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Saturday, 28 February 2009

The graphic global stimulus

From UBS, showing size of fiscal stimulus against interest rates.

Sovereign wealth funds eye move into commodities

Sovereign wealth funds (SWFs) - the investment arms of cash-rich nations - are poised to raise their holdings of commodities and oil in a move that could have a huge impact on financial markets.

Sitting on up to $4 trillion (Dh14.6 trillion) in assets, much of it from selling oil and other raw materials, most SWFs have so far been conservative in their investment choices, holding dollars, treasuries and shares in large US and European companies.

But they have been badly burned by the global financial and economic turmoil over the last 18 months and are now looking at new strategies to protect their interests, analysts say.

Gulf Islamic financial institutions face risk

Gulf Islamic financial institutions and takaful companies are feeling the repercussions of the current global financial market disruption less than most of their conventional counterparts because Sharia law prohibits interest-based financial products, according to a new report by Standard & Poor's Ratings Services.

"IFIs didn't invest in the structured products that have hampered many conventional banks' financial profiles and performance," said Standard & Poor's credit analyst Mohammad Damak in the report, titled Rated Gulf Islamic Financial Institutions And Takaful Companies Have Shown Resilience To Global Market Dislocation, But They Are Not Risk Immune. "And most IFIs should be equipped to weather the financial downturn and keep the effects on their financial profiles at manageable levels.

"We expect takaful and retakaful insurers to continue to resist the toughening market environment. We attribute their resilience to sufficient liquidity flows -- in part due to reportedly higher new business -- to service normal claims levels, and to capital adequacy, which, despite being affected in the current climate, remains supportive of the ratings across the sector.

Saudi banks post 17.3% increase in 2oo8 net profits

Saudi Arabia's local commercial banks posted a 17.3 per cent increase (4.4 billion riyals) in net profit in the last quarter of 2008 while almost all the leading international banks incurred huge losses amid the global financial crisis.

According to the latest report by the Saudi Arabian Monitory Agency (Sama) - the central bank in the Kingdom - banks recorded a net profit of 29.9 billion riyals in the fourth quarter of last year compared with 25.5 billion riyals in the same period of the previous year.

At the same time, they witnessed an 1.1 per cent decline in the average annual growth rate.

Citi equity deal 'will not affect Adia'

Citigroup said on Friday that Abu Dhabi’s US$7.5 billion investment in the struggling American bank was unaffected by the latest deal to convert preferred shares into common stock and that Citi would continue making interest payments to the emirate.

Citigroup on Friday announced a deal to shore up its equity by converting preferred shares into common stock. As part of that arrangement, the US government will end up owning as much as 36 per cent of Citigroup, while existing shareholders will see their ownership of the bank diluted.

In the early days of the financial crisis in late 2007, the Abu Dhabi Investment Authority, the emirate’s largest sovereign wealth fund, joined a group of investors coming to Citigroup’s aid, buying a $7.5bn debt instrument. Under the terms of that deal, Adia receives 11 per cent interest per year in quarterly payments, but has to start converting its investment into 235.6 million Citigroup shares in March of 2010.
A spokesman for Citigroup, Steven Cohen, said on Friday that Adia’s investment was unaffected by the latest changes and that its interest payments would continue. He declined to comment, however, on whether the bank was in talks with Adia to alter the terms of its investment. Adia declined to comment.

Friday, 27 February 2009

Dubai's Union Properties theme park put on hold

DUBAI, Feb 26 (Reuters) - Dubai-based Union Properties UPRO.DU said on Thursday its has suspended its $460 million Formula One theme park due to the financial crisis and drying up of liquidity from banks.

"The suspension will delay the opening of the Formula One entertainment concept until 2010," it said in a statement on the project which was scheduled to be completed in 2009.

"The project is founded on a strong business model that withstands recession whilst allowing for the future growth of Dubai," Penny Fischer, marketing director for F1-X said in a statement.

Global's UAE Weekly Report - February 26, 2009

"In our effort to provide the investment community, economists and researchers with an array of market reviews, we at Global Investment House are proud to present “The Weekly report on UAE Stock Markets”. The report views the latest developments in Abu Dhabi Stock Market (ADSM) & Dubai Financial Stock Market (DFM), trading activities, indices performance and corporate news. We hope you find this publication useful.

In order to view the full report kindly click on the headline."

Abu Dhabi in $10bn Jordan project

Al Maabar International Investments, a joint venture between Abu Dhabi’s largest property companies, will invest Dh36.7 billion (US$10bn) into a property development in Jordan at a time when major projects across the region are being scaled back.

Marsa Zayed, a 3.2 million square kilometre mixed-use development along the waterfront of Aqaba in the south of Jordan, will be the largest property and tourism project in the country’s history. The project is named after the late Sheikh Zayed, the founding president of the UAE.

Al Maabar bought the land from the government of Jordan last year for $500 million. The land will be handed over in June and construction will begin in the first half of next year.

Arabtec calls in stewards over cancelled racecourse deal

Arabtec Holding and a Malaysian engineering firm are seeking compensation for a Dubai racecourse construction contract that was cancelled last month, an executive at one of the firms said.

Riad Kamal, the chief executive of Arabtec, said the two firms had entered arbitration with their former client, Meydan Group, to settle the dispute. “We’ve started arbitration proceedings,” he said.

Meanwhile, WCT, the engineering firm, announced to the Malaysian bourse that it was initiating a civil legal challenge on top of the arbitration proceedings against Meydan for “breach of contract”.

Bahrain to issue bonds for housing

Bahrain said on Thursday it will sell nearly $800m worth of bonds to finance house building projects and bolster the island’s beleaguered economy.

Bahrain’s ministry of labour will issue the bonds over the next six months, Ibrahim bin Khalifa Al Khalifa, the kingdom’s housing minister, told CNBC Arabiya, a regional television station. The minister said the government spending was “needed to break out of the global financial crisis”.

Bahrain is the most diversified and least indebted economy in the Gulf region, but was the first country to be put on a negative outlook by a rating agency, due to its large financial sector and the government’s reliance on dwindling oil revenue.

Thursday, 26 February 2009

Eastern European Tinderbox: How Explosive Could It Get? (Registration required)

The Central and Eastern Europe (CEE) region is the sick man of emerging markets. While the global crisis means few, if any, bright spots worldwide, the situation in the CEE area is particularly bleak. After almost a decade of outpacing worldwide growth, the region looks set to contract in 2009, with almost every country either in or on the verge of recession. The once high-flying Baltics (Estonia, Latvia, Lithuania) look headed for double-digit contractions, while countries relatively less affected by the crisis (i.e. Czech Republic, Slovakia and Slovenia) will have a hard time posting even positive growth. Meanwhile, Hungary and Latvia’s economies already deteriorated to the point where IMF help was needed late last year.

The CEE’s ill health is primarily driven by two factors – collapsing exports and the drying-up of capital inflows. Exports were key to the region's economic success, accounting for a significant 80-90% of GDP in the Czech Republic, Hungary and Slovakia. By far the biggest market for CEE goods is the Eurozone, which is now in recession. Meanwhile, the global credit crunch has dried up capital inflows to the region. An easy flow of credit fueled Eastern Europe’s boom in recent years, but the good times are gone. According to the Institute of International Finance, net private capital flows to Emerging Europe are projected to fall from an estimated $254 billion in 2008 to $30 billion in 2009. Whether or not this is formally considered a ‘sudden stop’ of capital, it will necessitate a very painful adjustment process.

Classic Emerging Markets Crisis In The Works?

Santander revives Cepsa stake sale talks

Santander has rekindled talks on selling its 32 per cent stake in oil group Cepsa in what could lead to the divestment of the Spanish bank’s last remaining equity holding of importance.

The bank, the eurozone’s biggest by market capitalisation, told the Spanish stock market regulator on Wednesday that it was “in negotiations” over its holding in Cepsa, in which Total, the French oil major, controls nearly 49 per cent. However, it said no agreement had been reached.

It is understood that the International Petroleum Investment Company (IPIC), of Abu Dhabi, which already holds 9.5 per cent of Cepsa, heads the list of potential buyers.

DWTC: Building a dream

When the Dubai government decided to build an exhibition facility and a tower in the 1970s, no one knew how the sector would shape up to contribute to the future economy of this one-time fishing settlement.

They did not know where to develop the facility in the first place and where to start.

So, when the late Shaikh Rashid Bin Saeed Al Maktoum, then Vice-President and Prime Minister of the UAE and Ruler of Dubai, announced his intention to build what would then be the tallest building in the Middle East, the reaction was one of pure incredulity.

Sharif ban sends index tumbling

Islamabad: Pakistan's key stock index, the biggest decliner in Asia on Wednesday, fell the most in 32 months, after a court barred former premier Nawaz Sharif from running in elections.

The benchmark Karachi Stock Exchange 100 index, fell 294.05 or 5.01 per cent to 5,580.78 at time-close yesterday, its biggest decline since June 14, 2006. Oil & Gas, the biggest fuel explorer, fell 5.3 per cent to 54.24.

Pakistan's Supreme Court ruling may heighten tension between the biggest opposition party run by Sharif, and President Asif Ali Zardari's ruling coalition. Sharif said two days ago Zardari was seeking to have him banned.

HDB to purchase 60% of Damac Properties' projects at Hyde Park

Damac Properties yesterday signed a partnership with the Housing and Development Bank (HDB) of Egypt (Taameer Wel-Iskar) for 60 per cent of the developer's projects in New Cairo to be transferred to the bank.

Under the new partnership, HDB will purchase 60 per cent of Damac Properties' development at Hyde Park. This share will then be transferred to the management of the newly formed Hyde Park Property Development Company.

A board will be formed comprising seven directors – four from HDB and three from Damac Properties who will manage the company. Damac Properties will retain the remaining 40 per cent of the development. The company did not disclose the value of the deal.

Rasmala gets funds approval

Rasmala Investments Saudi announced yesterday that it has received the approval from the Capital Market Authority to launch two Saudi equity funds. One of the funds 'Rasmala Saudi Equity Fund' will be managed according to the Shariah guidelines approved by the fund's Shariah Committee and the other will be a conventional fund.

Hamad Al Huthaili, Managing Director of Rasmala Investments Saudi said: "Both funds will be suitable for investors who seek capital appreciation over the medium to long-term and will focus on adding value through a robust stock selection process relying primarily on the fundamental analysis skills of Rasmala's asset management team. Rasmala pioneered the fund-of-funds model in the Mena markets and the company strives to provide high quality investment products to major segments of Saudi investors".

