Gulf Investment Fund PLC

23 September 2021

Legal Entity Identifier: 2138009DIENFWKC3PW84

Gulf Investment Fund plc

Annual Report for the year ended 30 June 2021

 

-      Net asset value increased by 42.4 per cent vs. the benchmark increase of 45.2 per cent.

-      Share price up by 45.2 per cent.

-      Board recommends a dividend for the year of 3c a share.

-      GIF share price trading at a 5.7 per cent discount to NAV vs. one-year average discount of 8.6 per cent.

Nicholas Wilson, Chairman of Gulf Investment Fund plc, commented:

 

"This financial year was an eventful one for the Company.

 

Performance was helped by a strong recovery in global stock markets and buoyant hydrocarbon prices. During the period the price of Brent Crude rose by 85 per cent.

 

The Board continues to view the future of the Company with confidence expecting the GCC region's recovery from the pandemic to continue at pace.

 

After nearly nine years as Chairman, I intend to stand down as Chairman and Director at the end of 2021.  It has been an honour serving shareholders during this time, including when the investment mandate widened from a Qatari focus to a Gulf-wide mandate in late 2017. I would like to extend my thanks to the other Directors and to the Investment Adviser for their guidance and skill; and to our shareholders for their ongoing support."

 

Enquiries:

 

Nicholas Wilson

Gulf Investment Fund Plc

+44 (0) 1624 622 851

 

William Clutterbuck / Alasdair Lennon

Maitland/AMO

+44 (0) 20 7379 5151

[email protected]

 

Chairman's Statement

On behalf of the Board, I am pleased to present your Company's fourteenth Annual Report and Financial Statements for the year to 30 June 2021.

 

During the 12 months, your Company's Net Asset Value per Share ("NAV") rose by 42.4% to US$1.7552 marginally underperforming the S&P GCC Composite Index which rose by 43.3%. The share price rose from US$1.140 to US$1.655 for a gain of 45.2%. resulting in a slight narrowing of the discount at which the shares trade to NAV. In addition the Company paid a dividend of 3.0c. The performance was helped by a strong recovery in global stock markets and buoyant hydrocarbon prices. During the period the price of Brent Crude rose by 85%.

 

Results

 

Results for the period under review showed a profit of $39.663m generated from fair value adjustments, realised losses and dividend income. This is equivalent to a basic profit per share of 53.21c (2020 loss 8.80c).

 

As will be seen in the Investment Managers report, the geographical split of the portfolio has changed significantly during the period with Qatar still overweight at 35.4% (June 2020 weighting: 32.1%) of NAV due to its macro-economic resilience, followed by Saudi Arabia 39.9% (31.5%), UAE 20.8% (14%), Kuwait 2.1% (16.8%) and 1.8% (5.5%) in cash.

 

As at 30 June 2021, we had 34 holdings: 21 in Saudi Arabia, 7 in Qatar, 1 in Kuwait and 5 in the UAE. Once again our largest sector is Financials at 33.5% (June 2020: 36.1%).

 

The Company's Ongoing Charges (formerly Total Expense Ratio) fell to 1.55% from 1.86% in the previous year. The charges were calculated in accordance with the methodology recommended by the Association of Investment Companies.

 

Corporate events during the year

 

This financial year was an eventful one for the Company.

 

At the Extraordinary General Meeting held on 10 December 2020, shareholders voted in favour of a proposed tender offer.  40,643,418 shares were tendered, equal to 43.96 per cent. of the shares in issue. The post tender offer share capital of 51,817,824 Shares was above the minimum size condition, allowing for the 2020 Tender Offer to proceed.

 

The Tender Offer was completed in January 2021 and following the sale of assets in the Tender Pool the Tender Price per share was US$1.4940. Of the 40,643,418 tendered shares 5,757,536 were transferred to treasury, and the remaining 34,885,882 shares were cancelled.

 

Following completion of the Tender Offer the Board published, on 25 March 2021, proposals for a bi-annual tender offer with an initial tender offer in September 2021. Shareholders approved these proposals on 19 April 2021. The September 2021 Tender Offer has a minimum size condition of 38,000,000 shares.  Further details will be announced in September.

 

In addition, the proposals published in March 2021 detailed the proposed cancellation of the Company's premium share listing on the London Stock Exchange and to transfer trading of the Company's shares to the Specialist Fund Segment.  This was completed on 19 May 2021.

 

Proposed dividend

 

In the 2021 Circular dated 25 March, the Board introduced an enhanced dividend policy targeting an annual dividend equivalent to 4 per cent. of Net Asset Value at the end of the preceding year, barring any unforeseen circumstances. The dividend was paid on 17 September 2021 to ordinary shareholders on the register as at 20 August 2021.

 

Tender offer

 

Further to the approvals received from Shareholders at the extraordinary general meeting held on 19 April 2021, referenced above, the Company has launched the Tender Offer proposed in the 2021 Circular, outlined in more detail in the separate Tender Offer Announcement released on 23 September 2021. The Tender Offer is for up to 100 per cent. of each Shareholder's holding of Shares in the Company, subject to a Minimum Size Condition that the post Tender Offer share capital is not less than 38,000,000 Shares. The Tender Offer closes on 7 October 2021.

 

Related Party Transactions

 

Details of any related party transactions are contained in note 10 of this report.

 

Post balance sheet events

 

Details of these can be found in note 14 following the accompanying financial statements.

 

Outlook, risks and uncertainties

 

Fluctuations in oil and gas prices will continue to impact GCC economies, as countries deal with budget challenges. The geopolitics of the region bring economic uncertainty as does the situation with Iran. 

 

The Board believes that the principal risks and uncertainties faced by the Company continue to fall in the following categories; geopolitical events, market risks, investment and strategy risks, accounting, legal and regulatory risks, operational risks and financial risks. Information on each of these is given in the Business Review section of our Annual Report each year. In addition, there will be a 100% tender offer in September with a minimum size condition of 38,000,000.

 

The Board continues to view the future of the Company with confidence expecting healthy growth in the region as a whole, as growth in the non-hydrocarbon sector in a number of GCC members helps to balance their economies.

 

Annual General Meeting

 

This will be my last Chairman's Statement as it is my intention to stand down as Chairman and Director at the end of the calendar year and I look forward to welcoming shareholders to our fourteenth Annual General Meeting later in the year at the Company's registered office at Millennium House, 46 Athol Street, Douglas, Isle of Man. Shareholders are advised that given the ongoing COVID-19 pandemic, it may difficult or impossible to attend the Annual General Meeting in person. Shareholders are therefore strongly encouraged to appoint the chairman of the meeting as their proxy.

 

 

Nicholas Wilson

Chairman

22 September 2021

 

Business Review

The following review provides information primarily about the Company's business and results for the year ended 30 June 2020. It should be read in conjunction with the Report of the Investment Manager and the Investment Adviser on pages 7 to 17 which gives a detailed review of the investment activities for the year and an outlook for the future.

 

Investment objective and strategy

The Company's investment objective is to capture the opportunities for growth offered by the expanding GCC economies by investing, through its wholly owned subsidiary, in listed or soon to be listed companies on one of the GCC exchanges.

 

The Company applies a top-down screening process to identify those sectors which should most benefit from sector growth trends. Fundamental industry and Company analysis, rather than benchmarking, forms the basis for both stock selection and portfolio construction.

 

The investment policy is on pages 18 to 20.

 

Performance measurement and key performance indicators

In order to measure the success of the Company in meeting its objectives and to evaluate the performance of the Investment Manager, the Directors take into account the following key performance indicators:

 

Returns and Net Asset Value

At each quarterly Board meeting the Board reviews the performance of the portfolio versus the S&P GCC Composite Index (local benchmark) as well as the net asset value, income, share price and expense ratio for the Company.

 

Discount/Premium to Net Asset Value

On a weekly basis, the Board monitors the discount/premium to net asset value. The Directors renew their authority at the AGM in order to be able to make purchases through the market where they believe they can assist in narrowing the discount to net asset value and where it is accretive to net asset value per share.

