KUWAIT CITY // Kuwait Energy, the private oil and gas producer focused on the Middle East and North Africa (Mena), may defer plans for an initial public offering (IPO) of its shares on the London Stock Exchange amid regional political unrest.
The company may also be forced to delay planned oil and gas exploration in Yemen but is forging ahead with projects in Iraq and Egypt.
"We've always said our IPO will be subject to market conditions and we know the market conditions aren't ideal as far as the Middle East region is concerned," said Paul Ditchburn, the vice president of planning and portfolio management at Kuwait Energy.
The purpose of the proposed share offering was mainly to establish Kuwait Energy as a publicly listed company, which was part of its strategy from the outset, Mr Ditchburn said.
Founded in August 2005, Kuwait Energy is expected to seek an unspecified amount of equity financing this year. Its board is likely to discuss the timing of the offering at a meeting next month.
The company's main need for additional capital is to fund its share of two gas developments in Iraq. It is leading a project to develop the Siba gasfield near Basra and is in a consortium to develop the larger Mansuriya field east of Baghdad. Gross capital investment in the two projects is expected to run to billions of dollars.
Kuwait Energy and its partners, the Turkish state-owned petroleum group TPAO and the South Korean gas and electricity company Kogas, hope to submit development plans for the gasfields as soon as the contracts receive final Iraqi government approval.
With market conditions unpropitious for equity offerings, Kuwait Energy may need to increase debt. Currently it has "minimal" debt and a US$58 million (Dh213.03m) loan facility, Mr Ditchburn said.
Gas production from the undeveloped Iraqi fields may still be a few years away. For the moment, about 60 per cent of Kuwait Energy's combined oil and gas output comes from Egypt.
The company's operations in that country have not been affected by the recent political turmoil there, Mr Ditchburn said.
In Yemen, on the other hand, violent unrest may cause Kuwait Energy to pause its oil and gas exploration programme.
It is a partner with DNO International in an oil-producing property in that country. The Norwegian company last month evacuated its expatriate staff from Yemen, opting to manage the project from Dubai.
Kuwait Energy also produces oil in Russia and Oman and gas in Ukraine. But it expects its Middle East assets to account for an increasing proportion of total output.
The company's biggest challenge is likely to be the successful execution of the landmark gas projects in Iraq.
Recruiting qualified staff for the projects could be a headache, as could securing adequate supplies of construction materials and the development of crucial infrastructure including power plants and roads.
The gas developers will have to compete for everything with the consortiums developing major oil projects in Iraq.
The largest of those projects involve the world's biggest international oil companies, including ExxonMobil, Royal Dutch Shell and BP, which have global supply networks.
Nevertheless, Iraq's domestic need for gas development may be at least as important as its immediate requirements for foreign revenues from oil exports, suggesting Baghdad could pull levers to ensure gas developers get the resources they need.
"Definitely, both oil and gas will be developed as equal priorities, along with electricity," said Mr Ditchburn.
tcarlisle@thenational.ae
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Sector: FinTech
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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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Engine 1.6L turbo
Gearbox Six speed automatic with manual and sports mode
Power 165hp @ 6,000rpm
Torque 240Nm @ 1,400rpm 0-100kph: 9.2 seconds
Top speed 420 kph (governed)
Fuel economy, combined 35.2L / 100km (est)
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