VZCZCXRO6510
RR RUEHDE RUEHDH RUEHDIR
DE RUEHKU #0452/01 1251344
ZNR UUUUU ZZH
R 051344Z MAY 09
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC 3292
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHBJ/AMEMBASSY BEIJING 0498

UNCLAS SECTION 01 OF 03 KUWAIT 000452 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ARP, EEB/IFD/OMA, EEB/EPPD 
TREASURY FOR INTERNATIONAL AFFAIRS 
BEIJING FOR ECON 
 
E.O. 12958: N/A 
TAGS: EINV ETRD ECON KU
SUBJECT: KUWAIT: LAYING FOUNDATIONS FOR THE NEW SILK ROAD? 
 
REF: KUWAIT 302 
KUWAIT 57 
 
¶1. (SBU) Summary: The global financial crisis notwithstanding, 
Kuwaiti business and political leaders are seeking to strengthen 
commercial ties between Asia and Kuwait.  From agriculture to 
banking and from energy to real estate, Kuwait's deep-rooted and 
globalist mercantile establishment appears to be reorienting back to 
the east: 
 
--A new $300 million fund, backed by the GOK's sovereign wealth 
fund, is spearheading private and public investments in China, India 
and other Asian countries. 
 
--Kuwait, like other GCC nations, is eyeing Southeast and South Asia 
for investments in the agriculture sector, driven by rising concerns 
over food security. 
 
--Kuwait and China are attempting to boost cooperation in the 
petroleum sector, building on China's rising demand for Gulf 
energy. 
 
--Kuwait's $200 billion sovereign wealth fund is reportedly shifting 
at least some of its focus to the east. 
 
--Kuwait's $40 billion Islamic bank, Kuwait Finance House -- already 
a major player in the Turkish market -- has entered the Malaysian 
market with gusto and is making impressive inroads in that country's 
competitive retail banking sector. 
 
End Summary. 
 
ESTABLISHED ENTREPOT 
-------------------- 
 
¶2. (U) As a trading entrepot, Kuwait has traditionally thrived as a 
bridge between east and west.  Its oil is largely exported to Asia 
and its merchants have had longstanding ties with Asia, particularly 
the Indian subcontinent.  However, in recent decades, Kuwait's 
financial investments have been largely oriented to the west. 
 
¶3. (SBU) Today, the U.S. and Kuwait enjoy an exceptionally strong 
partnership.  Nevertheless, doing business in Kuwait has never been 
plain sailing for American businesses; U.S. firms are largely 
uncompetitive when considered solely on the basis of price.  A 
potential shifting of political and commercial focus to the Orient 
will likely benefit Asian firms at the expense of those from the 
West.  This cable presents an initial look at the growing ties 
between Kuwait and rising Asian powers. 
 
KUWAIT CHINA INVESTMENT COMPANY 
------------------------------- 
 
¶4. (SBU) Kuwait China Investment Company (KCIC) is the principal 
Kuwaiti private sector investment company focused on investments in 
Asia.  According to the firm's Princeton-educated chief executive, 
Ahmad Al-Hamad, the firm was established by Amiri decree in 2005, 
following then Prime Minister (now Amir) Shaykh Sabah Al-Sabah's 
visit to China that year.  At inception, the company had paid-in 
capital of approximately $280 million, $137 million raised in an 
over-subscribed initial public offering (IPO) -- the company has 
approximately 100,000 shareholders -- and the remainder coming from 
high profile investors such as the Kuwait Investment Authority 
(KIA), Kuwait's sovereign wealth fund, Alghanim Industries and 
National Investments Co.  KIA owns approximately 15% of KCIC, while 
NIC is the largest single shareholder, with 19%.  Alghanim 
Industries' Chairman, Kutayba Alghanim -- one of the most prominent 
Kuwaiti "merchant family" patriarchs -- is Chairman of the Board of 
KCIC. 
 
¶5. (SBU) KCIC has paid-in capital of approximately $300 million and, 
through its own funds and ownership of other asset management 
companies, manages a further $300 million, according to Al-Hamad. 
While the firm is currently invested in multiple sectors through its 
exposure to private equity funds in Asia, its core publicly traded 
holdings in Asian bourses are in the infrastructure, financial 
services and consumer sectors.  Al-Hamad says KCIC's goal is to 
launch multi-sectoral public equity and private equity funds in the 
near future which focus on the "internal consumption play" in both 
India and China. 
 