Muhammad Shabbir, Head of Asset Management and CIO, said: "The funds will invest in companies poised to benefit from opportunities in Saudi."

2009 could be challenging for Kuwaiti banks

Slower deposit mobilisation, a reluctance to lend and concerns over loans quality are expected to make 2009 a "challenging" year for the Kuwait banking system, research released this week has indicated.

Loan quality has deteriorated in 2008 and further erosion is expected, Kuwait-based Global Investment House said.

"The second largest bank by asset size, Kuwait Finance House, exhibited a manifold increase in its non-performing loans while the largest bank by the same criterion, National Bank of Kuwait, has taken very high general provisions, presumably bracing itself for worse to come," the report said.

EmiratesNBD to rectify lending-deposit ratio

EmiratesNBD, the largest bank in the UAE in terms of assets as well as profit, has set a target time of three to six months to fix the daunting issue of high lending-deposit ratio, according to the bank's chief executive officer.

The ratio which was more than 125 per cent as of December end, 2008, is likely to rise as there is substantial amount of medium-term notes (MTNs) maturing during this year. Out of the total Dh30.1 billion worth of notes, Dh1.836bn has been settled during January and another Dh5.837bn needs to be settled during this year itself.

Talking to Emirates Business, Rick Pudner, CEO of the bank, said the bank has been looking at various strategies to fix this issue. "Not only our bank, all banks must be working on this and I am sure within the course of the next few months, we will be able to bring down this to close to 100 per cent which is the prescribed level by the Central Bank of UAE," he said.

Qatar’s high and low roads to freedom of the press

The Qatar campus of Northwestern University’s Medill School of Journalism rises formidably out of the desert like a temple to something grand, mysterious and exotic. And in a way, that is what it is.

Despite the reputation for outspoken journalism that Qatar has built up over the years by hosting the feisty Al Jazeera network, the local press is still a long way – legally and culturally – from being able to practise the kind of sceptical, American-style journalism that Medill is now teaching. The country is still operating under a 1979 media law that allows journalists to be jailed, helping to create a situation that the Doha Centre for Media Freedom recently said “encourages self-censorship and makes it difficult to criticise the government”.

But the opening of the journalism school last year and the media advocacy centre in 2007 – both with government backing – indicates that there is political will at the highest levels for things to change for Doha’s local press.

RAK government may seize DH2bn development

The Ras al Khaimah Investment Authority (RAKIA) may seize control of a Dh2 billion (US$545 million) property development on the emirate’s flagship Al Marjan Island project after Khoie Properties, a Dubai-based developer, failed to honour its obligations for the cost of the land.

La Hoya Bay is one of the main mixed-use projects on the man-made island, a 270-hectare area of reclaimed land 20km west of the city of Ras al Khaimah designed to look like a coral atoll.

“RAKIA is acquiring the project in its entirety from Khoie Properties, but the deal has not been finalised and the Government needs to look at all the liabilities,” Ahmad al Jazayeri, the chief financial officer of Khoie Properties, said today.

Corruption cases set for court

The first court case connected to the ongoing investigation into alleged corruption in Dubai is due to start early next month.

Four former employees of the property developer Sama Dubai are to appear in the Dubai Criminal Court of First Instance with a fifth defendant from another company.

Among the defendants is AM, 42, the former chief executive of Sama Dubai’s project The Lagoons.

He is charged with asking for bribes in the form of properties and cash from Sama Dubai clients, which led the company to incur a loss of Dh137 million (US$37.3m), prosecution officials said.

Amman reshapes itself for business

At present it is a construction site and, as the locale of a notorious former secret police headquarters, for many Jordanians it has sinister undertones. But Amman’s Abdali district is where a highly touted new central business area is due to open next year.

The scheme, the city’s mayor says, will enable Amman to “compete with the other capitals of the Middle East”.

Abdali is one of several big projects designed to reshape Amman, a city of 2.5m which was a village of only 5,000 inhabitants when Jordan was founded as an independent kingdom in the 1920s. These projects include urban regeneration schemes and developments such as Jordan Gate (pictured above), set to be “the tallest residential towers in the Middle East”, according to Omar Maani, the mayor.

Dubai takes another dive into pearls

One of the toughest moments in Dubai’s history came when Japanese scientists discovered how to culture pearls. The process devastated the economies of the Gulf region in the 1930s as the primary industry, diving for natural pearls, collapsed and depression in the US punctured demand.

So the symmetry of Dubai seeking once again to become a pearl trading hub is apt just as the global credit crunch curbs the city-state’s financial and real estate sectors.

“Maybe there is some sentimentality here, but we do believe Dubai can once again become a pearl trading centre, even if it does not turn into a multibillion-dollar industry here,” says Ahmed Sulayem, chairman of the Dubai Metals and Commodities Centre (DMCC).

Gulf companies pay for lack of transparency

Stock market downturns invariably reveal mistakes and failures previously concealed when markets were buoyant, often leading analysts and officials to call for increased transparency and improved regulation.

Reporting and governance are areas where analysts and asset managers say most Gulf companies have much room for improvement.

Quarterly results are frequently late, they say, and often only in Arabic; companies rarely have an investor relations team; access to executives is often negligible; and bankers are increasingly questioning the true worth of reported balance sheets.

Dubai says loan sufficient for next year

Dubai’s $10bn bail-out loan from the central bank of the United Arab Emirates is sufficient to refinance debt and meet operational costs at government-related companies for the next year, an official said on Wednesday.

Nasser al-Shaikh, director-general of the department of finance, said Dubai would reveal details of the next $10bn tranche of its medium-term bond programme if it were launched at a later date, but he said the full $20bn would cover ”the worst case scenario” of Dubai’s ongoing requirements.

The federal cash, lent to Dubai on Sunday, will be used to retire debt and fund operational costs, primarily in the hard-hit real estate sector. Under an as-yet-to-be-defined mechanism, government-owned or related companies will borrow money priced more dearly than the 4 per cent at which the bonds were issued.

Wednesday, 25 February 2009

Saudi Stock Market Weekly Report (Registration required)

Riz Khan - Dubai: Is the party over? - Feb 23 2009 - Part 2

Al Jazeera video clip.

Riz Khan - Dubai: Is the party over? - Feb 23 2009 - Part 1

Al Jazeera video clip

Dubai bond not asset-backed, should be enough -official

Dubai's $20 billion bond programme is not backed by assets but secured by the government of the emirate and should be enough even in the worst case scenario, a Dubai government official said on Wednesday.

The Dubai finance department official told reporters that it had received great interest in the second $10 billion tranche of the programme.

The money would be used to help companies refinance their debt and a fund to support small businesses was also being considered. Property-related firms were likely to receive support.

"Companies might face difficulties in refinancing. Times are challenging ... now it is up to us to protect the major players in our economy," Nasser al-Shaikh said.

Gold-backed Islamic security launch soon

A Shariah-compliant tradeable security backed by gold will be launched in Dubai next week, sources familiar with the plan said yesterday.

Investors have rushed into gold as a haven from the global economic storm and as insurance against potential future inflation.

The price of gold rose above $1,000 an ounce for the first time in almost a year last week.

Ipic teams up with Greek shipping group

Restis Group, Greece's fifth-largest shipping company, will team up with Abu Dhabi's International Petroleum Investment Company to jointly invest in shipping, energy and transport.

The two companies will create a joint venture with an initial investment of $1.5 billion (Dh5.5bn), Athens-based Restis Group said in an e-mailed statement. The two companies yesterday signed a memorandum of understanding to co-operate in a number of areas, including storage, ship-building, pipelines and ports.

"Through acquisitions and strategic holdings the new consortium aims at creating the first vertically-integrated group that will be active not only in oil extraction and refining but in its transportation," Ipic's Managing Director Khadem A Al Qubaisi said in the statement.

Banks need more government cash boost

Boosting bank deposits is “critical” to lending in the Emirates, with bankers saying they would like to replace customer deposits with cash injections from the Government and wholesale funding.

The ratio of loans to deposits held by banks grew to 112 per cent last month, according to the latest data from the Central Bank. Lending has all but stopped since large amounts of speculative money was withdrawn in the aftermath of the collapse of Lehman Brothers in the US last year. The result has been a credit squeeze, further aggravating the slowdown.

“It is most important for us to stabilise sources of funding. Whether they come in the form of customer deposits or in any other form, that is going to be the critical aspect for us to continue to grow our lending,” said Sanjay Uppal, the chief financial officer at Emirates NBD.

Tuesday, 24 February 2009

30 foreign-based investors utilise Saudi credit swap

Riyadh: On behalf of foreign investors, HSBC Saudi Arabia has purchased shares worth over 4 billion Saudi riyals (Dh3.93 billion) since swap deals were allowed in August 2008.

"This shows that foreign investment in Saudi-listed firms is gathering momentum despite the global financial crisis," said Osama Shaker, HSBC Saudi Arabia, Managing Director.

In August, the Saudi Capital Market Authority, the market regulator, allowed non-resident foreign investors to sign swap agreements with Saudi intermediaries, permitting indirect ownership of shares, in one of the boldest steps to date taken by the Kingdom toward opening up its stock exchange, the largest Arab bourse, to foreign capital.

Kuwaiti press savours rare freedoms

W hen placed next to each other, the words Arab and press can bring to mind harsh images of snarling government censors, bruised journalists and government spokesmen spouting propaganda. Such is not the case for the oil-rich emirate of Kuwait.

The tiny Gulf state has the freest press in the Arab world, ranking above all other Arab states, including liberal Lebanon, expat haven the United Arab Emirates and close US ally Jordan on the Reporters Without Borders 2008 press freedom index.

Locals attribute Kuwait's unique press environment to the country's long tradition of self-governance. "If you look at the history of the development of Kuwait, we have no coup d'états , no military takeovers. Our ancestors established the practice of choosing the governors of Kuwait," says Dr Mohammad al-Rumahi, editor-in-chief of Awan, a daily. Established in late 2007, Awan is among a group of new dailies that has entered the market after the opening of licensing by the government.

Nationals' job protection may return to haunt Emirates

Was the United Arab Emirates' decision to regulate further the dismissal of nationals working in the private sector a knee-jerk reaction or a necessary measure?

Not surprisingly, the answer depends largely on who you speak to. To many Emiratis, it was the right move in a climate of uncertainty to safeguard a tiny pool of nationals - less than 0.5 per cent of the some 3m workers in the country - who work in the private sector as companies throughout the UAE lay people off.

