Google+ Followers

Thursday, 31 December 2009


We’ve compiled many of the very best outlooks from various analysts, gurus, hedge funds and investors. We hope you find the list helpful in mapping your successful 2010:

ANALYSIS - After tough year, Dubai expats pack up, eye Asia

For lawyer Wilfred Goh, the sign it was time to leave Dubai came early in 2009, when the financial crisis took its toll, plunging the emirate's main stock index down roughly 70 percent in a matter of months.

After speaking to friends and government officials, Goh decided to return to Asia, with the thought that Hong Kong, China or Singapore offered better job opportunities. Goh, 47, eventually got a job back home in Singapore.

"We just felt Dubai's economic climate was not very good and they had started to retrench people," said Goh, who works at the Central Chambers Law Corp in Singapore.

Kuwait's Global seeks s/holder nod for debt plan

Shareholders of Kuwait's Global Investment House (GLOB.KW), which defaulted on most of its debt last year, will vote on a restructuring deal to transfer its main investments and real estate assets to two new units.


The vote will take place on Jan. 12, the company said on Thursday in a statement to the Kuwait bourse.

Global reached a deal with creditors this month to reschedule $1.7 billion in debt, and entered into new three-year facilities with each of its 53 lending banks. [ID:nGEE5B90V7]

Qatar buys 5 pct stake in local banks

Qatar's sovereign wealth fund took a 5 percent stake in listed banks' capital, the second stage of a previously announced move aimed at boosting confidence.

Two weeks ago, Finance Minister Youssef Kamal said the Gulf Arab state will spend $900 million on buying the stakes by year-end as part of its measures to support the banking system.[ID:nWEA5559]

The Qatar Investment Authority (QIA) subscribed to the capital increase in national banks on Wednesday, Qatar's news agency said. It did not give financial details.

Dubai sees 2010 budget deficit at 2 pct

Dubai may see a budget deficit of 2 percent of gross domestic product next year, but the proposal still needs to be approved, the head of the Gulf emirate's budget committee told Reuters on Thursday.

Dubai, a member of the United Arab Emirates federation, received a last-minute bailout from fellow emirate Abu Dhabi earlier this month to avoid a default on billions of dollars worth of debt of one of its flagship companies.

"The deficit in Dubai's budget is 2 percent of gross domestic product of 300 billion dirhams ($81.68 billion) projected for 2009," Dhahi Khalfan Tamim said in a telephone interview.

Happy New Year, 2010 will be a more positive year than 2008/9 have been!

This gentleman seems to be prepared for all eventualities in 2010!

ADX rose by 13% in 2009 outperforming most markets (Interview)

The global fiscal distress wreaked havoc in most markets in the last months of 2008 and its effects continued to reverberate through 2009. It was a hard year for most of them, including the Abu Dhabi Securities Exchange (ADX) although it ended 2009 higher by almost 13 per cent.

The growth has apparently tempted foreign investors, whose net purchase more than doubled in the second half, according to its Deputy Chief Executive and Director of Operations Rashed Al Baloushi.

In an interview with Emirates Business, Baloushi said ADX outperformed most other markets in 2009 and the process of its development would continue.

He supported the creation of a bond market in the UAE and said plans to introduce exchange trade funds (ETFs) to ADX could materialise in 2010. But derivatives could be delayed.

Bankers bracing for more bad loans

Banks are bracing for an escalation in bad loans in the new year as defaults spread throughout the financial system and attention shifts from retail to corporate customers in the wake of the Dubai World debt restructuring.

Non-performing loans were once considered a minor issue that would work its way through the system in a matter of months, but most analysts now expect the volume of bad loans at banks to crest next year before gradually receding as they are written off.

“We expect non-performing loans to peak by mid-next year,” said Janany Vamadeva, a banking analyst at HC Securities in Dubai. “A non-performing loan takes six months to be reflected in the books, even after things improve. Even in corporate loans, asset quality is deteriorating.”

Analyst: MGM Mirage Still Has Capital Needs

A "reasonably successful" CityCenter phased opening in Las Vegas and a potential Macau initial public offering are good news for MGM Mirage, but the need for more capital weighs on the casino operator, an analyst said Wednesday.

David Katz of Oppenheimer said in a client note that MGM Mirage's management anticipates CityCenter will report 2010 margins in the low 20 percent range, compared with his previous 12 percent estimate. Katz said the company's margin forecast could be optimistic, but he raised his estimate for CityCenter's earnings before interest, taxes, depreciation and amortization to $196 million from $136 million and increased the casino operator's price target to $9 from $8.

While management is upbeat on CityCenter's prospects, Katz feels the stock price already reflects this potential. He maintained a "Perform" rating.

Bahrain GFH takes $300 mln Dubai project provision

Bahrain's Gulf Finance House (GFH) said on Wednesday it had taken a provision of $300 million over its exposure to a Dubai development project.

"Gulf Finance House ... will take a $ 300 million (non-cash) charge against its proprietary Dubailand position and correspondingly reduce the liabilities on its balance sheet by $290 million," the company said in a statement.

"GFH has no remaining material exposure to Dubai."

Analysts bullish on Gulf companies

Research on Gulf companies and industries has ballooned in recent years, pushed by increasing international interest in the oil-rich region’s listed companies.

So what do research analysts think of the region’s corporate world? In spite of criticism from some quarters for their negativity, analysts are largely positive about the future for most Gulf companies.

Of 95 research notes in November covered by Markaz, a Kuwaiti investment bank, 55 per cent had a “buy” rating, 34 per cent said “hold” and less than 12 per cent urged investors to “sell” their shares. In October, when the bank started its coverage of research notes, 50 per cent had “buy” recommendations.

Investors warned against Dubai bail-out bets

Moody’s, the credit ratings agency, has cautioned investors against betting on further bail-outs of Dubai’s state-linked bonds by the emirate’s wealthier neighbour, Abu Dhabi.

State-owned Dubai World rattled global markets in late November by seeking to restructure about $26bn of its debts, but Abu Dhabi at the last minute stepped in with a $10bn loan. This allowed the settlement of a $4.1bn bond repayment due on December 14 at Nakheel, Dubai World’s developer.

Officials have publicly insisted that the bail-out should not be seen as a precedent, but Dubai is understood to be considering the full repayment of other bonds at Dubai World.

Rare flicker of democracy

A throng of Abu Dhabi residents draped in the flags  of the United Arab Emirates massed around the entrance to a sprawling conference centre this month, queuing for a rare taste of democracy in the emirate.

“Vote for Abu Dhabi First. We strengthen our economy,” said a hoarding bearing the images and numbers of the party’s candidates. Pamphlets were distributed, deals were made, hands shaken and campaign promises reiterated by candidates.

Rather than parliamentary elections – which remain rare and often symbolic affairs in the autocratic Gulf – the candidates were seeking to win board memberships to the Abu Dhabi Chamber of Commerce and Industry.

Dubai’s restructuring continues to reverberate

The relief was palpable when Abu Dhabi injected $10bn into Dubai’s Financial Support Fund, averting a possible default of the $4.1bn sukuk issued by construction firm Nakheel.

But while this appears to have calmed the turmoil triggered some weeks ago by the Dubai government’s announced restructuring of Nakheel’s parent, Dubai World, we would caution against complacency. Not only is the rebuilding of Dubai’s reputation as a reliable international borrower likely to be a drawn-out process, but the consequences of recent events for the corporate and macroeconomic landscape are also likely to remain profound.

Therefore, sharp reversals in credit ratings – or indeed in investors’ perceptions – should not be immediately assumed.

Wednesday, 30 December 2009

Dubai panel set up to solve Amlak, Tamweel disputes | Reuters

Dubai panel set up to solve Amlak, Tamweel disputes
| Reuters

Public Warehousing (Agility) in talks with U.S. to settle fraud case

The Kuwaiti firm indicted last month for allegedly overcharging the Army on a multibillion-dollar contract to supply food to U.S. troops in Iraq, Kuwait and Jordan has announced it is negotiating with the Justice Department to settle the case.

Public Warehousing Co. made the announcement in a statement posted Monday on the Kuwait Stock Exchange Web site and added: "No deal has been struck so far and there are no guarantees that the negotiations will result in a settlement."

Last month, Public Warehousing -- which is in the process of changing its name to Agility -- was indicted in Atlanta for allegedly submitting inflated bills and false claims for food and other products supplied to the U.S. military over the past six years in contracts worth $8.5 billion. The company has denied the charges.

Russian oil firms moving back into Iraq

The big Western oil giants are moving back into Iraq, which has the potential to out-produce Saudi Arabia, and the Russians aren't far behind. A joint-venture of Lukoil of Russia (75 per cent) and Norways's State-controlled Statoil (25 per cent) will develop the West Qurna Phase II project in southern Iraq with estimated reserves of 13 billion barrels of light oil.

Lukoil wanted to bypass the lease auction process and revive an old contract negotiated during the Saddam Hussein era, but was refused. The joint-venture said it will invest several billion dollars in the project - the new field will produce up to 1.8 million barrels daily.

Iraq has already held two auctions of leases and ten development contracts were signed with Western energy firms. Potentially they could quadruple Iraq's oil production to about 12 million barrels daily, equalling Saudi Arabia's present maximum capacity.

GCC Infrastructure Roads & Railways - Markaz Report

Kuwait Financial Centre "Markaz" has released its latest infrastructure report focusing on the roads and railways sector in the GCC. The authors of the report M.R. Raghu and Amrith Mukkamala state that the GCC region has historically focused its transportation investments in building roadways. This has ensured high quality of roads across most of the GCC countries. The paved roads as a percentage of total roads in most of the GCC countries is close to 100% as compared to other emerging countries average which is below 75%.

This can be mainly attributed to the significantly higher density of motor vehicles per kilometer of road in some of the GCC countries as compared to the BRIC peers. Among the six GCC countries four countries - UAE, Kuwait, Bahrain & Qatar have significantly higher traffic density in comparison to rest of the countries.

Also, the higher density of vehicles is because of the low road density. Other than Bahrain, the rest of the countries in the GCC have significantly low levels of road density. Majority of the countries in the GCC fare poorly when compared to developed nations also. US and United Kingdom have a road density of 0.68 and 1.72 respectively compared to say Saudi Arabia which is at 0.10.