 

On 22 February 2017, the Company announced the details of its annual share buy-back programme. During the term of this share buy-back programme, the Company may purchase ordinary shares provided that:

1)   the maximum price payable for an ordinary share on the London Stock Exchange is an amount equal to the higher of:

a.   105 per cent. of the average market value of the Company's ordinary shares as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which such share is contracted to be purchased; and

b.   In order to benefit from the exemption laid down in Article 5(1) of Regulation (EU) No 596/2014, the Company will not purchase shares at a price higher than the higher of the price of the last independent trade and the highest current independent purchase bid on the trading venue where the purchase is carried out; and

2)   the aggregate number of ordinary shares which may be acquired on behalf of the Company in connection with this share buy-back programme shall not exceed 17,548,355 ordinary shares (updated at last AGM to 13,859,940).

 

Due to the limited liquidity in the ordinary shares, a buy-back of ordinary shares pursuant to the share buy-back programme on any trading day is likely to represent a significant proportion of the daily trading volume in the ordinary shares on the London Stock Exchange (and is likely to exceed the 25% limits of the average daily trading volume as laid down in Article 5(1) of Regulation (EU) No 596/2014 and as such the Company will not benefit from this exemption). The share buy authority resolution is for up to 14.99% of the Company's issued share capital. The Board has no present intention to exercise the authority in full but will keep the matter under review, taking into account the overall financial position of the Company and the discount to net asset value at which the Company's shares trade.

 

Whilst the Company has the requisite shareholder authority to conduct share buy-backs, the Company has not announced a share buy-back programme since the above programme which expired on 17 November 2017, however this is under regular review by the Board.

 

Business Review continued

 

The Board is responsible for close monitoring of the Company's share price and working with its broker to buy back shares when the Company believes appropriate so as to manage any discount to net asset value. 

 

Yield

The Board monitors the dividend income of the portfolio and the amount available for distribution and considers the impact on the Company's annual dividend policy of future progressive dividend payments, subject to the absence of exceptional market events.

 

Principal risks and uncertainties

The Board confirms that there is an on-going process for identifying, evaluating and managing or monitoring the key risks to the Company. These key risks have been collated in a risk matrix document which is reviewed and updated on a quarterly basis by the Directors. The risks are identified and graded in this process, together with the policies and procedures for the mitigation of the risks. Apart from the key risks outlined below, the possibility of a tender offer up to 100% of the share capital of the Company and the Company's continuation is identified as an ongoing risk.

 

In addition to the tender offer noted on page 4 the key risks which have been identified and the steps taken by the Board to mitigate these are as follows:

 

Market

The Company's underlying investments consist of listed companies. There are no investments in companies soon to be listed. Market risk arises from uncertainty about the future prices of the investments. This is commented on in Notes 1 and 2 on pages 49 to 55.

 

Investment and strategy

The achievement of the Company's investment objective relative to the market involves risk. An inappropriate asset allocation may result in underperformance against the local index. Monitoring of these risks is carried out by the Board which, at each quarterly Board meeting, considers the asset allocation of the portfolio, the ratio of the larger investments within the portfolio and the management information provided by the Investment Manager and Investment Adviser, who are responsible for actively managing the portfolio in accordance with the Company's investment policy. The net asset value of the Company is published weekly. 

 

Accounting, legal and regulatory

The Company must comply with the provisions of the Isle of Man Companies Acts 1931 to 2004 and since its shares are listed on the London Stock Exchange, the UK Listing Authority's Listing Rules and Disclosure Guidance and Transparency Rules ("FCA Rules")' A breach of company law could result in the Company and/or the Directors being fined or the subject of criminal proceedings. A breach of the UKLA Rules could result in the suspension of the Company's shares. The Board relies on its company secretary and advisers to ensure adherence to company law and UKLA Rules. The Board takes legal, accounting or compliance advice, as appropriate, to monitor changes in the regulatory environment affecting the Company.

 

From 3 July 2016 the Company must also comply with the Market Abuse Regulation (MAR) which contains prohibitions for insider dealing and market manipulation, and provisions to prevent and detect these.

 

Operational

Disruption to, or the failure of, the Investment Manager, the Investment Adviser, the Custodian or Administrator's accounting, payment systems or custody records could prevent the accurate reporting or monitoring of the Company's financial position. Details of how the Board monitors the services provided by the Investment Manager and its other suppliers, and the key elements designed to provide effective internal control, are explained further in the internal control section of the Corporate Governance Report on pages 24 to 32.

 

Financial

The financial risks faced by the Company include market price risk, foreign exchange risk, credit risk, liquidity risk and interest rate risk. Further details are disclosed in Notes 1(c), 2, 6 and 8.

 

Report of the Investment Manager and Investment Adviser

Regional market overview:

Country / Region	Index	30-Jun-20	31-Dec-20	2H2020	30-Jun-21	1H2021	LTM
Qatar	DSM Index	8,999	10,436	16.0%	10,731	2.8%	19.2%
Saudi Arabia	SASEIDX Index	7,224	8,690	20.3%	10,984	26.4%	52.0%
Dubai	DFMGI Index	2,065	2,492	20.7%	2,811	12.8%	36.1%
Abu Dhabi	ADSMI Index	4,286	5,045	17.7%	6,835	35.5%	59.5%
Kuwait	KWSEAS Index	5,131	5,546	8.1%	6,387	15.2%	24.5%
Oman	MSM30 Index	3,516	3,659	4.1%	4,063	11.1%	15.6%
Bahrain	BHSEASI Index	1,278	1,490	16.6%	1,588	6.6%	24.3%
S&P GCC	SEMGGCPD Index	97.41	114.07	17.1%	139.57	22.4%	43.3%
Brent	CO1 Comdty	41.15	51.8	25.9%	75.13	45.0%	82.6%
MSCI EM	MXEF Index	995	1,291	29.8%	1,375	6.5%	38.1%
MSCI World	MXWO Index	2,202	2,690	22.2%	3,017	12.2%	37.0%

Source: Bloomberg; LTM: Last Twelve Months

 

Global markets witnessed a strong performance as economic recovery gained momentum around the world driven by swift vaccine rollouts and easing of lockdown restrictions.

 

Gulf Cooperation Council (GCC) markets' performance was in line with global equity markets, with gains across all regional indices.

 

The price of oil (Brent) rose 45.0% in H12021, reaching ~US$75 per barrel helped by easing of lockdown measures and production cuts from OPEC+.

 

After rising 17.1% in H2 2020, the S&P GCC index rose 22.4% in H1 2021. The positive performance in the first half of this year was led by Abu Dhabi rising 35.5 per cent, followed by Saudi Arabia up 26.4 per cent. Kuwait, Dubai, and Qatar gained 15.2 per cent, 12.8 per cent and 2.8 per cent, respectively. Oman and Bahrain markets rose 11.1 per cent and 6.6 per cent, respectively.

 

GCC: Vaccine rollout and oil price recovery to support growth 

 

The IMF has lifted its estimated growth rate for GCC countries by 40 bps to 2.7 per cent GDP growth for 2021, followed by 3.8 per cent in 2022. The better-than-expected recovery of the GCC economies is underpinned by the expectation of the GCC countries inoculating significant proportion of their population by the end of 2021, with most countries having started vaccinations at the end of 2020 or early 2021. In addition, the recovery in oil prices, led by improving demand outlook, is expected to result in a gradual easing of fiscal deficits.

 

The IMF has also forecast a 0.7 per cent increase to 16.29 million bpd in average crude production in the GCC in 202.  This is expected to be followed by a much bigger increase of 5.4 per cent to 17.17 million bpd in 2022, due to further easing of production curbs. As a result, oil GDP for the GCC region was revised up by 40 bps to expected growth of 1.6 per cent in 2021.