Officials defended the decision by speaking of a social responsibility to keep all Emiratis in work, and described the action as part of efforts to create "stability and prosperity for its people".

A Russian ‘reset button’ based on inclusion

Three weeks ago, Joseph Biden, US vice-president, made headlines by proclaiming the Obama administration’s intention to press “the reset button” in US-Russian relations. Next week, Hillary Clinton, secretary of state, will sit down in Geneva with Sergei Lavrov, Russia’s foreign minister, to figure out what that metaphor means.

While there are plenty of specifics to talk about, the overarching concern in Washington and European capitals is that Russia is cracking down at home and throwing its weight around abroad. Not surprisingly, many are worried about a new cold war. However, that is not a useful way to think about what is happening.

Unlike the Soviet Union, Russia does not embody or promulgate an alternative model of political and economic governance; it has no real allies, even – and perhaps especially – in its own neighbourhood. Despite its formidable nuclear arsenal, it is no longer a military superpower. Moreover, there is less braggadocio in Moscow these days than there used to be about Russia being a “petro-superpower”, given the combined effects of the global recession, the fall in oil prices, the evaporation of foreign currency reserves and the flight of foreign direct investment.

What’s coming next, from the ‘Man Who Saw It Coming’

The litany of dire predictions for currencies, commodities and the global economy in general not only seems endless - it is getting more predictable by the day. That is because few pundits are making any waves - or money - out of playing Pollyanna, as everyone from Jim Rogers to Nouriel Roubini well know.

While it’s an increasingly safe bet for analysts to leap on the gloom’n'doom bandwagon, there are a handful of analysts out there who get taken more seriously than most - as opposed to herds of kneejerk Cassandras who have shelved their usually bland reports to start warning that the “western banking system is imploding”; “the US is on the brink”; “Europe is melting down”; “China is going down the toilet”; “Japan is already down in the S-bend” etc etc.

Among them, CLSA’s equity strategist Christopher Wood can rightly claim to have been more prescient than most of his ilk - warning some years ago about the consequences of exploding US mortgage securitisation and more specifically, about the growth of subprime lending. In his often colourful newsletter, Greed & Fear (which sadly we no longer receive), Wood has been banging on about everything from warning signs in the Baltic Dry Index for commodities prices to Britain’s banana republic tendencies long before it was vogueish to do so. As a result, he has been consistently rated among the top equity strategists on Asia and last year was billed by the Wall Street Journal as “the man who saw it [the subprime mortgage crisis] coming”.

Nomura gets licence to provide financial services from DIFC

Asia-based investment bank Nomura International yesterday said it has received a banking licence from the Dubai Financial Services Authority to provide investment banking and capital markets services from the Dubai International Financial Centre (DIFC).

Nomura, which completed the acquisition of Lehman Brothers' investment banking, equities and fixed income businesses in the Middle East on October 13, 2008, said it plans to offer consolidated services in the region.

Abdulla Al Awar, Managing Director of DIFC, said: "The Middle East offers Nomura tremendous long-term opportunities, and with the acquisition of Lehman Brothers' businesses in the region, it is perfectly positioned to tap the growing regional market for financial services."

Former minister jailed for 'deception'

A former government minister was sentenced yesterday to two years in prison after being convicted of betrayal of trust and unlawfully taking possession of money and property.

Authorities relieved the defendant from his Cabinet post as soon as his case was referred to court, lifting his immunity from prosecution.

Two of three co-defendants were similarly sentenced and will be deported after serving their time because they are not UAE nationals. The fourth defendant was acquitted. The Dubai Misdemeanours Court of First Instance agreed that the defendant, who had been a minister of state without portfolio, had deceptively persuaded a woman, identified as MJ, to sign over control of her late brother’s information-technology company in 2005.

Fraud investigation nears end

An almost year-long investigation into alleged criminal activity by the former chief executive of the developer Deyaar, Zack Shahin, and three co-accused is nearing its end, the Dubai Attorney General said yesterday.

In a statement released by the state news agency WAM, Issam al Humaidan said the charges against Mr Shahin and his co-accused include forgery, embezzlement and fraud. Authorities said they had also uncovered evidence supporting an additional charge of money laundering.

The announcement provided the most detailed look yet into the case that first came to light 10 months ago. Prosecutors allege the co-accused transferred millions of dirhams in misappropriated funds between banks in Lebanon, Switzerland and the US.

$20bn makes a very comfortable cushion

With an extra US$10 billion (Dh36.73bn) of federal money in its war chest and another $10bn on tap, Dubai has won some enviable breathing room for coping with the global crisis.

More than anything else, the decision by the Central Bank to lend the emirate $10bn provides what analysts and economists say is an unambiguous reaffirmation of federal support, something markets had been looking for amid growing concerns about Dubai’s ability to shoulder its $80bn debt burden. Most immediately, it appears to have dispelled any concern that Dubai and its corporate entities, or Dubai Inc, might be forced to default on any of the about $13bn in debt they have coming due this year.

“It’s positive for Dubai Inc. It shows that Dubai can get hold of financing at a difficult time and underlines the commitment of the federation,” said Charles Seville, associate director of sovereign and international public finance at Fitch Ratings in London.

IPIC acquires Nova for $2bn

An Abu Dhabi investment vehicle has agreed to buy Canada’s Nova Chemicals in a $2bn deal to help it develop the world’s largest petrochemicals complex in the wealthy Gulf state.

The deal could also foreshadow more Middle Eastern money targeting foreign assets.

International Petroleum Investment Company, a government investment vehicle, said it had agreed with the management of Canada’s largest plastics producer to an all-cash deal at $6 a share, a premium of more than three times the company’s share price on NYSE on February 20.


All together now. Dubai’s $10bn cash injection from the United Arab Emirates’ central bank has eased concerns about the struggling emirate’s ability to make good on $13bn in debt payments due by the end of this year. Just as important as the deal’s dollar figure, however, is the political message it sends. After weeks of uncertainty, Abu Dhabi, the Emirates’ oil-rich sugar daddy, has demonstrated its willingness to stand behind its poorer relation.

Strictly speaking, the UAE central bank’s purchase of $10bn of five-year Dubai bonds – part of $20bn in new bonds priced at 4 per cent interest – was agreed at the federal level. But at its core, the move amounts to a bail-out by proxy of Dubai by its wealthier neighbour, Abu Dhabi, which is the biggest contributor to the UAE’s federal budget thanks to a quirk of geography that left it holding 8 per cent of the world’s oil reserves.

UAE: Job cuts on airwaves

Dubai radio station Coast FM laid off all its DJs at a meeting yesterday. The station's presenters have not been on air or been paid since early January but had hoped their jobs would be saved. Neil Petch, the managing director of Parent company, ENG, broke the grim news at a meeting at the Al Attar Business Tower yesterday afternoon.

However, he said ENG would pay the DJs up to the end of February. The popular station has been struggling with transmission problems and the global slump in media advertising. It has been playing music non-stop since early January after telling DJs not to show up for work. ENG spokeswoman Gemma McKeown confirmed that all the station's presenters were laid off yesterday. She said management would try to absorb Coast's remaining staff into ENG's other divisions, which include publishing and outdoor advertising.

Cool reception for Iran bank flotation

Bank Mellat, Iran’s third-largest bank, has at last made it into the private sector – officially, at least.

But its lukewarm response from investors is likely to ring warning bells for other banks lined up for Iranian-style privatisation.

Bank Mellat, which has $1.3bn (€1bn, £900m) in capital and says it holds about 15 per cent of Iran’s loans and deposits, became the first state-owned bank to embark on privatisation when it offered 5 per cent of its shares on the Tehran stock exchange last Wednesday.

Dubai markets jump on news of loan

Dubai markets jumped higher in early trade on Monday on the news that the United Arab Emirates will lend the emirate at least $10bn in a bail-out aiming to restore confidence and rescue the struggling economy.

The Dubai Financial Market index rose 5 per cent as traders welcomed the sign that the federal institutions will help the government as it seeks to refinance its $74bn debt mountain. This includes $13bn of repayments due during the remainder of 2009, according to estimates by EFG-Hermes, a local investment bank.

Emaar Properties, a Dubai government-backed real estate giant, which was hit in trading on Sunday on news that its US unit had filed for Chapter 11 bankruptcy, was up 12.7 per cent as the mood around Dubai lifted. DP World, a government-controlled container ports operator, rose 4.5 per cent on Nasdaq Dubai.

Investors reassured by Dubai bail-out

Since the financial crisis struck, Dubai officials have been telling the world that the emirate will extricate itself from an $80bn debt hole it has dug itself during the global credit binge.

But as the markets on Monday jubilantly toasted an in effect, loan of $10bn (£6.9bn, €7.8bn) from the Central Bank of the United Arab Emirates, it became clear that Dubai – like other countries around the world – had finally come to terms with the harsh economic realities at home and it accepted a federal bail-out.

As the emirate’s six-year property boom turned to bust late last year and the world’s economic downturn harmed every sector on which Dubai’s prospects depend, investors had grown increasingly sceptical of the city-state’s ability to refinance its debt, sending insurance against a default on Dubai’s debt to levels similar to Iceland.

Bailing out Dubai

The emirate of Dubai, probably the brashest creature of globalisation, has just been bailed out by its conservative and censorious older brother, the emirate of Abu Dhabi.

Coming just after Dubai had come to be perceived as a risk equivalent to Iceland – its five-year credit default swaps this month leapt beyond 1,000 basis points, closing on the spread of Icelandic bonds – that will restore some confidence.

The central bank of the United Arab Emirates has bought up half a $20bn five-year bond issued by Dubai, one of the seven emirates in its federation. After a mediocre response to the refinancing of Borse Dubai last week, that pretty much settles the question of Dubai’s ability to service its debts.

Monday, 23 February 2009

Gap is closing between retail and institutional fund selection (Registration required)

Leading fund selectors are increasingly using the same techniques and facing the same issues regardless of whether they are picking investments for institutions or a retail client base, says Cyrille Urfer of the Abu Dhabi sovereign wealth fund.

Europe's most sophisticated fund selectors have long regarded the big US endowments, such as Harvard and Yale, as the cutting edge of investment selection and Urfer sees increasing convergence between the approaches of all leading fund buyers.

