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Saudi investment firm Khalijia to retrench

To close brokerage, asset management unit - document; Shareholders failed to commit extra capital - sources * To meet with Saudi regulator Tuesday - sources; Lists Kuwaiti Gulf Bank and NIC among shareholders

April 5, 2011 2:12 by

Khalijia Invest, a Saudi investment firm which counts two major Kuwaiti investment banks as shareholders, plans to shut down most of its operations due to a cash crunch, an internal document seen by Reuters showed.

The retrenchment could be the first in a slew of similar actions in the kingdom where a raft of investment firms have been facing financial stress, with consolidation expected.

Riyadh-based Khalijia, which counts Kuwait’s National Investments and Gulf Bank as shareholders, has decided to cancel the licenses of its asset management, brokerage and custody services, an email to Khalijia staff said. “A full restructuring of the company’s activities and staffing is being considered and will be conveyed to all staff members in due time,” the email said, adding the decision had been taken after an extraordinary board meeting on March 29.

Khalijia will decrease the company’s capital and retain its investment advisory and consultancy business, the email said.

Khalijia Invest declined to comment when contacted by Reuters.

The firm, which was incorporated with a capital base of 400 million riyals ($106.7 million) in 2008, saw its authorised share capital fall below the stipulated regulatory requirement of 50 million riyals, prompting the move to shut down, two sources familiar with the matter said.

Over 70 percent of its capital was depleted after the firm invested shareholder money in its investment funds, said one of the sources, based in Saudi Arabia and who spoke on condition of anonymity.

Shareholders refused to commit more capital prompting the move to scale down operations, the two sources added.

Khalijia will meet with the Saudi regulator, Capital Markets Authority (CMA), on Tuesday, the Saudi source said. He said the CMA may intervene to bail out the firm.

“They had ambitious plans but they lost a lot money investing shareholder’s money into funds. As far as I know, they did not do a single investment banking deal since inception,” said the Saudi source.

Khalijia Invest received a license to operate as a fully-fledged sharia-complaint investment bank from the CMA in 2008 and began operations in 2009.

Its website lists National Investments, owned by Kuwaiti family conglomerate Kharafi Group, as holding a 30 percent position in the company while Gulf Bank has a 5 percent stake. National Investments and Gulf Bank were not immediately available for comment.

Kharafi Group is the major shareholder in Kuwaiti telco Zain, and National Investments was leading the stake sale of Zain to UAE telco Etisalat. The deal fell apart last month after Etisalat pulled out.

Saudi-based wealthy investors form up to 65 percent of the remaining shareholders.

Investment firms operating in the Gulf Arab region came under intense pressure during the financial crisis as the value of their investments fell sharply and access to credit became increasingly difficult.

The CMA has granted investment licenses to about 120 companies in the kingdom. Some of these firms are under a lot of financial stress and the sector may see some consolidation in the near-term, the Saudi source said.

“In the next one year we can expect more companies facing the same situation,” said the other source.

(Written by Dinesh Nair and Praveen Menon; Additional reporting by Eman Goma in Kuwait; Editing by Hans Peters) ($1=3.750 Saudi Arabian Riyals)

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