World Report: Kuwait is blessed with natural resources and has a large percentage of world oil reserves. We would like to know your insight on Kuwait’s economy right now, and what tangible steps should be taken in order to ensure a sustainable development of Kuwait’s economy?
Fahed Faisal Boodai: Kuwait is indeed blessed with natural resources. Oil reserves in Kuwait are estimated to contribute 8% of worldwide reserves. In 1938, Kuwait Oil Company drilled the country’s first commercial oil well in the Al Burqan oilfield. The commercial export of crude oil began in 1946. Kuwait, however, had been at the forefront of innovation for many years prior. Before the production of oil, the Kuwaiti people were pioneers in business, banking and finance, and of course, trade. A good example of this was the initiation of Islamic banking in the 1980s. Unfortunately, over the past decade the country witnessed increased bureaucratic behaviour which adversely affected the business climate and local infrastructure. The 2008 world economic crisis, which crippled many sophisticated markets, was unfavourable to the Kuwait economy.
The advancement of infrastructure, compared to our neighbouring countries in the GCC, over the past decade, has lagged no doubt. The Kuwaiti agenda is well intended for advancement in infrastructure and I am hopeful that we will see movement in this over the next five years. What our country excels in is innovation and globalisation of our businesses. The Kuwait Investment Office (KIO), a branch of the Kuwait Investment Authority, set up office in London in 1953 with the aim of diversification and investing surplus oil revenues to reduce the future reliance of the oil resource. The ties between the UK and Kuwait are very strong. On a personal level, our investment group has been investing abroad, including in the UK and USA from the early 1990s. In 2007, we decided to start
Gatehouse Bank plc in London for two reasons. Firstly, we could leverage from London, as the global world financial centre, and secondly we could be a gateway for the Kuwait/GCC and South Asian markets and London. We understand the importance of diversification and investing our clients’ interest as our own. To date, Gatehouse Bank has acquired $1.25 billion for a number of Kuwaiti and GCC and Malaysian clients.
Why?
We seek investments in which we can find real value and grow that value over time. When we look at investment opportunities in real estate, we take views in both primary and secondary markets. We base our decisions on both quantitative and qualitative measures and create a robust financial structure to back up the real estate. We utilise our asset management expertise to enhance core and non-core assets to create a blend of opportunities that yield income and/ or provide capital appreciation.
A good example of this is our recent sale of 181 Fremont Street, in the heart of San Francisco’s South Financial District in California. The investment successfully obtained entitlements from the City of San Francisco in December 2012 to allow for the construction of a 54-story, mixed-use residential and office tower. The total amount of the sale reached $71m (£46.4m), which yielded a profit on equity of 100% post costs and taxes.
Let’s mention bilateral relations between Kuwait and the UK: they stretch back over 200 years, there’s a special treaty of friendship, Kuwait was a protectorate of the UK, etc. Even as you said, Gatehouse Bank is based in the UK and also we are talking about transferring technology from the UK to the Kuwaiti market. How do you see the opportunities especially in the banking and finance sector?
We are proud to have a strong bilateral relationship with the UK. The UK and Kuwait relationship dates back to the 18th century. Most notably, in my lifetime, we are grateful to the UK for their support and military forces to defend Kuwait both before and after the country’s independence. The relationship has continued to blossom with mutual respect, admiration and in common values, especially with regards to freedom of speech and a democratically elected parliament. On the business side of our relationship, Kuwait has welcomed many UK companies to deliver upcoming infrastructure projects. Kuwait Oil Company also engages with the brightest British minds in the oil and gas sector.
A good example of this partnership is illustrated through Gatehouse Bank. Gatehouse is an investment bank in the City of London backed by Kuwaiti shareholders. We benefit world-class financial hub and government support in Islamic banking, and we also employ a number of great British talent. Interestingly, Gatehouse Bank was the last bank to be issued a licence from the FSA after the 2008 financial crisis. Our previous CEO was appointed head of the UK Islamic task force. We value the bilateral relationship and look forward to strengthening it over the fullness of time.
I would like to talk a little bit more about Gatehouse Bank. As you mentioned you got your FSA licence and accreditation in 2008 and the entire world has been in crisis since then, but you were able to increase your portfolio to 1.5 billion, so I would just like to get a quick insight of the greatest priorities in the last three years and what do you see in the future?
Gatehouse Bank has had a few key advantages. We are small enough to be agile and sharp enough to give clients what they need.
As we all know, investors worldwide were wounded from the 2008 financial crisis. In the world of economic trepidation, the United Kingdom and the USA still represent good relative value. Fortunately, we specialise in these markets. The US and the UK were the recipients of capital fleeing the East from the Arab Spring. But in order to convert the safe haven influx into business for us, we had to build trust – and we did!