‘At the end of the day, the needs and the objectives of these different groups of investors are not that different,’ points out Urfer, the former head of selection at LODH in Geneva who is now CIO of equities and fixed income at the Abu Dhabi Investment Council.

(Also visit this link:

One emirate for all, none for one

Fears over Dubai’s ability to service its debts led Abu Dhabi finally to stage a marked response at the weekend. In a ‘lender of last resort’-type move the emirate bought $10bn of Dubai bonds to help its neighbour raise funds.

As Bloomberg reports, the market responded very positively to the action:

Feb. 23 (Bloomberg) — Dubai shares jumped as the United Arab Emirates’ central bank bought $10 billion worth of bonds issued by Dubai after the emirate struggled to raise funds amid a global credit squeeze that ended its real-estate boom. Emaar Properties PJSC, the U.A.E’s biggest real-estate developer, climbed the most in more than a month. Dubai Islamic Bank PJSC rose for the first time this week and Dubai Financial Market PJSC also advanced. The U.A.E. central bank bought half of an unsecured, $20 billion, 5-year notes issue at an annual interest rate of 4 percent.

Iranian investment rule change is overdue (Registration required)

Iran is an unattractive destination for foreigner investors for reasons other than US-led sanctions.

In September, the World Bank rated Iran as the worst country in the Middle East and North Africa for foreign investors.

Over the next few months, the Iranian authorities will probably take a small step towards improving the position of investors, by scrapping capital controls that force foreign investors in companies listed on the Tehran Stock Exchange to lock in their capital for the first three years.

MENA Sukuk Report - February 2009

"In continuation of Global Investment House coverage of capital market, we have come out with MENA Sukuk Report to provide you with the insight on the developments in the sukuk market, performance and outlook.

The year 2008 witnessed a decline in the amount of sukuk issuance, after years of massive growth. The amount raised from issuance decreased by 54.5% in 2008 to US$15.1bn, as compared to US$33.1bn in 2007. Despite that, the number of sukuk issues increased from 129 in 2007 to reach 165 in 2008.

The decline in sukuk issuance is due to the credit crunch that forced investors to step aside from the fixed income market, including the Islamic one. As evident of the credit crunch effect on sukuks, issuances in the fourth quarter of 2008 were weak when compared with other quarters in the same year. In the first three quarters of last year, the number of sukuk issuances was 139 raising US$14.3bn, averaging US$4.8bn per quarter. On the other hand, the number of sukuk issuance in the fourth quarter of 2008 was 26, raising US$0.8bn.

In order to view the full report, kindly click on the headline."

How Are GCC (and Other) Sovereign Funds Faring? An Update (Registration required)

Recently, Reuters reported that the assets under management of Kuwait’s sovereign wealth fund fell to 49 billion Kuwait Dinar ($177.6 billion) at the end of December from 58 billion Kuwait Dinar ($218 billion) in March 2008. – a face value decline of about $31 billion. Given that Kuwait had record oil revenues in 2008 (and a record fiscal surplus even if revenues tailed off in the second half) and KIA likely received record new capital, this implies that investment losses were even larger. It is significant for two reasons. One it shows that the estimates of fund performance (including those released in a recent paper by Brad Setser and myself) are on track and two, it could suggest that within limits there may be increasing amounts of transparency among sovereign investors. It also will provide an interesting test case of how the population and opposition react to the losses on the national wealth.

Unlike funds of its neighbors, Kuwait’s fund has to routinely report to its parliament and at such times information on its assets usually is released to the press. Doing so increases the robustness of estimates of their performance and may also open up channels to domestic pressure concerning how the national wealth is being managed. Domestic politics has influenced decisions in the past - Kuwait Petroleum’s deal with Dow Chemical was reportedly withdrawn under political pressure. So it will be a case to watch, as will the funds of Singapore which have also noted investment losses in response to legislative questioning.

The numbers seem to refer to Kuwait’s future generations fund, the larger of the two pools of money managed by KIA. The other, the General Reserve Fund, is smaller, perhaps around $40 billion. It is on the one hand more liquid as its name suggests but also holds the countries holdings in domestic equity and property markets. KIA itself though was also authorized to invest in the domestic equity market to prop up prices.

Record outflows might signal bottom

Outflows from Europe’s beleaguered fund industry hit a record high in the fourth quarter of 2008 as resurgent market volatility in the wake of the Lehman Brothers collapse saw investors accelerate their rush for the exits. (PDF page 1, PDF page 2, PDF page 3)

However, there are tentative signs that the worst may be over with tumbling deposit account rates leading wealthier investors, in particular, to look afresh at corporate bond and equity income funds.

Across the continent, flows into equity funds turned positive in November and December, while in some markets, such as the UK, flows into bond funds were positive for the fourth quarter in aggregate.

Hedge funds march towards Ucits

Large hedge fund groups are expanding aggressively into the regulated fund arena in order to attract new money as investors continue to bail out of the tarnished hedge fund sector.

Brevan Howard, Europe’s largest hedge fund manager with $25bn (£17.5bn, €19.8bn) under management, will today unveil the launch of its first onshore, regulated Ucits III fund, a structure that embeds higher standards of investor protection, liquidity and transparency than lightly regulated hedge funds.

The move comes as figures show GLG Partners and Odey Asset Management, two houses that have already taken the plunge, attracted strong inflows into their Ucits ranges in the fourth quarter of 2008 even as both the mutual fund and hedge fund industries haemorrhaged cash.

The injustice of Russian justice

Russian justice was put in the dock in the trial of the alleged killers of Anna Politkovskaya. And Russian justice was found wanting.

Three men accused of involvement in the campaigning journalist’s 2006 murder in Moscow were acquitted last week in a case marred by signs of official negligence and obstruction.

Two were Chechen brothers who allegedly spied on Politkovskaya. A third brother, the alleged killer, was absent and is believed to be on the run. The third man on trial was a former policeman, accused of organising the three brothers.

Quo vaditis, raters?

Ours is an era of unmasking: many a former emperor is now seen to be naked. The same fate has befallen the big three credit rating agencies, whose deeply flawed ratings were exposed when the US housing bubble burst. We cannot live with their current practices, but nor can we live without them; their function – assessing the risk of securities – is indispensable. Reform is essential.

Ratings agencies are paid by issuers of securities and not by those who invest in them. They have traded their independence to chase the lucrative business of rating asset-backed securities which came to market in the last decade. Moody’s earnings rose so high, for example, that its profit margin beat that of all other S&P 500 companies.

It is easy to blame investors for blindly trusting the agencies; many let greed or naivety get the better of them. But even the most circumspect could not have avoided the big three. US law enshrines these state-sanctioned oligopolists’ status as “nationally recognised statistical rating organisations”. Various other rules, such as the Basel II framework, refer to ratings to define capital adequacy or the type of securities investment funds may hold.

Fears rise over Russia’s foreign debt

Western bankers are increasingly anxious about Russian companies’ ability to repay $500bn in foreign corporate debt after the government said this month it was suspending a $50bn bail-out programme as reserves dwindle.

Bankers are queuing up to meet government officials in a scramble for clarity after Igor Shuvalov, first deputy prime minister, said during a closed-door briefing this month that Russia was going to switch focus from bailing out tycoons to supporting the banking system. “The issue is how much state support will the government provide,” said one international banker involved in talks.

The policy shift has sparked a high-stakes poker game between foreign lenders, the Russian government and the country’s oligarchs as some bankers angle for state guarantees in order to go ahead with restructuring deals, while the government resists as it runs out of funds. In the middle are the oligarchs who, in order to survive, must win restructuring deals on more than $130bn of debt due this year.

Lack of funds hits IMF in east Europe

The global response to the financial crisis in eastern Europe has been hamstrung because the International Monetary Fund is too small, former officials say.

Amid strains in emerging markets across the world and calls for the European Union to take the lead in rescuing countries such as Latvia, Hungary and Romania from collapsing banking systems and currency crises, the IMF has been scrambling to increase its firepower.

Simon Johnson, a former IMF chief economist at the Massachusetts Institute of Technology, said: “We are seeing the consequences of the lack of IMF resources. Programmes are probably undersized because the IMF is worried about running out of money.”

Emaar falls 10%

Emaar, the Gulf’s largest listed property developer, yesterday lost almost 10 per cent of its market value as investors reacted to the news that its US unit, John Laing Homes, is seeking Chapter 11 bankruptcy protection.

Emaar has taken impairment charges and write-downs for goodwill of about Dh4 billion (US$1.08bn) since it bought the US home builder for $1.05bn in June 2006. But dealers said it was still unclear whether some of the debts held by John Laing Homes could further weaken Emaar, whose share price has dropped by 85 per cent in the past 12 months.

“There are questions that need to be answered right now,” said Yazan Abdeen, a funds manager at ING Management. “Investors are wondering about the financial obligations that Emaar may have towards its US unit... Who will pay its debt?”
Although Emaar may strike a compromise deal over how much of John Laing Homes’s debt it would have to shoulder, nothing has yet been agreed. “It may be immaterial, or it may be material, the bottom line is nobody knows,” Mr Abdeen said.

New body to tackle financial crimes

A newly created special body will prosecute cases of bribery, money laundering, abuse of power, embezzlement and the misuse of funds in the capital city.

Finance Public Prosecution will specialise in financial crimes in public and semipublic organisations.

“The new body is specialised in investigating financial crimes and referring those cases to relevant courts in accordance with the laws concerning public fund-related crimes, such as breaches of trust and abuse of public office,” Yousef al Ibri, the Abu Dhabi attorney general, said in a statement.

Strong financial position to help UAE steer clear of recession

The collapse in oil prices will ally with lower crude output to depress the UAE economy and revenues but its strong financial position will prevent the country from sliding into a recession, a key Saudi bank said yesterday.

After making big leaps in the past few years, the UAE's gross domestic product is expected to contract in nominal terms and grow by less than one per cent in real terms, the Saudi American Bank (Samba) Group said in a 22-page research.

Its fiscal situation will also be a victim of lower crude prices and production but the balance is expected to remain in surplus and could only revert to a deficit if oil prices dip below $40 through the year, Samba said.

How Worried Should We Be About Dubai? Update: Is the Bailout Underway? (Registration required.Complete article below)

note: this piece was primarily written Feb 18 but I have appended an update which describes the Dubai's February 22 capital raising - $10 billion in 5 year bonds purchased by the UAE central bank (the first tranche of a total of $20 billion to be raised) - and suggesting implications of the purchases. This is the most significant step that Federal authorities have taken to support Dubai and avoid the default of its institutions, which could have negative effects on Abu Dhabi, the rest of the UAE and the GCC as a whole.

