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Tuesday, 17 February 2009

Borse Dubai to get $1 bln UAE federal bailout (Update 1)

Two bankers close to the deal, who declined to be identified as the transaction is private, told Reuters the refinancing deal had yet to close and were not aware of any federal government funding. They said refinancing would be finalised within the next 24 hours.

Borse Dubai declined to comment on the report. Its chief executive officer and chairman Essa Kazim did not respond to calls.

MEED did not identify which federal institution would provide the funding.

Borse Dubai receives federal government bailout (Registration required)

Borse Dubai is to receive over $1bn from the UAE federal government to avoid the company having to default on a $2.5bn loan it is trying to refinance.
Sources close to the deal say that the refinancing, led by HSBC, has only managed to secure $1.25bn of commitments from commercial banks, although some further commitments from banks could bring the final bank tranche to $1.5bn.

To avoid a funding shortfall arising in the deal, a federal government institution will supply the additional financing, meaning that Borse Dubai will be able to make the repayment scheduled for 23 February.

It is unclear which institution will provide the funding.

Borse Dubai originally raised $3.5bn in March 2008 in a short-term deal to finance its acquisition of Nordic exchange operator OMX.

The problems in international banking markets since then led the company to seek a reduced refinancing of only $2.5bn, but even offering banks margins starting as high as 325 basis points over the London interbank offered rate (Libor) failed to attract enough interest to cover the full debt.

Dubai government-related companies are estimated to have about $18bn of debt to refinance during the course of 2009, beginning with the Borse Dubai deal and ending with a $3.5bn Nakheel sukuk.

Borse Dubai was unavailable for comment.

Author: Matthew Martin. Senior Gulf Correspondent
Dubai

Super-losers amongst Russia’s super-rich

You think Wall Street is having some hard times? Look at Russia’s impoverished oligarchs.

RealClearMarkets has taken a look at the annual Russian “rich list” produced by Finans, the Russian business magazine.Oleg Deripaska, who topped Finans’ list for the two previous years, has fallen to eighth place after losing a whopping 85 per cent of his wealth — down to $4.9bn from $40bn, Finans estimated.

“Party boy” Mikhail Prokhorov, the metals and banking billionaire who sold his stake in mining company Norilsk Nickel early last year, moved up from seventh place to top the list with a fortune of $14.1bn - way down from $21.5 billion a year ago, the magazine said.

Popular Bloc rejects stimulus

KUWAIT: In yet a new bombshell, the opposition Popular Action Bloc yesterday strongly rejected the government-sponsored economic stimulus bill, describing it as an attempt to squander public funds and bail out influential people who committed investment blunders. The bloc also warned that it will "initiate constitutional means to question the government" if the bill is passed and implemented, an indirect threat to grill Prime Minister Sheikh Nasser Al-Mohammad Al-Sabah.

In a lengthy statement, the bloc said that the bill was presented by the government without accurate details and information and lacked transparent and professional measures to deal with the fallout of the global financial crisis on the country. It charged that the bill has been "tailored to allow the use of public funds to guarantee and repay debts of private companies that are either troubled, have made losses or are bankrupt as a result of mismanagement by their officials".

It said that most of those companies make no social contribution to the country and that some of them have begun dismissing national manpower or forcing them to accept a reduction in their pay. The statement recalled that the bloc had previously warned against bowing to pressure by influential people who have been trying to allow the use of public funds to rescue their interests. It stressed that the bill includes shortcomings and is "tailored to serve the interests of influential people and to protect exe
cutives who have harmed the companies and shareholders' rights".

Jim Rogers advises Gulf states to get rid of dollar peg

UAE. The Gulf countries' currency peg to the dollar is a 'terrible mistake' and will cause problems for the region as the US currency is expected to decline, Jim Rogers said.

The six Gulf Cooperation Council states should form a joint currency as soon as possible, the chairman of Singapore-based Rogers Holdings said at a conference in Dubai Monday.

The new currency shouldn’t be linked to any other as the region has enough foreign reserves and oil to back it up.

View of the Day: The threat from emerging Europe

One of the biggest threats to financial stability in the eurozone comes from the region’s exposure to central and eastern European banks, says Peter Attard Montalto, emerging Europe economist at Nomura.

During the boom years, he says, high interest rates in emerging Europe led to a huge increase in foreign currency borrowing by households and companies – most notably in euros and Swiss francs. “Borrowers took the view that the foreign currency risk was low and offset anyway by the credit cost saving.”

But not only did eurozone banks lend to these countries, they also took very large stakes in local institutions. “Indeed, more than 80 per cent of emerging Europe bank assets are owned by western European banks,” Mr Attard Montalto says.

Russian industrial output falls 20%

Russia’s industrial production plunged 20 per cent in January, a fall that could herald a much larger than expected drop in GDP this year, economists fear.

The decline was its largest month-on-month drop since records began seven years ago.

“The horrendous industrial production data in January have left no doubt that the economy has come to a screeching halt,” said Ivan Tchakarov, chief Russia economist for Nomura, the investment bank.

Indian budget deficit raises concern

An interim budget delivered by the Indian government on Monday ahead of parliamentary elections sparked fears that the country may return to an era of big budget deficits as it tries to protect itself from the global financial crisis.

Pranab Mukherjee, the acting finance minister, said India had temporarily set aside its tight public spending targets, recognising that a high fiscal deficit was “inevitable” to weather the challenges posed by recession in big economies.