¶6. (SBU) KCIC's chief economist (a former senior economist at the 
World Bank in Washington, DC) explained that KCIC believes that 
China and other Asian economies, while hurt by the current financial 
crisis, are poised to emerge relatively stronger economically from 
 
KUWAIT 00000452  002 OF 003 
 
 
the crisis (i.e., in relation to the U.S. and the E.U.)  Rising 
domestic demand in China -- partly driven by Beijing's $585 billion 
stimulus package and rapidly growing government expenditure, as well 
as structural reforms -- will result in investment opportunities in 
infrastructure, food production, renewable energy, education and 
health, KCIC asserts.  In addition to China and India, KCIC sees 
opportunities in Korea, Thailand, Sri Lanka, Malaysia, Indonesia, 
Vietnam and the Philippines. 
 
FOOD SECURITY 
------------- 
 
¶7. (U) KCIC's management also believes that investment opportunities 
for GCC countries exist in the agricultural sector in Asia.  Indeed, 
as explained by the firm's chief economist, rising and volatile food 
prices, combined with the uncertainties of climate change, present a 
food security problem for countries like Kuwait with almost no 
arable land. 
 
¶8. (U) During his visit to Southeast Asia in mid-2008, Kuwaiti Prime 
Minister Shaykh Nasser Al-Sabah announced a $546 million loan to 
Cambodia for infrastructure expenditures; in return, according to 
the Economist, Kuwait may be granted a 99-year lease on 124,000 
acres of farmland.  During the same trip, the Prime Minister 
discussed cooperation in the agricultural sector with his Laotian 
counterpart.  (Note: in April 2008, Qatar invested approximately 
$200 million in farmland in Cambodia, according to Reuters.  End 
note).  KCIC's economist said that KSA, Qatar and the UAE are all 
planning investments in farmland in Pakistan and Thailand. 
 
ENERGY COOPERATION 
------------------ 
 
¶9. (SBU) The mounting energy needs of Asia, and in particular China, 
are yielding stronger ties between GCC nations and the Orient.  Over 
70% of Kuwait's oil exports go to Asia (with roughly 20% going to 
Japan).  Approximately 40% of China's oil imports now come from the 
Gulf region (including Iran).  Kuwait's stated plans are to increase 
oil exports to China to around 500,000 barrels per day by 2015. 
 
¶10. (U) Kuwait's energy relationship with China is not only confined 
to oil exports.  Kuwait Petroleum Corporation (KPC) and its 
subsidiaries Kuwait Foreign Petroleum Exploration Company (KUFPEC), 
Kuwait Petroleum International (KPI) and Petrochemical Industries 
Company (PIC) have embarked on several multi-billion projects in 
both upstream and downstream activities. 
 
¶11. (U) KUFPEC is a 15% owner of the Yacheng Operating Company -- 
the majority owner is China National Offshore Oil Corporation 
(CNOOC) -- which operates the Yacheng gas field in the South China 
Sea between Hainan Island and Vietnam.  Production commenced in 1996 
and the gas field's performance has made the China division of 
KUFPEC the company's most profitable operating unit.  Daily gas 
production in recent years has averaged approximately 286 million 
standard cubic feet per day. 
 
¶12. (U) KUFPEC, which was founded in 1981 and initially focused on 
investments in the Middle East, also has interests in oil and gas 
fields in other parts of Asia including Australia, Indonesia, 
Malaysia, Pakistan and the Philippines. 
 
¶13. (SBU) In 2005, KPC entered into a multi-billion joint venture 
with state-owned refining giant China Petroleum & Chemical Corp 
(Sinopec) to build a 240,000 barrel per day refinery and 1,000,000 
tons per year ethylene cracker near Nansha in the southern province 
of Guangdong.  Originally budgeted at $5 billion, the project's 
costs are now estimated at close to $9 billion, according to Kuwaiti 
media reports.  The project is one of the largest foreign investment 
programs approved by the Chinese Government in recent years. 
However, there are apparently environmental "roadblocks" on the 
project and it has stalled.  Kuwait's Acting Oil Minister recently 
visited China, partially in an effort to resolve the issue. 
 
¶14. (U) On April 1, the GOK announced that Sinopec had signed a 
separate deal with Kuwait Oil Company (a KPC subsidiary), worth $402 
million, to build five oil rigs in Kuwait over five years. 
 