In recent weeks CDS spreads on the debt of Dubai’s largest State-linked vehicles like Dubai Holding etc shot up dramatically after Abu Dhabi announced a unilateral recapitalization of its banks. The cost to buy protection on the 1 year bond has doubled since late January and now stands at 1073bps. The jump in the 5 yr has been less sharp but stands at over 1400bps. Since Dubai has limited sovereign debt (about $10 billion and may be climbing given the likely fiscal deficit) these large state-linked companies provide a proxy for the perceived credit worthiness of Dubai’s government. Ie people are worried about Dubai's ability to support its banks, its property sector in the fact of the most severe global recession and the first real test of the Dubai model (economic diversification from hydrocarbons towards services) Given Dubai’s debt stock ($80b or 148% of GDP, see Moodys recent research for a breakdown), its vulnerability to global liquidity and the worsening outlook for its domestic property market (despite the ability to control supply), it is perhaps not a surprise that the outlook for the emirate seems much more precarious, particularly in contrast to its cash rich neighbour, Abu Dhabi. Given the links of Dubai's debtors to the government, and the effect that their vulnerabilities could have on the UAE federation, it has widely been assumed that the UAE govt (or rather Abu Dhabi) would come to the aid of Dubai when the crunch came. However, there has been more uncertainty than some expected. Key tests are ahead in coming months as Dubai adjusts to a world where leverage remains scarce. Around $20 billion of the outstanding debt ($80 billion) comes due in 2009, including several large syndications like that of Borse Dubai which was having trouble rolling over its $4b loan that expired at the end of February. Breaking views notes that the $4b capital needed is a test case as allowing the institution to implode would have broader reverberations. It now seems that the UAE federal government might be coming to the rescue. Meed suggests that it will loan Borse dubai $1b to make up the shortfall from private investments. So far (feb 17) Borse Dubai only managed to secure $1.25 billion of commitments from commercial banks, although some further commitments from banks could bring the final bank tranche to $1.5 billion. Even the capital that Dubai attracts will come at a higher cost. Borse Dubai might have to pay 430bps above Libor rather than the 130bps the maturing loan carried.

Unlike some of its neighbours (especially Abu Dhabi) Dubai’s growth was primarily debt financed, making it more vulnerable to the global liquidity crunch and more local liquidity tightening triggered first by the withdrawal of speculative capital and – later by the fall in the oil price. Although Dubai has little oil, it was clearly a petrodollar recycling hub. It accounted for much of the UAE’s external debt stock (some of Abu Dhabi’s state investors accounted for the rest ). Dubai based banks likely also absorbed most of the bank lending to the UAE. Moodys vulnerability indicators show that the UAE is among the most vulnerable in the MENA region (if much less vulnerable that Eastern European countries that are being forced to rapidly and painfully adjust).

Data from the BIS (see chart below) show that loans extended to the UAE first tapered off and then fell in Q2 and Q3 of 2008 (the most recent data) This is consistent with the outflows of short-term capital once dirham revaluation was taken off the table that contributed to a local credit crunch as well as the the escalation of credit crunch on a global scale and a reluctance to lend to the Gulf as the oil price began to fall. Of remaining loans, UK banks are most exposed. Looking at shifts in the UAE’s central bank reserves details the scale of this flows. The UAE’s reserves doubled to almost $100 billion but have subsequently fallen to $44 billion at the end of Q3 (most recent data). No wonder the project finance costs and domestic interbank rates shot up.

Liabilities of BIS banks to UAE
The following gives an outlook of how net flows of funds (deposits abroad - loans) of the UAE compare to the rest of the GCC. the UAE has consistently borrowed more from foreign banks than it has borrowed abroad for the last 18 months. Despite the drop in loans extended to the UAE, it continued to be a net borrower from the international banking system - unlike for example Saudi Arabia or Kuwait.

Dubai is experiencing a property bust. Prices and volumes have been falling for some time and even efforts to control the supply (by merging and providing capital to the main mortgage lenders or pulling back on projects have had limited effect.) The secondary market in particular has dried up. Meanwhile with a number of foreigners losing their jobs will be another blow to consumption and property markets. It has been widely assumed that oil-rich Abu Dhabi would come to Dubai’s aid in one way or another, providing the needed capital and solidifying Abu Dhabi’s role within the power structure of the UAE. It seemed likely that federal institutions were taking the upper hand – including the central bank. In fact the first UAE government responses to the financial strains on UAE banks seemed to be evidence enough. But the next stage has been less unclear.

Moreover the structure of some of the liquidity provided including the temporary ‘repo window’ still created disincentives for banks to take advantage of the funds – likely because authorities wanted to force regulatory changes to stem the significant credit growth. While most UAE banks received long-term deposits back in the fall from the central bank, they remain undercapitalized given the loss of whole sale financing and the fact that the property bust is undermining the quality of underlying assets – property, credit card debt etc. Standard chartered suggests that UAE banks need an additional $27 billion to be adequately capitalized. Other institutions like a permanent repo window and other tools to control the money supply are also needed. These capital needs persist despite Abu Dhabi’s injections to its banks, however, the support of the emirate’s government does add to the stability of financial institutions there and reduce the risk of systemic risk. Abu Dhabi provided capital injections to five banks operating in the emirate in the form of 5 year deposits. Yet allowing a default of a major state-linked banks could have broader reverberations in the region.

Why hasn’t Abu Dhabi made more funds available to Dubai given that the uncertainty undermines UAE asset quality and the “UAE brand”? One explanation might be politics between the emirates. Reportedly Dubai has not actually asked for funds, perhaps fearing a loss of autonomy. However, doing so within the federal structure would be less politically tricky even if the ultimate source of the funds would be Abu Dhabi. However, even Abu Dhabi’s stock of liquid assets might not be quite as high as it might like. In a recent paper, Brad Setser and I argue that the funds of the Abu Dhabi Investment Authority (ADIA) may never have been as large as some observers thought (we peg its peak at close to $480b early in 2008 and suggest it may have suffered valuation losses that took its AUM down as low as $300b (see this post for more recent calculations that suggest the GCC's foreign assets fell to $1.16 trillion by the end of January from $1.19 trillion in December - and if February ends anywhere near Friday's close, a similar $30 billion loss is likely). The calculations are based on an index based portfolio so we might be a bit off. However, given that liquidity is at a shortage and Abu Dhabi may also run a fiscal deficit, it may prefer to preserve its capital for investments prioritized for domestic development.

Yet it is not in Abu Dhabi's interest to let too large a gap in credit worthiness emerge with Dubai particularly as its banks and institutions are exposed to Dubai’s property markets. Furthermore there are risks to the property markets and financial institutions throughout the region even if most countries are more insulated. Abu Dhabi may prefer to avoid such a bust. But as Moody’s notes, the corporate sectors of the GCC have not been tested in this way in the past and do face significant financing needs.

Broader cost cutting is going on in Dubai including several mergers in the property sector and job reductions. Dubai International Capital and Dubai Group, investment focused entities belonging to Sheikh Mohammed plan a quasi merger. This seems to make sense and may reduce overcapacities. In fact these two entities always seemed to be encroaching on each others turf (investment in financials, private equity holdings etc) in a UAE that was serving as a laboratory for investment abroad, though recently Dubai group was reportedly branching into Islamic finance. Furthermore like others relying on leverage their business model has come under challenge. The sharing of back office support may be the first step to a re-merger. Needless to say, any funds and projects overly reliant on leverage should continue to be very quiet (the QIA might be one exception)

The combination of much more subdued credit growth, reduction in oil production and reduction in non-oil trade and services will keep the UAE’s growth weak in 2009. The country’s non-oil diversification has exposed it to sectors that are faltering globally (shipping, tourism, property, finance). Government support and the fact that many sectors are centralized can cushion the blow somewhat – fiscal policy is expected to be expansionary, the budgets of the UAE federal government (which spends mostly in the smaller five emirates) and Dubai show expenditure growth in 2009. Abu Dhabi will likely do so also though its budget has not been disclosed. Yet there is a broader question where will the funds come from or what price will be charged to get there. Yet given the direct linkages between the UAE’s borrowers and the national and sub-national governments, funds should be forthcoming even if they are pricey and become more so with oil at $35 a barrel.

UPDATE: As suggested above, Federal funds have been made available for Dubai at relatively affordable terms fixed 4% rate for five years with the central bank of the UAE subscribing in full to the first $10 billion tranche of the capital raising. While structured as a bond issue, this does seem to be in practice a loan and one backstopped by Abu Dhabi, through the federal structure. It might thus strengthen the federal structure which has been relatively loose. It remains to be seen what changes may come within the structure of the country and its economic institutions. These funds will not only allow Dubai's government-backed investors to meet their debt payments, but also to carry out spending plans. Given that private funds will be less available it will be government backed investment which has a more significant role in supporting growth for the rest of this year and even into 2010. As noted above Dubai plans to increase spending about 20% even as revenues are expected to fall, leading to a significant deficit.

Similarly Borse Dubai also turned inward in its search for capital in the face of unfriendly international capital markets. It received about $1 billion from Dubai authorities, and its parent, ICD which itself raised $6 billion last year, funneled money through dubai banks to make up half of the bond issue that international banks were reluctant to fund. In total, ICD provided as much as $2.3 billion of the funds Borse needed. Unlike Eastern Europe, Dubai can tap some of the latent or not so latent resources at home. This should ease some of the cost of protection on Dubai's debt, but may raise other questions about the availability of capital in the UAE especially now that the needs of liquid assets are so great.The UAE central bank had under $45 billion in foreign exchange reserves at the end of September (the most recent data), a fall of about half from the peak in March 2008, the height of speculative inflows. Central bank reserves may well be lower than $45 billion now given the continued outflows. The Central bank has subsequently provided both dinar and dollar liquidity to conventional and islamic banks. While a range of federal and Abu Dhabi institutions likely have some liquidity, the needs are mounting within the UAE.

Perhaps its wishful thinking to hope that we might see more transparency regarding some of the Gulf's pools of capital to emerge out of this heightened crisis. But releasing some more frequent information from the UAE's central bank (which releases figures on reserves et al) with about a six month lag) or new information on other pools of capital might assuage capital concerns.

Dubai to take up $10bn UAE loan

The United Arab Emirates is to lend Dubai $10bn to ease the emirate’s debt repayment schedule in an effort to rescue the struggling economy, officials say.

