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Tuesday, 3 February 2009

Central bank tested as rouble hits floor

Russia’s rouble fell to a new low on Monday, hitting the floor announced by the central bank last month. Traders said this week could test how far the central bank was committed to stabilising it at the new level.

Finding an equilibrium level for the rouble may not be easy, as it depends on oil prices that are fluctuating, and on how quickly trade and capital outflows adjust to the new exchange rates.

The rouble has fallen roughly 33 per cent against the dollar since the end of the summer. On January 22 the central bank announced its ambition not to let it past about 36 to the dollar, or 41 to a basket of euros and dollars which is how the bank measures the rouble’s value. On Monday the rouble hit 46.29 versus the euro and 36.35 to the dollar.

‘Masters of the universe’ must strike new tone

A vast international conference of industry participants might not seem a likely occasion for introspection. Yet this is precisely what is required at the Super-Return International meeting in Berlin this week, one of the big events in the private equity calendar. In recent years, perhaps understandably, this meeting has enjoyed a heady atmosphere of confidence bordering on celebration. It was a venue where, not long ago, senior figures in private equity wondered aloud whether, or possibly simply when, a $50bn (€38bn, £35bn), even $100bn bargain might be brought home by one or more of them.

Such stargazing in the current climate would be little short of ludicrous. Absolutely everyone involved in private equity recognises this in an individual capacity and there would be every advantage in acknowledging it collectively. To do so does not mean conceding to critics that the private equity model is “broken”. There was never a single private equity model as such to break. Private equity does, however, need to accelerate its renewal and Berlin can serve as a vital step in that process. There are three respects, in particular, in which I think the sector needs to embrace fully the post-leverage era.

The first relates to tone. Senior figures in private equity never asked for, courted, let alone invented the “masters of the universe” accolade that some attached to it. We did not necessarily repudiate such an association with sufficient force either. There were fantastic achievements recorded at the peak of the boom and it is manifestly not the case, as certain camps contend, that debt is the only legacy of that amazing period. Yet private equity would be wise not to claim more than it can deliver. There is a robust argument that its alignment of the interests of investors and management accounts for its tendency to outperform publicly quoted vehicles, but it should not assume the mantle of Moses.

Passive aggressive

The best lack all conviction, wrote Yeats, while the worst are full of passionate intensity. Investors would go along with that. Allocations to index funds and exchange-traded funds – opinion-less pools of capital that track a specific stock or bond benchmark – have surged in recent months. Vanguard Group, the American indexing juggernaut, now plans to use the UK as a base for a global expansion.

Faith in the genius of stock-pickers is at an undeniably low ebb. Two years ago, for example, quoted UK fund managers traded at a vigorous 15 to 23 times forward earnings. They’re now between 5 and 14 (and, stripped of takeover speculation, would be cheaper still). Institutions are now paying heed to the evidence of a series of Standard & Poor’s studies which suggest that the best way for investors to guarantee their fair share of market returns is to throw the net as wide as possible while keeping fees to a minimum.

Kuwaiti tribes turn parliament to own advantage

Their names read like a list of actors in local history: Adwani, Ajami, Awazim, bani Ghanim Dhafiri, Dusari, Anaizi and Shimmari. They are the tribes of the Arabian peninsula. Once nomads ranging from Yemen to Syria, today the tribes are mainly sedentary. In Kuwait, their dual identity, some claim, leads to dual loyalties that place them in opposition to democracy, national identity and the unity of the state.

In the only Arab democracy in the region, say critics, tribesmen increasingly vote for candidates who have been handpicked to represent the tribe.

“Tribes are no longer a social position. They are a political position,” argues Ebtahal Al-Ahmed, a Kuwaiti political activist and professor at Kuwait University. “They [the tribes] provide their own MPs – Ajami for the Ajami tribe, Mutairi for the Mutairi tribe.”

Over-reliance on oil deepens crisis

Despite continual political bickering and a stagnant reform process, Kuwait has in recent years been able to rely on oil revenues to support growth and keep its citizens happy.

Yet after years of healthy growth rates, some economists are warning that Kuwait may be the hardest hit of all Gulf countries this year.

Mauled by slumping oil income, production cuts and a domestic financial crisis, the country is in danger of suffering its worst economic contraction since it was invaded by Iraq in 1990, National Bank of Kuwait – the country’s largest financial institution – warned in a report last week.

Six Dubai groups face ratings downgrades

Moody’s said yesterday it was considering downgrading the ratings of six Dubai corporate entities because of the worsening macro-economic environment in the Gulf’s business hub.

