Kuwait's Aayan in merger talks to face crisis

KUWAIT (Reuters) - Kuwaiti Islamic asset manager Aayan Capital said on Wednesday it is in merger talks with two local investment companies, as it strives to double its asset base to help it weather a global financial crisis.

Kuwait, home to more than 90 investment firms, would see a wave of consolidation in the financial sector that could reduce the number of investment firms to 50 in a year, Aayan Capital managing director and chief executive Mansour al-Mubarak said.

Privately-held Aayan, with 100 million dinars ($371.1 million) of assets, is in early talks with two investment firms about mergers, including one of a similar size listed on the Kuwait stock exchange, he said.

"Medium to long-term, we are discussing mergers. It is a time to consolidate and create bigger animals to face a recession or a slowdown," Mubarak told the Reuters Middle East Investment Summit.

"The crisis is not a normal crisis and the hit was like having an earthquake in certain seconds and a lot of damage is left."

The Gulf state had to step in last month to rescue Gulf Bank (GBKK.KW), its fifth-biggest bank by market value, after the lender made major losses in derivatives trading.

That bailout was a shock for the financial sector and has made family businesses more willing to consider takeovers to help them survive the crisis, Mubarak said.

Kuwait is finalising a plan to step in to help the Gulf state's local investment firms survive the credit crisis in a deal agreed by banks, the central bank and state institutions.

"It used to be a sign of weakness to decide to merge. We are not familiar with this ... The good thing about the crisis is it made us open to discussion," Mubarak said.

"One day we (in Kuwait) are thinking about doing everything in the world and the second day we are thinking about bankruptcy. It's not a minor problem it's a major problem."

NO ROOM FOR SMALL PLAYERS

The government crisis agreement could involve sovereign wealth fund Kuwait Investment Authority extending loans to troubled companies, he said, adding it would take about 5 billion dinars to address the local liquidity crunch.

Kuwait, the world's seventh-largest oil exporter, has reaped a windfall from six years of high oil prices.

"In my opinion, you have to use the surplus to solve the problem," Mubarak said.

Consolidation in the Gulf would go beyond the financial sector, Mubarak added, saying Aayan Capital would advise sister companies in real estate and leasing on potential consolidation in those sectors too. He gave no details.

"There is no more room for small players," he said. "In a small market you are trying not to deal with billion-dollar projects, there is no place for small fish."

Through its own consolidation, Aayan hopes to double its asset base and reduce leverage to help it gain the scale to face an economic downturn and push ahead with expansion plans in Egypt, Saudi Arabia Turkey and the Far East.

Most of Aayan's own debt is to its parent company, Mubarak said. He added that after consolidation, Aayan Group's shareholding in the firm could be diluted.

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(Additional reporting by Ulf Laessing, Rania El Gamal and Will Rasmussen; Editing by Alexander Smith and David Cowell)