Kuwait's Al Kharafi on plans for the family empire

In his most wide-ranging interview since he took a more prominent role in the family business, Bader Nasser Al Kharafi gives an insight into the restructuring of the firm
By Shane McGinley
Sat 13 Jul 2013 11:15 AM

In a taxi making its way through Kuwait City on the way to meet Bader Nasser Al Kharafi, my driver looks suitably impressed when I give him the office address, and chats animatedly about the high regard in which the renowned businessman is held.

As one of the most powerful men in Kuwait and a major player in one of the country’s most influential families, this is hardly surprising. Al Kharafi seems to have taken on an almost mythical status; the taxi driver cryptically refers to the fact that the businessman has a reputation for never sleeping because of the many different business hats he wears and the range of company boards he sits on each day.

Al Kharafi holds several high-profile roles within the family business, but across Kuwait itself he is also general manager of investment firm Al Khair National for Stocks and Real Estate Company, the vice chairman of media, advertising and exhibition firm UNIEXPO and is on the board of local giants such as Zain and Coca-Cola’s subsidiary in Kuwait and Iraq.

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It is also no surprise to hear that he may have had some sleepless nights as two years ago he was appointed to the executive committee set up to run the family business, MA Al Kharafi & Sons Company, when his father Nasser passed away in Egypt in 2011.

In the wake of the legendary father’s death, the family, whose wealth was estimated to be around $8.6bn in 2012, set up an executive council to restructure the company and try to fill the void left by the passing of the much-loved leader.

“We wanted to restructure and we already did that and we have the two uncles, the chairman and vice chairman now. The executive committee is really behind the company,” Al Kharafi says. “It is pretty much the same strategy and vision that Mr Nasser had. It [is] just having different people involved in the group. In a group like Kharafi you have a business plan put in place and you try to stick to the business plan when Mr Nasser was running the company.”

While a business plan was cemented, he admits that no formal succession plan was ever drawn up and this was something that had to be worked out among the family and advisors during the restructuring process.

“There was a kind of a succession plan but in family businesses it is a bit different as the whole family is involved. We now have the five executive committee members who run different sectors. They are all family members on the executive committee.”

Looking back in hindsight, he recommends that all privately run family businesses should put succession plans in place in advance. “Definitely beforehand... You need to have a succession plan. If you look at family businesses, when you go to the third generation it starts getting tough taking decisions and definitely when you go to the fourth generation it maybe gets even harder.

“From most of the experience I have seen and the conferences I have been to, for family businesses you should start doing something when you start going into the second generation. You should start having a succession plan and I would advise doing it in the early stages.”

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When his father passed away, the market initially went into shock. The family was a major shareholder in Zain and shares in the telco slipped five percent on news of Al Kharafi’s death. At the same time, shares in National Investments, another Kharafi Group-owned company, fell 5.1 percent and the National Bank of Kuwait, the country’s biggest lender, on whose board Al Kharafi sat, slipped 1.7 percent.

Some analysts predicted the death of Kuwait’s biggest businessman would “have a dramatic impact” on the company. While the transition seems to have been a lot smoother than the doomsday predictions, Al Kharafi admits that it was initially difficult.

“Well, to be honest, I worked closely with him in the years before he passed away and I think it is very hard to convince someone to have confidence when you lose someone like Mr Nasser. You try to show them that you are trying to implement his strategy and achieve his business plan, but finding a replacement for him is very tough.

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“Being a family close together, the committees running the company and the family members and uncles all united together, that is the message that the market wants and we are happy the family is still reunited and has a good understanding together and that probably is the thing that gave confidence to people.”

Besides the main family business, Al Kharafi also sits on the board of Zain, Kuwait’s number-one telecom operator, which this year celebrates its 30th anniversary as the first mobile telecommunications company in the Middle East and Africa.

The conglomerate, which is present in eight countries, reported a 27 percent fall in first quarter net profit, mainly due to a steep devaluation in the Sudanese pound and loss-making unit Zain Saudi.

Sudan accounted for nearly a third of Zain’s customer base and a fifth of group revenue last year, but the country has been mired in economic turmoil following South Sudan’s secession in 2011.

In July last year, Sudan devalued its currency to 4.4 pounds to the dollar from 2.6, while the black market rate hit a record low of 7.1 in December. The slump cost Zain the equivalent of $179m in revenue and $44m in profit in the first quarter.

Set against the background of toughening competition, a struggling economy and high costs, some analysts say Zain may have bitten off more than it can profitably chew. Some say it might even make sense for the group to cut its losses and quit its last remaining sub-Saharan operation — it sold its assets in fifteen other African states to India’s Bharti Airtel in 2010 to focus on the more lucrative Middle East.

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Al Kharafi disagrees and says Zain is sticking by Sudan, which is a market the size of France, and has no intention of exiting.

“We exist in eight markets and in Iraq and Sudan we have huge potential from those two. We will definitely hold onto Sudan. I mean the numbers are good, but [for] the fluctuation in currency... We believe things will be solved in Sudan soon. In the long term, I think Sudan will settle down and I see it as a great opportunity. We will keep that.”

Zain is also the third-largest telecoms operator in Saudi and last month it signed a SR2.25bn ($600m) Islamic loan guaranteed by the Kuwaiti parent company.

“After restructuring and the new team and management we believe in Saudi,” says Al Kharafi. Already this is paying off as net losses for the first quarter of the year amounted to SAR398m, down from SAR419.99m for the same period last year.

Looking ahead, one market Zain is looking to enter as part of its expansion plans is Libya, Al Kharafi confirms.

