Better year for Gulf Investments but tender offer looms
For the year ended 30 June 2021, Gulf Investment Fund generated an NAV return of 42.4%, very marginally less than the return on its benchmark S&P GCC Composite Index of 45.2%. A small narrowing of its discount meant that shareholders’ returns matched those of the index. There is a 3 cent per share dividend. The performance was helped by a strong recovery in global stock markets and buoyant hydrocarbon prices. During the period the price of Brent Crude rose by 85%.
After rising 17.1% in H2 2020, the S&P GCC index rose 22.4% in H1 2021. The positive performance in the first half of this year was led by Abu Dhabi rising 35.5%, followed by Saudi Arabia up 26.4%. Kuwait, Dubai, and Qatar gained 15.2%, 12.8% and 2.8%, respectively. Oman and Bahrain markets rose 11.1% and 6.6%, respectively.
Tender offer
After last December’s tender offer – when 40.6m shares were tendered, shrinking the company by almost 44% – the board has announced a new tender offer. The offer is for up to 100% of each shareholder’s holding, subject to a minimum size condition that following the offer, Gulf’s share capital is not less than 38m shares. The tender offer closes on 7 October 2021.
Top holdings – extract from the manager’s report:
Qatar National Bank (6.7 per cent of NAV)
Qatar National Bank (QNBK) is the largest bank in the Middle East and Africa (MEA) region with a presence in 31 countries. The bank is geographically diversified with stable growth (2011-2019 net profit CAGR of 7.5 per cent) and a high return on equity (2019: c.19 per cent), 53 per cent of domestic loan-market share and strong government support (52 per cent controlled by government entities), which supports the case for a strong lending pipeline for the bank in coming years. Focused on public sector and high-end corporate clients, QNB maintains a strong balance sheet backed by comfortable capital and liquidity as well as low asset quality risk, with non-performing loans at one of the lowest levels among large financial institutions in the MEA region (~2.1 per cent).
Emaar Properties (6.6 per cent of NAV)
Emaar Properties (EMAAR) is the UAE’s largest real estate developer. The Group’s business encompasses UAE & International Development, Emaar Malls, Emaar Hospitality, and Entertainment & Leasing. The brand EMAAR has a varied retail asset portfolio, which includes the Burj Khalifa, Dubai Mall, and Dubai Fountain. The reopening of the economy is expected to boost demand for retail operators. Additionally, the recovery in the real estate sector supported by the strong property sales will support topline growth.
EMAAR also has a growing presence in international markets such as India, Egypt, KSA, and Turkey. Furthermore, the developer has a strong balance sheet, a strong credit profile, substantial debt coverage, and has generated significant brand loyalty.
Industries Qatar (6.6 per cent of NAV)
Industries Qatar (IQ) mainly operates in steel, petrochemicals, and fertilizers sectors. The significant uptick in commodity prices along with the growth momentum prompted by the easing of lockdown related restrictions is expected to have positive impact on the company’s earning trajectory. In addition, we expect a favorable financial impact on IQ’s earnings following the recent acquisition of the remaining 25 per cent stake in its Fertilizer JV “QAFCO” and the extension of feedstock gas arrangements until 2035. Furthermore, IQ may seek similar opportunities, acquiring remaining stakes in other JVs which would give the company more exposure to petrochemicals.
Commercial Bank of Qatar (6.5 per cent of NAV)
Commercial Bank of Qatar (CBQ) is the second-largest commercial bank in Qatar. As part of its 5-year turnaround strategy, it is strengthening its balance sheet by cautiously managing its risk exposure. Under its diversification strategy, CBQ has expanded its GCC footprint through strategic partnerships with associated banks, which include the National Bank of Oman (NBO) in Oman, United Arab Bank (UAB) in the UAE and its subsidiary Alternatifbank in Turkey.
Al Khaleej Commercial Bank (5.5 per cent of NAV)
Al Khaleej Commercial bank (KCBK) is a commercial bank headquartered in Doha. Qatari government entities are major shareholders in the bank. KCBK’s principal business activities include wholesale banking, treasury services, and personal banking. KCBK and MARK recently approved their merger agreement which will create the largest Islamic Bank in Qatar with combined assets of US$49 billion, as of 2020.
GULF : Better year for Gulf Investments but tender offer looms