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Monday, 16 February 2009

The 2008 DS100 Summary Report Overall Growth Slows, but Manufacturing Picks Up Strong

The 5th Annual DS100 - Top 100 Companies ranking continues to benchmark the corporate environment of the 57 OIC (Organization of Islamic Conference) member countries.

This year’s ranking, which covered financials amidst early stages of the current global recession (end-of-year 2007 data), expectedly showed a decrease in growth of the construction, energy, and diversified sector companies.

However, areas of opportunities were also highlighted as basic materials manufacturing, and agriculture/food companies grew faster than the year before.

EU is losing its grip on Caspian gas corridor

The European Union faces two obstacles to its project to pipe gas via a southern corridor from the Caspian region and thus reduce western Europe’s dependence on Russian supplies: Turkey’s attitude and the Balkan activities of Gazprom, the state-controlled Russian oil monopoly.

After receiving less than a warm embrace by the EU, Recep Tayyip Erdogan’s administration and the Turkish public are not eager to jump on the EU bandwagon when it comes to the southern gas corridor. Ankara’s objective is to turn Turkey into a regional energy hub. This means that Turkey would not be a transit state, but a buyer and reseller of Caspian gas to European customers. Of course, Mr Erdogan is playing hardball to get this status for Turkey. But it is a proposal the EU must refuse. There is no added value in buying Turkish gas when we can be buying Azeri and Turkmen gas directly from the producers.

European energy supply security has been suffering partly because of the problems that exist between the producing countries and transit states. The most recent example is the Russian-Ukrainian “gas war three”.

Ukraine on the brink

Ukraine’s name, by some accounts, means “at the edge” – which is where its economy finds itself today. Austria’s finance minister warned last week of the risk of an economic “catastrophe” in the 46m-strong country triggering a “domino effect” of problems further west. Ukraine’s finance minister, meanwhile, resigned amid differences over budgetary policy that delayed the second tranche of a $16.4bn International Monetary Fund loan, due this weekend. Fitch downgraded the country’s credit ratings to B. Some forecasters say the economy could contract by 10 per cent this year; the national currency has slid 40 per cent against the dollar. Spreads on Ukraine’s credit default swaps are over 3,000 basis points.

Braving a war to invest in Iraq

There are not many fund management groups that have witnessed war and chaos on a daily basis. But then there are not many houses that choose to invest directly in Iraq.

Björn Englund, founder of Godvig Capital Management, launched the $21m (£15m, €16m) Babylon fund two years ago, just as the country was starting to recover. Yet even he will admit that the first 12 months were problematic.

“In the first year we had a transitional period with very few equities on the stock market,” he says. “But nowadays it is much easier. The people on the other side of the table now understand who you are and are starting to speak English.”

ETF enthusiast sees crisis as a fertile time for cheap funds

Few people see many bright spots in the credit crisis but Dan Draper, global head of Lyxor’s exchange traded funds, may be one of the exceptions.

“This period of market dislocation is a fertile time for ETFs,” as investors flee volatile global equity markets and head to more transparent and cheaper ways of investing, he says.

He has the data to support it. Last year, the European ETF market grew 6.5 per cent, with €91bn (£81bn, $117bn) assets under management, according to Lyxor Asset Management, part of Société Générale.

SWFs ‘lose their appetite’

Cash-rich sovereign wealth funds are unlikely to come to the rescue of battered global financial markets for some time to come, according to Vanguard, the $1,000bn (£694bn, €776bn) strong US fund management house.

A series of Asian and Middle Eastern state-run entities have had their fingers burned after moving prematurely to snap up stakes in beaten-up western financial stocks. The Abu Dhabi Investment Authority, the Government of Singapore Investment Corporation and the Kuwait Investment Authority all invested in Citigroup, while GSIC also invested in UBS, China Investment Corporation bought a stake in Morgan Stanley, the Qatar Investment Authority became the biggest shareholder in Barclays and Singapore’s Temasek invested in Merrill Lynch.

However, Jeff Molitor, a senior investment strategist responsible for managing Vanguard’s relationships with SWFs, said the $3,000bn sector had lost its appetite for such deals.

GIH sells stake in Palestinian realty firm

Kuwait's Global Investment House (GIH) said yesterday it sold its stake in a Palestinian firm for about $17.2 million (Dh63m), the latest asset sale as the financial crisis bites.

Kuwait's biggest investment firm also said a Jordanian court has ordered to release its banks deposits seized last week and lift the suspension of its Jordanian unit over a loan dispute.

Global said last month it had defaulted on most of its debts as investment firms in oil producer Kuwait suffer from the credit crunch.

'UAE banks largest debtors in GCC'

UAE banks have remained the largest debtor in the oil-rich Gulf over the past few years because of a surge in borrowing from abroad to meet a sharp growth in demand for domestic credit, according to a key Western finance centre.

The leap in UAE banks' debt by nearly four times in around three years was also a result of a rush by foreign banks to invest their funds in UAE banks in anticipation of an appreciation in the dirham against the US dollar, according to the Washington-based International Institute for Finance (IIF).

From around $23.2 billion (Dh85.2bn) at the end of June 2005, the combined external debt of the UAE's 52 banks jumped to a record $92.5bn at the end of June 2008, said the IIF, which groups several major Western banks.