 

Table: IMF Real GDP Growth Forecast 2021 and 2022

Real GDP Growth	2018	2019	2020	2021e	2022e
GCC	1.9%	0.7%	-4.8%	2.7%	3.8%
GCC Oil GDP	2.4%	-1.4%	-6.0%	1.6%	4.3%
GCC Non-oil GDP	1.7%	2.4%	-3.9%	3.5%	3.4%

Source: IMF World Economic Outlook and Regional Economic Outlook April 2021

The increase in oil prices is expected to boost confidence and, in turn, support non-oil GDP, which is projected to expand by 3.5 per cent in 2021.

 

GCC deficits to shrink

 

The fiscal position in GCC nations came under pressure in 2020 from lower oil prices and reduced production, as well as higher pandemic-related spending, which resulted in a deficit of 9.2 per cent of the region's GDP. However, with stronger oil prices and higher oil revenues should improve fiscal balances. The IMF's prediction of stronger global economic growth also bodes well for a recovery of the oil market in 2021. The GCC's commitment to continue expanding non-oil revenues, should also improve GCC nation fiscal positions. The IMF also expects improvement in the deficit from 9.2 per cent of GDP in 2020 to 3 per cent in 2021, shrinking further to 1.4 per cent by 2022.

 

Table: Government fiscal balances

% of GDP	2018	2019	2020	2021e	2022e
Bahrain	-11.8	-9.0	-18.3	-9.1	-9.4
Kuwait	9.0	4.4	-9.4	-6.8	-4.5
Oman	-8.3	-6.7	-17.3	-4.4	-1.5
Qatar	5.9	4.9	1.3	1.4	7.3
Saudi Arabia	-5.9	-4.5	-11.1	-3.8	-2.5
UAE	1.9	0.6	-7.4	-1.3	-1.1
GCC	-1.6	-1.6	-9.2	-3.0	-1.4

Source: IMF Regional Economic Outlook April 2021

 

OPEC+ to ease output cuts

 

In April, the OPEC+ alliance agreed to gradually ease oil production cuts amid a plan to add 2.1 million bpd of supply from May to July. The increase in production will also include Saudi Arabia unwinding its voluntary cuts of 1 million bpd that it introduced in February. As of July, the cuts still in place had narrowed to 5.8 million bpd (from a record 9.7 million bpd in June 2020). OPEC+ plans to moderately increase output in the second half of 2021 as demand picks up across the globe. However, the output rise is unlikely to be detrimental to prices, as demand growth is expected to outpace higher supply. The alliance estimates global oil demand will rise by 6 million bpd in 2021.

 

GCC countries fiscal breakeven oil price (2021E)

Embedded image removed - please refer to the Company's website www.gulfinvestmentfundplc.com for charts depicting fiscal breakeven oil price.

 

The IMF expects a decline in fiscal breakeven oil prices (the oil price that is needed to balance government budgets) across GCC countries, except for Kuwait.  Kuwait is likely to see its fiscal breakeven price rise to US$69.3 per barrel (vs US$68.1 in 2020) due to financial pressure. Qatar is anticipated to have the lowest fiscal breakeven oil price of US$43.1. The recent oil price increase means it is now nearing or above fiscal breakeven prices. If these higher prices are sustained during the rest of the year they will largely reduce the borrowing needs of GCC governments. High oil prices will also add to the resources available for economic diversification projects.

 

Saudi Arabia US$7.2 trillion investment by 2030

 

Saudi Arabia announced plans to inject US$7.2 trillion (SAR27 trillion) into the national economy by 2030:

 

	US$ Trillion
Shareek Program	1.33
PIF	0.80
New Investment Strategy	1.07
Saudi Government	2.67
Saudi Consumer	1.33
Total	7.20

 

The Shareek (Partner) program was launched to strengthen the collaboration between the public and private sectors to fuel growth, diversify the economy and create job opportunities. The Shareek program is expected to enable and encourage the private sector to invest US$1.33 trillion (SAR5 trillion) over the next 10 years. This program comprises twenty-four of the country's biggest companies from various sectors such as banks, oil, telecoms and petrochemicals. Energy giant Aramco and petrochemical firm SABIC will lead this Shareek program by contributing 60 per cent. The Public Investment Fund (PIF), the kingdom's sovereign wealth fund, will provide US$800 billion (SAR3 trillion) and the remaining US$1.07 trillion (SAR4 trillion) will come from a new "national investment strategy", of which some US$533 billion (SAR2 trillion) would be foreign investment. The total amount would rise to US$7.2 trillion (SAR27 trillion) with government spending of US$2.67 trillion (SAR10 trillion) and domestic consumption of US$1.33 trillion (SAR5 trillion).

 

Saudi government aim to recycle this money by selling its shares in companies in coming years and by IPO'ing of newly launched projects. Moreover, Aramco would sell more shares as part of the plans to bolster sovereign wealth fund PIF, the main vehicle for boosting Saudi investments at home and abroad.

 

On top of this Saudi Arabia aims to raise US$55 billion through its privatization program over the next four years. The Kingdom has identified 160 projects across 16 sectors for privatization, including asset sales and public-private partnerships. Asset sales will include television broadcasting towers, government-owned hotels, and desalination plants. It expects to secure US$38 billion through asset sales and US$16.5 billion through public-private partnerships, as the government seeks to increase revenue and reduce its budget deficit. In addition, it also seeks to devolve the management and financing of the state's medical infrastructure and health care to the private sector, as well as transportation networks, school buildings, airport services, water desalination and sewage treatment plants. Saudi Arabia launched the second version of Nitaqat with a goal to provide employment to 340,000 nationals by 2024. The program aims at developing and increasing the efficiency of the labor market and providing job opportunities to Saudis.

 

UAE visa reforms

 

The UAE announced multiple visa reforms to position the UAE as an attractive work and tourist destination. This includes a remote work visa that enables employees from all over the world to live and work in the country for one year and a multiple-entry tourist visa that is open to all nationalities. A new Multiple Entry Tourist Visa aims to facilitate the process for tourists and visitors. The five-year visa enables tourists to enter multiple times on self-sponsorship and remain in the country for 90 days on each visit with an option of extension for another 90 days. These reforms aim to boost the competitiveness of UAE's tourism sector and support the local economy.

 

The UAE government also announced the implementation of the amended Commercial Companies Law starting from June, allowing 100 per cent foreign ownership of UAE companies. It is expected that this decision will enhance the country's competitive edge and boost investor confidence. The amendment is the latest in a series of measures aimed at liberalizing business activity and attracting international investment to the Emirates. In addition, amid a push for economic diversification, Abu Dhabi plans to invest US$6 billion in its Culture and Creative Industries (CCI) over the next five years. The performing arts, music, media, and electronic gaming sector in the Emirates is also expected to see further investments through various programs and initiatives.

 

Qatar: US$29 billion for North Field expansion

 

Qatar Petroleum (QP) announced US$29 billion to develop the North Field East (NFE) gas project with a capacity of 33 million tonnes per annum (mtpa). To be built in Ras Laffan, north-east Qatar, The NFE project is expected to increase Qatar's LNG production capacity to 110 mtpa from 77 mtpa. QP has awarded the engineering, procurement, and construction contract to a joint venture of Chiyoda and Technip which will build the four mega LNG trains with related utility facilities. Production is expected to start in 4Q2025.

 

This project will generate substantial revenues for the state of Qatar and will have significant benefits to all sectors of the Qatari economy during the construction phase and beyond. QP is also expected to announce second phase expansion of the North Field South (NFS) project this year which will lift the country's LNG capacity to 126 mtpa by 2027. Furthermore, QP is expected to sign the bulk of its project-related deals by the end of 2021.

