Thinking ahead

Bahrain’s ambitious economic reform programme is still on track, the head of the country’s sovereign wealth fund Mumtalakat said, writes Andrew Hammond.

Mahmood Al Kooheji said the fund would focus its investment activities on Bahrain and Gulf Cooperation Council countries and that while it would not engage in more debt issues, its subsidiaries could seek to refinance loans.

The $9 billion fund, among the smallest sovereign wealth funds in the region, may offload a portion of its stakes in its portfolio firms and reinvest the proceeds in the country’s economy, Mr Kooheji said.

“Maybe the way forward will be for us to reduce our shareholding in some portfolios we have. But our focus would be to reinvest that money into the Bahraini economy,” the CEO said.  “We are not shying away from international investment but really our focus is Bahrain and maybe the GCC, because we find big demand and growth from the GCC market.”

Set up in 2006 to help diversify Bahrain’s economy away from hydrocarbons, Mumtalakat has stakes in over 35 commercial entities, including Bahrain Telecommunications Co (Batelco) and Aluminium Bahrain (Alba), one of the largest aluminium smelters in the world.

Its profits have been hindered by rising losses at its ailing Gulf Air unit. But the fund has no plans to tap debt markets following a successful $1.5 billion debt issue by the Bahrain government late last month. Mumtalakat itself has a $750 million bond maturing in June 2015.

Mumtalakat made a net loss of BD270.6 million ($717.68m) in 2011, it said in a statement on its website this week. That compares with a loss of BD234.3m in 2010.

Consolidated revenue and gross profit in 2011 increased 8.4 per cent and 5.5 per cent respectively, primarily due to the strong performance of Alba, it said.

The fund, which appointed Mr Al Kooheji as chief executive in March, booked impairment losses of BD316.5m in 2011 compared with BD191.2m the previous year.

Mumtalakat said its consolidated operating loss fell almost 88 per cent to BD5.9m in 2011, from BD48.9 m.

“We might go ahead and refinance some loans but we have a clear plan to gradually reduce the borrowing, which is still reasonable, that we have. If there is any borrowing it will be done at a company level and based on the strength of projects they want to implement,” Mr Kooheji said.

Mr Kooheji added that Alba - where he is chairman - had not yet decided whether to go ahead with a sixth production line by 2015 but he believed it would.

He said the board would likely make a decision by the end of the year, after which bank feasibility studies would take place.

Last year’s unrest in Bahrain roughly halved economic growth to 2.2 per cent in 2011, the worst performance since a 0.3 per cent contraction in 1994, when oil prices fell to $13 per barrel. They are currently around $100.

Mr Kooheji said economic reform was on track. “We always have to make adjustments and react to the market conditions, but it is continuing. All the elements of the reform are happening. His Majesty King Hamad launched the economic reform of the country so the support comes from the top and this support is irreversible.”

Meanwhile, Gulf Air is busy tightening its belt and says it has made ‘significant achievements’ across its business operations resulting in BD25.5 million overall in cost savings in 2011.

The airline’s aggressive cost-saving plans and measures started in 2010 following a new business strategy. The national carrier is pushing forward in 2012 and is targeting a further 15 per cent reduction in its cost base for the full year with officials saying it has already achieved a savings of BD6.8m between January and May.