Dubai Stocks Advance as Oil Trades Close to $80 on Economy

Dubai stocks advanced for third time this week, led by Emaar Properties PJSC and Emirates NBD PJSC, as oil traded close to $80 a barrel.

Emaar, the United Arab Emirates’ largest real-estate company, gained 2.4 percent and Emirates NBD, the country’s biggest bank, surged the most in two weeks. The DFM General Index increased 1.2 percent to close at 1,810.24, bringing the advance for the year to 11 percent. The measure declined 72 percent last year. Abu Dhabi’s ADX General Index, which is up 15 percent this year, added 0.1 percent.

Oil advanced 8.8 percent since Dec. 21. A U.S. government report today is forecast to show a decline in stockpiles of the fuel in the largest energy-consuming nation. Another U.S. report may show manufacturing expanded in December for a fifth month, adding to signs the economy is gaining momentum. Oil, which traded as high as $79.19 a barrel, has surged 77 percent this year. The six Arab Gulf states in the Gulf Cooperation Council supply about 20 percent of world’s oil.

Fifty faces that shaped the decade (Join the debate click here)

In a decade that opened with the devastating events of September 11 and had survived the prospect of a global economic collapse as it closed, the FT’s choice of the 50 people who most shaped the last 10 years forms a very diverse group: not all are heroes, some are villains, and many fall somewhere in between. All such lists are subjective and somewhat arbitrary, but we have tried to capture individuals who have had a powerful impact on the world or their region – for good or bad – in four areas: politics, business, economics and culture.

It was not an easy task. There could easily have been 50 people from each category. So the men and women on our list should be seen as representative of the larger themes of the decade. There are some striking omissions, because we felt that a historic event or trend had been captured by someone already on our list. Why no Saddam Hussein? Surely Iraq, and the overthrow of its ruler, has been one of the stories of the decade? Ultimately, we felt that the Iraq war was encapsulated by the two western politicians who did most to create it: George W Bush and Tony Blair.

Some of our choices may not be familiar names around the world, but they will have had an important effect on their region or particular industry. And in the cultural category, our list focuses on those who have had a profound influence on a large number of people, rather than making judgments about the instrinsic artistic merit of their work.

We recognise that the 50 faces on this list are a jumping-off point for debate. Who did we miss? Who should not have made the cut? Who will shape the next decade? Join the debate through headline link.

Ten reasons not to be optimistic about 2010

1. Global bank balance sheets remain loaded with toxic assets. The real banking crisis has not started. Government bailouts have delayed the day of reckoning, not eliminated it.

2. Stock markets rebounded ‘too far, too fast’ in 2009 and are overdue for a big correction.

3. Chinese exports fell around 20 per cent in 2009, and have not recovered. Global trade continues to reel from the worst crash since the 1930s.

4. US consumer and commercial lending is sharply down. The banks still are not lending for spending.

5. Property values continue to deteriorate around the world putting new financial pressure on owners and banks. US mortgage resets are the sub-prime crisis part two.

6. A double-dip recession like 1980-82 is the most likely scenario with a further leg down in the second half of 2010. The 2009 downturn was too short following a major financial crisis.

7. Emerging markets like India and China are faking their growth – Chinese exports for example are in a deep depression. These markets are anyway too small to lead global recovery.

8. Oil prices are too high, and generally depress economic activity.

9. The record gold price indicates that smart investors are expecting the worst.

10. In past major global financial crises a bond market crash has always been the final phase, and we have not seen that yet. This will bring much higher interest rates, and a boom in the gold price.

DIFC unveils Sharia-backed hedging agreement

The Dubai International Financial Centre (DIFC) hosted a meeting of the Sharia Advisory Panel of the International Islamic Financial Market (IIFM) to obtain guidance from scholars and to explain the benefits of its Tahawwut (Hedging) Master Agreement.

The agreement provides a framework and mechanism on hedging or risk management transactions that can be undertaken by the Islamic finance industry. It has been developed by the IIFM jointly with the International Swaps and Derivatives Association (ISDA).

The DIFC meeting focused on the key features and mechanics of the Tahawwut documentation, which the IIFM and ISDA have developed in consultation with market participants and under the guidance of the IIFM Sharia Panel.

Farhan Al Bastaki, Executive Director, Islamic Finance, DIFC Authority, said "...few have realised that a more stable, asset-backed and efficient system already exists. Islamic finance has withstood the negative impact of the global financial crisis."END

Turkey seeks closer link to Emirates

Turkey and the UAE will develop closer economic ties and increase cross-border investment despite the financial crisis and lingering disputes over US$80 million (Dh293.8m) in unpaid contracting bills, a prominent Turkish businessman says.

Direct investments from the Gulf into Turkey accounted for only 2 per cent of overall foreign investment in the country, said Korhan Kurdoglu, the chairman of the Turkish-UAE Business Council.

And Mr Kurdoglu said only between 1 and 2 per cent of the GCC’s total foreign investment went to Turkey, a state of affairs he expected would improve.

Seminal atomic accord proves West to East flow

The US$20 billion (Dh73.46bn) agreement between the UAE and South Korea to build four nuclear reactors in the Emirates over the next seven years is epochal in several ways.

It is the biggest foreign contract ever awarded by the country and is therefore proof that, despite the credit crisis and short-lived recession, the Emirates has the resources to continue pursuing the goals of its central economic strategy.

It is simultaneously a signal of political maturity that the country was able to negotiate with the international community over the sensitive issue of nuclear power and conclude a deal without any of the uproar that accompanied Iran’s declaration of its nuclear ambitions.

Abu Dhabi says assets at least double GDP

Abu Dhabi assured Moody's that its financial assets are worth at least double the value of the Gulf emirate's gross domestic product, well above the external debt of the United Arab Emirates, the rating agency said on Tuesday.

The UAE federation's debt has more than tripled since 2005 fuelled by ambitious projects of Abu Dhabi's neighbour Dubai.

Dubai, shocked markets last month, asking for a repayment freeze on billions of dollars worth of debt at its flagship firms before Abu Dhabi stepped in with a last-minute bailout.

Sabic Plans 10 Billion-Riyal Bond Sale to Saudi Fund

Saudi Basic Industries Corp., the world’s largest petrochemical maker known as Sabic, plans to raise 10 billion riyals ($2.7 billion) in a private placement of bonds to the government-run Public Investment Fund.

The seven-year notes will help finance the company’s expansion plans, the Riyadh-based petrochemical maker said in a statement on the Saudi bourse Web site today. Sabic signed an agreement with the Public Investment Fund for the bond issue, according to the statement.

Sabic wants to triple its petrochemical production to 130 million tons by 2020 by building plants and acquiring facilities as the company prepares for higher demand for its products. Sabic’s bond issue will be the biggest since June when Saudi Electricity Co., the state-controlled power producer, raised 7 billion riyals by selling five-year Islamic bonds.

The coming oil glut that will force prices to drop sharply

The outlook for the oil price remains mired in much confusion. Peak oil theorists see production in terminal decline. Others, who expect the oil price to revisit its 2008 highs, argue that rapid demand growth from emerging markets, most notably China, will underpin a long and aggressive rally in the price. Some even argue that as the world runs out of oil we shall slip back into pre-industrial ways as energy is rationed and human behaviour has to change as a result - an argument that has been regularly trotted out over the last five centuries. First, in Britain in the 16th century as the country was perceived to be running out of wood, its then primary energy source. Then 300 years later by economist William Jevons who believed that Britain's coal supply, and therefore primary energy supply, was in terminal decline.

Market price signals, however, have an uncanny ability to change long-term supply and demand dynamics. Indeed, the high and rising price of oil from 2004/05 onwards, but most particularly in 2008, would appear to have delivered a very clear and identifiable supply response. Using conservative assumptions we expect that the future supply of oil will increase by approximately 9-10m barrels per day by 2017. That equates to a 10-12 per cent increase in global production capacity. Importantly it will more than absorb our estimated 5m bpd increase in Chinese demand, the biggest single driver of demand growth, over that timeframe.

That increase in supply reflects four key trends that are playing out at a country level. First there are those countries where politics, ageing fields and a poor investment environment have resulted in and are likely to continue to result in falling or, at best, stable production, despite often plentiful oil reserves. This group includes Venezuela, Mexico, Russia, Nigeria and Iran (representing 26 per cent of the world's reserves). Second is a group of countries, mostly western, where production peaked a number of years ago and where that trend seems likely to persist. This group typically fits the peak oil theorist's prescriptions and includes the UK (peaked in 1999), the US (1970 peak) and Norway (2001 peak).

S.Korea, China, UAE win Turkmen gas deal - sources

Firms from China, South Korea and the United Arab Emirates have won $9.7 billion worth of contracts to develop Turkmenistan's largest natural gas deposit, government sources in the Central Asian state said on Tuesday.

The decision marks the latest move by Turkmenistan, holder of the world's fourth-largest natural gas reserves, to diversify its energy industry away from Russia, its Soviet-era master and traditionally the main buyer of Turkmen gas.

The international pool of companies will drill and build gas plants at the South Iolotan deposit, which is ranked potentially as one of the biggest five natural gas deposits in the world.

Moody's Downgrades Abu Dhabi Commercial Bank PJSC Ratings

Moody's Investors Service downgraded its ratings on Abu Dhabi Commercial Bank PJSC (ADCB.AD), saying its standalone financial strength has weakened from increasing loan delinquencies and impairments of investments.

The rating agency also said it expects the weakening operating environment in Dubai and the recent restructuring of Dubai World (DWORLD.YY) will continue to weigh on the bank's loan quality and likely profitability in the foreseeable future.

Dubai World shocked investors last month by seeking a six-month moratorium on its $26 billion debt payments although Abu Dhabi later offered a bailout of the company, once a crown jewel in the business empire of Dubai's ruler, Sheik Mohammed bin Rashid Al Maktoum.

Abu Dhabi, the oil-rich capital of the seven-member United Arab Emirates, pumped $10 billion into Dubai's financial-support fund two weeks ago by buying its bonds.