The UAE central bank subscribed to half of a $20bn five year bond programme launched by the Dubai government. The unsecured paper yields a 4 per cent dividend. “This program will secure the necessary funding for Dubai to meet its financial obligations and continue its development program,” the Dubai government said on Sunday.

Federal backing is designed to help restore confidence in the Dubai economy, the foundations of which are based on real estate, tourism and trade, making it particularly exposed to the global credit crunch.

Sunday, 22 February 2009

UAE's RAK Properties Q4 profit plunges 74%

RAK Properties posted a near 74-percent drop in fourth-quarter profit to 50.9 million dirhams ($13.86m), the latest United Arab Emirates property developer to suffer during a real estate downturn.

RAK Properties, based in the UAE emirate of Ras Al Khaimah, said it lost 60.81 million dirhams in the fair value of investments in 2008, compared with a profit of 29.38 million a year earlier.

It also booked a provision for impairment of 58.86 million dirhams for the year, it said in a statement on the Abu Dhabi bourse website, without giving details.

UAE stock markets overvalued? (Blog)

Are the U.A.E.’s stock markets (ADX and DFM) still overvalued?

By the end of last week’s trading, the market capitalisation of both stock exchanges was 450.3 billion dirhams (122.5 billion dollars).

GNP (Gross National Product) is usually higher than GDP (Gross Domestic Product) and includes capital gains and losses and interest earned outside the country, so let’s compare the size of the stock markets to U.A.E. GNP.

Al Ahlia Holding seeks $157m bank loan bailout

Kuwaiti investment firm Al Ahlia Holding Co is seeking loans of up to KD45m ($157m) to refinance debt and expects a 2008 loss as it books provisions to weather the downturn, its chairman has said.

Abdullah Al Awady said the company had cancelled deals for local real estate projects worth KD230m ($781m) in the fourth quarter of 2008 to prevent further losses amid a global credit crunch hitting the oil exporter.

"Part of that ... was assuming debts up to 130 million dinars ... things have escalated and we chose to cancel the (whole) transactions," he said.

John Laing Homes files for bankruptcy (Update 1)

John Laing Homes, an American builder bought by Emaar Properties in 2006 for $1.05bn (Dh3.85bn), has filed for bankruptcy.

The firm filed for protection in the US on Thursday under Chapter 11 bankruptcy laws, which shield companies from creditors as they restructure or sell off assets to repay debts. John Laing owes roughly $977m to banks and other creditors and has assets worth $1.3bn, court papers show.

Emaar’s purchase of John Laing in June 2006 was the cornerstone of its effort to expand into the US housing market. But Emaar, the Middle East’s largest developer, made the foray as the US housing market peaked.

Changing of the old guard at SAMA, but policies to stay same

The appointment of Mohammed al Jasser as the new Saudi Arabian Monetary Authority (SAMA) governor in the sweeping government changes undertaken by King Abdullah took some financial observers by surprise, but the changing of the old guard does not signify fundamental changes in policies.

The departing governor, ­Hamad al Sayyari, who took over as acting governor in 1983 and was confirmed in the post in 1985, was the longest-serving central bank governor in the world on his retirement, a record that the US Federal Reserve’s “guru”, Alan Greenspan, could not match. Under Mr al Sayyari’s stewardship, SAMA evolved into a respected global player with its prudent regulatory policies, which are now keenly examined by other Gulf central banks in these turbulent financial times.

The early 1980s saw the completion of the “Saudisation” phase of wholly foreign-owned bank branches operating in the kingdom. It was a bold gamble that paid off handsomely for the Saudi banking sector, bringing long-term benefits to both Saudi and foreign partners. It also brought technical expertise, the grooming of future generations of Saudi bankers and the adoption of modern banking practices, albeit at a steep price.

Defence exhibition defies global downturn

Battleships, helicopters, unmanned aircraft and other tools of warfare have been lined up as potential buyers arrive from around the world for the ninth International Defence Exhibition and Conference (Idex), which opens today.

Nearly 900 exhibitors from 50 countries were putting the final touches to their products and displays last night for the big event.

Despite the global economic downturn, government and industry officials were optimistic that militaries from around the world would continue to spend on defence and security.

Outlows from equity funds up for third week

Flows out of equity funds increased for the third week running last week, climbing from $6.2 billion (Dh22.7bn) the previous week to $9.2bn for the week ending February 18, EPFR Global data indicated.

Bond funds again took in money, absorbing a net $539 million for the week.

“Optimism is, it appears, hard to extinguish. In a week when US automakers lined up for more cash, Ireland was touted as a candidate for a sovereign default and banks in Emerging Europe cast a fresh shadow on their parent companies, flows into EPFR Global-tracked commodity sector funds accelerated, high-yield bond and Latin America equity funds extended their winning streaks, US equity funds managed for growth again outperformed their value counterparts and money market funds posted their first three-week outflow streak since mid-June,” EPFR said in a statement.

Eibor eases to 3.10 per cent

The Emirates interbank offered rate, or Eibor, has eased to 3.10 per cent from 4.20 per cent at the start of the year as liquidity within the banking system has increased, bankers said.

However, the liquidity is “trapped”, according to a senior economist and does not percolate into the real economy.

“Banks are putting their money in the interbank market, driving the interbank rates down. Hence, a lower Eibor is not necessarily a sign that things have improved. It is a sign that liquidity is there but it is trapped,” said Marios Maratheftis, Regional Head of Research at Standard Chartered bank.

Saturday, 21 February 2009

India trembles as icon stumbles

When Tata, India's oldest and largest conglomerate, bought the fabled Jaguar auto brand last year, the country celebrated the gleaming trophy as affirmation of its new role as a global superpower.

What a difference a year makes.

Today, a string of blows has left the Tata group drowning in condolence calls, not international applause. Many see Tata's woes as especially alarming because, as has been the case for over a century, where Tata goes, India goes.

Latvia PM falls victim to turmoil

Latvia’s prime minister resigned on Friday as the financial and economic turmoil sweeping central and and eastern Europe claimed its first government leader.

Ivars Godmanis quit as the European Union attempted to boost its political support for new member states in eastern Europe with the announcement of a mini-summit on March 1.

The meeting between José Manuel Barroso, the European Commission president, and east European leaders, which will precede a full EU summit, has been arranged after a week of falls in east European currencies, doubts over the access to international credit of the more vulnerable east European countries and uncertainty on possible financial support from western Europe.

Medvedev attacks Putin officials over crisis

Dmitry Medvedev, the Russian president, accused Vladimir Putin’s government on Friday of failing to act quickly to combat the economic crisis.

It was a further sign of growing friction between Russia’s two power centres.

Without naming the prime minister, Mr Medvedev said the government had spent too long enacting plans for state guarantees to back loans to strategic companies in order to ease a dearth of credit that is exacerbating steep falls in output.

Banks compete to borrow money

DUBAI // Banks have started offering short-term fixed deposits at higher interest rates to raise their deposit bases, reduce risk and lower their loans-to-deposit ratios, despite constrained liquidity and a tight lending environment.

HSBC is offering rates of 5.05 per cent, 5.75 per cent and 6 per cent for fixed deposit terms of one month, three months and six months, respectively. Standard Chartered is quoting rates of 3.85 per cent, 4.15 per cent and 3.9 per cent for the same terms.

“The banks are now trying to attract deposits to adjust their risk; they need to beef up their depository system to be more immune and less risky,” said Yazan Abdeen, a fund manager at ING Investment Management. “Reducing lending is not the only way to reduce risk.”

John Laing Homes files for bankruptcy

John Laing Homes, an American builder bought by Emaar Properties in 2006 for $1.05bn (Dh3.85bn), has filed for bankruptcy.

The firm filed for protection in the US on Thursday under Chapter 11 bankruptcy laws, which shield companies from creditors as they restructure or sell off assets to repay debts. John Laing owes roughly $977m to banks and other creditors and has assets worth $1.3bn, court papers show.

Emaar’s purchase of John Laing in June 2006 was the cornerstone of its effort to expand into the US housing market. But Emaar, the Middle East’s largest developer, made the foray as the US housing market peaked.

Mubadala’s defence on offence

Defence is not the first thing that springs to mind when it comes to Mubadala Development Company, the state-backed firm whose investments include high-profile stakes in AMD, the second-largest maker of computer processors, and Ferrari.

But the company, whose assets are estimated at US$10 billion (Dh36.7bn), is an emerging player in the defence services industry. While more widely known for its efforts in building aerospace, property and healthcare firms in the emirate, Mubadala already owns stakes in 10 firms doing work for the military in the UAE.

With names such as Yahsat, Injazat, and Horizon, Mubadala’s affiliates are straddling the intersection of the private and public sectors in Abu Dhabi, home to the Armed Forces. And after several years of supporting the military here, Mubadala is now positioning itself to seek contracts throughout the region.

Drug dealers see UAE as a transit hub

World counter-narcotics chiefs have warned that drug traffickers are increasingly exploiting the UAE as a transit hub and have urged the Government to stop them.

The 2008 report by the UN’s International Narcotics Control Board says the Emirates have become a “major exporting and trans-shipping area” for highly addictive drugs such as heroin and amphetamines.

While praising the Government’s increased efforts to tackle the drug trade, the 132-page document criticises what it sees as a failure to take “adequate measures” against criminals or collect data about the scale of drug abuse within the country.

Friday, 20 February 2009

Will ETFs Replace Mutual Funds?

Despite a difficult market environment, exchange-traded funds are continuing to grow.

Investors worldwide poured $268 billion into ETFs last year, pushing total assets to roughly $730 billion at the end of 2008, according to a new report by Strategic Insight, a New York fund research and data firm. Assets worldwide are expected to hit $1 trillion in two years.

Much of that growth will be driven by broader acceptance of these investment vehicles, which resemble traditional index mutual funds but trade throughout the day like stocks. While institutions are already big users of ETFs, individual investors and financial advisers are increasingly turning to them to gain exposure to specific asset classes and to hedge their portfolios.

Global's Kuwait Weekly Report - February 19, 2009

"We are pleased to send to you Global Investment House's Kuwait Weekly Market Update. The Weekly Update contains macroeconomic and corporate news, a summary of the Kuwaiti market activity for the week, and technical analysis for a selected stock each week. We hope you find this publication useful.

In order to view the full report kindly click on the headline above."