 

Qatar approved a draft law that would allow up to 100 per cent foreign ownership of listed companies in Qatar, with individual companies permitted to approve their own foreign ownership limits. Once implemented, the decision could trigger inflows of about US$1.5 billion into listed companies and would earn bigger representation in global benchmarks for Qatar, according to an estimate by investment bank EFG-Hermes. This is also expected to have a substantial impact on the overall Qatari capital markets resulting in a boom for existing investors and domestic financial firms. The nation also extended pandemic-related financial support for private businesses, particularly the National Guarantees Programme through the end of September 2021. Further, the interest grace period for the National Guarantee Programme was also extended for an additional year to cover two years without interest until April 2022.

 

The Kuwait government announced an expansionary draft budget for FY2021/22 with total spending of KWD23 billion, up 7 per cent, led by a 20 per cent increase in capex and a 5 per cent increase in current spending. Total revenues are projected at KWD10.9 billion, a rise of 46 per cent, on the back of higher oil revenues (oil price of US$45/bbl; production of 2.4 million bpd), which comprise 83 per cent of total revenues. As a result, the budget deficit is expected to be KWD12.1 billion (34 per cent of GDP.

 

Oman plans to lower corporation tax for SMEs for 2020 and 2021 as well as for companies operating in sectors aimed at economic diversification. These and other fiscal measures are expected to reduce the fiscal deficit substantially in 2021. The Sultanate also plans to offer long-term residency to foreign investors. A 5 per cent value added tax came into effect from mid-April, and is expected to raise around US$1.03 billion annually, roughly 1.5 per cent of GDP.

 

GCC IPO pipeline

 

GCC nations are expected to launch a flurry of IPOs as the roll out of various initiatives relating to business ownership and listing requirements boost primary markets in the region. In addition, with countries gradually exiting lockdowns, a degree of investor confidence is returning.  GCC markets saw 5 IPOs raising US$571 million in Q1 2021. The number of companies set to debut on Gulf markets is expected to increase in the second half of 2021, as businesses wait to list on the local stock exchanges. Mubadala's satellite company, Yahsat, raised around US$730 million and is the first major IPO on the Abu Dhabi bourse since 2017. Saudi firm Tanmiah Food Co. has launched its IPO expecting to raise as much as US$118 million. Meanwhile, the Qatar Stock Exchange is set to launch the QE Venture Market aimed at SMEs that do not fulfil the listing requirement of the main market to give them an alternative fundraising option.

 

GCC vaccination

 

The UAE leads the GCC and the world with its vaccination program. After the UAE, Bahrain's program is the most advanced. Other GCC nations are continuing their vaccination programs and are approving more vaccine types.

 

Table: GCC vaccination update

Vaccination by country	Doses Administered
	Per 100 people	Total (Millions)
UAE	170	16.80
Bahrain	135	2.31
Qatar	131	3.78
Saudi Arabia	77	26.87
Kuwait	56	2.38
Oman	37	1.89

Source: Official data collated by Our World in Data as of July 31,2021.

 

Other recent developments

 

Saudi Arabia

 

On April 4, 2021, Saudi Stock Exchange delisted Samba Financial Group shares on completion of listing the shares that were issued to Samba's eligible shareholders in respect of the merger transaction, confirming that the merger has been concluded.  In October 2020, NCB and Samba entered into a binding merger agreement to form the Kingdom's largest bank with assets of SAR837 billion. The binding agreement comes after both banks signed a framework agreement in June 2020 for a potential merger, with NCB being the merging bank with the new name "Saudi National Bank". NCB paid SAR28.45 for each Samba share as part of the deal, valuing the lender at about SAR55.7 billion. The purchase price reflects a 3.5 per cent premium to Samba's October 8, 2020, closing price of SAR27.50.

 

Saudi Arabia has set up a bank dedicated to small and medium-sized enterprises (SMEs) bringing together all financing solutions under one umbrella enabling SMEs to access appropriate financing while achieving stability and growth.

 

The Saudi Crown Prince revealed that Saudi Arabia is not planning to introduce income tax and described the current 15 per cent VAT as a temporary measure, which could fall to 5-10 per cent within the next five years.

 

Saudi Arabia issued a two-tranche US$5.5 billion bond with maturities of 12 and 40 years (drawing US$22 billion in orders) and pricing of 130bps above 10-year US treasuries and 3.45 per cent, respectively. Additionally, Saudi Arabia became the first GCC country to issue Euro-denominated negative-yielding bonds, selling EUR1 billion of 3 years' maturity bonds at -0.057 per cent and a EUR500 million 9 years bond at 0.646 per cent.

 

Saudi Arabia launched 'Nafes' platform with the aim of boosting private investments in the Kingdom's sports sector. The platform allows domestic and foreign investors to establish and expand sports clubs, academies, and private gyms by issuing licenses.

 

Saudi Arabia is considering building a new airport in Riyadh, to serve as a base for a new airline that the Public Investment Fund (PIF) is looking to launch. With the launch of the airline, the PIF seeks to tap the huge potential of the travel industry as it expects a vast increase in tourist arrivals.

 

UAE

 

Rating agency, Moody's, has affirmed UAE's Aa2 sovereign rating while maintaining a stable outlook supported by the relatively muted impact of the pandemic on the federal government's fiscal strength.

 

The UAE Central Bank has extended the validity of the Targeted Economic Support Scheme (TESS), until mid-2022 from June 30,2021 earlier, to ensure financial and monetary stability.

 

The Crown Prince of Dubai has issued directives to reduce government procedures for doing business by 30 per cent within the next three months. The move is aimed to reduce the cost of conducting business and accelerating the pace of the Emirate's recovery.

 

Qatar     

 

Qatar Petroleum (QP) raised US$12.5 billion in a jumbo four-part bond sale with tranches maturing in 5, 10, 20 and 30 years (drawing US$41 billion in orders). It sold $1.5 billion in a five-year portion at 50 bps over US Treasuries (UST), $3.5 billion in 10-year paper at 90 bps over UST, $3.5 billion in 20-year notes at 3.15 per cent and $4 billion in 30-year Formosa bonds at 3.3 per cent. QP is issuing dollar bonds for the first time in 15 years as it seeks to boost its liquefied natural gas (LNG) output.

 

Kuwait

 

Rating agency Fitch cut Kuwait's outlook from stable to negative, while maintaining the sovereign's rating at AA, due to the expected depletion of the GRF and the absence of a debt law.

 

Bahrain

 

Moody's has cut Bahrain's outlook to negative from stable and maintained its B2 sovereign rating. The change of outlook is due to larger than earlier expected weakening in fiscal metrics.

 

S&P also revised Bahrain's outlook to negative from stable, citing insufficient pace of fiscal reforms to stabilize its finances and external debt. However, the agency affirmed Bahrain's rating at B+.

 

From June, Bahrain has extended its government support program for businesses affected by the pandemic for another three months. The businesses benefiting from this program include cinemas and entertainment venues, gyms, coffee shops, hair salons and kindergarten.

 

Oman

 

The Oman government issued US$1.75 billion 9-year bonds paying 4.875 per cent, after drawing more than US$11.5 billion in demand. The huge demand for the bonds is an encouraging indicator for its ability to fund its budget and avoid debt stress this year.

 

Portfolio structure

 

Country Allocation

 

GIF's weightings in GCC markets are based on the Investment Adviser's assessment of outlook and valuation. Compared to the benchmark, GIF remained overweight Qatar (35.4 per cent of NAV vs. the S&P GCC Qatar weighting of 11.7 per cent), overweight UAE (20.8 per cent vs S&P GCC of 11.7 per cent). GIF is underweight Saudi Arabia (39.9 per cent vs S&P GCC weighting of 63.9 per cent), and Kuwait (2.1 per cent vs S&P GCC of 10.2 per cent).

 

During the H1 2021, the fund's exposure to Qatar increased by 2.1 per cent, while exposure to Kuwait and Saudi Arabia was reduced by 3.1 per cent and 2.1 per cent, respectively as valuations looked stretched. The fund's cash position is now 1.8 per cent as of 30 June 2021 (vs 0.4 per cent as of 31 December 2020).