Moody's put Abu Dhabi Commercial Bank's ratings on review earlier this month because of potential deterioration in Dubai's operating environment, including the bank's exposure to the ongoing restructuring of Dubai World companies' debt. Standard & Poor's Ratings Services also put the bank's ratings on review for downgrade after the Dubai World request for a delay in repaying its debt last month.

The bank's asset quality, which had been weakening since the beginning of 2008 because of subprime exposures, continued to deteriorate this year, especially because of its high loan concentrations to defaulting Saudi corporate bonds, Moody's said.

The firm noted that the bank has received a series of capital injections this year, boosting its capital levels, and the bank's parent, Abu Dhabi Investment Council, is able and willing to support the bank.

Moody's cut its long-term deposit ratings one notch to A1, four steps below the top rating of AAA, and lowered its bank financial strength rating to D+ from C-. The outlook on all ratings is negative.END

Tuesday, 29 December 2009

Dubai hires consultants to woo investors

The Gulf emirate of Dubai has hired foreign consultants to attract more investments after its reputation was hit following the shock announcements of debt repayment problems at its flagship companies.

Dubai's Foreign Investment Office signed an agreement with consultants A.T. Kearney and its affiliated think-tank Global Business Policy Council, according to a joint statement on Tuesday.

The partners gave no details, saying only they wanted to develop "new policy tools".

Dubai Ups Jail Sentence for Fraud

Dubai's ruler on Tuesday issued a new law imposing tougher sentences of up to 20 years in jail for those convicted of defrauding the government of funds, as it seeks to continue its clampdown on corporate crime.

The new law is to "protect Dubai's economic interests and preserve financial rights of individuals," according to a statement from the office of Sheik Mohammed bin Rashid Al Maktoum seen by Zawya Dow Jones.

Under the new law, those convicted of public, or private fraud could face between five and 20 years imprisonment, said the statement, which adds that felons may be immediately released "once they fully return the money to [its] lawful owners or through settlement agreements negotiated with their debtors." Previously, the maximum sentence had been five years.

Dubai's business community was rocked last year by a series of high profile investigations and arrests of senior executives amid a crackdown on corporate crime.END

Dubai Shares Fluctuate Before Earnings, Dubai World Debt News

Dubai’s benchmark index fluctuated between gains and losses as investors sought news on fourth- quarter earnings and Dubai World’s loan restructuring.

The DFM General Index fell for the first time in four days, losing 0.7 percent to 1,816.04 at 1:17 p.m. in the emirate. The measure had gained as much as 0.6 percent earlier. Emaar Properties PJSC, the United Arab Emirates’ biggest developer, lost 2.3 percent. Arabtec Holding PJSC, the country’s largest builder, rose to the highest in a month. Abu Dhabi’s benchmark added 0.5 percent, led by Emirates Telecommunications Corp.

“There is an absence of any real news,” said Khaled Masri, a partner at Rasmala Investments LLC. “Investors are waiting for fourth-quarter earnings and news on Dubai World’s restructuring.”

Microfinance is the need of the hour

Last month I was part of a team that travelled to Washington, D.C. and met with officials from the US administration. I learnt that President Barack Obama is holding an 'entrepreneurship in Muslim communities summit' next March in the US capital about an emerging phenomenon known as social entrepreneurship. A social entrepreneur is, according to Wikipedia, a person who recognizes a social problem and uses entrepreneurial principles to organise, create, and manage a venture to make social change. I had never heard of this concept prior to that visit, or so I thought. It turns out that the founder of one of the most popular forms of social entrepreneurship is the Nobel Laureate Mohammed Younis who developed the practice of microfinance in 1976.

Microfinance allows low income individuals who were previously outside the traditional banking and finance sectors radar screens, to have access not only to small amounts of funding but also to insurance, transfer and savings. These funds can be as low as a few score dollars and are usually requested by individuals who do not want charity but need funding to start a business and get a head start in life. By the time Mr Younis won the Nobel Prize for peace in 2006, Grameen bank had almost seven million borrowers - 97% of whom were women.

Younis’s work has lifted microfinance in to the limelight the world over. Similar concepts are now used in Asia, Africa and Latin America. But I wondered if such an idea could work in the oil rich Gulf States.


RBC recently released their 20 favorite trades for 2010. As we previously mentioned, RBC is relatively bullish though they are viewing the upcoming year as two different investment environments. They see overall fundamentals improving and the first half of 2010 serving as a period of “catch-up” for investors. That should change heading into the back half of the year as investors become more defensive. Based on this macro outlook RBC provides their 10 favorite trades for 2010:

  • Argentina external debt steepeners (Long Boden 2012’s / Short US$ 2033 Discounts)

Actionable only for sophisticated investors with foreign access. The Argentine holdout debt restructuring is likely to conclude in 2010. The holdout-debt-swap is likely to result in underperformance of the long end of the curve, given that most of the resulting debt is expected to be issued in discounts.

Seoul's U.A.E. Deal Caps Big Sales Push

South Korea used political persuasion as well as a sharpened competitive edge to win a high-profile, $20.4 billion deal to build four nuclear power plants in the United Arab Emirates.

U.A.E. officials over the weekend tapped a consortium led by Korea Electric Power Co., or Kepco, to design, build and help run the four plants from 2017 to 2020. The plants will be the first civilian nuclear reactors in the Mideast and mark the first time South Korea has exported its its nuclear-design capability.

"This success is the result of efforts by the government and many companies, but I have to tell you, I also believe this is heaven-sent national fortune," President Lee Myung-bak, who took an active role in the process, said in a national address Monday. The South Korean consortium was chosen over groups from France and the U.S.

Insuring Dubai Holding debt rises

The cost of insuring Dubai Holding debt against default has risen over the past two weeks despite what analysts say is evidence that it can meet its immediate obligations.

Concerns have risen about Dubai Holding since its sister company Dubai World announced in November a debt restructuring.

Credit default swaps (CDS) for Dubai Holding Commercial Operations Group (DHCOG) have climbed 14 per cent since December 15 to more than 2,000 basis points or 20 percentage points, according to data from CMA DataVision in New York. That means it costs more than US$2,000 (Dh7,346) to insure $10,000 worth of Dubai Holding bonds.

Mazaya Qatar preparing public issue

The Qatari affiliate of the Kuwaiti developer Al Mazaya hopes to raise as much as 500 million rials (Dh504m) in a public issue.

Mazaya Qatar Real Estate Development is preparing an initial public offering (IPO) for next month despite a weakened appetite among investors for property investments.

“Our advisers tell us that it should be well subscribed. Cash is king,” said Seraj al Baker, the general manager of the company.

Etisalat has Pakistan on hold

Etisalat has become embroiled in a US$1 billion (Dh3.67bn) payment dispute with the Pakistan government over its 2006 purchase of a stake in Pakistan Telecommunication Corporation (PTCL), the country’s largest telecoms operator.

Etisalat agreed to pay $2.6bn to the government in instalments for a 26 per cent stake in PTCL in January 2006. But it has withheld payments for more than a year because of a dispute over the ownership of several properties in Pakistan that were part of the deal.

“Transfer of land is part of the contract. It says if it doesn’t happen we can stop the payments,” said Mohammed Omran, the chairman of the UAE’s largest telecoms operator.

Monday, 28 December 2009

Kuwait's Global Distressed Fund ranked among top ten worldwide

Kuwait's Global Distressed Fund ranked among top ten worldwide

Grounds reaches for the sky with Dubai Vegas punt

THAT tuna you're eating at the CityCentre hotel in Las Vegas was caught off the coast of Maine, put in what is effectively a cadaver freezer to keep it fresh, and flown by private jet.

So explains William Grounds, the Australian who heads Dubai World's investment in the $US8.5 billion ($9.6bn) CityCentre hotels and casino complex across a 27ha block on the Las Vegas strip.

And the tuna's journey doesn't end there.

In a tale worthy of one of the world's biggest single property developments, a master chef was brought in from Japan to ensure the fish was correctly butchered for consumption in one of CityCentre's 16 restaurants, which are run by top chefs or celebrities such as Eva Longoria Parker. Grounds, whose brother is UBS Australia chief executive Matthew Grounds, has a bagful of stories after nearly two years in Nevada -- a desert location reminiscent of Dubai.

GCC Investor Confidence: Shaken but still positive

SHUAA Capital, the region’s leading financial services institution, today issued its December Special Edition GCC Investor Sentiment Report, the only report of its kind for the Gulf markets.

December has been an incredible month for the global financial community, given the events surrounding Dubai World and its announcement on 25 November 2009 to request a standstill on its debt obligations while it restructures various parts of its business, including the master developer, Nakheel.

The subsequent repayment of the Nakheel ’09 Islamic bond, or sukuk, via a loan from Abu Dhabi, was equally unexpected and highlighted the issue of uncertainty in regional markets.

U.A.E Shares Gain on Speculation Fall Is Overdone, Oil Rises

Dubai and Abu Dhabi shares climbed to their highest in a week as investors speculated recent declines were overdone and oil traded near a four-week high.

Emaar Properties PJSC, the United Arab Emirates’ biggest real-estate developer by market value, rose the most in almost two weeks. Arabtec Holding PJSC, the U.A.E.’s biggest construction company surged the most in a year, while Emirates Telecommunications Corp. gained for the first time in four trading days. Dubai’s DFM General Index increased 3.4 percent to close at 1,828.63, the highest since Dec. 20. Abu Dhabi’s ADX General Index added 1.2 percent, to the highest since Dec. 22.

“People are buying for the next year, bargain hunting because some of the stocks are at a good price,” said Vyas Jayabhanu, head of Al Dhafra Financial Brokerage LLC. “Another positive for the market is oil trading at a four-week high.”

Bourse halts Agility on US settlement reports

The Kuwait bourse has halted trading in Agility (AGLT.KW) pending clarification of reports that the logistics firm is near to a settlement in its U.S. fraud case, the bourse said in a statement on Monday.

Several Kuwaiti newspapers carried reports on Monday about Agility seeking a settlement of up to $600 million with the U.S. government.

"Until now the final settlement has not been signed, as some of the points are still pending, however the amount is between $500 million and $600 million," Kuwaiti daily al-Qabas said in an unsourced report.

Abdullah brothers pledge Damas shares to repay 'unauthorised transactions'

Dubai jeweller Damas International said that two executives and the former head of the company had registered 350 million shares to repay nearly US$165 million in 'unauthorised transactions.'