“We don’t have a number [of target markets] but whenever there is an opportunity we will invest. We were targeting Libya and they stopped the process there but Libya is one of the countries we would like to be in.”

Libya’s telecom sector remains in state hands. Government-controlled Libyan Post, Telecommunication and Information Technology Co (LIPTIC) owns the country’s two mobile operators Al Madar and Libyana as well as Libya's main internet provider, with the telecoms sector isolated from much foreign competition during Muammar Gaddafi’s 42-year rule. Libya had planned to tender a management contract for LIPTIC, which is seen as a prelude to privatisation by analysts, but this tender has been put on hold.

Back in its home market, Al Kharafi’s father infamously led a bid to sell the family’s reported 20 percent stake in the telecoms operator in 2010 to UAE operator Etisalat, but the deal fell through, with the Emirati rival citing difficulties with Zain’s divided board, extended due diligence and regional unrest.

“He was a businessman and we come from the same school: if you have a good deal you might as well exit,” Al Kharafi says. “We had a good offer from Etisalat then. It’s not just Zain, any of our assets if we have a good offer we might as well exit. It is not because of the company or of liquidity.”

So does he see any good deals to exit at the moment? “There is nothing on the table but if anything comes in we will consider it, but only if it is a great deal, not just a good deal,” he says, coyly.

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Last year, Al Kharafi added another string to his bow when he was invited to become a board member at Gulf Bank, the country’s fourth largest lender by market share. In a statement to the Kuwait Stock Exchange, the bank reported net profit for the first quarter of KWD7.935m ($27.67m), up from KWD 7.37m a year earlier.

Looking at Kuwait’s banking sector, Al Kharafi believes more needs to be done to reduce the caps the central bank has placed on lending levels, in a bid to improve liquidity in the sector.

“It is not the liquidity but it is the restrictions on lending and finance and the legal lending limits the banks reached. I am sure there is liquidity but we need to really try to solve the issues with the non-performing loans.

“I don’t blame the central bank for putting those restrictions but we need to find a way to bring liquidity into the economy. We need to raise the caps, definitely. We need to restructure some of those debts.

One possible issue is to look at offering an amnesty on citizens’ debts, which the Kuwaiti government has done in the past. “I think for the system at the moment it is one of the things we look at. Increasing bank deposits is [more] important.” However, while he does believe that writing off the whole debt may cause problems, the majority of citizens will learn from the issue.

“This is a concern, but at the point we have reached now, people are educated and they feel the tension and they have been through a tough time. I am sure some of them will have the habit of spending but let’s say the majority will try to improve their spending.”

Besides Gulf Bank and Zain, Al Kharafi’s main focus is, of course, the family business, which has an annual turnover exceeding $5bn, operations in 25 countries around the world from Senegal and Botswana to Kazakhstan and the Maldives, and has more than 120,000 employees. While recent Arab Spring conflicts have meant operations are proving tough in his father’s beloved Egypt and Syria is on hold for the moment, Asia is a market in which he sees great potential.

“Asia is a growing market but it is high risk because of the infrastructure,” Al Kharafi says. “We are looking at a couple of opportunities there. You can be an investor or run and manage the company. We are looking at investments, maybe some private equity funds, those types of products where they have a good team... Transport, renewable energy and with what is happening in China we would definitely look at renewable energy. These are the sectors we think we could [invest].”

Closer to home, the Kuwait government for years has been planning to privatise the national carrier Kuwait Airways and this is something Al Kharafi would consider investing in. “We would be interested in looking at that sector. We would look at it as an investment yes... It depends on the conditions of the privatisation. It is very slow and they need to be clearer and more flexible and move faster.”

Kuwaiti politics in recent years has proven to be a complex issue, with its ongoing soap opera of short-lived parliaments and rotating ministers. However, Al Kharafi says one of the reasons the country has not seen any Arab Spring uprisings or any major disputes is because the country is democratic and has a strong ethos for freedom of speech.

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“The parliament is the pressure release,” he points out. “People are allowed to talk and can talk... that is why you have less violence and protesting because you can say whatever you want to say and you have freedom. In other countries where people were not allowed to talk and the social media came in, this is where it kind of explodes. I don’t see that happening in Kuwait as there is a good understanding between the rulers and the families.

“It is different views, which is healthy... that is democracy. Definitely Kuwaitis are happy with democracy. I would push for democracy but it will take us time to reach the way. We are at the early stages.”

So what would he do if he was in government? “I definitely think the government is missing something not presenting Kuwait as a tourist destination,” he says, adding that one of the issues is a lack of attractions for visitors. He thinks the country can become popular without resorting to bars or nightlife like Dubai.

“You can have entertainment, shopping malls and activities and things... you don’t need the bars and nightclubs. When you go to Dubai you don’t want to go to the nightclubs, you want to spend time with them [the family] and go skiing or go to a theme park.”

So should a Disneyland Kuwait be on the cards? “Why not? I am sure Dubai is going to come with Disneyland soon but if you had a Disneyland Kuwait that would be a great attraction. [The government] can have a part in it but I think the private sector would be able to manage it better.” There you go — Disneyland Kuwait, you read it here first.

Looking back over his vast responsibilities I wonder whether Al Kharafi ever thought about taking the easy route and selling up the various company divisions and cash in on his inheritance?

“No,” he says immediately. “The family is united and we restructure and take decisions. Selling wasn’t an option.”

As I leave, Al Kharafi says he is off to Europe for a holiday. Let’s just hope it’s a chance for him to finally catch up on some sleep.

See the full list of the world's 50 richest Arabs.

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