The credit ratings agency said the emirate’s economy was more exposed to the global downturn than those of its Gulf peers, which depend on oil revenues rather than sectors such as property, trade and finance.

The government-owned and government-linked companies under review are: DP World, the global ports operator; DIFC Investments, the investment wing of the financial centre; Dubai Electricity & Water Authority; Jebel Ali Free Zone, a vast business park located next to the emirate’s main port; real estate group Emaar Properties; and the non-financial businesses of the Dubai Holding conglomerate owned by the emirate’s ruler.

Downturn displays the flaws in Dubai’s legal system

Dubai’s real estate expansion lifted many investors into a world of unimagined riches as prices vaulted into the stratosphere.

Now, as house values decelerate at an equally frightening speed, the buoyant mood has soured. Small-time investors may be returning keys, but the major speculators face defaults on a frightening scale.

Those who were turning round whole floors of buildings in a day have been caught holding overvalued assets. And when these people lose lots of money, they often call a lawyer.

NBAD has tough quarter

National Bank of Abu Dhabi (NBAD), the second-largest bank in the country by assets, saw its profits fall by 34 per cent in the fourth quarter of last year, compared with the same period in 2007.

Local banks have been expected to report a drop in earnings for the final quarter of last year, following provisions taken on deteriorating loans and losses relating to the financial crisis. Although NBAD’s net profits took a hit during the quarter, dropping to Dh492 million (US$133.9m) from Dh744m in 2007, the bank’s annual net profit increased by 20.5 per cent to Dh3 billion.

“NBAD is an active international bank and we are not immune from world events. The liquidity tightness in the UAE has yet to have its full effect on the real economy. We therefore expect a difficult 2009,” said the bank’s chief executive, Michael Tomalin.

Nakheel delays Al Furjan expansion

Nakheel will delay the sale of more homes at Al Furjan, a community development in Dubai, until it sees a rebound in demand for property.

About 2,000 homes, which have all been sold, are under construction as part of the first phase and are on track for completion by the end of next year, according to Mohammed Rashed, the project’s general manager. “We are sticking to the schedule for the first 2,000 villas,” he said. “In terms of the other phases, we’ll be evaluating the market and when we see an opportunity, we’ll launch more products.”

Mr Rashed said the move was part of “a readjustment of Nakheel’s short-term plans to deliver what they have committed to their customers in an efficient way”.

Six Dubai firms face ratings review

With the global economy eroding quickly, Moody’s Investors Service said yesterday it is reviewing six prominent Dubai government companies for possible ratings downgrades.

Moody’s said the downturn could hurt the Government of Dubai’s ability to provide financial support, if it were necessary, for the companies: Dubai Holding Commercial Operations Group, DP World, DIFC Investments, Dubai Electricity and Water (DEWA), Jebel Ali Free Zone and Emaar Properties.

The credit ratings agency said its decision to review the ratings was “motivated by the deterioration in Dubai’s macro-economic outlook”. It noted that “Dubai’s open economy has been hit harder by the global economic and financial crisis than most others in the region”.

Seizing UK fraudster’s ill-gotten gains

DUBAI // In what British law-enforcement officials call “landmark” UAE-UK co-operation, an investigation is progressing here into the legitimacy of local assets owned by a British resident serving time for one of the biggest money laundering frauds in UK history.

Craig Johnson, 35, was sentenced in 2006 to 12 and a half years in prison, although British reporting restrictions prevented details of his case from being made public until now. After accomplices of Johnson were imprisoned in September, the true picture emerged of the outwardly respectable businessman.

Investigators say they believe Johnson’s assets in Dubai may be even more valuable than those already seized in the UK, which totalled more than £6 million (Dh31.5m).

Well-researched stories damaging the UAE’s economy will not fall foul of law

News stories interpreted as damaging to the national economy will not be illegal under a draft media law, as long as journalists have checked their facts and given the subject of the story a chance to respond, according to the chief of the Government body that drafted the bill.

Writing in today’s The National, Saqr Ghobash, the Minister of Labour and chairman of the National Media Council (NMC) responded to the controversy surrounding the proposed legislation, which some journalists and lawyers have criticised for being too vague. “It has been suggested that the draft law will make it illegal to publish anything that could be interpreted as being potentially damaging to the national economy,” he wrote.

“That is not the case. What the draft law does state, however, [is] that the media has a duty to undertake the appropriate efforts to check their facts before running stories, critical or otherwise.”