The three Abdullah brothers made the pledge as part of a settlement with Damas.

The discovery of the unspecified transactions led to the departure of the firm's chief executive officer, Tawhid Abdullah.

KEPCO Clinches Mega Nuclear Plant Deal with UAE

A consortium led by KEPCO on Sunday won a US$40 billion deal to build and operate four nuclear power plants in the United Arab Emirates. It is the largest ever order won by the country, some six times the cost of a $6.3 billion canal project in Libya in the 1980s.

This is also the first time Korea is exporting its APR1400 light-water reactor since the country started operating its first nuclear power plant, Gori No. 1, with U.S. technology in 1978. With the contract, Korea has turned from an importer into an exporter of nuclear power technology.

President Lee Myung-bak helped clinch the deal in a meeting with his UAE counterpart Khalifa bin Zayed Al Nahyan at the Emirates Palace Hotel Abu Dhabi. The two also agreed to develop the two countries' relationship into a strategic alliance.

Dubai serves up a debt dish bankers have to consume

Despite intense media interest and an equally intense concern among bankers and lawyers trying to talk out a US$22 billion (Dh80.81bn) restructuring at Dubai, the debt-wrangling banks are not exactly riding into town like marauding Apaches going after the Ringo Kid.

That lack of drama can be traced partly to the drab technicality of all such discussions, but also in large measure to Dubai World’s advisers, who have dreamed up a shrewd set of incentives and penalties for the banks to which it owes money.

It remains unclear how big a haircut Deloitte’s Aidan Birkett, who last month was named the Dubai World chief restructuring officer, wants to give creditors.

Globalfoundries sees growth path

Globalfoundries aims to double its revenue and market share within the next three years by tapping into the booming markets for smartphones and graphic chips.

The maker of customised computer chips was created in March though a joint venture of the Advanced Technology Investment Company (ATIC), an investment firm fully owned by the Abu Dhabi Government, and Advanced Micro Devices of the US.

Since then, Globalfoundries has increased its investment in the sector with the acquisition of Singapore’s Chartered Semiconductor for S$5.6 billion (Dh14.61bn). It has also broken ground for a foundry in New York state, which will add capacity to its operations in Germany.

Dubai, Abu Dhabi to navigate potholes on road to progress

Dubai charged into the first decade of the new century with Abu Dhabi following at a more measured pace. Despite the global credit crisis, the two are well placed to face the challenges of the new decade. Frank Kane reports.

Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, told an audience of business leaders and government officials in early 2007 that the car he was driving had five gears, “all of them fast forward, with no reverse”.

It was a good metaphor for the financial sector of Dubai, and of the wider UAE, in the first decade of the millennium.

Why did Koreans win the $20bn UAE nuclear power order?

There is never a dull day in the United Arab Emirates. Just when journalists thought it safe to put up their feet for a holiday between Christmas and the New Year the government issues a brief statement placing a landmark $20.4 billion contract for four nuclear power stations with Korean companies.

What happened to the expected deal with a US consortium led by General Electric, or for that matter the widely trumpeted French group headed by Electricite de France? We will never know, of course, these things are decided behind closed doors.

Korean triumph

But hats off to Korea Power, a state-run utility which supplies almost all the power in South Korea, Doosan Heavy Industries & Construction, Hyundai Engineering & Construction, Samsung C&T Corporation, and Westinghouse Electric – whose inclusion will be some sop to the disappointed Americans.

The news will be jumped on by the New Silk Road enthusiasts who foresee a radical shift in Middle Eastern business towards Asia as the global powerhouse of the future. In this instance they are literally and metaphorically on solid ground.

From a political standpoint the UAE is keen to sign up to peaceful nuclear power to make a point to both the US and Iran. But a rapidly growing UAE economy is set to double its electricity demand to 40,000MW by 2020, and it hopes by then its oil will be worth a lot more in exports than as a power source.

So this growing nation needs nuclear power. It is also commercially sensitive and the most likely reason for the Koreans winning the bid is that they came in with the best offer.

Lowest cost

After all if you are going for low-cost electricity, you might as well get is as cheaply as possible. South Korea has aggressive expansion plans for its nuclear industry and a deal with the UAE is clearly a feather in their cap. But Samsung built the Burj Dubai, the world’s tallest building due to open January 4th, so they are hardly unknown in the UAE.

The Korean government says it is also pursuing contracts in Jordan, Turkey and China. Perhaps they should be looking to other emirates in the Gulf. It is hard to imagine that Qatar is not going to copy the UAE and go nuclear.

Korea Electric, Doosan Jump on U.A.E. Nuclear Order

Korea Electric Power Corp., Doosan Heavy Industries & Construction Co. and other South Korean builders jumped the most in a year after winning a $20 billion nuclear-plant contract from the United Arab Emirates, the first such order awarded by a Gulf Arab nation.

Korea Electric gained 11 percent to 36,500 won as of 9:19 a.m. on the Korea Exchange, while Doosan Heavy climbed the daily limit of 15 percent to 84,900 won. Both rose by the most since Dec. 8, 2008. The benchmark Kospi stock index advanced 0.7 percent.

A Korea Electric-led group, which also includes Hyundai Engineering & Construction Co. and Samsung C&T Corp., will design, build and help operate four 1,400-megawatt nuclear power units to be completed from 2017 to 2020, Emirates Nuclear Energy Corp. said yesterday in an e-mailed statement. The order is part of a “fleet of power plants” the U.A.E. wants to build, Chief Executive Officer Mohammed al-Hammadi said.

Qatar makes giant energy strides

Qatar’s energy and petrochemical sectors made giant strides this year with many world scale projects either getting launched or inaugurated.

The country’s significant achievements this year were mostly in boosting LNG production and exports with three mega trains, each one with 7.8mn tonnes annual capacity, being brought online.
In October, Qatar inaugurated RasGas Train 6, which also coincided with the 10th anniversary since the company’s production started. Earlier this year, two other LNG trains - Qatargas trains 4 and 5-were inaugurated.

Three more world’s largest 7.8mn-tonnes-a-year trains are under development through expansions both at Qatargas and RasGas.

Bold govt measures help lenders weather financial storm

The strength of Qatari banks and the country’s financial system at large was proved again in 2009, a year in which many global lenders went bust and major markets saw turbulence.

Qatari banks carry very few scars from the global economic crisis. They are well-capitalised, de-risked and deleveraged and have emerged relatively unscathed from the downturn. No doubt, the sovereign efforts to ‘firefight’ risks have helped the local banks weather the storm that has hit the global financial system.

Following the global economic downturn, Qatar took measures to safeguard the country’s key financial system. In three stages, the government ensured the local banks would not face a liquidity crunch.

Dubai drafts in debt expert David Anderson

Dubai Properties, which owns the Jumeirah Beach Residence and Dubailand, the unfinished $10bn (£6.3bn) fantasy land of theme parks, announced the appointment of David Anderson, an audit specialist with experience at Unilever and Cadbury Schweppes, as chief financial officer. The statement said he would bring experience in organising a "comprehensive, risk-based approach to finance".

Jayne O'Brien, the former head of marketing at British Airways, has been appointed as chief marketing officer. Other directors were appointed to head legal affairs, operations and property development.

The announcement follows the cancellation three weeks ago of a planned merger between three of Dubai Holding's property firms – Dubai Properties, Sama Dubai and Tatweer – with Emaar Properties, another Dubai real estate giant.

Sunday, 27 December 2009

Bank of Nova Scotia Believes in Dubai

Hard to believe that it took another year, but a Canadian bank has finally set-up shop in the Dubai International Financial Centre. The Bank of Nova Scotia (BNS), Canada’s most international of financial organizations, was the first to make the move.

I discovered when I was through there in November 2008 that despite having 850 international members, DIFC didn’t have one Canadian among them at the time. I should claim “discover”, the Executive Director of DIFC made the point pretty clearly. He invited our firm to be the first, in fact! Obviously, there were reams of Amercian firms coining it at the time, such as Goldman Sachs (GS) and Citibank (C) (despite what the Globe and Mail reported earlier this week, BNS is the first Canadian institution at DIFC, not the first North American one).

Scotia’s focus will likely be on gold trading, but this is great news for any Canadians who intend to make their way to DIFC Week in March. Canada is now on the map, and the federal government has upgraded our post in Dubai to a full Consulate, as well. All good.

Kuwaiti Shares Rise to 7-Week High on Agility; Abu Dhabi Falls

Kuwaiti shares climbed to their highest in almost two months led by Agility after the company said merger talks between its Qatari unit and Gulf Warehousing Co. are in the final stages. Abu Dhabi’s measure declined.

Agility, the Middle East’s biggest storage and logistics provider, surged the most in 11 months in Kuwait trading. Emirates Telecommunications Corp, the United Arab Emirates’ biggest phone company, closed at the lowest in two weeks. The Kuwait Stock Exchange Index increased 0.8 percent, the biggest fluctuation among the Gulf’s seven benchmarks, to 7,112.6. Abu Dhabi’s ADX General Index fell 0.1 percent.

U.S. stocks gained on Dec. 24, pushing the Standard & Poor’s 500 Index to a 15-month high, as rising commodity prices boosted metal producers and reports showed the economy is improving. Oil closed at $78.05 a barrel on Dec. 24, up 1.8 percent. On the Abu Dhabi Securities Market shares valued at 114 million dirhams ($31 million) traded today, compared with the 50-day average of 242 million dirhams.

Dubai Properties restructures its corporate team, outlines new corporate strategy

Dubai Properties Group (DPG), a member of Dubai Holding, today unveiled a new corporate strategy outlining the direction, focus, and vision that positions the company to enter its next phase of growth with a sharply defined strategic plan. Dubai Properties Group develops and manages properties, communities and destinations.

Through its subsidiaries Salwan and Dubai Assets Management, DPG also provides related end to end solutions for a variety of services including sales, leasing, facilities management and security.

As a key part of the new corporate strategy, Khalid Al Malik, Group CEO of DPG, also announced the Group's new leadership team, including heads of both corporate functions and the group's business units, along with a strengthened corporate governance structure to help effectively manage the business. The leadership team, led by Al Malik, will oversee essential corporate functions and manage the company's augmented portfolio of business entities.

