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Wednesday, 18 February 2009

Harmful stones will never knock fruit of UAE tree : Paper

WAM Sharjah, 18th Feb. 2009 (WAM) -- A UAE daily paper today expressed its complete astonishment at the way in which Western, other foreign and regional media are handling their coverage of the current economic situation in the United Arab Emirates.

''An observer of these financial reports can easily see that there is a tone of exaggeration and panic in the way in which they cover the challenges being faced by the UAE economy while, at the same time, they turn a blind eye to the measures being taken by the Government to handle these challenges in a calm way, without any fabricated fanfare," the Arabic daily Al Khaleej said.

In a front-page comment entitled ''One Tree'', the Sharjah-based paper expressed regret that authors of the reports had gone into great detail in their reporting while failing, at the same time, to adopt an objective approach to the reality of the situation.

Gulf, Europe banks eye stake in Iranian bank

Iran's Bank Mellat is holding talks with banks from the Gulf Co-operation Council and Europe to offload 80 per cent stake in the bank, an executive said yesterday.

Mellat Chairman Ali Divandari told reporters talks were under way with a number of European and Gulf banks and that the sale will take place over the next two years.

The Mellat selloff is part of a privatisation drive ordered by the energy rich nation's supreme leader Ayatollah Ali Khamenei in 2006 but which has made only sluggish progress since.

How Worried Should We Be About Dubai? (Update 3)

By rziemba

Note: This post is by Rachel Ziemba of RGE Monitor, filling in while Brad is off in the mountains.

Many thanks to Brad for letting me fill in again. I pay attention to macro events in China and several oil exporters and the whole portfolio of sovereign investors for RGE monitor where this post first appeared. I’ll chime in on a few things related to sovereign investors (including their role in financing the US) this week while Brad is out.

In recent weeks CDS spreads on the debt of Dubai’s largest State-linked vehicles like Dubai Holding etc shot up dramatically after Abu Dhabi announced a unilateral recapitalization of its banks. The cost to buy prrotection on the 1 year bond has doubled since late January and now stands at 1073bps. The jump in the 5 yr has been less sharp but stands at over 1400bps. Since Dubai has limited sovereign debt (about $10b and maybe climbing given the likely fiscal deficit) so these large state-linked companies provide a proxy for the perceived credit worthiness of Dubai’s government. Given Dubai’s debt stock ($80b or 148% of GDP), its vulnerability to global liquidity and the worsening outlook for its domestic property market despite the ability to control supply, it is perhaps not a surprise that the outlook for the emirate seems much more precarious, particularly in contrast to its cash rich neighbour, Abu Dhabi. Given the links of these debtors to the government, and the effect that their vulnerabilities could have on the UAE federation, it has widely been assumed that the UAE govt (or rather Abu Dhabi) would come to the aid of Dubai when the crunch came. However, there has been more uncertainty than some expected. Key tests are ahead in coming months as Dubai adjusts to a world where leverage remains scarce.

Eastern Europe triggers rush for safety

Fears of banking turmoil in eastern Europe caused global investors to rush for safety on Tuesday, with warnings about European financial institutions provoking a stampede into the dollar and US bonds.

The turmoil was prompted by a report from Moody’s, the credit rating agency, which warned that west European banks with east European subsidiaries were at risk of downgrades. Standard & Poor’s, a Moody’s rival, later issued a similar caution.

The euro fell 1.5 per cent to a two-month low against the US dollar, sinking below $1.26 for the first time since December, and also dropped sharply against the pound and the yen, while the Polish zloty hit a five-year low against the euro. The general flight away from risky assets also hurt US stocks. Bonds rallied as investors put money into the relative safety of government debt.

Magna Africa Fund - Monthly Update January 2009

The Magna Africa Fund saw its value fall by 6.2% in January, dragged down by further sharp share price falls in Nigeria, where the Fund has significant exposure, though it also benefited from a number of positive stock-specific developments, suggesting an improving outlook.

Most South African shares gave back their December gains as investors took a more pessimistic view of economic developments, despite ongoing interest rate cuts. This was most evident in companies operating in the domestic economy with, for example, shares in the road construction group Raubex down 20% on the month. There seemed to be little reason for this movement: the company operates predominantly in South Africa, for clients such as the National Roads Agency, with an order book described by its chief financial officer as having “zero risk” as it only includes projects with firm start dates and assured funding. Such losses were however offset to a large
extent by share price gains amongst the miners, on the back of firmer precious metal prices. AngloGold Ashanti rose 16%, whilst Eastern Platinum was 18% higher. The stand-out performer was however First Uranium, the low-cost South African gold and uranium junior producer, whose share price more than doubled over the month as the market began to appreciate the financial strength of the company, bolstered by a successful CAD 61.5 million private placement of equity, and expectations of imminent metal production from both the company’s assets. Outside South Africa, the miners also fared well with the Zambian copper miner, First Quantum, up 35% and the
Mozambique titanium miner Kenmare Resources 33% higher.

Magna Russia Fund - Monthly Update January 2009

Russian share prices remained under downward pressure in January with the rouble falling a further 15% against the US dollar amidst continuing concern for the state of the Russian economy as industrial production was seen to have fallen by 10% over the year to December. There were however a number of interesting corporate developments which suggested that some investors at least were now of the opinion that with share prices already at distressed levels, significant value could be found in the market. This trend became apparent in December with
the takeover of Imperial Energy and is very much to be welcomed given the Magna Russia Fund’s focus on fundamental company-specific developments.

