OBG talks to Ziad Hasan Al Qaissi, Executive Vice-President, Investment Advisory and Research Division, KAMCO

Interview: Ziad Hasan Al Qaissi

Where is the current status of merger and acquisition (M&A) activity in Kuwait?

ZIAD HASAN AL QAISSI: We were expecting that because of the global crisis we would see the creation of new M&A opportunities, which would normally be the case. However, in reality we have not seen that much activity, and there were a lot of opportunities that were not captured. M&A activity in Kuwait is hampered because of a lack of willingness to invest and a lack of liquidity. At the moment, the cost of acquisition is very high, and there is a sentiment of volatility and uncertainty in the market. Also, the major players in M&A are the investment houses, the bulk of which are still stuck in the financial crisis. Cross-border M&A activity has a lot more potential at the moment as there are less risk-averse investors that are willing to invest in Kuwait. We are seeing a lot of small businesses here being acquired by UAE and Qatari companies. The reason for the lag here is that Kuwait is institutional by nature, and this mentality leads to a slower decision-making process that can prevent policies and actions from timely implementation.

Are you seeing improved corporate governance and risk oversight systems being implemented?

AL QAISSI: Corporate governance was initially implemented in Kuwait’s banking sector in 2002, and it was considered to be quite successful. However, some gaps were identified during the recent crisis, which have made the authorities reconsider the effectiveness of the system they had put into place. Now, all companies are facing requirements to improve corporate governance. The implementation of this policy is going smoothly, with about 40% of investment companies and 80% of banks already complying. Before the crisis, very few banks or investment companies had a risk management department, but they are now common in all entities. The concept of evaluating risk before making decisions has become critical in both the operational and investment side of the business. Kuwait is certainly a leader in the region in terms of making this shift.

Do you think the new Kuwait Capital Markets Authority (CMA) will have its desired effect?

AL QAISSI: The CMA is a must for a country that wants to become a financial centre or to be known as an emerging market for international investors. However, at the moment we are somewhat overwhelmed by the CMA regulations that have been implemented as they have allowed us little time to capture all of the details.

There is a mix of optimism and pessimism, as we must spend a lot of time ensuring that we are in line with the new regulations, rather than focusing on generating income. It is important to realise that this is a transitional period that can be overwhelming, but that everyone is in the same boat. We are seeing many obstacles to our operations, but we believe this is positive, as it will force everyone to play by the same rules.

What are the most important benefits of the government spending package on the financial sector?

AL QAISSI: The financial sector should be very happy with this plan. First, the main bottleneck in the implementation of the spending plan is financing, and the quality of the loans that the banks will be making for the financing of these projects should be excellent, since the government will be supporting the borrowings.

Second, the cash flow situation should be improved, because the companies that will be working on these projects will be guaranteed their payments from the government and will therefore be able to afford their loans. Finally, investment bankers will benefit because they will be involved in the establishment of new companies and the advisory for potential investors.

What are the main lessons that have been learnt from the global financial crisis?

AL QAISSI: From an investment company’s point of view the main issue was imprudent leveraging. Leveraging should only be used for investments that generate real cash flows. The risk management policies now being implemented should remedy this going forward.