Dubai debt crisis follows world’s worst realty crash in 2009

In the laws of gravity what goes up most will fall furthest, and that certainly proved true of the Dubai real estate market in 2009, a year that most participants would like to forget and some still refuse to acknowledge has actually happened.

By the middle of 2009 studies by leading estate agents placed Dubai at the very bottom of a global league table of property markets with prices down around 50 per cent on a year earlier. Of course, the background is a market where prices had quadrupled in five years until this year of reckoning.

The scenes in Dubai in 2009 have been reminiscent of the Asian Financial Crisis of a decade earlier with abandoned building sites on every corner and vacant patch of desert. It is a sight to bring tears to the eyes of developers, bankers and property owners.

Abandoned construction sites

Usually in property crashes there is one unfinished development that symbolizes all that went wrong. Dubai has a number of candidates: the second and third Palm islands; the map of the world in islands offshore; the abandoned skyscrapers of the Dubai International Financial Centre and the Business Bay; or the extremely quiet City of Arabia where dinosaurs were again supposed to walk the earth.

However, surely the shining symbol of Dubai’s excess is the Burj Dubai, the world’s tallest building, which is still set to open on January 4th. You can not get much more symbolic that an 800-metre tower with 1,044 apartments, 160 hotel rooms and even 3,000 car parking spaces.

Through-out modern history constructing the world’s tallest building has often been a signal that a property market is at the top and about to crash, as my book ‘Opportunity Dubai’ noted in 2008 (still on sale from the link above). Fortunately for Dubai the Burj Dubai is the work of stock market listed Emaar Properties, the most financially sound of local developers whose first-mover advantage in the market was played to great advantage.

Limitless debt

It is the state-owned Dubai World property developers Nakheel and Limitless that brought us the Dubai debt crisis of December, a crisis that ended as suddenly as it began with Abu Dhabi agreeing a new bond issue for Dubai at the eleventh hour. But how else could the world’s worst realty crash have ended?

Property booms are always fueled by easy credit and debt. At first there is a real dislocation – like the Dubai decision to sell real estate to foreigners for the first time in 2002. Then there is a genuine surge of interest in the new opportunity.

But this soon gets out of hand as people buy with higher and higher expectations. And remarkably those expectations are at first realized, because the flow of funds from the same buyers drives up prices. No shortage of schemes to take this money emerge.

2008 crash

Eventually the music stops and the credit dries up, and the market crashes. This is what happened in September 2008 with the global financial crisis which suddenly removed the foreign credit lines that had become essential for the majority of the Dubai projects.

It is probably true that too much construction was approved for too shorter timeframe. That forced up construction prices and fueled the boom to even more unsustainable levels. But the global financial crisis was the pin that burst the bubble.

For 2010 the prospect is a rescheduling of some loans, and the new bankruptcy laws leave open the possible liquidation of projects where the situation is not redeemable. Will the property market deteriorate further before it gets better? That might well prove true but prices have already fallen so far that they simply could not fall by the same amount again.

Architectural review of Las Vegas CityCenter hotel-casino-shopping complex -

Architectural review of Las Vegas CityCenter hotel-casino-shopping complex -

Fundamental Buy: Kuwait China Investment Co

A tiny niche of Kuwaiti companies qualify as being operationally sound, especially when one looks at investment-specialized ones. When individuals thinks of investing in “operational” companies in the Kuwait Stock Exchange, they may settle on National Industries only to be shocked that a mere 5% of their revenues come from selling bricks! Other investors may settle for buying Zain only to be bored by its pending marathon takeover-run which seems to be never-ending. Another group of investors may take a chance at Agility only to be shocked by the unveil of a major lawsuit. Banks are exposed to such companies deeming them “not the best” of investments.

The Kuwaiti stock exchange has lagged nearly all worldwide markets in 2009 and especially Emerging markets. Think BRIC* countries and you will not be disappointed: markets up an average 70% year-to-date. Fortunately, Kuwaiti investors can get exposure to such growth through an ideal company of their own: Kuwait China Investment Company (KCIC). The company is headed by an internationally-experienced Harvard alumni and most employees which I personally know are very well-educated and trained. Not only that, but also the company’s returns speak for it. It recently listed in the Kuwait SE and is worth a serious look.

KCIC is currently trading at 93 fils, below its 100 fils IPO price. It is treated as another commodity in the investment companies space which is utterly unfair. KCIC is deeply undervalued at these levels. As of Sept. 30th, the company had KD25.5 million of cash on its balance sheet with no long-term liabilities. This accounts to 32 fils of cash per share which provides ample downside protection and illustrates a strong balance sheet in a sector sickened by over-leverage. KCIC earned 15 fils for the last 9 months. If we assume they earn 5 fils next quarter (which is very reasonable since they earned 15 fils during the last 3 quarters), the total comes out to 20 fils of earnings for the year. This means the company is trading at a P/E of merely 5 times earnings!

Savvy investors may argue that KCIC only earned 3 fils during the last quarter and they have a point. However, even if we normalize such trough earnings of 3 fils per quarter, KCIC would earn 12 fils during a year. If we put a 10x P/E multiple on it, KCIC should be trading at 120 fils. A ten multiple is considered low as the US market, BRICs, and some GCC countries all trade above 15 times earnings.

Based on the aforementioned reasons, I recommend adding KCIC as fundamental buy to your Kuwait SE portfolio.

*BRIC: Brazil, Russia, India, China.

Below is a snapshot of KCIC’s Q3 financials(click to view original):

Abu Dhabi in joint bid for EDF network

Sources have revealed that the Abu Dhabi Investment Authority (ADIA) is working with the Canadian Pension Plan (CPP) to submit a joint offer for EDF's electricity distribution network.

ADIA, which is owned by the emirate, is one of the world's largest sovereign wealth funds although it has never published the value of its assets. Estimates range between $350bn (£219bn) and $650bn under management.

Bankers from Goldman Sachs and boutique advisory firm Lexicon Partners have been appointed to advise the consortium on its bid.

S.Korean group wins UAE nuclear deal -sources

A South Korean consortium has won a $40-billion contract to build several nuclear reactors for the United Arab Emirates, industry sources said on Sunday.

The consortium would build the first nuclear power plants in the Gulf Arab region under the deal, one of the largest energy contracts ever awarded in the Middle East and also one of the world's biggest nuclear power plant deals.

"We've won," said one industry source. "We're not sure about the exact figure but I think it's around $40 billion."

Friday, 25 December 2009

Thursday, 24 December 2009

Kuwait MPs give initial approval to debt relief plan

Parliament in the oil-rich Gulf state of Kuwait gave its initial approval on Thursday to a bill that requires the government to buy some 21.6 billion dollars of loans taken out by citizens.

The plan stipulates that the state would reschedule repayment of the principal in interest-free installments over 10 years after scrapping current interest, estimated at more than 5.2 billion dollars.

MPs passed the bill at first reading by 36 votes to 18, following a marathon 13-hour debate that ended in the early hours of Thursday.

Day of Reckoning dawns for Dubai property developers

As the Dubai debt crisis of the past few weeks has clearly demonstrated there is a Day of Reckoning dawning for UAE property firms. The state-of-denial is over and it is time to face up to the reality of the Dubai real estate crash that is easily the worst in the world.

Hopes for a swift consolidation of the Dubai property sector have been dashed with Emaar Properties clear rejection of a merger proposal with Dubai Properties. Yesterday shares in Union Properties and Deyaar slumped on news that their merger is also off.

Consolidation off

The hope was that consolidation would result in a leaner and more profitable sector, and put a check on the upcoming supply chain. Oversupply now threatens to keep prices under pressure for another 18 months, according to local estate agents.

New property completions are daily news. Damac yesterday proudly trumpeted the topping out of its 84-storey Ocean Heights tower in the Dubai Marina (pictured above). When finished this one tower alone will add 680 apartments to the Dubai inventory, and it is surrounded by towers of similar height that are still soaring upwards.

And while it is certainly a positive to see that stories about the financial condition of some private contractors appear to be unfounded, the overbuilding is another issue. For how much property can the UAE absorb with its economy still spluttering from the unexpected recession this year?

Empty towers?

Those developers still proceeding with large projects are gambling that the market will be greatly improved when their towers are completed. If they stay empty and buyers default then the balance sheets of the developers and their bankers’ patience will be sorely tested.

For the moment it is the state-owned realty companies Nakheel and Limitless that are the focus of the resolution of the Dubai debt crisis. But there are many concerns about the other players whose debts are less but whose challenges are just as big in a falling market.

The good news is that by the end of 2010 the position should be much clearer, with the original Debt crisis resolved and the position of the other players better known. But this is a Day of Reckoning that can not be avoided.

For Flight 2010, seat belts are still required

So this is Christmas, as John Lennon sang, and for columnists that means it’s time for a year-end wrap-up, and a peek ahead at what the new year has in store.

This column dutifully observed this particular rite as 2009 approached. In the interest of full disclosure, it bears revisiting some of those predictions to see how they fared.

Thankfully, no reports have surfaced of fisticuffs in Abu Dhabi between housewives and workers over taxis, defying a forecast printed in this space that a scarcity of public conveyance would lead to violence. The addition of thousands of taxis and buses, combined with the impact on demand of the global economic crisis, appears to have ensured peace on the streets.

Finance ministry on the defensive

The Minister of State for Financial Affairs defended the UAE’s handling of the financial crisis before the Federal National Council (FNC) as it hammered out a Dh43.6 billion (US$11.87bn) national budget for next year.

“The federal government has endured many crises throughout its 38 years, but this financial crisis is the worst, despite the denial of officials in this regard,” Obaid Humaid al Tayer said.

Mr al Tayer came under a barrage of criticism from members of the advisory body who questioned the ministry’s request for the same budget allocation as last year – about Dh228m – although only 70 per cent of it had been spent this year.

Sovereign wealth funds on the hunt

After months of relative silence, sovereign wealth funds, the huge, state-owned vehicles that export-rich countries use to invest their reserves, are on the prowl again.

"[Funds] are researching deals and trying to get things lined up," says R.P. Eddy, CEO of Ergo, a research firm that advises some of the world's biggest sovereign wealth funds. "They're standing on the edge of the pool and waiting to see who's going to jump in first."

