Structure

The Al-Kharafi family is one of Kuwait’s principal merchant dynasties. The modern MA Al-Kharafi (Mak) group of companies was founded five decades ago by Mohammed Abdulmohsin al-Kharafi, who also involved in the creation of National Bank of Kuwait (NBK) in 1952.

The family plays a major role in the country’s public life. Jassem, the older brother of group chairman Nasser, is the speaker of the National Assembly, while his sister Faiza, a professor of chemistry, was president of Kuwait University from 1993 to 2002. The net worth of group chairman Nasser Mohammed al-Kharafi – rated by Forbes as the world’s 48th richest man – is estimated at $12-14bn, subject to fluctuations in the value of key stock holdings in telecoms operator Zain, NBK and the Americana foods group, all Kuwaiti.

Civil engineering has always been at the heart of Mak’s activity, and remains so today.

The group has also diversified into food production and processing, printing and aviation. Although hotel and tourism real estate development is the backbone of the group’s geographical diversification out of Kuwait into the Middle East and Africa (Mena) region, Mak is also involved in the manufacture of products as diverse as cakes, car brakes and extruded aluminium in Egypt and Saudi Arabia, where it also owns the kingdom’s largest meat processing company. In Iraq, Mak holds interests in telecoms and finance through the family’s 30 per cent stake in Atheer Telecom, which owns a mobile licence for Southern Iraq.

The main MA Al-Kharafi & Sons holding company is almost entirely in family hands. Stakes of 15.91 per cent each are held by Mohannad Mohammed Abdulmohsin al-Kharafi, group chairman Nasser Mohammed, chief executive officer Fawzi Mohammed and parliamentary speaker Jassem Mohammed. Sahar Mohammed, Suad Mohammed and Faiza Mohammed hold 7.95 per cent each. A fellow Kuwaiti, Nada Hassan Khalid al-Naqib, holds the remaining 12.5 per cent or so.

The group has a wide range of affiliated companies, including construction materials and engineering firm Kharafi National, which was set up in 1976 and is now active in infrastructure development and the managing of utility and industrial installations, particularly in the Middle East. With 25,000 personnel and a turnover of close to $1bn, it accounts for about one-quarter of the group’s workforce and earnings.

Another key arm of the group is Kuwait Food Company, which operates under the brand name Americana. Holding franchises for the likes of Baskin Robbins ice cream, Kentucky Fried Chicken and Pizza Hut, and distributing products such as Heinz ketchup and Cadbury’s chocolate through outlets in 11 countries, it is one of the largest food-sector businesses in the Middle East. It is headed by Nasser al-Kharafi’s son Marzouk. Two other sons, Badr and Faisal, hold senior positions in other group companies.

The newest major offshoot of the Al-Kharafi group set up in June 2008 is Sovereign Hospitality Holdings, created as a vehicle for the group’s fast-growing interests in the hotel industry, tourism and leisure-related real estate (see panel opposite).

Company snapshot

Date established 1956
Main business sectors Construction, tourism real estate, food and food processing
Main business regions Middle East, Africa, Europe, Asia
Business value Estimated at $4.3bn
Chief executive officer Fawzi Mohammed al-Kharafi

Strategy

A notable feature of Mak’s strategy is the way the group has remained loyal to core activities such as build-own-transfer infrastructure projects in the Middle East, while balancing these with investment in a strikingly diverse range of frontier and emerging economies. In the drive to spread its risk exposure, the group has not been afraid to move into some unusual business areas in challenging markets – the English Premier League, should it eventually buy Newcastle FC or another British club, would be a striking example.

Mak has a growing business portfolio in West Africa, including hotel and construction interests, and a vegetable export business in Gambia. It is a partner with Intercontinental Hotels Group in the development of a hotel in Dakar, Senegal. Other interests extend to the Caribbean, Kenya, Lesotho, the Maldives, Tanzania, Tunisia, the UAE and Bulgaria.