We pride ourselves on transparency. Gatehouse Bank is positioned in London with a robust regulatory and legal system. We are not like a real-estate company; we are a bank which means we have strict regulatory restrictions and liquidity requirements. We structure simple and transparent real estate-backed investment offerings. We did not build blind pool funds with aggressive fees. We invested in one asset at a time. Our strategy included acquisitions of Grade A buildings with strong credit-rated tenants such as Intercontinental Hotel HQ, Rolls Royce, Proctor & Gamble, Petrofac and such like. Our track record started to place our products for us and now we are pro-rating the investment allocations of our investors. We are grateful for such loyal clients and we take the risk and reward alongside them by investing our own equity into the deals.
As for the future, we must be very cautious. There is a wild goose chase for high yields in the market. Truth be told, there are not enough deals in the market that would pass our strict credit guidelines. The B and C class properties priced north of 8.5% might make sense for investors out there today but they must be very careful at exit. Core real estate is priced very sharp which could be an issue when interest rates go up in the future. It’s important to take the long-term view, create a healthy financial structure with low leverage. For Gatehouse Bank moving forward, it’s not about quantity – it’s all about quality. Real wealth preservation is based on sound financial principals and not flipping properties.
You approached the client and explained very transparently: “this is what we can buy for you” and so on. How did you manage to communicate that you were different from the rest of the banks?
That’s an excellent question. There are three big differentiating factors, which are underlined by our transparent business conduct. Gatehouse Bank offers 1) bespoke products; 2) we have an in-house Shariah board; and 3) we have superior client services.
Our bespoke products are structured as a “club” deal and not in blind pool funds. Each asset is held in an SPV [special purpose vehicle] that is not used to acquire any other assets. Equity investors in our deals have shares in the SPV that owns the asset, and thus have ownership of the underlying real estate. Our assets are bespoke for the investor(s) – they can decide on buying the property alone or we can help syndicate the deal with other investors. The investors are now involved in agreeing on LTV [loan-to-value] levels and reserves for the transaction. We offer a full service solution for clients in that we structure the transaction, issue a fatwa, prepare credit papers, arrange for third party leverage and provide a comprehensive due diligence.
Other Islamic investment banks in London do not have an in-house Shariah board. We are well respected and known for the team’s contribution to our transactions. Having an on-site Shariah teams ensures full oversight in our principals-based banking approach.
Our client services pride themselves on delivering superior customer care. We are a wholesale investment bank but provide retail like reporting. In fact, we send clients an sms every month to alert them of their distributions. We have set an online access system so our clients may view their statements at any time. Our wealth managers provide support virtually all throughout the day.
And what about from 2008 till now? What has been the growth of Gatehouse?
Our major product is real estate. When we initially achieved our banking licence, our core business was capital markets. We swiftly reacted to the changing market, restructuring our team and business model at the time of the financial crisis. We evaluated our key strengths and realised we had strong real-estate expertise. Our real-estate division has gone from strength to strength ever since; we’ve even had several exits on assets acquired in this time. We have bought over $1.5 billion worth of assets; all together a total of 15 deals, of which we have sold three. Properties acquired are mainly in the UK, but also in the United States. But the success comes from reputation, transparency and knowing our clients. We act as a bridge for their needs. We are their gatekeepers for their holdings in the UK and the United States and we can deliver local expertise, legal presence, structuring advice and excelling customer service.
You are a pioneer in innovation and innovation has been driving your success story as well. In 2009 it was published in the Financial Times that your legal department has been responsible for specific innovations such as a generic sukuk platform but also drives new lines of business such as in-house Shariah scholars. How do you stand out from the competition because there is Islamic banking in Great Britain, and you’re in Islamic finance? Banking is really a competitive industry.
We have a different focus to that of our peer group. There are five Islamic banks in UK: some focus on retail and fundamental banking; others focus on private equity or asset financing. We, at Gatehouse Bank, pride ourselves in having a solutions-based ethos – not only do we provide fundamental banking, we also offer real-estate investments options and solutions, structured finance, wealth management and Shariah advisory services. Our in-house Shariah team offers something no others have and is a great USP [unique selling point] which enhances our credibility in the market.
Our in-house teams also include credit, treasury, structured finance, asset management and real estate, and they offer an in-depth expertise. Your question refers to innovation, and Gatehouse Bank certainly has that. Not only were we the first Islamic bank in the UK to have an in-house Shariah team, we have just launched our online banking platform which is unique for our clients, and most notably, we recently launched the first ever UK sterling sukuk backed by a UK real-estate asset. The lion share of sukuk issued is from the GCC and Asia. We are providing geographic and currency diversification.
Gatehouse Bank has been successful in establishing the brand as a one-stop-shop – with a full range of services. We have been successfully building our client base in Kuwait GCC region, Switzerland and in 2012 we were very proud to have a Malaysian sovereign wealth fund select us as their advisor for a £165 million City of London real-estate acquisition. We provided a full suite of services from sourcing, structuring and managing the acquisition, and post acquisition with robust asset management.
