       33

Since the first table adds to 13,739 for 31 March 2010, presumably due to rounding, the difference  between the original and adjusted tables is "off" by one.   

In the Investment Sector (51 firms) of the 5 largest borrowers 4 are distressed. KIPCO being the one "happy" firm. 

Data in KD million as of 31 March 2010. Total Loans at 1Q10 were KD5,668.

FirmAmount% Total Loans
Investment Dar   96317.0%
KIPCO   61910.9%
Global Investment House   58810.4%
Aayan Leasing    416  7.3%
Aref Investment   339  6.0%


In the Insurance Sector (7 firms) only 3 firms have loans, خليج ت (Gulf Insurance) at KD10.8 and اهلية ت AlAhleia at KD5.3 account for 92.6% of the 1Q10 total. AlAhleia having reduced its borrowings by roughly KD11 from 2Q09. 

In the Real Estate Sector (36 firms) there is no similar dominance. The largest borrower is تمدين ع (Tamdeen) with KD219 or 11.1% of the total as of 1Q10. Al Joman has not reported on لؤلؤة (Lu'lu) Pearl Real Estate or صفاة عالمي (Safat Global). Safat last reported FYE08 when it had KD15. Pearl 3Q09 when it had KD41. If you're looking at the KSE Sector page, note there is no stock with symbol 407. Also Al Joman has جراند (Grand) out of order in its list – using the KSE Symbol Number order as the right one.

In the Industry Sector (28 firms), صناعات (National Industries Group or NI Group) dominates with KD969.7 or 52.6% at 1Q10. The next largest firm أنابيب (Kuwait Pipe Industries and Oil Services Company) has only KD163. 

In the Services Sector (59 firms) زين  (Zain) and أجيليتي (Agility) dominate accounting for roughly 48.6% of total loans at 1Q10 with KD1,556 and KD356 million respectively as compared to 2Q09 when they were 59.1% with KD2,164 and KD411 respectively.

In the Food Sector (6 firms) the aptly named اغذية "Food" (Americana) dominates with roughly 92.2% of 1Q10 loans with KD157.7. And as the slogan now goes "Americana – 100% Arabian".  And note that United Food Industries Group's symbol is almost the same as Americana's, except UFIG has the definite article "أل" in front, i.e., الغذائيةBe careful when placing that order with your broker!

In the Parallel Market (14 firms) صفاة عقار (Safat Real Estate) at KD19.8, ميدان (Maydan) at KD18.3 and عمار (Emaar) at KD11.2 account for 74.5% of 1Q10's total. Again note that the KSE list has gaps missing in the sequential order.  Symbols 2001, 2002, 2004, 2009, and 2016 are not used.


Vanguard said...

Though everybody knows this but sometimes seeing it in hard numbers makes you realize it more.

If credit is engine of growth in economy, having largest amount of credit in investment sector says a lot about it and then having 4 out of 5 distressed.

The problem is most of their investments are abroad hence the credit never actually came into the local market to generate growth. If the credit goes bust (there is hardly any doubt) it might ruin the credit ratios of the bank and stifle their lending ability thus preventing them from lending to even those industries which are economic growth generating (if such a class exists in Kuwait).

What would have been interesting is how much consumer debt portfolio is skewed towards consumption and how much was used to invest in stock market?

A similar report about Dubai banks would also be a good read.

Thanks for sharing

Abu 'Arqala said...


Late last week, the IMF updated the FSSA on Kuwait

Once I get a chance to digest that, I'll post. A headline figure I remember (or think I do) is that 49% of Kuwaiti banks portfolio is exposed to real estate and the stock market.

Anonymous said...

a slight comment on your final notes:

Global Investment House is no longer considered 'distressed' in the financial sense since it signed with creditors to reschedule all its debt at the end of 2009. Regarding the remaining three, they are still technically in default.

Laocowboy2 said...


Given the terms imposed on Global in the restructuring, I would still count any exposure to the company as falling into the 'distressed" box. Unless markets are very kind, I do not see them being able to meet the repayments due in the later years.

Abu 'Arqala said...


The may be out of the ICU but Global is still in the wheelchair as far as I'm concerned.

Sadly, GIH's wise lenders imposed an almost impossible debt restructuring on them. Sort of like expecting the guy who has had triple bypass to run marathons 6 months later.

So until I see GIH out of the chair and off the crutches, they're still distressed.

By imposing a unrealistic three-year restructuring tenor Global's lenders have put serious impediments in the recovery path.

What happens to GIH if it can't make one of those exploding (amount) payments? Technically, it's defaulted again. What does that mean for its ongoing business?

Say what you will about GIH's business ethics and acumen, TID's lenders gave that Company five years.