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Friday, 13 February 2009

Libya Nears Investment Deal in Italy

ROME -- The head of Libyan Investment Authority said on Thursday that his fund and Italy's Mediobanca SpA are planning to launch a new joint fund of up to $500 million aimed at taking stakes in distressed Italian firms.

Abdulhafid Zlitni, who is also Libya's minister of planning, said in an interview that he had reached a preliminary deal during a meeting with Mediobanca Chairman Cesare Geronzi in Rome earlier in the day.

The two sides are still in talks over how the fund will be structured, and a final deal still needs to be signed, added Mr. Zlitni, who was speaking after having dined over pasta and seafood with Mr. Geronzi and Alessandro Profumo, chief executive of UniCredit SpA, Italy's second largest bank.

Asian central banks

Asian central bankers continue to slash interest rates. In the past five months, the cost of borrowing has fallen by 375 basis points in Australia and by 189bp in China. South Korea lopped off another 50bp on Thursday, bringing its total to 325bp.

As elsewhere in the world, the impact of this easing has so far been minimal. That is not surprising given that interest rate cuts usually take upwards of 12 months to take effect. Any green shoots spotted now, such as the recent pick-up in lending in China and India, are probably transitory, reflecting a release of pent-up demand rather than a fresh investment push. Still, as Asia’s banks are generally in better shape than their US or UK peers and less fixated on shrinking their loan books, the theory is that lenders will channel cheaper money more quickly into corporate and household pockets. Asian governments also tend to be more persuasive when it comes to encouraging banks to lend.

But just how different is Asia, really? Loan demand is stunted for much the same reasons as elsewhere. Companies are retrenching not expanding. Workers are fearful for their jobs. The bubbles that foreshadowed the global crisis were thriving in Asia too, be that in Indian equities or Shanghai real estate, so asset price deflation and deleveraging are now equally present. In the financial centres of Hong Kong and Singapore, where property prices had surged, loan growth is falling. Falling bond issuance may indicate that net credit growth has shrunk, even where bank lending has risen. A final problem is that Asia’s recent monetary loosening marked a swift policy reversal. The region was still raising rates as recently as mid-2008 as central bankers tried to throttle rising inflation. That is the real curse of the lag effect: the impact of this tightening is still kicking in hard.

GLG saved by SocGen deal

GLG Partners, the London hedge fund, avoided breaching covenants on its $570m debt by cutting a deal with Société Générale, the French bank, figures showed Thursday. GLG agreed to buy SocGen Asset Management’s UK arm in December and immediately started managing $3bn of its assets, keeping the hedge fund just above end-of-year minimum funds under management set in its loan terms.

Austria calls on EU to support Ukraine

An economic or political “catastrophe” in Ukraine could trigger a “domino effect” of economic difficulties within the European Union, Austria’s finance minister warned yesterday.

Josef Pröll, who is also the country’s vice chancellor, urged the EU to support Ukraine because of its strategic importance and its political and economic ties with union members.

“Ukraine is a very important keystone country and we must avoid a domino effect inside the EU, if there is economic and political catastrophe in such a huge neighbouring country. There could be a domino effect in terms of economic difficulties in the EU” Mr Pröll told the FT.

Russia finance officials in graft probe

Russia’s prosecutor’s office accused senior members of Russia’s finance ministry of corruption on Thursday as a battle within the cabinet deepens over how to share dwindling state revenues.

Alexander Bastrykin, the head of the investigative committee of the prosecutor-general’s office named two individuals, one current and one former official at the finance ministry, in an investigation.

“It has been established by investigators that the embezzlement of state funds in very large amounts has been done by acting deputy minister of finance Sergei Storchak and the former deputy minister of finance Vadim Volkov,” he said. Mr Volkov worked in the position from 1999 to 2004.

Investcorp plunged into the red

Investcorp, the Bahrain-based investment house, on Thursday announced its first-ever loss for the first half of the financial year and said that it had decided to raise capital via an issue of preference shares.

