This positive result came on the back of positive performances in the markets. Markaz’s investments witnessed strong growth, especially in the MENA real estate sector, as a result of their well poised allocation to benefit from the favorable market conditions in the GCC and International markets.
Markaz liquidity remains healthy providing Markaz with the ability to access opportunities. Our net debt stands at KD32m, or, 36% of our shareholders’ equity. Our total shareholders’ equity has reached KD87.7m at the end of the quarter a net increase of 4.2% from year end 2011, and our assets under management reached KD888m, a net increase of 6% from year end 2011.
Markaz Chairman and MD, Mr. Diraar Y. Alghanim, said “Markaz profit has grown because of its high quality assets and strong financial standing. Markaz positive results in the first quarter reflect its diverse base of assets and high solvency. In addition, available credit channels give Markaz the required flexibility to change its assets distribution, enabling the company to capitalize from the volatile investment environment.”
Alghanim added, “In the local arena, the investment sector remains the main source of finance for grand projects and institutions through its ability to develop and manage various financial tools such as equity, bonds, Sukuk and mezzanine. We hope the current dialogue between public and private institutions will improve the various sectors of the State’s economy.”
Mr. Manaf Alhajeri, Chief Executive Officer at Markaz said “Several investment opportunities arose during the first quarter in a number of markets, such as the real estate market, the debt market and distressed debt market despite the recurring economic turbulence in the region and the world. The main challenge for the Kuwaiti economy is to achieve sustainability and diversity of channels. This requires joint efforts by the government and the public sector to mobilize the concentration of liquidity from the weak channels to real productive projects that benefit all economic sectors.”
For the first quarter of 2012, Markaz flagship Kuwait focused funds Mumtaz and MIDAF closed with a gain of 3.9% and 1.8% respectively against an increase of 2.8% on their KIC Index benchmark. Markaz Islamic fund, focused on the Kuwait market, closed the quarter with a gain of 2.9% against an increase of 1.9% in its benchmark Al-Madar Index while our another Kuwait focused Forsa Fund, the only derivatives fund in the region returned 2.6% for the quarter. Our MENA focused Markaz Arabian Fund NAV gained 10.6% YTD against a gain of 15.9% in the benchmark SP Pan Arab Composite Index.
In the first quarter of this year, Atlas Diversified Class, investing in a portfolio of global funds, had a robust performance of 10.14% outperforming its benchmark by 84 basis points. Atlas Emerging Market Thematic Class Fund, which invests in a portfolio of Emerging Markets equity funds focusing on selected themes, grew 7.19% in Q1. Atlas ETFs Program, which allocates its assets into various Exchange Traded Funds globally, increased 9.14% in the same period.
Following Q4 2011, the Private Equity market continued to show a slowdown globally. Aggregate buyout deals fell by 17% in North America, 21% in Europe, and 27% in Asia and the rest of the world. As of Q1 2012, Markaz Private Equity Portfolio realized a year-to-date return of 3.28%.
Corporate Finance Advisory
Markaz executed several trades in distressed debt of Kuwaiti issuers, allowing the company to become a market maker for such debt.
Consistent with the market environment, Markaz continues to build strong capabilities in distressed debt transactions, restructuring advisory services (either representing creditors or corporations), liquidating non-core assets for Markaz clients, and raising fresh capital (debt and/or equity) for local corporations. Markaz currently has five assignments in the various activities described above.
Markaz Fixed Income Fund (MFIF), recorded a return of 1.34% during Q1 2012 and an absolute return of 3.30% since the fund’s inception last year. As at the end of Q1 2012, the average credit rating of the MFIF’s holdings was “A” with an average maturity of three years, while the average yield to maturity was 7.59% and the average coupon rate was 5.92%. MFIF’s assets are allocated across the GCC and across various sectors.
Markaz has been the sole options market maker in the Middle East since 2005. The company continues to develop and stimulate options market as it has many benefits to traders in the Kuwaiti market, especially the derivatives market.
Mena Real Estate
Markaz Real Estate Fund
Markaz Real Estate Fund “MREF” reached its maximum capital allowed of KD50m (par value) in March 2012 at that point we were able to secure CMA approval to increase the maximum capital of the fund to KD100m (renewed par value). “MREF” received additional subscriptions totaling KD5.4m in Q1 2012 and deployed KD9.5m in acquisition of new properties raising its portfolio of properties to 34. On the financial side, the fund continued to make steady monthly cash distributions to its investors.
Aradi Development investment
We are focusing our efforts towards the exit of the second of the two investments (Al Bandariah) in KSA Eastern province after completion and exit of the first investment (Al Nimr) during 2010.
KSA Residential investment
Markaz is proceeding with the development of 54 residential villas in Al Khobar KSA. Markaz team initiated the marketing and sales campaign in time with the completion of the mock-up and first four units in November 2011. Up to end of Q1 2012 we have sold 5 villas and expect to complete the sale of the developed villas by the end of 2012, and aims to generate 30% gross returns.
U.S. Real Estate
In order to capitalize on the prevalent distress in the real estate debt markets, Markaz continues to grow its U.S. distressed debt activity, seeking to invest in non-performing and sub-performing commercial mortgages in the U.S. During the first quarter of this year, Markaz added two additional transactions to our portfolio, bringing the total number of distressed debt acquisitions to 13.
Oil and Gas
Markaz Energy Fund
Markaz manages “Markaz Energy Fund” (MEF) which invests in a diversified portfolio within the oil gas sector. MEF’s positive performance in the first quarter is attributed to the following:
• A partial reversal of the previous impairment of MEF’s investment in Kosan Crisplant;
• Gains in the local and international equities as well as the fixed income portfolios;
• Record production and profits during Q1 2012 made by Kuwait Energy Company, one of MEF’s investments operating in the exploration and production segment.
First Equilease (previously Kuwait First Transportation Company), a company that leases equipment primarily to contractors in the energy sector, has both Markaz and MEF as investors and has achieved 31.3% return on investment since inception. First Equilease continued to implement its expansion plans during Q1 2012.