New rules for new transparency

Kuwait

Faisal Al Hamad, the CEO of NBK Capital, talks to TOGY about how a turbulent global market has shaped Kuwait’s financial regulatory structure, as well as what oil and gas companies will face in adapting to these new laws. NBK Capital has offices in Cairo, Dubai, Istanbul and Kuwait City.

Which practices in the financial sector have helped Kuwait to weather the 2014-2015 decrease in global oil prices?
Since the 2008 global financial downturn, Kuwait has seen the introduction of the Capital Markets Authority (CMA) and the new Foreign Direct Investment Law, along with several other regulatory changes involving everything from insider trading to corporate governance. The new legal framework affecting energy and non-energy markets has decreased the volume of speculative trading.
Any new regulation goes through a teething phase. Companies are getting used to the reporting and disclosure requirements. On medium- and long-term investments, regulations ensure that companies are not trading on a speculative or manipulative basis. Even if it is short term, at least this is not driving up prices. The regulatory environment affects the capital markets, which are affected by the oil industry.
When oil prices go down, the economic cycle is majorly impacted. This affects consumer spending and other economic factors in Kuwait, such as future greenfield hydrocarbons projects.

How have corporate governance and regulations affected investment in the market?
The corporate governance, transfer disclosure and importing requirements coming through the CMA have probably affected investment trends positively, making Kuwaiti companies more attractive to investors.
The oil and gas industry in the country is government driven, so everything serves the national oil company’s subsidiaries. The local market is primarily driven by these upstream and downstream hydrocarbons projects, such as the $2.3 billion for three new oil-gathering centres in 2014 and the $12-billion Clean Fuel Project to be completed in 2018.

What differences will be apparent once these regulatory changes have been fully factored into the local market?
Once a market becomes regulated, investment volumes will decrease, but with that comes more disclosures, transparency and a different type of investment profile.
Foreign investors are placing an emphasis on a regulatory environment that encourages competition and transparency. K-companies such as Kuwait Oil Company and Kuwait National Petroleum Company will attract long-term international investment and expertise to their respective upstream and downstream sectors.
These regulations will also help the sectors, especially since they will have to expand their knowledge base to accommodate and achieve the national oil companies’ production target of around 4 million barrels of oil per day by 2020.

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