The group, which was founded in 1982, is one of few private sector Arab institutions to have an international profile, with interests in Europe, the US and the Middle East in private equity, technology, real estate and hedge funds. It has offices in New York, London and Bahrain and is listed on the Manama and London stock exchanges.

It has generated profits and paid out dividends every year since its inception.

Dubai property chief rounds on accusers

The executive at the centre of $100m fraud allegations rocking Dubai’s property sector has hit back with a counterclaim that his accusers have defaulted on more than $18m of debts owed to his company.

Kabir Mulchandani, chairman of Dynasty Zarooni, claimed that a series of cheques written by investors had bounced as the real estate industry’s fortunes plunged late last year.

The case – involving one of Dubai’s largest private real estate companies – highlights concerns that the emirate’s legal system is poorly equipped to cope with the slew of disputes arising as the sector turns sour.

France to call for hedge fund crackdown

France on Friday will press for tighter controls on hedge funds, urging other big industrialised nations to strengthen regulation of the industry and compel banks that lend them money to hold more capital.

Paris wants the European Union, and eventually all leading economies, to beef up indirect regulation of hedge funds via their prime brokers, the banks which provide them with loans and other services.

Under plans to be floated by Christine Lagarde, French finance minister, banks could face higher capital requirements to reflect the riskiness of their hedge fund clients, a proposal likely to be resisted by banks that are already struggling to raise capital.

The Emirates may need to bail out its home loans

It has been interesting to see how the effects of the global economic crisis have played out in the Gulf, a region that many had hoped would be immune from contagion. As time has gone on, the unmistakable effects of declining credit, demand, prices, profits and employment have become evident across the Emirates. It is a cycle that many at first thought would not hit these shores, but now we are seeing that almost all the elements of the recession in the West are playing out here, albeit with a delay.

Like many emerging markets, such as China, the Emirates began this whole process with some big positives on its side.

Its banks had almost no exposure to the toxic assets that were the genesis of the crisis, its Government had a big cushion of foreign reserves and the economy was growing strongly. The Emirates also had a relatively small national population to suffer the effects of recession, since the problem of unemployment can be exported by withdrawing residence permits of foreign workers who lose their jobs.

GCC to earn US$4.7 trillion by 2020

GCC countries will earn more than US$4.7 trillion (Dh17.2tn) from oil exports by 2020 if prices hold at an average level of $50 per barrel, Ernst and Young, a global accounting firm, said Thursday.

The substantial stream of revenue—equal to more than four times the region’s 2008 GDP—will enable the region to easily survive, and even take advantage of the global economic downturn, Ernst and Young said.

Earnings by 2020 be 2.5 times as much as GCC countries earned from oil revenues in the last 14 years, the report said.

The revenues will leave regional economies with the resources to acquire assets overseas or continue financing local infrastructure improvements, Phil Gandier, the head of transactions advisory services at the firm, said in a statement accompanying the release of the report.

Gulf firms in refinancing worries

Gulf companies face mounting difficulties in refinancing loans as the global credit crisis worsens and government oil and gas revenues decline, according to global credit ratings agencies.

GCC countries are more integrated with the global economy than they have been in the past, Moody’s Investors Service said in a report yesterday. That has left companies in the region, especially those in the UAE and Qatar where foreign investment and borrowing have propelled recent economic growth, more vulnerable to the shocks that have reverberated through the global financial system.

While oil revenues and some of the largest sovereign wealth funds will help support a corporate sector that is significantly owned by government, their ability to provide direct support could reach its limits. “Overall credit quality in the region has declined, and is likely to continue to do so going forward,” Moody’s said.

US foray hits Emaar earnings

Emaar Properties, the developer behind the Burj Dubai, posted a Dh1.76 billion (US$479 million) loss in the fourth quarter of last year as the Dubai property market slowed and the firm’s foray into the US market was hit by a recession.

Its most significant loss came from investments in John Laing Homes, one of the largest home builders in the US.

Mohammed Ali Alabbar, the chairman of Emaar, said the company would focus on completing projects this year and suspend all new projects to assist in reducing supply to meet the new market conditions.

Global's Kuwait Weekly Report - February 12, 2009

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

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