¶15. (SBU) East Asian construction firms, particularly from Japan and 
South Korea, have a long track record of working on projects in the 
oil and infrastructure sectors in Kuwait.  However, Asian firms' 
successes in landing contracts for the $15 billion Al-Zour "Fourth 
Refinery" project were voided when the GOK announced the 
cancellation of the project tender in March, 18 years after the 
project was first announced (ref A).  (Note: Likely echoing a 
sentiment felt by many at Dow Chemical Co. in December (ref B), the 
 
KUWAIT 00000452  003 OF 003 
 
 
Korea Times carried this headline March 20 announcing the 
cancellation of the Fourth Refinery: "Kuwait Hangs Korean Builders 
Out to Dry."  End note).  The Japanese Ambassador recently told 
econoff that he had difficulty encouraging Japanese companies to be 
more active in Kuwait, given the difficult business climate in 
Kuwait. 
 
SWF LOOKS EASTWARD 
------------------ 
 
¶16. (U) In July 2008, officials at Kuwait's sovereign wealth fund, 
the Kuwait Investment Authority (KIA) -- with holdings estimated at 
approximately $200 billion -- stated that the fund was exploring 
investment opportunities in Asia, partly driven by the deteriorating 
economic situation in the U.S. and Europe.  This eastward turn came 
in the wake of KIA's $720 million participation in the $19 billion 
record-breaking initial public officering of the Industrial and 
Commercial Bank of China, now the world's largest bank. 
 
¶17. (SBU) A senior KIA official told econoff that KIA is very 
bullish on Asia as it is the only region in the world where the KIA 
foresees sustained double-digit growth.  He stressed, however, KIA's 
continued interest in U.S. and European investments, noting that KIA 
has recently re-entered the U.S. real estate market (largely via 
Real Estate Investment Trusts or REITs). 
 
Islamic Banking 
--------------- 
 
¶18. (U) Kuwait Finance House's (KFH) international expansion has 
resulted in Kuwait becoming a major player in the banking sectors of 
two fast-growing Asian economies, Malaysia and Turkey. 
Sharia-compliant KFH is the second largest bank in Kuwait with total 
assets of approximately $40 billion, behind market leader National 
Bank of Kuwait (with assets of $43 billion).  The bank is now the 
second largest Islamic bank in the Gulf, narrowly trailing its 
slightly larger Saudi competitor, Al Rajhi Bank. 
 
¶19. (U) KFH is the majority shareholder of Kuveyt Turk, one of 
Turkey's leading "participation" banks.  KFH set up its Turkish 
subsidiary 20 years ago and the bank finances and promotes trade 
between the Gulf and Turkey.  On the other side of Asia, KFH is the 
majority shareholder of Kuwait Finance House (Malaysia) Berhad 
(KFHMB), a rapidly rising Islamic banking practice in Malaysia, 
established in 2005.  The bank also acts as an intermediary and 
facilitator of two-way investment between Kuwait and Malaysia. 
 
Comment 
------- 
 
¶20. (SBU) Cash-rich Kuwait's 20-year old infatuation with 
"conservative" investments in the U.S. and Europe may be coming to 
an end.  As the KIA and business owners take heed of China and 
India's growth - including accelerating domestic demand -- they are 
likely to diversify their portfolios increasingly towards Asia. 
With domestic demand poised to accelerate in China and other Asian 
countries, Kuwaiti investors will be tempted to divert holdings 
eastwards.  This is not to say that Kuwaitis will cease to be active 
players in the U.S. markets.  Rather, they will join some of their 
GCC brethren in increasing their portfolios in the Orient.  With 
respect to energy, Chinese oil services companies will try to become 
bigger players in the Kuwait market as Beijing seeks to consolidate 
ties with a region that provides much of its energy needs.  Lower 
costs and a growing reputation for quality will make Chinese oil 
services companies more competitive.  Kuwaiti wariness of foreign 
investment in the upstream oil sector will likely prove as 
frustrating to the Chinese as to American companies.  Nevertheless, 
financial, trading and energy ties between Asia, Kuwait and other 
Gulf states all point to the reemergence of a "new silk road," 
albeit one in its early stages.  End Comment. 
 
 
JONES 
[j1]Source of this one.  The old data I could find suggests that 
Iran would be a big source as is Angola