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Kingdom Holding posts Q2 loss

Region Kingdom Holding Company is a conglomerate owned by Saudi Prince Alwaleed bin Talal and the largest in Saudi Arabia.

Angela Giuffrida

July 21, 2009

Kingdom Holding Company (KHC), a conglomerate owned by Saudi Prince Alwaleed bin Talal and the largest in Saudi Arabia, has posted a 82.8 per cent drop in net profit for the second quarter compared to the same period last year as income from its global investment portfolio affected performance. In a statement, the firm said it had a net profit of 92.1 million riyals (US$24.6 million) in the second quarter, down from 534.7 million riyals last year, but an increase of 83.4 per cent when compared to the results for the first quarter of this year.

Consolidated net income for the first six months of 2009 fell 83 per cent to 142.2 million riyals from 838.5 million riyals in the same period last year. The losses were due a drop in dividend payments from the company's local and international investments and lower operating profits from the hotels it owns and manages. The company also recorded losses from the sale of stakes in Samba Financial Group and Savola Group, two listed firms in Saudi.

"Kingdom Holding Company returns to profitability through its sound strategic plan," HRH Prince Alwaleed said in the statement. "I feel confident that KHC's financial results will continue to grow during the remainder of this year. KHC has in place a very well defined vision and its executive team is fully committed to achieving the company's financial results and objectives." The statement added that KHC is still going ahead with its huge real estate Jeddah and Riyadh projects as planned.

Meanwhile, Emaar Economic City (EEC), the Saudi Arabian subsidiary of Dubai developer Emaar Properties, posted a second-quarter net loss of 113.1 million riyals from 40.4 million riyals a year earlier. EEC's second-quarter revenue stood at 18.8 million riyal. The company is developing the King Abdullah Economic City (KAEC) project on Saudi Arabia's Red Sea Coast. "These losses were the result of a normal increase in operating costs in the absence of operating profit, since the King Abdullah Economic City is still under construction," the company said in a statement to the Saudi bourse.

Emaar Properties said in June that it was finalising negotiations with KHC for the contract to manage the development of Kingdom City, a 100 billion riyal development planned by KHC in Jeddah. The development will included the 1km-high Kingdom Tower. * with agencies agiuffrida@thenational.ae

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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