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Sun 3 May 2009 12:03 PM

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Kuwait investment firms advised to sell assets to pay debts

Booz says firms should sell stakes in underperforming companies even at loss.    

Kuwait’s beleaguered investment companies should sell their stakes in underperforming companies even if it means exiting some investments at a loss, consultancy Booz & Company has said.

“Sale proceeds can be used to pay debt or support more valuable investments. Companies should not be deterred by the possibility of exiting at low valuations if they can put the proceeds to better use,” said analyst Peter Vayanos in a report.

Kuwaiti investment companies have been hurt by the global economic downturn.

Many have used short term debt to finance long term investments in their often fragmented portfolios.

Portfolio managers have also reduced the flexibility of their portfolio by investing in relatively illiquid investments.

Investment companies need to work directly with investee companies to establish cost cutting targets that will enable them to extract more cash from operations, and may need to halt or reduce dividend payments temporarily, Booz said.

“Investment companies can give banks greater confidence by providing more transparency on how the debt is used and showing a clear action plan to improve their cash position,” analyst Ahmed Youssef added.

Kuwait is home to around 100 registered investment companies, 46 of which are listed on the Kuwait Stock Exchange, and several other industrial and real estate companies with large investment portfolios.

Listed investment companies accounted for around 20 percent of the market capitalization of listed Kuwaiti companies by the end of the third quarter of last year, and 15 percent early this year, which is a higher share than in most industrialised countries.

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