Global continues Private Placement of Al-Soor Financing and Leasing Company in Kuwait

Al-Soor will be a Closed Kuwaiti Shareholding Company, registered with the Ministry of Commerce and established under the regulatory guidelines set by the Central Bank of Kuwait. Although the company plans to offer a wide range of services in consumer finance, trade finance and supplementary real estate finance (home improvement), Al-Soor's forte will be car financing.

Mr. Omar M. El-Quqa, CFA, Executive Vice President- Corporate Finance & Treasury
said, "Al-Soor will be formed with a paid up capital of KD 20 million. I would like to mention here that there is a possibility to increase the capital to KD 30 million in order to satisfy demand from Global's customers, particularly regional ones."

He added that Al-Soor would list on the Kuwait Stock Exchange in three years time. Meanwhile, there is a Special Purpose Vehicle (SPV) structure proposed for investors who wish to exit before listing.

Mr. El-Quqa revealed, "The management of Al-Soor will be drawn from a pool of local talent and locally available international expertise. The management will comprise of personnel who understand the Kuwaiti culture, practices, judicial system, administration system, having experience in the consumer credit market, and having good relationship with Government authorities."

"Al-Soor will have a highly flexible and compatible information system which will allow maintaining customer information, developing new finance programs, and offering a range of after sales services. In addition, the system will also help total control over the aging of receivables and identification of delinquent accounts for follow-up," he continued.

He explained that across the Gulf Council Countries (GCC), consumer finance is emerging as one of the main growth areas for banks as well as non-banking finance companies (NBFC). Financial institutions in the GCC are focusing increasingly on this market in order to drive asset expansion, widen margins, and raise fee and commission income.

"In Kuwait, consumer finance has been one of the main components of bank profits, and there is currently a strong appetite for consumer finance. Apart from the banks, there are other financial institutions, both conventional and Islamic, providing consumer credit in the Kuwaiti market, primarily for automobiles and consumer durables," Mr. El-Quqa pointed out.

Though it is difficult to gauge the exact figure, the current total consumer credit market size in Kuwait is estimated at around KD 1.6 billion. About 70-75% of the new passenger cars and about 25-30% of the electronic goods are sold on credit, some large dealers selling almost 50% on credit. The market offers ample growth opportunities for players with an organized style of financing that provides ease of transaction and flexibility to the customers through innovative finance programs. Although the consumer finance market, in terms of new loans extended, is expected to stage a normal growth of about 6% to 7% in the medium term, the future holds promise for established and well managed players in light of the restrictions on the banks to expand their consumer portfolio.

Global's EVP affirmed that over the past three years, the consumer credit market in Kuwait is changing and becoming more competitive. "The two main reasons for this change are: first, the new Central Bank of Kuwait regulations for banks and finance companies and second, the entrance of new companies into the market - both conventional & Islamic. Among conventional banks, National Bank of Kuwait (NBK) has a dominant position in the installment credit market closely followed by Gulf Bank. Among Islamic finance institutions, Kuwait Finance House (KFH) has the highest exposure to consumer financing amongst the consumer finance companies."

He concluded, "Commercial Facilities Co. (CFC) is the most dominant player operating in the conventional financing segment. CFC, which is the only "pure play" consumer finance company in Kuwait, has maintained its market share of close to 20% over the last 3-4 years."

The population profile of Kuwait holds lot of promises for the future for established and well managed players in the consumer credit market. About 52% of the Kuwaiti population is below 20 years of age. This high potential market will eventually join the work force, and establish a new household. At each stage, this group of the market would propel the demand for cars, durable consumer goods and other financing.

However, in comparison with the other GCC countries, Kuwait still appears to have lesser number of active financial institutions serving its population in relation to the size of its economy. Global truly believes that there is significant scope for the Kuwaiti consumer finance market to be more competitive and new and innovative players like Al-Soor can bring much needed dynamism to the market.

Global has been a pioneer in launching consumer finance companies in Kuwait (both conventional and Islamic) which have enhanced healthy competition in the consumer lending industry. Kuwait Financing & Investment Co., launched by Global in 2000 as a conventional finance company, has grown rapidly over the last four years and currently has a market share of 4.3%. In 2003, Global launched Al Manar Financing & Leasing Co. as an Islamic Shariah compliant company to provide primarily consumer finance services.

Al-Soor's Share of the Vehicle & Consumer Finance Markets:
Al-Soor plans to increase its market share from 3.0% in Year 1 to 5.5% in Year 5 to 6.8% in Year 10. It also plans to grab 0.4% of KD1,600 million (including dealers' share estimated at KD50-60million) of the consumer finance receivables portfolio in Kuwait., which will increase to 1.6% in Year 5 and 2.5% in Year 10.

Al-Soor is expected to be profitable from Year 1, at gross operating as well as net levels. The EPS & BVPS for the company are expected to grow at a CAGR of 37.3% & 4.2% respectively during the forecasted period. In addition, Al-Soor is expected to pay dividend from Year 2 onwards with dividend outflow estimated to be 60% of net profit each year. Based on the expected demand in the consumer finance sector, financial assumptions made and an initial capital outflow of KD20mn, the IRR for Al-Soor arrived at is 17.7%.

Global Investment House "Global" is a Kuwaiti shareholding company (closed), established in June 1998. The company provides a wide range of investment banking products and services including corporate finance, portfolio management, equity research, brokerage service and investment funds. It is listed on the Kuwait Stock Exchange with a KD20.8 million n paid-up capital.

Since inception, Global Investment House has grown quickly to be the leading investment banking institution in Kuwait and has also established offices in Bahrain and Dubai. Global Investment House has recently acquired a 65% stake in Shurooq Investment Services Company and a 14% stake in United Finance Company to establish a foothold in the Omani market. Global Investment House is also a shareholder in Bank Muscat International - Bahrain and Jordan Trade Facilities Company. As of the end of 2004, Global Investment House was serving more than 2,800 clients with assets under management amounting to above USD 3.4 billion.