 

The Fund's overweight position in Qatar is linked to its macroeconomic resilience, future growth prospects and attractive valuations. We believe that valuations are inexpensive considering the North Field Expansion (64 per cent increase in LNG production) and a rise in economic activity due to FIFA World Cup 2022.

 

The Fund continues to be underweight and selective in Saudi Arabia due to its relatively expensive valuations. Following announcements related to the Shareek program, Saudi blue-chip stocks (esp. banks) rallied, which resulted in a sharp move in the broader market. This rally in the markets is primarily driven by positive sentiments and buoyant liquidity. The Saudi broader market is trading at P/E multiple of 36.02x as compared to MSCI EM multiple of 17.07x (as of 30 June 2021).

 

GIF ended the quarter with 31 holdings: 18 in Saudi Arabia, 7 in Qatar, 5 in the UAE, and 1 in Kuwait (vs. 32 holdings in 4Q2020: 15 in Saudi Arabia, 8 in Qatar, 7 in the UAE and 2 in Kuwait).

 

Embedded image removed - please refer to the Company's website www.gulfinvestmentfundplc.com for charts depicting Country allocation.

 

Top 5 holdings

Company	Country	Sector	% share of GIF NAV
Qatar National Bank	Qatar	Financials	6.7%
Emaar Properties Company	UAE	Real Estate	6.6%
Industries Qatar	Qatar	Industrials	6.6%
Commercial Bank of Qatar	Qatar	Financials	6.5%
Al Khaleej Commercial Bank	Qatar	Financials	5.5%

Source: QIC

 

As Covid-19 vaccination programs are gaining momentum globally, the stage is set for a recovery in the second half of the year and into 2022. Phased unlocking of the GCC economies has helped in recovery across sectors and is likely to gain momentum moving forward. The Investment Adviser seeks to identify companies which are likely to benefit from the expected recovery. However, expectations are that markets will remain volatile in the near term, and the Investment Adviser's focus remains on companies with solid balance sheets and stable cash flows, at attractive valuations.

 

Qatar National Bank (QNBK) and Emaar Properties (EMAAR) were GIF's top holdings owing to their strong fundamentals. The Investment Adviser increased exposure to Industries Qatar, while reducing exposure to Qatar Insurance.

 

Sector Allocation

Embedded image removed - please refer to the Company's website www.gulfinvestmentfundplc.com for charts depicting sector allocation.

Source: QIC; as of 30 June 2021

The Investment Adviser increased exposure to the financial sector as valuations became attractive; as a result, financials remained the Fund's largest exposure at 33.5 per cent (up from 31.0% in 4Q2020). The Investment Adviser believes that most GCC banks have strong capital and liquidity buffers to safeguard them from systematic risk. However, lower interest rates along with an expected increase in non-performing loans could impact profitability in the near term. As such, GIF remained underweight the sector.

 

The Investment Adviser also increased exposure to the Materials sector to 12.7 per cent of NAV (vs 5.7 per cent in 4Q 2020) and the Consumer sector to 9.5 per cent of NAV (vs 6.8 per cent in 4Q 2020), while investments in the healthcare sector were all sold.

 

Top holdings:

 

Qatar National Bank (6.7 per cent of NAV)

 

Qatar National Bank (QNBK) is the largest bank in the Middle East and Africa (MEA) region with a presence in 31 countries. The bank is geographically diversified with stable growth (2011-2019 net profit CAGR of 7.5 per cent) and a high return on equity (2019: c.19 per cent), 53 per cent of domestic loan-market share and strong government support (52 per cent controlled by government entities), which supports the case for a strong lending pipeline for the bank in coming years. Focused on public sector and high-end corporate clients, QNB maintains a strong balance sheet backed by comfortable capital and liquidity as well as low asset quality risk, with non-performing loans at one of the lowest levels among large financial institutions in the MEA region (~2.1 per cent).

 

Emaar Properties (6.6 per cent of NAV)

Emaar Properties (EMAAR) is the UAE's largest real estate developer. The Group's business encompasses UAE & International Development, Emaar Malls, Emaar Hospitality, and Entertainment & Leasing. The brand EMAAR has a varied retail asset portfolio, which includes the Burj Khalifa, Dubai Mall, and Dubai Fountain. The reopening of the economy is expected to boost demand for retail operators. Additionally, the recovery in the real estate sector supported by the strong property sales will support topline growth.

 

EMAAR also has a growing presence in international markets such as India, Egypt, KSA, and Turkey. Furthermore, the developer has a strong balance sheet, a strong credit profile, substantial debt coverage, and has generated significant brand loyalty.

 

Industries Qatar (6.6 per cent of NAV)

 

Industries Qatar (IQ) mainly operates in steel, petrochemicals, and fertilizers sectors. The significant uptick in commodity prices along with the growth momentum prompted by the easing of lockdown related restrictions is expected to have positive impact on the company's earning trajectory. In addition, we expect a favorable financial impact on IQ's earnings following the recent acquisition of the remaining 25 per cent stake in its Fertilizer JV "QAFCO" and the extension of feedstock gas arrangements until 2035. Furthermore, IQ may seek similar opportunities, acquiring remaining stakes in other JVs which would give the company more exposure to petrochemicals.

 

Commercial Bank of Qatar (6.5 per cent of NAV)

 

Commercial Bank of Qatar (CBQ) is the second-largest commercial bank in Qatar. As part of its 5-year turnaround strategy, it is strengthening its balance sheet by cautiously managing its risk exposure. Under its diversification strategy, CBQ has expanded its GCC footprint through strategic partnerships with associated banks, which include the National Bank of Oman (NBO) in Oman, United Arab Bank (UAB) in the UAE and its subsidiary Alternatifbank in Turkey.

 

Al Khaleej Commercial Bank (5.5 per cent of NAV)

 

Al Khaleej Commercial bank (KCBK) is a commercial bank headquartered in Doha. Qatari government entities are major shareholders in the bank. KCBK's principal business activities include wholesale banking, treasury services, and personal banking. KCBK and MARK recently approved their merger agreement which will create the largest Islamic Bank in Qatar with combined assets of US$49 billion, as of 2020.

 

GIF Performance

 

YTD NAV rose 19.0% vs. 24.8% increase in S&P GCC. Since the investment mandate widened from Qatari-focused to Gulf-wide in December 2017, NAV has risen 90.3% (dividend included), as against the 66.2% from the S&P GCC total return index. On 30 June 2021, GIF share price was trading at a 5.7 per cent discount to NAV vs. one-year average discount of 8.6 per cent.

 

Embedded image removed - please refer to the Company's website www.gulfinvestmentfundplc.com for charts depicting Gulf Investment Fund performance.

 

Outlook

 

As the vaccination campaign gathers pace the economic recovery is gaining momentum with lowering infection rates and steady uptick in consumer sentiment. All Gulf states are reopening their economies in a phased manner.

 

Against the backdrop of increasing global optimism, we believe that the GCC economies will recover, with rising oil prices helping to restore the fiscal and external positions and boosting confidence. With the oil price is above fiscal breakeven for most GCC countries, it provides the comfort to focus on diversification and spending plans. This, coupled with large capital reserves will help maintain public spending. The IMF expects GCC growth at 2.7 per cent in 2021, and 3.8 per cent in 2022.

 

Investing in the region is not just all about oil. It is about diversification, infrastructure spending, expansion of the non-oil and gas sector, privatization, and economic, social, and capital market reforms. The ongoing socio-economic/structural reforms in Saudi Arabia continue to reveal opportunities for long term investors. The Shareek Programme, which is a part of the Kingdom's SAR27 trillion investment plan, should boost economic growth and strengthen the private sector. In the near term, events such as FIFA World Cup 2022, and large-scale infrastructure projects such as NEOM City, the Red Sea project, and the North Field Gas expansion project should fuel economic prosperity. Over 1.7 million people could visit Qatar during the FIFA tournament from what could be the world's first post-Covid mass audience sporting event. Additionally, the pandemic has opened opportunities to many sectors looking for consolidation to form stronger entities in order to gain market share and improve operational efficiency.

