Financing opportunities: The state’s infrastructure investment programme could be a boon for the sector

After half a decade of strong provisioning, cautious credit management and, in some cases, debt restructuring, Kuwait’s banking sector is in a relatively strong financial position. As of the end of 2012 the country’s 10 local banks boasted total assets of KD47.3bn ($168.9bn), up from KD44.1bn ($157.5bn) at the end of 2011 and KD41.4bn ($147.9bn) at the end of 2010. While most institutions have maintained a fairly conservative approach since the 2007-08 international financial downturn, lending expanded by around 5% over the course of 2012, according to the National Bank of Kuwait (NBK), the country’s largest lending institution. The government’s National Development Plan (NDP), launched in February 2010, could potentially have a transformative impact on the financial sector, not to mention the economy at large. “Everyone in the banking industry in Kuwait is tying their hopes to the NDP right now,” Rani Selwanes, the executive director of investment banking at NBK Capital, NBK’s investment arm, told OBG in late February 2013. “To the extent that the government can carry it out, the plan could potentially result in a sea change in Kuwait.”

A LONG TIME COMING: While the KD30bn ($107.1bn) NDP was announced in early 2010, the initiative was delayed through 2012 due to a series of political disagreements. In early 2013 Mustapha Al Shamali, the minister of finance, announced that Kuwait planned to spend KD4.5bn-5bn ($16.07bn-17.8bn) on NDP-related projects during the 2013 fiscal year, which runs through April 2014. While the five-year initiative was originally scheduled to wrap up by year-end 2014, on account of the nearly three-year delay the government is widely expected to extend the deadline. The plan will focus primarily on large-scale national infrastructure developments and on water, power and waste-related projects, as well as health and education initiatives. The majority of NDP projects are expected to be carried out on a public-private partnership (PPP) basis, in conjunction with Kuwait’s Partnership Technical Bureau, which oversees all of the country’s PPP projects. The Kuwaiti banking sector is well positioned to play a major financing role in these projects. “Banks have excess liquidity and are looking for good assets to invest in,” said Michel Accad, the CEO of Gulf Bank, in early April 2013. “The development plan hasn’t taken off as fast as expected so opportunities aren’t as many as we wished.”

KEY DEVELOPMENTS: In early 2013 the government announced that the Ministry of Finance had appointed six teams to look into the initial raft of developments. According to MEED Projects, as of mid-2012 around 40% of total NDP-related projects will take place in the oil sector, compared to around 31% in construction, 13% in transport, 10% in power and 6% in gas and water. The NDP is also expected to include a handful of projects in other sectors. Initially the government plans to focus on just four developments, namely an independent water and power plant (IWPP) at Al Zour North; two sewage plants, at Khiran and Umm Al Hayman; and a solid waste recycling plant at Kabd.

PROJECT OWNERSHIP: The $2bn IWPP initiative has been in the works since early 2011. In 2012 the government carried out a bidding round for the project, which was won by a consortium of the French firm GDF-Suez, Japan’s Sumitomo and a Kuwait-based company, Abdullah Hamad Al Sagar & Brothers. The group is responsible for building and operating the plant under a 40-year contract with the Ministry of Electricity. The consortium will own 40% of the project, while government entities will hold onto 10% and the remaining 50% will be listed on the Kuwait Stock Exchange.

Another major upcoming NDP-related project that is expected to move forward before the end of 2013 is the establishment of the Kuwait Health Assurance Company (KHAC), which will serve as both a private health insurer and care provider for privately employed expatriates. The Kuwait Investment Authority (KIA), the country’s sovereign wealth fund, has worked alongside the Ministry of Health on the development of the new firm. The KIA plans to launch the KHAC on a PPP basis before the end of 2013 (see Insurance chapter).