Indeed, although the value of the Magna Russia Fund still fell by 5.0% in January, this compares favourably with the 7.1% fall suffered by the MSCI Russia 10/40 Index, as several of the companies held by the Fund saw their share prices jump sharply higher.

Magna Eastern European Fund - Monthly Update January 2009

The stockmarkets of Eastern Europe remained weak in January, with some particularly sharp falls in Hungary, Poland and peripheral markets such as Romania, with local currencies coming under significant downward pressure as investors focussed on their relatively poor financial position. Russian share prices also continued to fall, not helped by a further 15% fall for the rouble against the US dollar, even though Russia remains financially sound even after expending some foreign exchange reserves to support the rouble and with oil at around USD 40 per barrel.

There were however a number of interesting corporate developments, especially in Russia, which suggested that some investors at least were now of the opinion that with share prices already at distressed levels, significant value could be found in the market. Given the Magna Eastern European Fund’s focus on fundamental company-specific developments, this trend is to be welcomed and contributed to the significant outperformance recorded by the Fund over the month. The value of the Fund nevertheless still fell by 3.9% in January.

Salam International cancels secondary listing on Dubai exchange (Registration required)

Salam International Investment, a Qatari investment company, will cancel its secondary listing on the Dubai Financial Market (DFM), according to a company announcement on the exchange on 17 February.
Salam is the second Qatari company to abandon a secondary listing on another Gulf exchange. On 2 February, Qtel announced that it was removing its secondary listing on the Bahrain Stock Exchange (MEED 2:2:09).

Salam's statement said, "This decision was taken due to the variation of applicable bylaws and regulations between the primary, the Doha Securities Market (DSM), and the secondary market, the DFM. This includes the variation of due date of cash dividends and bonus shares."

All Salam shares bought on the DFM will become tradeable on the Doha bourse.

Saudi Banks Not Hit by Global Economic Crisis

Local Factors Influence Saudi Arabian Banks, Says New SAMASAMA Governor

Riyadh, Kingdom of Saudi Arabia: Banks in the Kingdom of Saudi Arabia are a shelter in the financial storm that has hit world markets due to the current global economic crisis.

The impact of the global economic crisis on the Kingdom's financial sector will not affect the banks and their liquidity or ability to achieve profit, says the new Governor of the Saudi Arabian Monetary Agency (SAMA)Saudi Arabian Monetary Agency
Al Jasser said in an interview with CNBC Arabiya that the Kingdom's Arab banking sector is unaffected because the vast majority of its investments and transactions are internal. As a result, Saudi banks' dealings hinge upon local rather than external factors.

Dolphin launches refinancing deal into market (Registration required)

Responses from banks on the refinancing for the $3bn Dolphin pipeline project are expected by the end of March, with financial close scheduled for May, following the launch of the project debt into the bank market.
A total of 25 banks have been contacted by the financial adviser on the project, Royal Bank of Scotland, asking that they confirm commitments on the project in the next six weeks.

The deal will include a bank tranche of $1.5bn, a $500m Islamic tranche, $1.2bn of loans from Total and Occidental, which are the sponsors on the project, and up to $350m from Italian export credit agency Servizi Assicurativi del Commercio Estero (Sace).

Musharraf warns against weaker army

Pervez Musharraf, Pakistan’s former president and military ruler, has issued a stark warning that any attempt to weaken the country’s army and intelligence services would lead to defeat at the hands of Islamist militants.

“There is a conspiracy to malign the Pakistan army and the ISI (Inter Services Intelligence agency). If you weaken the army and the ISI you will lose the war on terror,” he said in response to the publication of a book detailing links between the army and Islamist militants besieging the country.

Allegations that Mr Musharraf had fostered the Taliban while in power, in a newly released book by David Sanger, a New York Times journalist, have prompted the former general to break his silence.

Currency dispute exposes Moscow rift

A senior Russian official ­on Tuesday called for the immediate imposition of exchange controls to ensure the foreign currency spent supporting the rouble was not taken out of the country.

The remarks from Vladimir Yakunin, the head of state-run Russian Railways and a close associate of Vladimir Putin, the prime minister, were seen as a thinly veiled attack on Alexei Kudrin, the liberal finance minister and the man behind recent efforts to defend the rouble by drawing $200bn (€159bn, £141bn) from the country’s currency reserves.

Mr Yakunin said “temporary” restrictions should have been introduced when the central bank started defending the currency last year. Having failed to act then, the authorities should act now, he said in an interview with the Financial Times. “It’s never too late, and better late than never.”

Bourse loan eases Dubai default fears (Update 2)

Borse Dubai, a government-owned exchanges group, is expected to finalise a $2.5bn loan today, a vote of support for the emirate amid concerns the commercial hub of the Gulf could default.

The company, which controls Dubai's two equity markets and has stakes in the London Stock Exchange and Nasdaq, needs to pay off a $3.4bn (€2.7bn, £2.4bn) loan next week, the first big test in 2009 of Dubai's ability to refinance the $20bn in loans that mature this year. The fact that Dubai has met the challenge of opening clogged credit markets should go some way to assuaging investor concerns about its risk of default.

Dubai's globalised economy has been hit hard by the credit crunch.