 

This picture is compelling when compared to investment opportunities especially given the recent strong rally in the global equity markets. Additionally, the region offers a dollar-linked superior dividend yield. GCC markets typically outperform global/EM during risk-off periods, after the initial sharp recovery. This flows from their defensive qualities, which include higher local participation, US$-pegged currencies, low betas versus EM, and low correlation.

Valuation:

Market	Market Cap.	PE (x)		PB (x)		Dividend Yield (%)
	US$ billion	2021E	2022E	2021E	2022E	2021E	2022E
Qatar	148	13.97	12.49	1.63	1.53	3.57	4.09
Saudi Arabia	2591	20.23	18.27	2.43	2.28	2.38	2.77
Dubai	83	12.91	10.16	1.00	0.94	3.54	4.22
Abu Dhabi	267	18.57	16.67	1.94	1.89	3.45	3.66
Kuwait	121	21.32	18.29	1.96	1.87	2.39	2.53
S&P GCC	3,045	18.26	16.30	2.07	1.95	4.38	3.15
MSCI EM	24,465	14.54	13.35	1.90	1.72	2.43	2.71
MSCI World	65,353	20.61	18.76	3.05	2.83	1.82	1.95

Source: Bloomberg, as of 1 July 2021; Market Cap. as of 30 June 2021

 

 

 

 

Epicure Managers Qatar Limited                                                              Qatar Insurance Company S.A.Q.

22 September 2021                                                                                      22 September 2021

 

Investment Policy

Investment objective

The Company's investment objective is to capture the opportunities for growth offered by the expanding GCC economies by investing, through its wholly owned subsidiary, in listed companies on one of the GCC exchanges or companies soon to be listed on one of the GCC exchanges.

 

The Company applies a top-down screening process to identify those sectors which should most benefit from sector growth trends. Fundamental industry and company analysis, rather than benchmarking, forms the basis of both stock selection and portfolio construction.

 

Assets or companies in which the Company can invest

The Company invests in listed companies on any GCC Exchanges in addition to companies soon to be listed. The Company may also invest in listed companies, or pre-IPO companies, in other GCC countries. The Company will also be permitted to invest in companies listed on stock markets not located in the GCC which will have a significant economic exposure to and/or derive a significant amount of their revenues from GCC countries.

 

Whether investments will be active or passive investments

In the ordinary course of events, the Company is not an activist investor, although the Investment Adviser will seek to engage with investee company management where appropriate.

 

Holding period for investments

In the normal course of events, the Company expects to be fully invested, although the Company may hold cash reserves pending new IPOs or when it is deemed financially prudent. Although the Company is a long-term financial investor, it will actively manage its portfolio.

 

Spread of investments and maximum exposure limits

The Company will invest in a portfolio of investee companies. The following investment restrictions are in place to ensure a spread of investments and to ensure that there are maximum exposure limits in place (see investment guidelines under Investing Restrictions).

 

Policy in relation to gearing and derivatives

Borrowings will be limited, as at the date on which the borrowings are incurred, to 5% of NAV. Borrowings will include any financing element of a swap. The Company will not make use of hedging mechanisms.

 

The Company may utilise derivative instruments in pursuit of its investment policy subject to:

 

·      such derivative instruments being designed to offer the holder a return linked to the performance of a particular underlying listed equity security;

·      a maximum underlying equity exposure limit of 15 per cent of NAV (calculated at the time of investment); and

·      a policy of entering into derivative instruments with more than one counterparty in relation to an investment, where possible, to minimise counterparty risk.

 

Policy in relation to cross-holdings

Cross-holdings in other listed or unlisted investment funds or ETFs that invest in Qatar or other countries in the GCC region will be limited to 10 per cent. of Net Asset Value at any time (calculated at the time of investment).

 

Investing restrictions

The investing restrictions for the Company are as follows:

 

(i) Foreign ownership restrictions

 

Investments in most GCC listed companies by persons other than citizens of that specific GCC country have an ownership restriction wherein the law precludes persons other than citizens of that specific GCC country from acquiring a certain proportion of a company's issued share capital. It is possible that the Company may have problems acquiring stock if the foreign ownership interest in one or more stocks reaches the allocated upper limit. This may adversely impact the ability of the Company to invest in certain companies listed on the GCC exchanges.

 

(ii) Investment guidelines

 

The Company has established certain investment guidelines. These are as follows (all of which calculated at the time of investment):

·              No single investment position in the S&P GCC Composite constituent may exceed the greater of: (i) 15 per cent. of the Net Asset Value of the Company; or (ii) 125 per cent. of the constituent company's index capitalisation divided by the index capitalisation of the S&P GCC Composite Index, as calculated by Bloomberg (or such other source as the Directors and Investment Manager may agree):

·              No single investment position in a company which is not a S&P GCC Composite Index constituent may at the time of investment exceed 15 per cent. of the NAV of the Company; and

·              No holding may exceed 5 per cent. of the outstanding shares in any one company (including investment in Saudi Arabian listed companies by way of derivative investment in P-Note or Swap structured financial products); and

 

(iii) Conflicts management

 

The Investment Manager, the Investment Adviser, their officers and other personnel are involved in other financial, investment or professional activities, which may on occasion give rise to conflicts of interest with the Company. The Investment Manager will have regard to its obligations under the Investment Management Agreement to act in the best interests of the Company, and the Investment Adviser will have regard to its obligations under the Investment Adviser Agreement to act in the best interests of the Company, so far as is practicable having regard to their obligations to other clients, where potential conflicts of interest arise. The Investment Manager and the Investment Adviser will use all reasonable efforts to ensure that the Company has the opportunity to participate in potential investments that each identifies that fall within the investment objective and strategies of the Company. Other than these restrictions set out above, and the requirement to invest in accordance with its investing policy, there are no other investing restrictions.

 

Returns and distribution policy

 

The Company's primary investment objective is to achieve capital growth. However, the Company has instituted an annual dividend policy to return to shareholders distributions at least equal to reported income for each reporting period. shareholders should note that this cannot be guaranteed and the level of distributions for any period remains a matter to be determined at the discretion of the Board.

 

Life of the Company

 

The Company currently does not have a fixed life but the Board considers it desirable that shareholders should have the opportunity to review the future of the Company at appropriate intervals. Accordingly, at the annual general meeting of the Company in 2023, a resolution will be proposed that the Company continues in existence. More than 50 per cent. of shareholders voting must vote in favour for this resolution to be passed. If the resolution is passed, a similar resolution will be proposed at every third annual general meeting thereafter. If the resolution is not passed, the Directors will be required to formulate proposals to be put to shareholders to reorganise, unitise or reconstruct the Company or for the Company to be wound up.

 

Environmental, social and governance standards

 

The adoption of environmental, social, and governance (ESG) standards and principles by governments and regulators in the GCC will play a role in the sustainable economic recovery of the region. It is the ambition of the Fund's Manager to address investors' concerns about climate change-related risks such as changes in oil demand, rising temperatures, water supply, and the impact of extreme weather on their portfolios.

 

The Board and the Manager believe that integrating these considerations into our Investment Policy is in line with the Fund's aim of delivering long-term capital growth to investors. So, the Manager will be integrating ESG factors into our research and monitoring process wherever possible. 

 

Currently, a challenge facing ESG-concerned GCC investors is the lack of consistent disclosures from corporates on top of the varying regulations and standards in operation globally. The Manager expects that governments in the GCC will seek to improve and standardise disclosures and ESG-related obligations in the coming years. The official multi-year economic and strategic 'visions' in Saudi Arabia, Qatar, Kuwait and the UAE include focus on sustainability, diversification and environmentally friendly practices. 

 

We are already seeing the setting up of national sustainability goals, revamping water security programs, launching diversity initiatives, introducing ESG financial disclosure standards and publishing of ESG guidelines for exchange listings. There has been a shift towards investing in renewable energies, launching green bonds and other green financing initiatives, with a view to facilitating green solutions across a range of sectors.