The group’s active business interests are complemented by a range of major portfolio investments. With a 9.59 per cent stake, Mak is the second-largest shareholder in mobile telecoms giant Zain, behind the Kuwait Investment Authority.

In 2006, Mak acquired a 6.7 per cent stake in US doughnut manufacturer Krispy Kreme.

But at home in Kuwait, equity investment can sometimes be controversial. In 2006, the Kuwait Stock Exchange suspended the voting rights of Al-Kharafi companies and family members after the group was alleged to have failed to comply with disclosure laws in staging a hostile takeover of Al-Mal Investment. However, the family and Mak challenged the exchange’s decision in the courts. Their appeal was upheld and in June 2007, the exchange lifted the ban on their trading activities. Loay Jasim al-Kharafi is now chairman at Al-Mal.

MEED assessment

This ever-ambitious but resolutely private Kuwaiti family empire has expanded into a diverse range of emerging and frontier markets, and moved far beyond its roots in construction to take stakes in telecoms, the food industry and even computer assembly.

This strategy should serve it well during the economic downturn, and the result of a conscious strategy to diversify beyond its construction origins. Indeed, such sectoral diversity could provide Mak with a hedge against the uncertainty now affecting the Middle East property market, and as a privately owned entity, the group is at least partially shielded from the weakness of bourse-listed share values.

With the November speculation that Al-Kharafi may bid for Newcastle United FC, the privacy that the family has to date guarded so assiduously may be compromised by growing interest in the family’s wealth and business affairs.

MA Al-Kharafi & Sons in numbers

  • $1bn: Turnover of subsidiary Kharafi National, which is 25 per cent of the group’s earnings

  • 30 per cent: Stake the Al-Kharafi group holds in Iraqi mobile telecoms operator Atheer Telecom

  • $800m: Initial capitalisation of subsidiary Sovereign Hospitality Holdings

Sovereign Hospitality Holdings

The creation of Sovereign Hospitality Holdings is an indicator of how important MA Al-Kharafi & Sons expects the tourism and real estate sector to be in the longer term, acting as a counterweight to its established strengths in construction, infrastructure and food.

Initially, Sovereign was endowed with assets valued at $800m, including 21 hotels and resorts, with 4,000 rooms in total, in Egypt, South Africa, Gambia, Syria, Lebanon and Albania.

“Our objective, with the support of the Kharafi Group, is to expand through strategic acquisitions in Singapore and worldwide,” Mohammed Fahmy, chief executive officer of Sovereign, said after the launch of his company in June 2008. “We have a successful track record and a long-term approach to foster strategic relationships with partners to deliver solid returns through high-yield opportunities in emerging and established markets.”

This approach is exemplified by major ventures. On the Red Sea coast, Mak joined South African leisure group Sun International to build the Port Ghalib resort, completed in January 2008, and worked with France’s Aeroport de Paris to develop an airport at Marsa Alam, which opened in December 2001, under a 40-year build-operate-transfer concession to service the region.

Mak owns a Four Seasons hotel in Lebanon, traditionally a popular summer destination for Kuwaitis and other Gulf Arabs. And in May 2008, it signed a management agreement with the Global Hyatt Corporation, which will run a hotel at the centre of the group’s new golf and seaside resort at Oubaai, South Africa.

But these partnerships in established major tourism regions are paralleled by others in less mainstream destinations, where Gulf investment is less common and may sometimes play a pioneering role. Mak signed an agreement with Intercontinental Hotels Group in May 2008 for the construction of a 370-room hotel, office and shopping complex in Damascus. “There is great investment potential throughout Syria,” says Fahmy.

In Libya, the group is collaborating with Holiday Inn, an IHG subsidiary, to develop a $130m, 252-room hotel in Tripoli, and 100 serviced villas and apartments.

The tourist sector is a vital support to the Kharafi group’s drive for geographical diversification. It offers one of the main routes to expansion beyond Mak’s small home market.