Sovereign wealth fund managers have reason to be hesitant. A notoriously secretive bunch with an estimated $3 trillion in assets, they have received unwanted attention over the last couple of years for making public missteps.


The rail industry brought an early holiday gift to Wall Street – the first year over year climb in rail traffic. The AAR reported total volume was 0.3% higher than 2008’s very depressed levels while intermodal traffic surged 9.4% higher than 2008’s levels. The comparisons to 2007 provide a bit clearer picture, however, and are still showing how weak the overall economy is. Total traffic is down 11.6% compared to 2007 while intermodal is down 8.7% from 2007. This was a sharp improvement over last week’s data.

The mixed picture in freight is reflected by the huge discrepancies in various industries:

Eleven of the 19 carload freight commodity groups were up compared with the same week last year, with double-digit increases seen in metallic ores (50.9 percent), motor vehicles and equipment (28.1 percent), grain (22.8 percent), grain mill products (21.4 percent), chemicals (13.9 percent), metals (13.1 percent) and nonmetallic minerals (12.7 percent). Declines in commodity groups ranged from .1 percent for petroleum products to 31.6 percent for the miscellaneous category of all other carloads.

As we’ve expected for many months, the rail data has seen a sharp improvement, however, it’s important not to read into the 2008 comps too much. The economic stall of Q4 2008 provides very easy comps and I am a bit surprised this data did not turn sharply positive in November. Nonetheless, there is certainly improvement here albeit marginal.

Shehab Gargash’s view of Dubai stocks in 2010

For an assessment of the outlook for Dubai shares in 2010 ArabianMoney spoke to leading local analyst and the CEO of Daman Investments, Shehab Gargash.

He thinks 2010 a ‘tough call’ and ‘not as upbeat as people hoped for six months ago’. There is ‘floor finding’ ahead with the ‘Dubai debt the big X-factor in the crystal ball’.

Actually Mr.Gargash reckons the picture will be much clearer after the results season is over. By then Dubai stocks could be either at a new bottom or clearly on the way back up. But it could go either way, hence the ‘tough call’ for 2010.

Recovery prospects

‘There are two important elements to understanding how soon the recovery will come,’ he says. ‘First, how strong the banks and their balance sheets prove will be a major factor in how fast the private sector will recover.

‘And secondly, while the private sector is well set for a recovery that cannot be said of the public sector with its debt crisis. Going forward we need to see what role the government is going to play in the economy.

‘Perhaps we are going back to the old Dubai business model of co-operation between the government and private sector, rather than the aggressive role assumed by the public sector in the boom.’

Clarification and certainty

Indeed, what Mr. Gargash hopes most for 2010 is that clarification and certainty will emerge in Dubai, and that will put a floor under stock prices. He says the private sector is in fairly good shape, it is the public sector that is over-extended.

‘The public debt is being switched from short-maturity to longer-term debt and a more predictable and coordinated approach. The time is over when every state company did its own thing and we did not have the total picture.’

Summing up the stock market action in 2009, Mr. Gargash points to ‘a tough beginning, aggressive rally’, and then ‘a phase of high volatility’ in the debt crisis.

For 2010 he notes that stock markets are ‘always the first places to show a sign of recovery’, but that ‘uncertainty also always equals volatility’ and that will not go away until the uncertainty has gone.

However, Mr. Gargash is not unduly worried by the prospect of a sell-off in global emerging markets after a very strong rally with the Dubai Financial Market being more locally driven. So it looks as if Dubai stocks will find a bottom in 2010, depending on how long it takes for an adequate resolution of the debt problems.

Relative improvement

Daman’s 43 year old CEO and founder notes that Dubai’s position today is actually a ‘big improvement on a year ago’ when the real estate crash hit home.

At sometime in 2010 it will be time to buy perhaps. And Mr. Gargash thinks market proxy stocks like Emaar and the banks will be worth buying, along with Abu Dhabi real estate companies, the DFM and DP World.

A stock market boom is clearly a long way off. Daman Securities has penciled its own IPO for late 2012, so that might be a period to watch, falling as it does seven years after the last boom and 14 years after the one before that. What goes around comes around!

Technical Trade: Agility Awaiting a Rebound

After the recent negative publicity for Agility, the stock has dived down making it the worst performing stock in the Kuwait Stock Exchange for both Q3 and in December. In Q3, the stock fell 50% versus the KSE index which shed 10% only. After the lawsuit filed against Agility in mid-November (Details), the stock tumbled 37.5%, then it took a breather in mid-December. The breather was short-lived as Agility was hit by yet another shock and shed 24.7% from its December highs as DynCorp International Inc. terminated one of the company’s units as a subcontractor of a logistics program.

Despite that it has been a while since I looked at Agility’s numbers, I do think that much of the bad news is already priced in. Looking at the chart below, the stock has broken its 15, 50, 100 and 200 day moving averages. However, it is approaching strong resistance levels around KD0.600. I recommend taking a position in Agility during the next few trading sessions and exiting that position once the stock rebounds.

Dubai World Exposure to Weigh on Banks in 2010

Dubai's debt crisis will continue to hang over the earnings and credit quality of banks in 2010, Standard & Poor's said in a report on the global outlook for global credit markets.

"Indeed, the fallout from Dubai World's Nov. 25 announcement that it has requested a six-month moratorium on its $26 billion debt payments—subsequently diminished by news of a bailout by Abu Dhabi—illustrated amply the fears of further bank balance-sheet impairment," the ratings agency said in the report.

More than 90 creditors are in talks with Dubai World, once a crown jewel in the business empire of Dubai's ruler Sheik Mohammed bin Rashid Al Maktoum, to reach an agreement on a formal debt standstill for the conglomerate, which has almost $60 billion of total liabilities. Negotiations are expected to be slow.

"This serves as a continued reminder that the impact from deflating property prices globally has yet to fully run its course," S&P added.

Abu Dhabi, the oil-rich capital of the seven-member United Arab Emirates, pumped $10 billion into Dubai's financial support fund last week by buying its bonds. Part of the money is being used to pay off holders of a $3.52 billion Islamic bond issued by Dubai World's real-estate unit Nakheel, known as the developer of three palm-shaped islands..

Wednesday, 23 December 2009

Dubai World woes to weigh on bank profits, UAE Banks, Banking & Investment - Maktoob Business

Dubai World woes to weigh on bank profits, UAE Banks, Banking & Investment - Maktoob Business

Dubai debt crisis could hit Qatar banks, Qatar Banks, Banking & Investment - Maktoob Business

Dubai debt crisis could hit Qatar banks, Qatar Banks, Banking & Investment - Maktoob Business

Revealed: Opec’s fears that rich countries’ appetite for oil is waning

The Opec oil cartel has repeated it through the year: as a contribution to the global economy recovery, it was supporting moderate oil prices.

Saudi Arabia put numbers on the cartel’s words, describing the $70-$80 a barrel range as “excellent”.

For sure, Opec’s aim of $70-$80 a barrel – the group avoid talking about a target – has helped the global economy, particularly of poor oil importing countries.

But there are signs that the oil cartel is not as altruistic at it appears at first glance. Opec appears to be as concerned about the global economy as to drive consumers away from oil.It is the clearest recognition yet that high oil prices could damage the cartel’s interest in the long-term by reducing for ever energy demand.

The deliberation came to the light as Opec – it appears that by mistake on the chaos surrounding the meeting in Luanda, Angola’s capital – allowed reporters to remain in the plenary room while the group’s economist told ministers their latest findings. “Crisis appears to have induced a permanent loss in oil demand in OECD and slower rate of growth in non-OECD, due to policy measures and changes in consumer behaviour,” the “concluding remarks” of the presentation read.

The Energy Source blog had in Luanda a still camera at hand – so we took a picture of the power point slide for the record.

For Opec standards, the warning is pretty heavy stuff. In plain language, it means that it acknowledges that governments’ measures to save fossil fuels – a move to biofuels, but also to nuclear, wind, solar and other renewable energy sources – and consumers attitude – read, for example, buying smaller cars or moving into public transport – are hurting, Although the cartel pointed to the generic “crisis” as the reason of the permanent loss in demand, the changes it described – government policy and consumer’s behaviour – are not the result of the financial crisis, but of the oil prices crisis of 2008.

The cartel’s presentation did not say how much oil demand has being loss or destructed, but it is clear from the presentation that the figure has to be large or, on the contrary, the group’s economist will have not highlighted it. The presentation’s warning appears to back the view of some critics of Opec’s policy of high oil prices between 2006 and 2008, when oil prices peaked at $147 a barrel.

Sheik Yamani, the former oil minister from Saudi Arabia, was among them, repeating his famous – albeit cliché nowadays – warning: the age of stone did not end because a shortage of stones, neither the oil age will end because a lack of oil. On the contrary, the sheik argued last year, plenty of oil will be left underground because high prices will drive consumers away for oil, cutting for ever demand. There are examples in the past: demand in Western Europe has yet to recover to the level it reached in the mid-1970s, before the explosion in prices of the second oil crisis. Neither has Japan’s demand surged back to the levels of early 1980s.

Now, it appears that the demand of the US peaked around 2005. The International Energy Agency, the western countries’ oil watchdog, says that its “working assumption remains that a degree of structural demand destruction has occurred, notably in the OECD, which may constrain overall levels of demand growth in future.”

The IEA says that the oil intensity – a measure of how much oil is necessary to consume for each unit of GDP – declined by about 2.2 per cent between 1998-2008 worldwide, but anticipates an acceleration to 3 per cent over 2011-2014.

Iraq oil auctions cause concerns over stability in Gulf hierarchy

Iraq looks set to shake up the Middle East's oil hierarchy after the Iraqi Oil Ministry ended its second bidding round last week, awarding seven oilfields in a tender which could eventually increase the war-torn country's capacity to 12 million barrels per day.

The auction, which centered on oilfields ready for development, saw Russian and Chinese oil firms secure lucrative contracts at the expense of companies from the United States who were largely absent from the tender for deals to tap Iraqi oil reserves, the world's third-largest.