 

Developments such as these will assist the Manager to integrate ESG considerations into our investment process. The Fund will update investors on progress in this important area in future.

 

Report of the Directors

The Directors hereby submit their annual report together with the audited financial statements of Gulf Investment Fund plc (the "Company") for the year ended 30 June 2021.

 

The Company

The Company is incorporated in the Isle of Man and has been established to invest primarily in quoted equities of Qatar and other Gulf Co-operation Council (GCC) countries. The Company's investment policy is detailed on pages 18 to 20.

 

Results and Dividends

The results of the Company for the year and its financial position at the year- end are set out on pages 44 to 48 of the financial statements.

 

The Directors manage the Company's affairs to achieve capital growth and the Company has instituted an annual dividend policy. The quantum of the dividend is calculated based on a proportion of the dividends received during the year, net of the Company's attributable costs. Any undistributed income will be set aside in a revenue reserve in order to facilitate the Company's policy of future progressive dividend payments. This policy will be subject to the absence of exceptional market events.

 

The Directors recommend a dividend of 3 cents per share in respect of the year ended 30 June 2021. For the year ended 30 June 2020, the Directors declared a dividend of US$1,554,535 (3.0c per share) which was approved by shareholders on 20 November 2020. The dividend was paid on 5 March 2021 to ordinary shareholders on the register as at 5 February 2021 (the "Record Date").

 

Directors

Details of Board members at the date of this report, together with their biographical details, are set out on page 33.

 

Director independence and Directors' and other interests have been detailed in the Directors' Remuneration Report on pages 37 and 38.

 

Creditor payment policy

It is the Company's policy to adhere to the payment terms agreed with individual suppliers and to pay in accordance with its contractual and other legal obligations.

 

Gearing policy

Borrowings will be limited, as at the date on which the borrowings are incurred, to 5% of NAV (or such other limit as may be approved by the shareholders in general meeting). The Company will not make use of any hedging mechanisms.

There were no borrowings during the year (2020: US$ nil).

 

Donations

The Company has not made any political or charitable donations during the year (2020: US$ nil).

 

Adequacy of the Information supplied to the auditors

The Directors who held office at the date of approval of this Directors' Report confirm that, so far as each is aware, there is no relevant audit information of which the Company's auditors are unaware; and each Director has taken all steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

 

Statement of going concern

The Directors are satisfied that the Company has adequate resources to continue to operate as a going concern for the foreseeable future and have prepared the financial statements on that basis, however shareholders will be given the opportunity to vote for a 100% tender in 2021 and participate in bi-annual tenders thereafter. They will also vote for the continued existence of the Company at the annual general meeting (AGM) in 2023 and every third AGM thereafter.

 

Independent Auditors

KPMG Audit LLC has expressed its willingness to continue in office in accordance with Section 12 (2) of the Companies Act 1982.

 

Annual general meeting

The Annual General Meeting of the Company will be held later in the year at the Company's registered office.

 

A copy of the notice of Annual General Meeting is contained within this Annual Report. As well as the business normally conducted at such a meeting, Shareholders will be asked to renew the authority to allow the Company to continue with share buy-backs.

 

The notice of the Annual General Meeting and the Annual Report are also available at www.gulfinvestmentfundplc.com.

 

Corporate governance

Full details are given in the Corporate Governance Report on pages 24 to 32, which forms part of the Report of the Directors.

 

Substantial shareholdings

As at the date of publication of this annual report, the Company had been notified, or the Company is aware of the following significant holdings in its Share Capital.

 

	Ordinary Shares
Name	%
City of London Investment Management Company	39.97
Qatar Insurance Company S.A.Q.	33.42
1607 Capital Partners LLC	16.03
Union Bancaire Privee (Geneva)	2.50
Premier Milton Investors (London)	1.31
Deutsche Bank (Hong Kong)	0.84

 

The above percentages are calculated by applying the shareholdings as notified to the Company or the Company's awareness to the issued Ordinary Share Capital as at 30 June 2021.

 

On behalf of the Board

 

 

 

 

Nicholas Wilson

Chairman

22 September 2021

Millennium House

46 Athol Street

Douglas

Isle of Man

IM1 1JB

 

Corporate Governance Report

Compliance with Companies Acts

As an Isle of Man incorporated company, the Company's primary obligation is to comply with the Isle of Man Companies Acts 1931 to 2004. The Board confirms that the Company is in compliance with the relevant provisions of the Companies Acts.

 

Compliance with the Association of Investment Companies (AIC) Code of Corporate Governance

The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and this statement describes how the Company applies the principles identified in the UK Corporate Governance Code which is available on the Financial Reporting Council's website: www.frc.org.uk. The Board confirms that the Company has complied throughout the accounting period with the relevant provisions contained within the UK Code - via examining compliance against the AIC Code of Corporate Governance.

 

The Board of the Company has considered the principles and provisions AIC Code of Corporate Governance as published in February 2019 (the AIC Code). The AIC Code addresses the principles and provisions set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company. The AIC Code is available on the AIC's website: www.theaic.co.uk.

 

The Board considers that reporting against the principles and recommendations of the AIC Code, which has been endorsed by the FRC, will provide better information to shareholders.

 

The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Corporate Governance Code, except the length of service of Mr. Wilson and as set out below.

 

The UK Corporate Governance Code includes provisions relating to:

• the role of the chief executive

• executive directors' remuneration

• the need for an internal audit function

• Interaction with the workforce

 

For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board considers these provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions, with the exception of portfolio management, risk management and service provider performance management, are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions.

 

Directors

The Directors are responsible for the determination of the Company's investment policy and strategy and have overall responsibility for the Company's activities including the review of the investment activity and performance.

 

All of the Directors are non-executive. The Board considers each of the Directors to be independent of, and free of any material relationship with, the Investment Manager and Investment Adviser.

 

The Board of Directors delegates to the Investment Manager through the Investment Management Agreement the responsibility for the management of the Company's assets in GCC securities in accordance with the company's investment policy and for retaining the services of the Investment Adviser. The Company has no executives or employees.

 

The Articles of Association require that all Directors submit themselves for election by shareholders at the first opportunity following their appointment and shall not remain in office longer than three years since their last election or re-election without submitting themselves for re-election.

 

The Board meets formally at least 4 times a year and between these meetings there is regular contact with the Investment Manager. Other meetings are arranged as necessary. The Board considers that it meets regularly enough to discharge.

 

its duties effectively. The Board ensures that at all times it conducts its business with the interests of all shareholders in mind and in accordance with Directors' duties. Directors receive the relevant briefing papers in advance of Board and Board Committee meetings, so that should they be unable to attend a meeting they are able to provide their comments to the Chairman of the Board or Committee as appropriate. The Board meeting papers are the key source of regular information for the Board, the contents of which are determined by the Board and contain sufficient information on the financial condition of the Company. Key representatives of the Investment Manager attend each Board meeting. All Board and Board Committee meetings are formally minuted.

 

Board composition and succession plan

 

Objectives of Plan

 

·      To ensure that the Board is composed of persons who collectively are fit and proper to direct the Company's business with prudence, integrity and professional skills.

 

·      To define the Board Composition and Succession Policy, which guides the size, shape and constitution of the Board and the identification of suitable candidates for appointment to the Board.

 

Methodology

The Board is conscious of the need to ensure that proper processes are in place to deal with succession issues and the Nomination Committee assists the Board in the Board selection process, which involves the use of a Board skills matrix.

 

The matrix incorporates the following elements: finance, accounting and operations; familiarity with the regions into which the Company invests; diversity (gender, residency, cultural background); Shareholder perspectives; investment management; multijurisdictional compliance and risk management. In adopting the matrix, the Nomination Committee acknowledges that it is an iterative document and will be reviewed and revised periodically to meet the Company's on-going needs.