Pakistan aims to extend emergency loan

Shaukat Tarin, the de facto Pakistan finance minister, has said he would seek an increase in the size of the emergency loan extended by the IMF to $12bn (€9.5bn, £8.4bn) from $7.6bn, due to growing economic pressures and adverse internal security conditions.

Pakistani officials and the IMF are meeting in Dubai from Feburary 14 to February 26 for talks on the first review of the loan, which was approved in November.

Officials have said fears tied to the effects of a growing Taliban led insurgency in the northern regions along the Afghan border continue to fuel a flight of capital from the country.

National Iranian Oil Company, Total to sign $5b deal by March 20

TEHRAN - The managing director of the National Iranian Oil Company and the French Total company will sign a $5 billion contract by the end of current Iranian calendar year (March 20).

According to PIN, Seyfollah Jashnsaz said that Total has never cut its relations and cooperation with National Iranian Oil Company.

"The development of the South Pars gas field phase 11 in the upstream sector and the construction of an LNG plant in the downstream sector will be Total's responsibility according to the contract," he added.

"The Anglo-Dutch Shell and Spain's Repsol are also eager to negotiate with Iran," the official noted, adding that the Italian ENIENI company is also talking with Iran regarding phase 3 of Darkhovin oilfield that is expected to be finalized by the end of the current Iranian calendar year (March 20) or early next calendar year.

Jashnsaz went on to say that negotiations with the German e.ON company about investment in Iran's LNG field have started.

John Laing Homes seeks Chapter 11

The company that does business as John Laing Homes, one of metro Denver’s largest homebuilders, filed Chapter 11 bankruptcy reorganization in Delaware on Thursday, claiming between $500 million and $1 billion in debts.

Irvine, Calif.-based WL Homes LLC, which builds under the John Laing brand primarily in Colorado, California, Arizona and Texas, has an estimated 25,000 to 50,000 creditors, according to its bankruptcy filings.

John Laing Homes recently suspended operations in metro Denver, according to local customers of the homebuilder. A local couple was told in mid-January that Laing was halting construction on their four-bedroom, $500,000 house in Denver’s Stapleton neighborhood.

BAE poised to seal Saudi Typhoon deal

BAE Systems, Europe’s largest defence contractor, on Thursday said it expected to agree a multi-billion pound deal to provide support and weapons systems for the 72 Eurofighter Typhoon aircraft to be bought by Saudi Arabia this year.

Ian King, chief executive, said the company was “in active discussions on the next phase” of a contract, signed between the UK government and the Gulf kingdom in 2007.

Saudi Arabia buys arms from Britain under government-to-government deals and BAE then acts as the prime contractor to the UK.

Sibir shares suspended after revelation

Shares in Sibir Energy, the London-listed oil company with assets in Russia, were suspended on Thursday after the company revealed that it had lent $325m (£228m) to one of its shareholders.

In a statement, Sibir admitted that Chalva Tchigirinski, a Russian tycoon who owns about 23 per cent of the shares, owed the company $210m more than the $115m that it had previously acknowledged.

Sibir is listed on Aim, the exchange for smaller companies that is more lightly regulated than London’s main market. At the latest share price of 174¾p, down 69 per cent in the past six months, its market capitalisation was £676m.

Dh49m Mizin corruption case referred to court

Dubai: The Dubai government's campaign against corruption continues, with the case involving Mizin, the real estate development company of Tatweer, being referred to court, Gulf News learnt on Thursday.

This is the second corruption case that the Public Prosecution has referred to the Dubai Court of First Instance. Gulf News earlier reported that the corruption case involving Sama Dubai had been referred to court.

According to the chargesheet, the Public Prosecution arraigned Mizin's Emirati former senior executive, S.A., and a Lebanese engineer, J.H., with bribery and financial irregularities, which amounted to nearly Dh49 million.

RAK will invest $2b in Georgia

Tbilisi: Ras Al Khaimah Investment Authority (Rakia) plans to invest about $2 billion (Dh7.34 billion) in Georgia over the next five years despite the global downturn and Georgia's war with Russia in 2008, the head of its local unit said.

A brief war between Georgia and Russia in August of last year over the break-away region of South Ossetia scared off many potential investors from the country but Rakia, a sovereign wealth fund, says it plans to fully carry out all investment projects.

"In spite of dramatic events that took place in August, Rakia has a very optimistic view and continues activities in the country," Zaza Mikadze, general director of RAK Georgia Holding, said.

Time for simple products has come

Dubai: In a comprehensive account of the credit crunch's impact on the Gulf's financial markets, Fadi Al Saeed, Head of Equities, ING Investment Management Middle East, tells Gulf News' Quarterly Financial Review about the need for simplification of products, consolidation of financial centres, and diversification of assets in accordance with personal need

Gulf News: For many people the financial sector as a whole is substantially to blame for the credit crunch. What impact have you witnessed in the area of wealth management, and how can potential investors feel comfortable with investment itself and investment advisers generally when so much has obviously gone wrong in terms of exposure and returns?

Al Saaed: This confidence and trust issue - it's the base of this industry. You go to a bank and deposit your own money, your savings. You do that because you believe in the image, the brand, the trustworthiness of the bank. Now, unfortunately, recent events have shown that some of the banks, more precisely some of the practices of banks [and more so investment banks], were actually focusing on the kind of return, not on what could be the long-term impact. And they were geared towards structuring risky products that people did not understand.

UAE preparing plan to help banks lend again

Dubai: The UAE is preparing a plan to help banks resume lending as the "unprecedented" credit crisis ends a five-year real-estate boom, the chairman of state-owned Dubai World said.

"If we want the banks to lend again to real estate, then obviously governments will have to put a plan," Sultan Ahmad Bin Sulayem, who also sits on a committee studying the effects of the global credit crisis on Dubai's economy, said in a February 17 interview in his office. "I know, I am aware, that the Central Bank and the federal government are taking steps to lend money."

"Any measure involving the federal government to address liquidity and other stresses in the economy will be very positive," said Mohieddine Kronfol, managing director at Dubai- based Algebra Capital Ltd. "This should help bring down the artificially high spreads we are seeing for the regional bonds and credit swaps."

United front on Borse Dubai sends right signals

Cash is king in today’s turbulent markets. So reports that Borse Dubai, Dubai’s stock market operator, has managed to borrow US$2.5 billion (Dh9.18bn), analysts say, may indicate that Dubai Inc may be in a better position than the rumour mill would have had you believe.

Borse Dubai, the state-owned majority owner of Dubai’s two stock markets, has reportedly closed a one-year, $2.5bn syndicated loan this week, just days before it is due to pay back $3.4bn in previous debt. Amid tight international credit markets and lingering concerns about Dubai’s debt load, foreign banks kicked in $1.2bn in loans, according to a Reuters report from London. The remaining $1.3bn came from Dubai’s own banks, the report said.

Equally important, analysts say, is where Borse Dubai appears to be getting the other $900 million it needs to make next week’s debt payment – from its shareholder, the Dubai Government.

UAE economy should ‘insulate’ itself - Suwaidi

ABU DHABI // The country should take steps to insulate itself from global economic uncertainty, the Governor of the Central Bank said Thursday.

Sultan al Suwaidi told a banker’s lunch at the Emirates Palace hotel that the country’s financial system had felt the pain of the global crisis, even though its banks had not ventured into risky structured investment products and derivatives that helped spark the crisis in the West.

“If we analyse things to find out why the UAE financial system was affected by the crisis, one major reason is that we have taken the global financial system for granted when we take part in any shortcomings,” Mr al Suwaidi said.

Dubai oil trading surges

The Dubai Mercantile Ex­change, home of the Oman crude oil futures contract, is on track to record in February its best month by volume, as the credit crisis prompts oil traders to move their deals from the opaque, private bilateral market into the exchange.

The DME is benefiting from the freezing of the over-the-counter market in Singapore, the world’s third-largest oil hub, as traders worry about counterparty risk – the possibility that the other side of their deals defaults.

Dubai oil, a competitor of Oman oil with similar characteristics to it, trades in the Singapore’s OTC market.

Thursday, 19 February 2009

ICD provided two-thirds of Borse Dubai refi-sources (Update 6)

State-owned Investment Corporation of Dubai (ICD) has provided up to $2.3 billion of the $3.4 billion Borse Dubai needs to refinance an existing syndicated loan, banking sources close to the deal said on Thursday.

Borse Dubai closed a $2.5 billion loan on Wednesday, which together with a $1 billion equity injection from shareholders including ICD, allayed fears that Borse Dubai would default on its debt. [ID:nLI495825]

Only $1.2 billion of the $2.5 billion was raised from international banks, sources said, leaving about $1.3 billion, which was provided by state-owned Dubai banks after ICD deposited cash with them, the sources said.

ICD used the proceeds of its own $6 billion syndicated loan, agreed in November, to meet the $1.3 billion loan payment and the $1 billion equity injection, two of the sources said.

Borse Dubai is the first Dubai government entity to tap the loan market this year in order to refinance foreign debt.

Despite the successful outcome for the loan, syndication was hit by foreign banks retreating from Dubai to their domestic markets, the sources said, adding that the banks will not return anytime soon.

"This has postponed the problem and not solved it," a banker close to the deal said.

HSBC (HSBA.L), which coordinated the deal, provided $250 million to the loan, while Emirates Bank ENBD.DU and Dubai Islamic Bank committed $800 million each after receiving capital from ICD, and Bank of Tokyo Mitsubishi-UFJ (8306.T) contributed $100 million, the sources said.

The remaining $550 million was provided by seven banks -- Bank of Baroda (BOB.BO), ING (ING.AS), Industrial and Commercial Bank of China (601398.SS), Intesa Sanpaolo (ISP.MI), National Bank of Abu Dhabi NBAD.AD, SEB (SEBa.ST) and Union National Bank UNB.AD, the sources said.

Dubai's stock and credit markets reacted positively to the news that Borse Dubai had successfully refinanced its loan.

Shares on the Dubai bourse .DFMGI closed the day up 5.38 percent, and the cost of insuring Dubai's debt in the credit default swaps market was quoted in the morning as falling 50 basis points (bps) to 950 bps. [ID:nLJ382682]

Mohammed Al Shaibani, executive director and chief executive officer of ICD, Nicholas Hegarty, its chief financial officer, and Essa Kazim, Borse Dubai's chairman, were not immediately available for comment.

RLPC-ICD provided two-thirds of Borse Dubai refi -sources (Update 5)

LONDON, Feb 19 (Reuters) - State-owned Investment Corporation of Dubai (ICD) has provided up to $2.3 billion of the $3.4 billion needed by Borse Dubai to refinance an existing syndicated loan, banking sources close to the deal said.