While the lack of success for US companies caused some surprise - considering the widespread belief that the US-led invasion was based on a thirst for oil - the main topic of debate after the auction was the likelihood that Iraq's new oil power would move Baghdad into the big league of oil producing countries and give it a strong hand in future Organization of Petroleum Exporting Countries (OPEC) negotiations on output quotas.

Dubai Shares Fall Most in World as Investors Wait for Debt Plan

Dubai stocks retreated the most in two weeks as investors waited for state-owned holding company Dubai World to present a debt restructuring plan.

Emirates NBD PJSC, a Dubai-government controlled lender, tumbled to its lowest level in seven months. Emaar Properties PJSC, the United Arab Emirates’ biggest construction company, fell for a second day. The DFM General Index dropped 3.8 percent, the biggest fluctuations among 89 indexes tracked globally by Bloomberg News, to 1,734.65 at 1:07 p.m. in Dubai. Dubai’s benchmark index has gained 6 percent this year.

Dubai World may present a “standstill” offer to banks in early January as it aims to restructure $22 billion of debt, said three bankers who attended a presentation on the matter earlier this week. The company told lenders it needs time to allow its assets to recover from a drop in value following the credit crunch, said the bankers, who declined to be identified because the meeting was private.

Fitch Affirms Bahrain's Sovereign Rating

Fitch Ratings affirmed Bahrain's Long-term foreign and local currency Issuer Default Ratings at 'A' and 'A+' respectively. The Outlook on the Long-term IDR remained stable. The rating agency also affirmed short-term foreign currency IDR at 'F1' and Country Ceiling at 'A+'.

Purvi Harlalka, Associate Director in Fitch's Sovereign group said, "Although growth has slowed and the budget has moved into large deficit, government and external debt ratios will remain better than rated peers. Domestic banks' exposure to the property sector will continue to exert pressure on asset quality, but Fitch believes further deterioration can be absorbed with capital ratios remaining adequate, supporting the Stable Outlook."

Why is the DFM buying Nasdaq Dubai?

Following yesterday’s surprise announcement that the Dubai Financial Market is to acquire 100 per cent of Nasdaq Dubai there some unanswered questions.

For a start, who is selling Nasdaq Dubai? Nasdaq Dubai is one-third owned by Nasdaq OMX and two thirds by Bourse Dubai. Details of the deal show that the DFM will pay $120 million in cash and $20 million in its own shares to Bourse Dubai to take control of Nasdaq Dubai; and Nasdaq OMX will take a one per cent stake in the DFM.

And who owns Bourse Dubai? The Dubai Government, which also owns an 80 per cent stake in the DFM. So as a result of the deal the Dubai Government will slightly increase its stake in the DFM and pick up $102 million.

Gulf News Urges Reporters To Tone Down Dubai Debt Coverage

By Maria Abi-Habib Of ZAWYA DOW JONES DUBAI (Zawya Dow Jones)--Gulf News, a newspaper part-owned by a senior government minister in the United Arab Emirates, has told its journalists to avoid using the words "bailout" and "default" when writing about Dubai's debt crisis, according to an internal memo sent to staff and seen by Zawya Dow Jones. Reporters for the paper, the largest English-language daily in the U.A.E., were also urged to steer clear of the phrase "debt crisis" and asked to "ensure the following politically correct terminology is used" - words such as "financial consolidation" and "fiscal support" - when describing the sheikdom's economic problems and the assistance it has received from Abu Dhabi, according to the note sent Dec. 14.

"This is a style guide," said Francis Matthew, the Dubai-based paper's editor-at-large when asked by Zawya Dow Jones about the memo. "We're trying to restrict people from using financially incorrect terms." U.A.E. officials have criticized international press coverage of Dubai's debt crisis since the emirate surprised markets on Nov.

25, saying it needed to freeze $26 billion of debt owed by one of its largest government-owned groups, Dubai World. Abu Dhabi bailed out Dubai on Dec. 14 with $10 billion, which the government used partly to pay off an Islamic bond due on that day.

Dubai's finance chief, Abdulrahman Al Saleh, this month blamed the media for spreading "blind panic" about the emirate's financial woes following the standstill request that triggered a downgrade of many of its banks and government-owned companies. The sheikdom, which closely monitors the media, has come under intense scrutiny as it struggles to contain the estimated $80 billion of debt, mostly racked up by its government-owned companies building speculative real estate and infrastructure projects. The Sunday Times was ordered off shelves in the U.A.E.

on Nov. 29 after the paper carried a double-page graphic illustrating Dubai's ruler, Sheik Mohammed bin Rashid al Maktoum, sinking in a sea of debt. Its sister publication, The Times, was censored in the U.A.E.

on Dec. 5 for a story that described Sheik Mohammed as a "benign dictator" and criticized his management of the economy. The Sunday Times and The Times are part of News International, a unit of News Corp., owner of Dow Jones & Co, publisher of this newswire.

Gulf News is published by Al Nisr Publishing, which is part-owned by the country's Minister of State for Financial Affairs, Obaid Humaid Al Tayer, who chairs the company. Abdulrahman Hassan Abdulhamid Al Rostamani and Jumaa Al Majid, two large merchant families in Dubai, are also part owners along with the Al Tayer Group, according to's corporate monitor service. -By Maria Abi-Habib, Dow Jones Newswires; +97150-941 9737; Copyright (c) 2009 Dow Jones & Co.

(END) Dow Jones Newswires December 23, 2009 00:01 ET (05:01 GMT)END

Wealth fund assets recover ground

The value of assets managed by Abu Dhabi’s two leading sovereign wealth funds is likely to have risen to US$425 billion (Dh1.55 trillion) after this year’s rally in oil prices and global financial markets, estimates by an economic consultancy show.

Rachel Ziemba, an economist at RGE Monitor in New York, said the combined assets of the Abu Dhabi Investment Authority (ADIA) and the Abu Dhabi Investment Council (ADIC) had probably recovered by as much as 20 per cent after major losses from the global financial crisis.

“That implies quite a strong revaluation of the portfolio since February when I estimated AUM [assets under management] was closer to $300bn,” Ms Ziemba said.

As Dubai World turns, question is not how but when

The first formal meeting between Dubai World and its 90-plus creditors passed off as something of an anticlimax, but it was always going to be so.

There was never the remotest possibility that Aidan Birkett, the company’s chief restructuring officer who is now calling the shots on strategy, was going to be pictured beaming with a group of international bankers, waving a piece of paper Chamberlain-style and proclaiming “solvency in our time” for those parts of Dubai World put up for restructuring.

Bankers who attended the meeting said it was “businesslike” and useful as a first move in trying to get their cash back. For their part, there was never any possibility they would emerge with sacks of cash handed over by Mr Birkett at the Dubai World Trade Centre.

Dubai World will get government financial support

State-owned conglomerate Dubai World said the Government will provide financial support to cover its working capital expenses.

"As long as a standstill is successfully implemented, Dubai World has assurances that the Government of Dubai, through the DFSF, will provide financial support to cover working capital and interest expenses to ensure the continuity of key projects," an statement from Dubai World said.

The DFSF, Dubai Financial Support Fund, has been set up to manage the money being used to pay off the emirate's debt.

Dubai Real Estate and Its Connection to the U.S

If you've been to one of my presentations either in person or through a virtual classroom, you know that I refer to our Dubai center and the massive amount of real estate available there. So with Dubai in the headlines for the last month, I thought I'd take the opportunity to look a little closer at Dubai's real estate market and their investments in the U.S.

Here's a short history lesson on Dubai, known as the home of sand, sun and shopping. A century ago, it was a peaceful town where Bedouin traders and pearl divers lodged. Today those merchants are gone. The city stands with its futuristic skyscrapers, alongside mosques, as one of the greatest cities in the world. Dubai boasts of its tremendous development at a pace unparalleled anywhere in the world. If you look into the ancient history of the region, there are suggestions that humans have been living there since at least 3000 BC. What a dramatic change!

Dubai has a prime location between the Mediterranean and the Indian Ocean. These trade routes have been exceptionally valuable for much of this area's history. By the late 16th century, the Portuguese controlled local trade routes. This pushed the tribes that had lived on the land to oases, far from the coast. The British gained control of the region's waterways in 1766. Dubai was amidst local power struggles and European Imperialism. In 1833, the Bani Yas (a neighboring tribal power), under the leadership of Maktoum bin Butti, raided Dubai and took the area. The Al-Maktoum family still rules the emirate today. In 1971, Dubai became the seventh emirate of the newly formed UAE. Dubai's story is amazing, as one writer put it, "A rags-to-riches tale."

Dubai exchange tie-up teaches a hard truth

Nasdaq Dubai, which was set up in 2005 and boasts just three primary equity listings, is being acquired by its larger local rival, Dubai Financial Market (DFM).

The move consolidates the government ownership of Dubai's exchanges. US operator Nasdaq OMX will swap its 33.3pc stake in the international exchange for a 1pc stake - worth $39m (£24m0 based on Monday's closing price - in DFM. That would leave Nasdaq OMX facing a 70pc write-down on the current book value of its 2008 investment.

For now, the deal won't change the way the exchanges do business. They will continue to operate as separate entities which share back office functions. Over time, though, a full operational merger is probable, once some kinks - in trading currencies, regulatory standards and procedures - are ironed out.

Dubai needs creativity to pay debt without taxes

Dubai must raise funds to feed its mushrooming debt but the Gulf emirate dreads imposing taxes to avoid breaking a business model that helped turn it from a lazy fishing town to a regional trade and tourism hub.

Selling some prized assets appears to be an easier option.

Dubai, one of seven members of the United Arab Emirates federation, and state-linked firms owe an estimated $80 billion of debt borrowed to fuel a boom, when Dubai branded itself as a tax-free destination for foreign workers and businesses.

Now, scrambling to rebuild its image after a $26 billion debt bombshell last month that was poorly managed, the emirate is unlikely to risk another public relations black eye by imposing taxes at this juncture.

Iraq’s Oil Output Quota May Become OPEC’s ‘Hot Iron’

Iraq’s plan to boost oil output with the help of foreign companies may upset the Organization of Petroleum Exporting Countries’ efforts to support prices because the nation has no quota to limit its production.