Iran strikes gas deal coup with Turkmenistan

Iran has signed an agreement to help Turkmenistan develop its biggest gas field in exchange for more gas imports.

The tentative deal is a strategic coup for Tehran, which has long sought to establish the Islamic Republic as a transit country for gas from the Caspian region.

It also suggests that Turkmenistan, which has the potential to become a central Asian gas superpower, is intent on establishing a diversified market for its exports.

“Iran will co-operate to develop the Yoloten gas field in Turkmenistan”, said Reza Kasaizadeh, the chairman of National Iranian Gas Export Company, according to the website of Iran’s state-run television. “Iran will act as a contractor and the Turkmen side will pay all the expenses for the project.”

SWFs still waiting for market bottom

Sovereign wealth funds (SWFs), many of which have seen their portfolios decline sharply in recent months, are cutting back equity investments until the market bottoms out in the second half of the year, according to a study.

The report comes as many state-owned investment funds in the GCC region, such as the Abu Dhabi Investment Authority and Kuwait Investment Authority, have taken a battering on their stock-market investments. Analysts suggest they may have incurred losses of between 25 per cent and 30 per cent.

Two of three senior SWF executives said they were not investing in equity markets at present, according to a survey by Financial Dynamics International (FD), a financial and corporate consultancy. Only 10 per cent of the surveyed executives said they were still investing. Managers surveyed account for more than half of the US$5 trillion (Dh18.36tn) in funds globally held by SWFs.

Shuaa posts Dh577m loss for final quarter of 2008

Shuaa Capital, the largest domestic investment bank in the Emirates, posted a net loss of Dh577.4 million (US$157.2m) in the last three months of last year, according to a statement by the firm yesterday.

This compares with a net profit of Dh213m during the same reporting period last year.

Combined with losses booked in previous quarters, the result in the last quarter of the year brought the annual net loss to Dh948.5m.

“2008 was a challenging year for the financial services sector worldwide, for the regional capital markets and for Shuaa Capital,” said Majid Saif al Ghurair, the chairman of Shuaa. “We witnessed major dislocations in the second half of 2008 that resulted in a significant drop in income for the company. As a result, we have taken significant steps to reduce our exposure to the market and we have realigned our base in core business lines to mitigate these risks in the future.”

Dubai revamps big players

Dubai has embarked on a broad reconfiguration of some of the emirate’s biggest and most important companies as it adjusts to the impact of the global economic crisis.

Yesterday, Dubai Holding, one of the emirate’s largest business conglomerates, said it was consolidating the back-office operations of its property companies and two of its financial arms in the latest move by the Government to adjust as the global economic crisis hits the Gulf.

Meanwhile, Nakheel, the sprawling property arm of Dubai World, has merged an array of its business units to form five entities as it adapts to market conditions and prepares for the challenges that lie ahead.

Saudi king speeds reforms

In his first reshuffle since acceding to the throne in 2005, King Abdullah of Saudi Arabia has dismissed two of the country’s most influential religious figures and appointed the first woman to a senior government post.

King Abdullah has also replaced Hamad al-Sayyari, 68, the long-serving governor of the Saudi Arabian Monetary Agency, the central bank, with Mohammed al-Jasser, his 54-year-old deputy. Mr Jasser, a former Saudi representative to the International Monetary Fund, has served as Sama deputy governor since 1995.

The newly appointed central bank governor on Sunday signalled that the kingdom would abide by the conservative policies of his predecessor. Unlike other Gulf states, which have active sovereign wealth funds, the notoriously cautious kingdom is estimated to have invested about 85 per cent of its foreign reserves – currently more than $500bn (€388bn, £348bn) – in dollar-dominated fixed-income securities.

Dubai aims high in dispute resolution

In a Dubai court, England’s former top commercial judge peers over his spectacles at lawyers arguing over a consignment of rubies. Sir Anthony Colman’s task is to decide the fate of the gemstones, which are part of a complex Dh16.78m ($4.6m, £3.2m) property imbroglio between two companies. A wall-mounted television screen shows the face of the judge, who once adjudicated shipping disputes in London but is now a part of the growing lawsuit culture in the brashest of the United Arab Emirates.

Sir Anthony’s case is part of an exotic mix of international litigation coming through the emirate’s nascent but ambitious court and arbitration system. Dubai – host today to an International Bar Association arbitration conference – is the most advanced of several Middle East centres that are trying to establish themselves as venues for legal fights between international companies. The push by the emirate and other regional jurisdictions such as Qatar is a challenge to western cities, including London, Paris and New York, that traditionally dominate the dispute resolution industry.

Alarm over cost of insuring Dubai debt

The cost of insuring Dubai’s sovereign debt has become almost as expensive as insuring troubled Iceland, illustrating the depth of investor concern about a default by the emirate.

The spread on Dubai’s benchmark five-year credit default swaps last week broke the 1,000 basis points barrier, similar to the spread of Icelandic bonds.

It is now twice the level of the CDS spread of Dubai’s peers in the Gulf, reflecting concerns that the real estate and trade hub is more prone to a global slowdown than its oil-rich neighbours. While illiquid, the CDS market sheds light on market sentiment and feeds into the cost of issuing new debt.