Kamco Investment Company K.S.C.P. – Ratings Affirmed

(MENAFN- Capital Intelligence Ltd) Capital Intelligence Ratings (CI Ratings or CI) today announced that it has affirmed the Long-Term Foreign Currency Rating (LT FCR) and Short-Term Foreign Currency Rating (ST FCR) of Kamco Investment Company K.S.C.P. (Kamco) at ‘BBB’ and ‘A3’, respectively. The Outlook on the ratings remains Stable.

The two most important credit strengths that support the rating continue to be Kamco’s market leadership position in terms of assets under management (AUM) within the Kuwait asset management sector and its funding and liquidity base; the latter is based on a series of long-standing bank lines (from non-related party banks) and on readily saleable fair value through profit or loss investments. Kamco continues to enjoy considerable flexibility in its funding plans given existing substantial cash balances, plus committed but undrawn bank lines.

The main credit challenge is earnings volatility. While Kamco is able to post a net profit in most years (the last negative year was in Covid-impacted 2020), the levels of both net profit and TCI can be very variable, both between years and between quarters in a single year. This variability is reinforced by the contractual fee basis of many AUM contracts, where Kamco can earn an additional performance-based fee once certain benchmarks have been exceeded. As AUM fees are, therefore, based on amount of AUM + performance, the level of revenues from this activity is heavily impacted by performance of market indices. The latter recovered in Kuwait in 2024 after a weak 2023. Underlying net profit for the current year is expected to be similar to that for 2024, but in April Kamco received an additional KWD5mn non-recurring gain from a legal settlement.

Performance in GCC markets to early May 2025 has been mixed. While the various Kuwaiti indices are all up, the Tadawul in Saudi Arabia is down, as are the indices in Bahrain, Oman and Qatar. At present, it is the Kuwaiti indices that are most important for Kamco performance, although AUMs in Saudi Arabia are becoming increasingly important.

Kamco continues to have a substantial volume of AUM giving a large and normally relatively stable revenue stream, and a growing investment banking (IB) business. While the earnings contribution from non-Kuwait geographical expansion has been limited to date, it is growing and offers considerable opportunities for the future, both in terms of earnings growth and of reducing geographical concentrations. In the meantime, the real estate platform has been generating regular and growing asset management fees.

Further important credit strengths include low leverage and debt-equity ratios, particularly on a net basis, and a strong and capable management team. The value of the wider KIPCO Group is seen as being a major source of both asset management funds and IB business, rather than as principally being a source of extraordinary support – although the now closer ownership and cross selling linkages with Burgan Bank (BB) are seen as being a positive development. BB and other KIPCO group banks could (in case of need) be a potential additional source of funding, although as a matter of policy all current bank funding comes from third-party banks. The overall level of borrowings and net debt is expected to fall further this year, in part due to the KWD5mn inflow from the favourable legal judgment mentioned above.

Apart from earnings volatility discussed above, other main credit challenges are seen as being the concentration in revenue sources due to the reliance on asset management income, the concentrations (albeit declining) in the asset management customer base, and the inherent potential volatility of IB revenues – the latter are still largely transactional in nature and are still mainly dependent on Kuwait-based transactions. The operating environment can also be a credit challenge, either reflecting domestic conditions in Kuwait or geopolitical factors in the wider MENA region; both can negatively impact equity indices and demand for debt capital market transactions, although the new Debt Law in Kuwait is likely to improve domestic market conditions.
Rating Outlook

The Stable Outlook indicates that Kamco’s ratings are likely to remain unchanged over the next 12 months.

Rating Dynamics: Upside Scenario

Given the nature of the business model and the level of the current ratings, an upgrade in either the ratings or outlook is seen as being unlikely over the next 12 months – even if financial performance were to be much stronger than currently expected.

Rating Dynamics: Downside Scenario

Either the outlook or (less likely) the ratings themselves could be lowered over the next 12 months, were there to be a major correction in GCC markets – and were that correction seem to be likely to persist. Earnings performance at Kamco tends to be closely linked to market volatility, and corrections are, therefore, part of the normal cycle. This downside scenario instead refers to a correction that would seem to have established a new – and much lower – trading range that is likely to persist going forward.

Contact

Primary Analyst: Rory Keelan, Senior Credit Analyst; E-mail: ...
Secondary Analyst: Stathis Kyriakides, Senior Credit Analyst
Committee Chairperson: Morris Helal, Senior Credit Analyst

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The following information sources were used to prepare the credit ratings: public information and information provided by the rated entity. Financial data and metrics have been derived by CI from the rated entity’s financial statements for FY2020-24. CI may also have relied upon non-public financial information provided by the rated entity and may also have used financial information from credible, independent third-party data providers. CI considers the quality of information available on the rated entity to be satisfactory for the purposes of assigning and maintaining credit ratings. CI does not audit or independently verify information received during the rating process.

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