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Friday, 16 January 2009

Another Eastern European meltdown?

Recent swiss franc strength has started to court some concern at the Swiss National Bank. Reuters reports SNB board member Thomas Jordan in particular voiced his worries on the swissie’s recent 7 per cent rise against the euro. The move is bad for Switzerland, of course, because the country depends on competitive trade with the rest of Europe.

Accordingly, hints from Jordan that the SNB may be prepared to intervene in markets if needed to stimulate the economy have resulted in some welcome weakness in the franc Thursday and Friday.

Schröder to join TNK-BP board

Gerhard Schröder, the former German chancellor, is to become an independent director of TNK-BP, the Anglo-Russian joint venture, as part of a peace deal to resolve the conflict between its shareholders. The appointment reflects Schröder’s close ties to Russia, which have been highly controversial in Germany. He met Russian prime minister Vladimir Putin in Moscow this week. BP of the UK and the Alfa-Access-Renova group of Russian tycoons fought a bitter battle for control of the venture last year that was resolved with a deal agreed in principle in September.

Russia considers merger of metals giants

The Kremlin is considering a plan to merge some of Russia’s largest metals companies into a conglomerate in which the government would take a substantial minority stake, in exchange for writing off some of the crushing debts of the tycoons who now control the companies, reports the WSJ. A combined metals company would have annual revenue of as much as $40bn and give Russia a player to rival global giants like BHP Billiton. If approved by the government and the companies, the plan would mark the first indication that the Kremlin is using the bailouts it is offering the heavily indebted oligarchs to retake stakes in their industrial assets.

SWF’s hard hit by downturn

The Gulf’s sovereign wealth funds shrank by about 8 per cent in the past year as their investment portfolios suffered losses and contributions from oil revenues declined, according to new estimates by economists at the Council on Foreign Relations, a New York-based think tank.

If oil prices average about US$40 per barrel – above the current price but well below last year’s $95 a barrel average price for Opec exporters – Gulf countries might need to siphon out as much as $70 billion (Dh257.11bn) from the funds to pay their import bills, something they could comfortably manage, the study estimated.

Sovereign wealth funds came under close scrutiny, and some criticism, last year as they grew with swelling oil revenues.

Qatar seeks cause of gas plant failure

Investigators in Qatar are seeking the cause of a mechanical failure that has halted nearly one third of the country’s liquefied natural gas (LNG) production.

The Qatargas 1 plant has been shut down since Jan 8 due to the problem, an official of Qatargas, the LNG unit of state-owned Qatar Petroleum, told Associated Press on condition of anonymity.

He declined to indicate when production would resume. “We have to take out time to determine what are the root causes. We’re waiting for the result of this investigation. It’s important for us to be prudent.”

The closure comes at an especially awkward time for Qatar’s European customers. The continent has been left short of gas for much of the past two weeks, as Russia shut off pipeline supplies through Ukraine over a contract dispute with the gas transit country. Analysts had predicted that Europe would seek to import extra LNG cargoes to offset the shortfall.

Slowdown to buffet Dubai

ABU DHABI // A new report suggests the population of Dubai may decline by 8 per cent this year because of the slowdown in the property sector.

The report, from researchers at UBS investment bank, says the drop in population could lead to an oversupply of housing, which would in turn lead to home prices falling by 30 per cent on average in the next two years.

“A slowdown in the housing market in addition to challenging macroeconomic conditions may lead to fewer foreign workers moving to the region for job opportunities and fewer investors engaging in local investments, including real estate assets,” the researchers wrote.

Insight: Asian governance needs reform

It was not only investors who were hoodwinked by B. Ramalinga Raju, the former chairman of Satyam Computer Services. Just over a year ago the self-confessed fraudster collected the prestigious Ernst & Young India Entrepreneur of the Year gong. At the awards ceremony Rajiv Memani, country head for E&Y, saluted Satyam’s “transformational vision and leadership” while K.V. Kamath, a corporate titan, added that Mr Raju had “used the spirit of entrepreneurship . . . to meet and exceed analyst expectations”.

While the fraud revelations sorely embarrass corporate India, it is institutional investors who are nursing heavy losses. Top of the list is Aberdeen Asset Management, whose Asian unit liquidated its 9 per cent Satyam holding following Mr Raju’s confession last week.

West urged to open its doors to Ukraine

Valdas Adamkus, the Lithuanian president, on Thursday urged the west to respond to Russia’s heavy-handed tactics in the ongoing gas dispute by throwing open the door to Ukrainian membership in the European Union, Nato and the trans-Atlantic alliance.

In an interview with the FT, Mr Adamkus accused Moscow of playing politics in the gas trade to further ambitions of re-establishing itself as the region’s “superpower” and advised Brussels to react with strong political backing for Ukraine’s sovereignty.

“Russia wants to send a signal to Ukrainians that they are not at liberty to decide their own political future, including the questions of joining the EU, the trans-Atlantic alliance or Nato … and show it can interfere in their internal affairs,” said the veteran Lithuanian leader. “The question is whether Ukraine is free to make its own political decisions … If the people of Ukraine want to become members of the EU, the EU should facilitate it and make this loud and clear.”

Oman sets up fund for stock market

Oman’s government on Thursday said it would band together with pension funds and the financial sector in the sultanate to form a OR150mn ($389mn) fund to stabilise the country’s stock market, joining Gulf-wide efforts to contain the financial crisis.

Kuwait has already established a vehicle – administered by the country’s sovereign wealth fund – to prop up its stock market. Governments across the Gulf have moved to prop up the regional financial system via equity injections into banks and by guaranteeing deposits.

The Omani government would contribute 60 per cent of the fund, while the rest will be contributed by pension funds, banks, brokerages and investment companies, Rashid Salim Al Masroori, the chairman of the Investment Stability Fund, said on Thursday in a statement on the Muscat bourse web site.

Moody’s assigns UAE banks negative outlook

Moody’s Investors Service, the credit rating agency, has placed the United Arab Emirates banking sector on a negative outlook, amid mounting signs that the country’s real estate market is heading for a correction.

The agency said that it was concerned about the impact of a deteriorating real estate market outlook on banks in the Gulf’s second biggest economy, after property prices starting to fall in Dubai, the commercial centre of the Gulf.

Though banks ostensibly have their real estate exposure capped at 20 per cent of assets, many have in reality exceeded this, and have lent to construction firms, developers and property speculators, particularly in Dubai.

Iranian president softens his tone

Mahmoud Ahmadi-Nejad, the president of Iran, struck a conciliatory note on the incoming Obama administration on Thursday, signalling that Tehran would welcome closer relations with Washington if the US shifted its approach.

“If there [are] fundamental changes based on justice and respect [towards Iran] then positive things will automatically happen,” Mr Ahmadi-Nejad told a press conference. “We always welcome dialogue and relations.”

Without making any specific comments about Barack Obama, the president-elect, he said Iran was “patiently” monitoring events and waiting for changes.

Threat of recession hangs over Gulf

The slump in oil prices and Opec production cuts are forcing economists to revise downwards their projections for the Gulf states, once seen as the last bastions of growth amid the grim global outlook this year.

Over the past five years the oil-rich Gulf states saw average growth of 6.5 per cent but HSBC warns that the region is set for its most severe retrenchment in 20 years as nominal gross domestic product declines 25 per cent.

It estimates a quickening economic deceleration across the Gulf in 2009 as real gross domestic product growth falls to less than 2 per cent.