Borse Dubai closed a $2.5 billion loan on Wednesday, which together with a $1 billion equity injection from shareholders including ICD allayed fears that Borse Dubai would default on its debt. [ID:nLI495825]

Only $1.2 billion of the $2.5 billion was raised from international banks, sources said, leaving around $1.3 billion which was provided by state-owned Dubai banks after ICD deposited cash with them, the sources added.

Morocco Economic and Strategic Outlook - February 2009

"In continuation of Global Investment House coverage of MENA economies, we have come out with Morocco Economic and Strategic Outlook.

Morocco's economy is based mainly on agriculture, industry, and services. Although, agriculture is an important sector, forming around 11% of GDP in 2007, the government has been successful in diversifying the economy in recent years, with agriculture and mining industries, mostly phosphates, becoming less important and manufacturing and services gaining more ground. However, a year of drought slowed down the growth in 2007 as agriculture production was hit by weather conditions. Despite the 15.3% y-o-y decline in agriculture, the primary sector, the secondary and tertiary sectors grew by 6%, and 11% respectively, which resulted in an overall growth of 6.6% in GDP in 2007. In the wake of the recent financial crisis, Morocco has revised its estimated growth rate for 2008 from 6.8% to 5.8%. Still the economy of Morocco will remain strong, and is estimated to grow 5.5% in 2009, though lower than the estimated growth in 2008.

The global financial crisis has shown a limited effect on Morocco’s economy so far, however, we expect the recession in Europe, Morocco’s major trade partner, to start impacting the economy in 2009 as it will hurt the trade balance of Morocco. Going forward, we do not expect major improvements in the current account surplus as the economic slowdown is likely to affect export growth on the back of lower demand from Europe. In addition, a global economic slowdown is likely to affect tourism receipts, and workers' remittances. However, on the upside, the drop in oil and commodity prices is likely to reduce import costs.

We believe that future challenges to Morocco's economic growth remain in lower export revenues, high public debt, and increasing unemployment rate. However, on the bright side, we expect that the economy will get through these challenges and sustain the growth achieved earlier given the government's commitment to the reform program, and the healthy investment environment which will induce the inflows from foreign direct investments.

In order to view the full report, kindly click on the headline."

MSCI Barra Announcement on the Status of the MSCI Argentina and Pakistan Indices

New York – February 18, 2009 - MSCI Barra (NYSE:MXB), a leading provider of investment decision support tools worldwide, including indices and portfolio risk and performance analytics, announced today the conclusions from its recent consultation with the investment community on the market classification of Argentina. MSCI Barra also announced today that it will begin consultations with the investment community on a proposal to include the MSCI Pakistan Index in the MSCI Frontier Markets Index.

As a result of the continued restrictions to in- and outflows of capital in the Argentinean equity market, MSCI Barra will reclassify the MSCI Argentina Index from the MSCI Emerging Markets Index to the MSCI Frontier Markets Index at the end of May 2009 to coincide with the May 2009 Semi-Annual Index Review. In addition, MSCI Barra
will consider only American Depositary Receipts (ADRs) of Argentinean companies as eligible securities for inclusion in the MSCI Argentina Index.

MSCI Barra now opens a consultation with the investment community on a proposal to include the MSCI Pakistan Index in the MSCI Frontier Markets Index at the end of May 2009 to coincide with the May 2009 Semi-Annual Index Review. As a reminder, the MSCI Pakistan Index was removed from the MSCI Emerging Markets Index at the end of December 2008 following the deteriorated investability conditions prevailing in the Pakistani equity market. The MSCI Pakistan Index is currently a stand-alone index. Following the removal of the “floor rule” by the Karachi Stock Exchange trading activities have progressively recovered. The proposal for the MSCI Pakistan Index to join the MSCI Frontier Markets Index is based on the recent record of limited accessibility of the market as well as the fact that the MSCI Pakistan Index no longer meets the size requirements set for Emerging Markets.

The Eurekahedge Report February, 2009 (Registration required)

"Welcome to the latest Eurekahedge monthly newsletter, which includes proprietary research on hedge fund trends, asset flows and performance. We now compile all in-house research into the new The Eurekahedge Report. Highlights from this month’s report:

Hedge funds started the year on a positive note; up 0.2% in January
Hedge fund assets fell US$69 billion in January 2009, to US$1.4 trillion
Eurekahedge is pleased to announce a new area of enhancement to our product offerings. Database subscribers can now access 57 new data points including more key personnel, investments in private placement, managed accounts offered, secondary investment and geographic mandates, instruments traded, unique identifiers and much more."

Dubai: boom to bust? (Blog)

"You don't have to be Einstein to work out that things are slowing down."

Not the words of an Embittered Expat™ retrenched from his tax-free job in one of Dubai's endless "Cities", nor a disgruntled journalist having a whinge over an overpriced pint of frothy haram-juice in the Radisson's Media Bar, but a quote from the CEO of one of the world's biggest construction companies operating in Dubai:

"There are undoubtedly issues in Dubai."

New boutique to launch Africa and Middle East funds (Registration required)

Silk Invest, a new London-based boutique founded by some experienced fund industry figures, is launching two funds - one focused on Africa and one on the Middle East.

Among those who have set up Silk Invest is the former head of Commerzbank's asset management arm, Heinz Hockmann, who is chairman of the new firm. Chandima Mendis, a successful emerging bond manager who left AXA last year, is also involved in the enterprise as a member of the supervisory board and director of strategy. Meanwhile the CIO of the company is Daniel Broby, formerly global head of asset management at Renaissance Investment Management.

CEO of the new boutique is Zin Bekkali, whose Dutch Moroccan roots are representative of the diverse origins of a Silk Invest team which includes fund managers from South Africa, Egypt, Nigeria, Cameroon and Morocco. 'We attracted some senior people and then surrounded ourselves by people with local expertise,' Bekkali says.

SocGen takes a Russian hit

Société Générale, France’s second-biggest bank, on Wednesday put its Russian expansion plans on hold and wrote down some Russian assets but insisted it remained confident about the outlook for eastern Europe.

Growing concern about the health of economies in eastern Europe have hammered shares in SocGen, which has more exposure to the region than other French banks. It has a majority stake in Rosbank, the Russian bank, and owns the Czech Republic’s third-largest consumer banking network as well as Romania’s second-biggest bank.

Shares in SocGen have fallen 35 per cent since January, underperforming the FTSE Eurofirst Banks index by 14 per cent. The other French banks have all outperformed the index. It clawed back some of the losses on Wednesday, closing 2.7 per cent higher.

Two Wermuth Europe board members to quit

Lord Skidelsky, the historian and biographer of John Maynard Keynes, is planning to quit the board of a hedge fund that lost most of its value after investing in Russian assets, including the Moscow-based Wild Orchid lingerie chain.

Another eminent figure planning to leave the board of Frankfurt-based Wermuth Asset Management’s Greater Europe fund is Garret FitzGerald, the 83-year-old former Irish Taoiseach, who has health problems.

The two Russophiles are part of a five-man board at Wermuth’s Greater Europe fund, which is set to be replaced this year, as the hedge fund adapts to its vastly shrunken value and sharply lower annual fee income.

Scare warns of potential quake ahead

The shock that has passed through central and east European markets in the past two days adds to the pressure on governments, banks and international institutions to rescue the region’s economies.

“I hate to say it,” says Erik Berglof, chief economist at the European Bank for Reconstruction and Development (EBRD), “but it is, of course, what we have been expecting. What is necessary now is to put in place what needs to be done.”

A report on Tuesday from Moody’s, the ratings agency, warning of deteriorating conditions in eastern Europe triggered turmoil in the region’s markets, which spread to western Europe and even spooked New York.

New labour policy for Emiratis

Private-sector employers may not lay off Emirati workers for anything other than exceptional misconduct, the Ministry of Labour announced yesterday.

The new policy is a response to concerns that private-sector companies could lay off staff because of the global economic downturn.

Under the policy, companies may sack Emiratis only for serious misconduct defined in labour law, such as arriving to work under the influence of alcohol, stealing from the company or forging identity documents.

A ground-breaking move for Arabian Gulf region

In a ground-breaking move, Abu Dhabi and Fujairah announced their intent to set up a harbour that allows exporting 70 per cent of Abu Dhabi's oil exports through Fujairah, without passing through the Strait of Hormuz.

The move sounds extremely important due to its strategic, economic and environmental dimensions - not only for the UAE but also for the entire Arabian Gulf region.

Over the past three decades, Gulf navigation faced turbulent conditions and threats, which reached its peak in the mid-1980s when oil carriers were attacked during the so-called "war" on oil tankers.

Assets cushion Oman

Moody's Investors Service yesterday said it has maintained A2 investment-grade sovereign ratings of Oman due to extensive offshore assets that will enable the country to fund projected deficits without resorting to debt accumulation.

It also gave stable outlook to the country.

"The government's extensive offshore financial assets will enable it to provide fiscal stimulus and fund projected deficits without resorting to debt accumulation, at least over the short- to medium-term," said Tristan Cooper, Moody's Vice-President/Senior Analyst.

S&P affirms RAK rating

Standard & Poor's Ratings Services yesterday affirmed its "A" long-term and "A-1" short-term sovereign credit rating of Ras Al Khaimah (RAK) as the emirate enjoys modest liabilities.

It gave a stable outlook to the emirate with the Transfer and Convertibility assessment remains "AA+".

"The ratings on RAK, the northernmost of the seven emirates that comprise the United Arab Emirates, rest primarily on ongoing support from the federal government of the UAE and the likelihood of extraordinary support in the event of financial stress," said Standard and Poor's credit analyst Farouk Soussa.

Borse Dubai closes $2.5bn syndication (Update 4)

In a massive vote of confidence in Dubai's economy, Borse Dubai attracted "some fresh money" in closing a fully subscribed $2.5 billion (Dh9.1bn) syndication, a senior executive close to the transaction said yesterday.

"It was mainly the foreign banks who rolled over what they were holding. Local banks – based in Dubai as well as Abu Dhabi – also rolled over their facilities. And some fresh money came in," the executive said on condition of anonymity.

The original financing, which was split between a $2.226bn and a £796 million (Dh4.1bn) facility, paid a margin of 70 to 130 basis points (bps) over the London Interbank Offered Rate, or Libor.