Kyndryl completed its spin-off from International Business Machines and has started trading as an independent company on the New York Stock Exchange under the ticker symbol KD.
The New York-based company – the managed infrastructure services division of IBM’s global technology services unit – became an independent, publicly traded company by ringing the opening bell at the US exchange on Thursday.
Last year, IBM said it would spin off Kyndryl, and its board of directors approved the deal last month. The new company has about 90,000 employees.
We look forward to the path ahead, with a flatter and faster company that is at the heart of progress for our customers and for the world
Martin Schroeter, Kyndryl's chairman and chief executive
“We are thrilled that Kyndryl is today an independent company … with 90,000 of the best and brightest professionals, a strong balance sheet and a path to growth”, said Martin Schroeter, Kyndryl's chairman and chief executive.
Shareholders do not need to take any action to receive shares of Kyndryl common stock, which they are entitled to as IBM stockholders, the company said.
Nearly 80.1 per cent of Kyndryl shares were distributed to the shareholders of IBM, who received one Kyndryl share for every five IBM shares owned.
IBM has temporarily retained a 19.9 per cent equity stake in Kyndryl following this distribution. It aims to exchange those shares for IBM debt during the 12-month period following the distribution, subject to market considerations, the company said.
“There is a large and growing need for digital transformation services … our expertise in creating, managing and modernising mission-critical information systems positions us well in a market that will expand to more than $500 billion by 2024,” Mr Schroeter said.
“We look forward to the path ahead, with a flatter and faster company that is at the heart of progress for our customers and for the world.”
IBM reported a 33.5 per cent dip in third-quarter net profit to $1.1bn on October 21, as the company posted flat sales growth in the three months to September 30.
Sales at the global technology services unit, which included Kyndryl before the spin-off, dropped about 5 per cent to $6.2bn in the July-September period.
IBM earned revenue of $17.6 billion in the third quarter. Bloomberg
Industry analysts said that IBM separated its slower-growth business so it could focus on the boom in demand for cloud services and compete better with Amazon and Microsoft.
This spin-off is a “milestone for IBM, its employees and its shareholders as we enter a new era of growth”, IBM’s chairman and chief executive Arvind Krishna said last month.
“The separation of Kyndryl is a significant step in the continued evolution of IBM, a company now squarely focused on delivering powerful hybrid cloud and AI [artificial intelligence] solutions and capabilities to enterprises around the world,” he said.
Kyndryl has more than 4,600 global customers in 115 countries in the financial services, telecoms, retail, aviation and automotive sectors. Its clients include 75 of the US Fortune 100 companies, the largest public and private companies in the US based on revenue.
Revenue at Kyndryl dropped last year by more than 4 per cent annually to $19.4bn, after falling nearly 6.8 per cent in 2019, according to a Securities and Exchange Commission filing.
It generated $4.75bn in sales in the three months ended June 30, compared with $4.73bn for the corresponding quarter last year.
Kyndryl did not disclose the names of its clients in the Middle East.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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