 

The Nomination Committee monitors the composition of the Board and makes recommendations to the Board about appointments to the Board and its Committees.

 

Directors may be appointed by the Board, in which case they are required to seek election at the first AGM following their appointment and triennially thereafter. Directors who are not regarded as independent are required to seek re-election annually. In making an appointment the Board shall have regard to the Board skills matrix.

 

A Director's formal letter of appointment sets out, amongst other things, the following requirements:

 

·      bringing independent judgment to bear on issues of strategy, performance, resources, key appointments and standards of conduct and the importance of remaining free from any business or other relationship that could materially interfere with independent judgement;

 

·      having an understanding of the Company's affairs and its position in the industry in which it operates;

 

·      keeping abreast of and complying with the legislative and broader responsibilities of a Director of a company whose shares are traded on the London Stock Exchange;

 

·      allocating sufficient time to meet the requirements of the role, including preparation for Board meetings; and

 

·      disclosing to the Board as soon as possible any potential conflicts of interest.

 

The Board authorises the Nomination Committee to:

 

·      recommend to the Board, from time to time, changes that the Committee believes to be desirable to the size and composition of the Board;

 

·      recommend individuals for nomination as members of the Board;

 

·      review and recommend the process for the election of the Chairman of the Board, when appropriate; and

 

·      review on an on-going basis succession planning for the Chairman of the Board and make recommendations to the Board as appropriate.

 

The Plan will be reviewed by the Board annually and at such other times as circumstances may require (e.g. a major corporate development or an unexpected resignation from the Board). The Plan may be amended or varied in relation to individual circumstances at the Board's discretion.

 

Board Committees

The Board has established the following committees to oversee important issues of policy and maintain oversight outside the main Board meetings:

 

·      Audit Committee

·      Remuneration Committee

·      Nomination Committee

·      Management Engagement Committee

 

Throughout the year the Chairman of each committee provided the Board with a summary of the key issues considered at the meeting of the committees and the minutes of the meetings were circulated to the Board.

 

The committees operate within defined terms of reference. They are authorised to engage the services of external advisers as they deem necessary in the furtherance of their duties, at the Company's expense.

 

Audit Committee

The Board has established an Audit Committee made up of at least two members and comprises, Nicholas Wilson, Neil Benedict and David Humbles. The Audit Committee is responsible for, inter alia, ensuring that the financial performance of the Company is properly reported on and monitored. The Audit Committee is chaired by David Humbles. The Audit Committee normally meets at least twice a year when the Company's interim and final reports to shareholders are to be considered by the Board but meetings can be held more frequently if the Audit Committee members deem it necessary or if requested by the Company's auditors. The Audit Committee will, amongst other things, review the annual and interim accounts, results announcements, internal control systems and procedures, preparing a note in respect of related party transactions and reviewing any declarations of interest notified to the Committee by the Board each on six monthly basis, review and make recommendations on the appointment, resignation or dismissal of the Company's auditors and accounting policies of the Company. The Company's auditors are advised of the timing of the meetings to consider the annual and interim accounts and the auditors shall be asked to attend the Audit Committee meeting where the annual audited accounts are to be considered. The Audit Committee Chairman shall report formally to the Board on its proceedings after each meeting and compile a report to shareholders on its activities to be included in the Company's annual report. At least once a year, the Audit Committee will review its performance, constitution and terms of reference to ensure that it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval.

 

The terms of reference for the Audit Committee are available on the Company's website www.gulfinvestmentfundplc.com.

 

Significant Issues

During its review of the Company's financial statements for the year ended 30 June 2021, the Audit Committee considered the following significant issue as communicated by the auditor during their reporting:

 

Valuation and existence of investment in subsidiary

The valuation of the investment in subsidiary, including valuation and existence of the portfolio of investments held by the subsidiary, is undertaken in accordance with the accounting policies, disclosed in Notes 1(a) and 1(b) to the financial statements. All underlying investments are considered liquid and priced based on quoted prices in active markets and have been categorised as Level 1 or level 2 within the IFRS 13 fair value hierarchy. The underlying portfolio is reviewed and verified by the Manager on a regular basis and management accounts including a full portfolio listing are prepared each month and circulated to the Board. An independent custodian, HSBC Bank Middle East Limited, are used to hold the assets of the underlying investment portfolio. The underlying investment portfolio is reconciled regularly by the Manager and a reconciliation is also reviewed by the Auditor.

 

Remuneration Committee

The Company has established a Remuneration Committee. The Remuneration Committee is made up of at least two non-executive Directors who are identified by the Board as being independent. Its members are Neil Benedict (Chairman), Nicholas Wilson, and David Humbles. The Remuneration Committee normally meets at least once a year and at such other times as the Chairman of the Remuneration Committee shall require. The Remuneration Committee reviews the performance of the Directors and sets the scale and structure of their remuneration and the basis of their letters of appointment with due regard to the interests of shareholders. In determining the remuneration of Directors, the Remuneration Committee seeks to enable the Company to attract and retain Directors of the highest calibre. No Director is permitted to participate in any discussion of decisions concerning their own remuneration. The Remuneration Committee reviews at least once a year its own performance, constitutions and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval.

 

The terms of reference for the Remuneration Committee are available on the Company's website www.gulfinvestmentfundplc.com.

 

Nomination Committee

The Company has established a Nomination Committee which shall be made up of at least two members and which shall comprise all independent non-executive Directors. The Nomination Committee comprises Nicholas Wilson (Chairman), Neil Benedict, and David Humbles. The Nomination Committee meets at least once a year prior to the first quarterly Board meeting and at such other times as the Chairman of the committee shall require. The Nomination Committee is responsible for ensuring that the Board members have the range of skills and qualities to meet its principal responsibilities in a way which ensures that the interests of shareholders are protected and promoted and regularly review the structure, size and composition of the Board. The Nomination Committee shall, at least once a year, review its own performance, constitution and terms of reference to ensure that it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval.

The Nomination Committee will assess potential candidates on merit against a range of criteria including experience, knowledge, professional skills and personal qualities as well as independence, if this is required for the role.

 

Candidates' ability to commit sufficient time to the business of the Company is also key, particularly in respect of the appointment of the Chairman. The Chairman of the Nomination Committee is primarily responsible for interviewing suitable candidates and a recommendation will be made to the Board for final approval.

 

Management Engagement Committee

The Company has established a Management Engagement Committee which is made up of at least two members who are independent non-executive Directors. The Management Engagement Committee members are Neil Benedict (Chairman), Nicholas Wilson and David Humbles. The Management Engagement Committee will meet at least quarterly and is responsible for reviewing the performance of the Investment Manager and other service providers, to ensure that the Company's management contract is competitive and reasonable for the shareholders and to review and make recommendations to the Board on any proposed amendment to or material breach of the management contract and contracts with other service providers.

 

Board Attendance

The number of formal meetings during the year of the Board, and its Committees, and the attendance of the individual Directors at those meetings, is shown in the following table:

 

	Board	Audit Committee	Remuneration Committee	Nomination Committee	Management Engagement Committee
Total number of meetings in year	6(6)	6(6)	2(2)	2(2)	4(4)
	Meetings Attended (entitled to attend)
Nicholas Wilson (Chairman and Chairman of Nomination Committee)	6 (6)	6 (6)	2 (2)	2 (2)	4 (4)
Neil Benedict (Chairman of Remuneration Committee and Chairman of Management Engagement Committee)	6 (6)	6 (6)	2 (2)	2 (2)	4 (4)
David Humbles (chairman of Audit Committee from 20 November 2020)	6 (6)	6 (6)	2 (2)	2 (2)	4 (4)
Paul Macdonald* (Chairman of Audit Committee - resigned 20 November 2020)	3 (6)	3 (6)	0 (2)	1 (2)	2 (4)

 

The Annual General Meeting was held on 8 November 2019.

 

Internal Control

The Board is responsible for the Company's system of internal control and for reviewing its effectiveness. Its review takes place at least once a year. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board also determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives.