US embassy cable - 05KUWAIT1878

UNCLAS SECTION 01 OF 02 KUWAIT 001878 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EINV, PINR, KU, Investment Sector 
SUBJECT: GULF INVESTMENT CORP: A GCC INVESTMENT POWERHOUSE 
 
This cable is sensitive but unclassified; please protect 
accordingly.  Not for Internet distribution. 
 
1.  (U) Summary: Ambassador met May 3 with executives of the 
Gulf Investment Corporation and heard how this GCC-funded 
institution is changing its focus from simply encouraging 
private enterprise in the Gulf to providing financial 
research, investment advice and consulting throughout the 
region. It hopes to become the "Merrill Lynch of the region," 
the CEO said, by leveraging its experience to help the 
increasing number of foreign companies looking to invest in 
the Gulf.  Of the GIC's $7 billion in assets, $2 billion is 
invested in the GCC countries and the remaining $5 billion is 
invested outside of the GCC.  It has introduced the first 
GCC-wide equity fund, which it is marketing to large 
institutional clients, and it also publishes a wealth of 
research on GCC government budgets, macroeconomic data, 
sector indices and stock market research reports.  End 
Summary. 
 
GIC: History and Background 
--------------------------- 
 
2.  (U) Ambassador met May 3 with Gulf Investment Corporation 
(GIC) CEO Hisham Al-Razzuqi and Head of Manufacturing 
Projects Khalid Al-Qadeeri.  GIC was established in 1984 by 
the GCC to provide financial services and investment support 
for the development of private enterprise and economic growth 
in the Gulf.  It was one of the first GCC institutions, 
according to Al-Razzuqi, and received equal initial funding 
from the six GCC countries.  It is headquartered in Kuwait. 
GIC has 145 employees, 53% of them GCC nationals.  Al-Razzuqi 
said that GIC does its best to find people in the local 
market and then train them. 
 
3.  (U) The GIC now has close to $7 billion in assets, $2 
billion invested in the GCC countries and the remaining $5 
billion invested elsewhere.  Its GCC investments are mostly 
through equity participation in, or direct ownership of, 
industrial and manufacturing companies.  Al-Razzuqi said that 
GIC currently has about $400 million in exposure in U.S. 
private equities.  According to Al-Razzuqi, GIC has always 
been conservative in its management decisions and its 
investments and has never had a loss on any of its 
investments.  In its early years, GIC sought significant help 
from Citibank in its structuring and operations, and 
Al-Razzuqi said that the organizational setup and internal 
requirements are quite similar to Citibank's.  (To learn more 
about Gulf Investment Corporation, see: 
http://www.gic.com.kw.) 
 
New Directions: Financial Advisor and Investment Consultant 
--------------------------------------------- -------------- 
 
4.  (SBU) Al-Razzuqi said that, based on its necessity to 
provide management and consulting advice to the companies in 
which it was investing, the GIC had developed significant 
expertise in a number of sectors over the past 24 years.  The 
power and petrochemical sectors were its strongest areas, he 
said, but GIC has access to experts in a variety of 
industries.  Its expertise is recognized now to the point 
that GCC governments are turning to GIC for advice and 
consulting on large projects and privatization efforts. 
Al-Razzuqi said that he sees his competition as international 
advisors and consultants and hopes to compete on that playing 
field. 
 
5.  (SBU) Saying that he wants to focus on GIC's strengths, 
Al-Razzuqi explained that GIC hires Merrill Lynch and others 
to manage its overseas investments, and that GIC focuses on 
building up its own expertise for the Gulf region.  The 
company has introduced the first GCC-wide equity fund and is 
marketing it to large institutional clients.  The minimum 
investment is $250,000 and Al-Razzuqi said that Boston 
College had already invested in the fund.  GIC has also 
introduced indices for the GCC by sector, which it publishes, 
as well as stock market research reports for public companies 
in the region.  Al-Razzuqi said that many foreign companies 
are coming to GIC asking for research and for help with 
understanding where to invest in the GCC.  He added that he 
would like to open up GIC offices elsewhere throughout the 
GCC to provide local financial and investment advisory 
services. 
 
6.  (SBU)  Al-Razzuqi said that there was also a growing need 
to provide advice and guidance to the increasing number of 
family businesses in the region that were taking themselves 
public.  Because the GCC banks don't have the ability to buy 
stakes in these businesses and cannot provide the necessary 
management consulting services, the GIC sees an important 
role for itself in this area.  Finally, Al-Razzuqi said that 
GIC was conducting internal studies on risk management 
throughout the GCC but not yet publicly releasing this 
material, to its clients or its Board.  Al-Razzuqi summed up 
GIC's new directions as saying that he wanted to make his 
organization the "Merrill Lynch of the region." 
 
Corporate Governance 
-------------------- 
 
7.  (SBU) Acknowledging that "real corporate governance is 
not applied throughout the GCC," Al-Razzuqi said that GIC was 
trying to set an example by having good corporate governance 
itself.  It has commissioned Bain & Company to provide a 
study on corporate governance for GIC, and plans to work more 
on this issue in the future.  Al-Razzuqi said that GIC always 
looks at the management of the company in the region as the 
critical step in evaluating any potential investment, 
particularly given the weakness of data available about most 
companies. 
The Economic Outlook: Promising But Reforms Still Needed 
--------------------------------------------- ----------- 
8.  (SBU) Al-Razzuqi said that GIC expects a lower growth 
rate in the U.S., around 3-3.5%, and "does not expect real 
appreciation" in its U.S. assets "anytime soon."  He said 
that GIC expects to see an 8% return on all of its assets 
over the next year.  He is seeing rapid growth in some stocks 
in the region, some of which he said are extremely 
overvalued.  Overall, he said that the region's prospects are 
promising.  With governments spending more on infrastructure 
development and large projects, and with Iraq no longer a 
threat to the region, he said that an increase in private 
investments was likely.  "Nationals started believing in 
their own countries," he said, but added that economic 
reforms were still necessary throughout the Gulf. 
 
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Visit Embassy Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kuwait/ 
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LEBARON