And it’s also a long-term relationship.
We value our client relationships above all. It stands to reason that we work hard to build genuine, long-term relationships with our clients and business peer groups alike. Our team of relationship managers work with each client strategically to develop bespoke investment options and identify any new opportunities suited for them.
We have the knowledge, experience and understanding to evolve our product offerings in line with market movement and ever-changing client needs. The magic of our growth proliferated from the relationships with our clients and our ability to bridge the UK property market for them. We listened to our clients’ needs and offered them something unique. We have experienced immense client loyalty and see these relationships as very long term.
Now we would like to focus on youth development and as we mentioned it is a big part of our report as well. Gatehouse Bank was involved, through the British charity Mosaic, in the Enterprise Challenge, which supported 3,000 secondary schools in the UK. What is its role and importance?
Gatehouse Bank has several key CSR [corporate social responsibility] initiatives. The bank actively supports Mosaic, a charity founded by HRH The Prince of Wales, to supply volunteer mentors to work with secondary education pupils at local schools.
Gatehouse Bank’s employees are encouraged to invest time to support children from under-privileged and ethnic-minority communities, and several employees invested time and energy into the Apax-Mosaic Enterprise Challenge competition, which aims to inspire young people through business. The importance of this is that the school pupils, aged 14-15, are guided by mentors to compete on a simulated business game, and through this learn key components of business such as finance, sales, marketing and production, as well as a host of personal development skills to improve their confidence and make them realise their potential.
Last year saw the continued development of the bank’s Women’s Initiative, which started in April 2012. Gatehouse Bank has hosted a number of workshops in Kuwait and Saudi Arabia to help women improve their understanding of real estate investments, focusing particularly on the UK and US markets. Recently, we have since returned to Dar Al-Hekma University to teach a bespoke MBA module entitled ‘Investment Opportunities for Women in the GCC’. Gatehouse signed an MOU with the university last month aimed to help women not only realise their potential as investors, but also to equip them with the tools and knowledge to play a fundamental role in business and long-term wealth preservation across the region.
Our CSR work on the Kuwait side, specifically supporting the youth, is also important for us. I didn’t have the support to create what I have today, and had to push hard to achieve everything I have – and this is not uncommon in Kuwait. We need to reach out to the youth more and mentor them. We need provide on-the-job training for our young graduates. A lot of my team members here are from Kuwait and graduated from the US or the UK. I specifically handpicked this young talent and given them an opportunity to excel, and in turn they give commitment to the bank and a shared vision. At Gatehouse Bank, we have also, happily, over the last three or four years in the UK, trained more than five or six people that came to intern with us in London from Kuwait, Saudi and Qatar, so we’re very supportive to that.
In the 70s and 80s Kuwait built a fortune and did very well in the beginning, but in the late 80s and 90s a lot of money was spent by sending us to get the best education in the US or the UK, to the best universities; we have come back and settled in Kuwait but it wasn’t easy to set up business initiatives. Now we are in that seat, we know that our youth is ready: give them the opportunity to deliver.
I definitely agree, and for example the ‘Proud to be Kuwaiti’ [P2BK] movement is an amazing drive, as well as young entrepreneurs emerging – there’s one business called Cupcakes, it’s a restaurant.
Very entrepreneurial, very smart, they can do a lot of things and they can compete, I think, in the best of markets. Leading on from both this and the CSR initiatives we run at the bank, my wife, Sheikha Al Zain runs a youth initiative in Kuwait, via the Ministry of Youth – they launched a logo competition open to graphic designers all over Kuwait. It’s a competition for designers to create a logo for the Ministry and have direct input in its artistic vision. This competition not only celebrates the talents of the artists in Kuwait but also encourages the local community to take part in creative opportunities. They have had a fantastic social media following which is very relevant to the market and has proved a huge success – after just two weeks they have over 20,000 followers.
I don’t know if you are aware of it, “the yellow cab”, it’s a film small company built by Kuwaitis. They went to LA and they started a film and then they came back.
It’s phenomenal to see such interesting, original and passionate work coming out of Kuwait. I think it’s great that Kuwaitis are doing such fantastic projects, and being recognised for it. Going back to my wife, Sheikha Al Zain Al-Sabah, as well as supporting the Ministry of Youth, is also the founder of Eagle Vision Media Group (www.evmg.com.kw). She is also a member of the Aspen Institute and has led a project called the ADASA (Artists Demanding a Storytelling Association) in Kuwait. She is also supporting the construction of a studio in Kuwait, which will aim to become a hub for Kuwaiti youths who graduate and don’t know where to go; and there’s a lot of talent here that is not being exploited.
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