The decision to expand into tourism – a sector described by Fahmy as “fantastic”, with high growth rates and the potential to generate a lot of revenue – effectively necessitated investment abroad, because Kuwait itself is not a large-volume leisure destination.

“Since Kuwait is a small market, the only way to develop the group was to go international and take risks,” said Nasser al-Kharafi when he accepted an honorary degree from the American University of Beirut in 2006. “First we ventured into other Gulf countries – Saudi Arabia, the UAE – then on to Egypt and South Africa.”

Geographical exposure in the tourist sector is split by the location of the tourism projects and the consumer markets for which they cater. Senegal and Gambia, for example, attract few Arab visitors but are established as winter sunshine destinations for Western Europeans.

While the tourist sector can suffer cyclical rises and falls, it has proven to be relatively resilient and able to generate sustained flows of revenue even during more troubled economic times.

Moreover, the Tripoli and Damascus ventures will depend substantially on business and official visitors for their income. They will be far from reliant on Western or Arab leisure consumer spending power.

The creation of Sovereign Hospitality Holdings is an indicator of how important MA Al-Kharafi & Sons expects the tourism and real estate sector to be in the longer term, acting as a counterweight to its established strengths in construction, infrastructure and food.

Initially, Sovereign was endowed with assets valued at $800m, including 21 hotels and resorts, with 4,000 rooms in total, in Egypt, South Africa, Gambia, Syria, Lebanon and Albania.

“Our objective, with the support of the Kharafi Group, is to expand through strategic acquisitions in Singapore and worldwide,” Mohammed Fahmy, chief executive officer of Sovereign, said after the launch of his company in June 2008. “We have a successful track record and a long-term approach to foster strategic relationships with partners to deliver solid returns through high-yield opportunities in emerging and established markets.”

This approach is exemplified by major ventures. On the Red Sea coast, Mak joined South African leisure group Sun International to build the Port Ghalib resort, completed in January 2008, and worked with France’s Aeroport de Paris to develop an airport at Marsa Alam, which opened in December 2001, under a 40-year build-operate-transfer concession to service the region.

Mak owns a Four Seasons hotel in Lebanon, traditionally a popular summer destination for Kuwaitis and other Gulf Arabs. And in May 2008, it signed a management agreement with the Global Hyatt Corporation, which will run a hotel at the centre of the group’s new golf and seaside resort at Oubaai, South Africa.

But these partnerships in established major tourism regions are paralleled by others in less mainstream destinations, where Gulf investment is less common and may sometimes play a pioneering role. Mak signed an agreement with Intercontinental Hotels Group in May 2008 for the construction of a 370-room hotel, office and shopping complex in Damascus. “There is great investment potential throughout Syria,” says Fahmy.

In Libya, the group is collaborating with Holiday Inn, an IHG subsidiary, to develop a $130m, 252-room hotel in Tripoli, and 100 serviced villas and apartments.

The tourist sector is a vital support to the Kharafi group’s drive for geographical diversification. It offers one of the main routes to expansion beyond Mak’s small home market.

The decision to expand into tourism – a sector described by Fahmy as “fantastic”, with high growth rates and the potential to generate a lot of revenue – effectively necessitated investment abroad, because Kuwait itself is not a large-volume leisure destination.

“Since Kuwait is a small market, the only way to develop the group was to go international and take risks,” said Nasser al-Kharafi when he accepted an honorary degree from the American University of Beirut in 2006. “First we ventured into other Gulf countries – Saudi Arabia, the UAE – then on to Egypt and South Africa.”

Geographical exposure in the tourist sector is split by the location of the tourism projects and the consumer markets for which they cater. Senegal and Gambia, for example, attract few Arab visitors but are established as winter sunshine destinations for Western Europeans.

While the tourist sector can suffer cyclical rises and falls, it has proven to be relatively resilient and able to generate sustained flows of revenue even during more troubled economic times.

Moreover, the Tripoli and Damascus ventures will depend substantially on business and official visitors for their income. They will be far from reliant on Western or Arab leisure consumer spending power.