“Conditions in the year ahead are not likely to be normal and, therefore, the high fiscal deficit is inevitable,” Mr Mukherjee told parliament.

Santander fund seeks to halt redemptions

Spanish bank Santander has sought regulatory permission to freeze payouts from its main real-estate fund after investors sought to withdraw 80 per cent of the vehicle’s capital at once.

The bank, the biggest in the eurozone by market value, said in a regulatory filing on Monday that the Santander Banif Inmobiliario FII fund, the country’s biggest, “currently lacks the necessary liquidity” to meet redemption demands worth €2.62bn ($3.35bn), or 80 per cent of the fund’s value at the end of January.

Pakistan to Seek Additional $4.5 Billion IMF Loan

Feb. 16 (Bloomberg) -- Pakistan will seek a further $4.5 billion loan from the International Monetary Fund, warning that the country’s fight against terrorists is hurting the economy.

“We will ask the board of directors for the amount as the war on terror has caused serious economic problems,” Shaukat Tarin, the finance adviser to the prime minister, said yesterday in a telephone interview from Islamabad. The additional funds would boost the country’s total borrowing from the IMF to more than $12 billion, he said.

President Asif Ali Zardari is facing pressure from the U.S. to step up the fight against Taliban and al-Qaeda insurgents along the border with Afghanistan. The government forecasts the economy will grow at its slowest pace in seven years after raising interest rates as part of IMF conditions for a $7.6 billion loan in November.

The most powerful banker in the Gulf

The largest economy in the Gulf has a new custodian. Having run the country’s finances since 1983, Hamad Saud al Sayyari, 68, has stepped down as head of the Saudi Arabian Monetary Authority (SAMA). It should be a fairly easy transfer, for Mr al Sayyari was replaced by his right-hand man of more than a decade, Muhammad al Jasser.

Educated in California at San Diego State University, Mr al Jasser, 54, enters the office of central bank governor during auspicious times. Saudi Arabia is seen by many economists as the only country in the GCC with a chance of rising above the global economic morass this year. With more oil and people than the rest of the GCC combined, if Saudi Arabia fares as well as analysts expect, Mr al Jasser could soon find himself in a position of even greater economic clout with regard to his neighbours – and indeed the rest of the world – than his predecessor ever had.

Take GCC monetary union, for instance. Within the GCC, almost no initiative can pass unless the Saudi Arabian giant stands behind it. So if Saudi Arabia decided to opt out of the project to establish a single Gulf currency, the entire project would almost certainly fall apart. Mr al Jasser may not be the one actually drafting GCC economic policy during the next few years, but he and his delegation might as well be.

S&P may cut credit ratings on Kuwaiti banks

Standard & Poor’s has announced it may lower its credit ratings on five Kuwaiti banks linked to local financial companies that have been hard hit by the global financial crisis.

In the past few months, Kuwaiti investment companies have suffered more than others in the region, due to their reliance on international funding and investments in local property and stock markets that have withered.

Although large Kuwaiti banks are more protected from the effects of the crisis, some ratings agencies have been concerned that trouble among the investment companies could trigger losses. Global Investment House, one of the companies, recently defaulted on its debt.

Call for national stimulus plan

The country could reverse an economic slump and post 0.5 per cent growth this year with an aggressive plan to boost government spending and inject Dh110 billion (US$29.9bn) into the banking system to promote lending, Standard Chartered Bank said yesterday.

“First, the Government must increase its expenditure substantially, and second, it needs to address the liquidity issue,” said Marios Maratheftis, the regional head of research at the bank.

The recommendations echo the policies that countries throughout the world are adopting to spur economic growth, ward off financial instability and spur spending during the worst global economic crisis in three decades.

Bad news dominates media businesses

Real estate may be the gloomiest sector in the Gulf but its woes are spreading to other parts of the regional economy. Increasingly, the print media industry is feeling the pinch.

Spurred by soaring advertising budgets of the region’s property and financial companies, the number of publications in the Middle East had almost doubled in the past three years to 1,800 by the end of last year, according to industry sources.

But as boom turns to bust in the property sector and the credit crunch ravages the financial industry, the media sector faces severe challenges in 2009 – particularly in the United Arab Emirates, home to many of the Gulf’s print media outlets and source of most of the region’s advertising.

Sovereign wealth funds set to revive investing

Sovereign wealth funds plan to resume investing in assets around the world this year, with a focus on strong dividend yields, according to a survey.

Many of the funds, the most powerful of which are based in Asia and the Middle East, have stopped investing in the wake of the global economic downturn, which has slashed the value of their portfolios.

Some funds admitted that, after political pressure, they had been diverting cash inflows from their global portfolios to invest in their home regions in order to stimulate local markets.

Mideast wealth funds fret over US Treasuries

Sovereign wealth funds in the Middle East are growing increasingly concerned about the health of the US Treasury market, raising questions about whether they will remain such active buyers of US government debt.

Middle Eastern buyers are the fifth-largest investors in Treasuries after China, Japan, the UK and Caribbean banking centres, and their appetite could prove critical to US government plans to issue mountains of debt to fund stimulus efforts.

So far there is little sign of a flight from the dollar or from Treasuries, but senior executives at several sovereign funds in the region say the US Treasury has been conducting a dialogue to reassure Middle Eastern investors that US government debt still offers value.