Oil companies including Royal Dutch Shell Plc, BP Plc and OAO Lukoil may help Iraq meet a target to boost oil output capacity to 12 million barrels a day in the next six years after winning oil licensing rounds earlier this year.

Oil has gained 64 percent since the beginning of 2009, when OPEC output cuts agreed late last year took effect, and is currently at about $73 a barrel. The group left production targets unchanged today at a meeting in Luanda, Angola.

Kingdom to store oil in Japan

Saudi Arabia has signed a deal to put “millions of barrels” of oil in commercial storage in Japan, Minister of Petroleum and Mineral Resources Ali Al-Naimi said Tuesday.

“Asia will be a huge market and this will be a big take off,” Al-Naimi said ahead of an OPEC meeting.

About half of the Kingdom’s crude exports come to Asia, a share that is set to rise next year. Chinese state oil firms have agreed to raise 2010 crude imports from Saudi Arabia by about 12 percent from this year to top one million barrels a day, traders have said, making the world’s No. 2 oil user an important client.

Qatar growth to outperform key Gulf economies on gas

Qatar’s nominal GDP grew 11% in the third quarter compared with Q3, 2008 and totalled QR75.5bn, the Qatar Statistics Authority said yesterday.

“The gas sector recovered from the decline seen in the first half of 2009 due to price rises seen for all major commodities,” the QSA said.

The contribution from the oil sector grew due to the average price of crude oil rising from $60 a barrel to $68 a barrel.



How badly has the debt crisis damaged Dubai’s reputation?

Looking back over the past couple of months you have to wonder how much Dubai has damaged its reputation as a growing global financial centre. The headlines suggesting that the city is drowning in debt are not positive, and the reality that has emerged is not that great either.

Before the debt crisis the reputation of the Dubai International Financial Centre was definitely rising fast. A report commissioned by the DIFC from KPMG, and published today but presumably with field work from before the Dubai debt crisis, showed Dubai seventh ahead of Frankfurt in a competitiveness league table of financial centres:
1. Singapore
2. London (UK)
3. New York (USA)
4. Hong Kong
5. Zurich (Switzerland)
6. Tokyo (Japan)
7. Dubai International Financial Centre (UAE)
8. Frankfurt (Germany)
9. Luxembourg
10. Dubai (UAE)
11. Paris (France)
12. Dublin (Ireland)
13. Doha (Qatar)
14. Manama (Bahrain)
15. Riyadh (Saudi Arabia)

High ranking

A press release from the DIFC said it was ranked this highly ‘on the strength of its world-class legal and regulatory standards; independent regulator and judiciary system; and strong value offering for financial businesses. DIFC’s infrastructure and business environment, custom-designed for the financial industry, also helped Dubai receive an overall competitiveness score higher than global centres like Paris and Dublin.

‘The report assesses the competitiveness of financial centres using an evaluation model that measures both ‘capability’ factors or immediate benefits provided by a financial centre, and ‘performance’ factors, which reflect historical or long-term results. The focus on ‘competitiveness’ puts the spotlight on the potential of a centre to excel in the future and not just on its current status.

‘The final rankings were based on a composite score derived from three pillars – Industry Opinion, Industry Performance, and Capability Measurement – that determines overall competitiveness.

‘The Industry Opinion pillar is based on the Global Financial Centres Index 6 published by the City of London, while the Industry Performance pillar is based on the Financial Development Index 2009 published by the World Economic Forum.

‘The Capability Measurement pillar is based on an assessment model developed to measure the growth potential of a financial centre in the future based on a three factors including business environment, cost of doing business and cost of living.’

Reputation damaged

However, any observer from the financial sector is bound to ask whether the ‘Industry Opinion pillar’ is not likely to have changed significantly in the wake of the Dubai debt crisis of the past two months. Certainly the risk perception of lending to Dubai must have been transformed.

But the global financial community are pragmatic folk. Dubai did not actually default on its Islamic bond this month. There is a rescheduling of $22 billion in debt owed by Dubai World subsidiaries Nakheel and Limitless now in progress. That is probably the biggest debt problem facing Dubai but there will be others.

So whether the Dubai debt crisis does significant long-term damage to its global financial reputation is likely a matter of how it proceeds from here. Greater transparency and openness and a willingness to discuss past mistakes is a step forward, so too is the merger of the two Dubai stock market trading floors announced today.

Dubai will also have to learn how to handle the global media with effective public relations and abandon its high-handed approach to the press. But all is not lost. The same banks that suffered in the Russian default of 1998 were back lending again within a few years. Reputations can be mended pretty fast when there is business to be done.

Tuesday, 22 December 2009

Opec eyes OECD demand

The Organisation of Petroleum Exporting Countries meeting in Luanda, Angola, agreed on Tuesday to leave oil output curbs unchanged, while calling for greater compliance with existing output targets — a signal the cartel currently believes the market to be well supplied.

One of the big debate points in Luanda, however, focused on how quick demand recovery in OECD countries would be in 2010. Remarks from Opec’s opening address highlighted the main issues as follows (our emphasis):

We also saw how crude oil prices had continued to improve from the lows experienced late last year, even though the market was still very volatile. Since then, the economic recovery has gathered pace. More OECD countries are coming out of recession and growth is accelerating in emerging markets, especially in Asia.

However, doubts remain about the dynamics of the recovery. This is not helped by continued uncertainty in the financial sector and worries regarding growth momentum on the back of still-rising unemployment and fears that stimulus measures may come to an end too soon. The weak, fluctuating dollar is adding to the uncertainty.

Turning to oil demand, there is a mixed picture in the market. Demand growth in the emerging economies is improving, but the OECD remains in negative territory. The market continues to be well supplied with crude and inventories are at high levels. Prices have moved up to more comfortable levels. This is good news for investment in production capacity and future supply. Some postponed projects have already been started up again in our Member Countries. However, the fragility remains in the market and we should not forget the detrimental volatility we experienced last year.

This is one of the issues we must again address at today’s meeting. For our part, we will continue our efforts to restore stability and balance to the market, in the interests of producers and consumers alike.

Considering the drop in OECD demand this year proved much stronger than many in the market — especially peak oilists — had expected, it makes sense for Opec to have stressed the issue so prominently in Tuesday’s meeting.

On that note, we’d flag up the following two charts from oil analyst Morgan Downey, author of Oil 101, which neatly expresses the situation as it stands today:

Saudi approves record budget

Saudi Arabia has said it expects to run a budget deficit in 2010 for the second consecutive year as the government on Monday approved the largest budget on record to accelerate economic growth and foster job creation.

The finance ministry forecast revenue of SR470bn ($125.3bn) and expenditure of SR540bn ($144bn) in fiscal year 2010. The world’s biggest petroleum exporter did not reveal the oil price assumptions in the budget, but economists estimate an average of $50 a barrel.

“The deficit is manageable. With current oil prices they will end up with a surplus in 2010, but the government often budgets conservatively,’’ said John Sfakianakis, Middle East economist at Banque Saudi Fransi-Credit Agricole Group.

Dubai Shares Retreat a Fourth Day on Lack of Standstill Offer

Dubai shares dropped for a fourth day, led by Emirates NBD PJSC, as three bankers said Dubai World may not present a standstill offer to lenders until January.

Emirates NBD PJSC, the United Arab Emirates’ biggest bank, fell to the lowest in seven months. Union Properties PJSC declined the most in almost two weeks. The DFM General Index retreated 1.3 percent to 1,803.31, the lowest close since Dec. 13. The index has lost 14 percent since Dubai World’s request to restructure debt on Nov. 25. Dubai Financial Market, the only Gulf Arab stock exchange to sell shares to the public, rose after it offered to buy Nasdaq Dubai.

Dubai World, one of the emirate’s three main state-owned business groups, roiled markets after it sought to freeze or delay debt repayments until at least May 30. It will present a standstill offer to banks in early January as it attempts to restructure about $22 billion of debt, according to three bankers who attended a presentation on the matter yesterday. / Companies / Middle East & North Africa - Dubai Financial Market buys Nasdaq Dubai / Companies / Middle East & North Africa - Dubai Financial Market buys Nasdaq Dubai

Turquoise (Iran economy) Newsletter - December 2009 Edition (PDF opens)

Click on headline to open online report.

Are Islamic bonds or sukuks now dead and buried?

The enormous bad publicity surrounding Nakheel’s $3.5 billion sukuk or Islamic bond repayment this month has exposed these debt instruments as nothing more than unsecured commercial bonds, with no recourse to underlying assets in the event of a default.

There is, of course, an irony in that Nakheel actually repaid its sukuk in full and on time thanks to the last minute intervention of the Abu Dhabi Government which dropped the Dubai Government a $10 billion lifeline.

Bond replaces sukuk

Actually it was a $10 billion conventional bond with interest of four per cent payable over five years. Abu Dhabi did not want another Islamic bond. Traditional bond finance is good enough for the richest city in the Gulf.

This does make it very easy to understand the rights and obligations of the parties. Sukuk come in a confusing number of varieties dressed up in an exotic language only understood by Islamic scholars and they seldom agreed on anything (see the ‘Diminishing musharakah’ above).

Yet in the Oil Boom of the 2000s such was the rush to invest in the Gulf States that nobody worried too much about the small print or the niceties of sukuk. Western bankers were assured that sukuk are just bonds under another name. They took the word of the sellers and ignored any protests from their lawyers.

After the Nakheel bond debacle a great many more questions will be asked about sukuks by both local and international lenders. For anybody trying to actually borrow money they will likely be more of a curse than a blessing, and a reversion back to more conventional financial instruments is clearly going to follow.

There will be exceptions to this rule. Saudi Arabia is the kingdom of the sukuk where all banks are Islamic, and not paying interest is highly profitable when your customers accept it, although the rental payments on sukuk should in theory amount to the same thing.

Financial innovation

Otherwise, it is perfectly normal after a boom period and what might be described as ‘financial innovation’ for there to be a swing back to more conservative banking practices. Lenders will be very particular in their due diligence on sukuk.

Confusingly and very significantly sukuk are asset-based but not asset-backed, so unlike a mortgage-backed security, for example, investors have no security over the asset if the issuer gets into financial difficulties and can not pay up.

No doubt sukuk will continue as a part of Islamic finance but their role in larger scale financing may now be sharply reduced.