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Monday, 2 March 2009

Kuwait Banking Sector - February 2009

"In continuation of Global Investment House coverage of the major sectors in Kuwait, we have come out with a report on Kuwait Banking Sector.

The total assets of the banking sector stood at KD39.2bn at the end of 2008, a growth of 10.4%YoY as against a massive 31.7%YoY rise exhibited by the banking sector in 2007. Signifying the slowest asset growth since 2004 (1.8%YoY), the growth rate confirms the normalization in asset growth of the banking system after a 2-year period of extraordinary movement spanning over 2006 and 2007.

Assets in 2008 were driven almost single-handedly by claims on the private sector or to be more specific by the credit disbursement to residents along with some contribution from foreign assets. Foreign assets grew by almost KD1.2bn during 2008, driven by a substantial increase in deposits with foreign banks and in foreign investments, which grew 13%YoY and 25%YoY respectively in 2008. The increase in foreign assets was however, completely offset by the cumulative decline of over KD1.0bn in deposits placed with the Central Bank and by the decline in the outstanding CBK bonds. Local interbank deposits also fell by a significant KD710mn over 2007 with most of the decline coming in the 2H2008

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

* Nasdaq Dubai in "serious" talks for Dubai state IPOs

Nasdaq Dubai is in "serious" talks with Dubai government-linked entities to boost initial public offerings on the exchange and aims to revise listing requirements to attract more local investors.

Speaking to Reuters, Nasdaq Dubai's Chief Executive, Jeff Singer, said the Gulf emirate's international exchange was likely to witness a "flat" year after the collapse of the global and regional financial markets in the last quarter of 2008.

"Companies are changing their plans for a longer recession," Singer said. "This year will be flat."

No need for more Dubai support measures now-minister

Government measures taken so far to support Dubai through a sharp economic downturn should be sufficient to stabilise its economy for at least nine months, the United Arab Emirates' economy minister said on Monday.

Sultan al-Mansouri also said he expected the UAE, world's fifth-largest oil exporter, would escape recession this year even as it faces a real estate downturn and a slump in oil prices.

The Dubai government last week launched a $20 billion dollar bond programme and sold the first $10 billion tranche to the UAE central bank, a move that calmed worries the former Gulf boom town could default on some $15-20 billion in debts due for refinancing this year.

Moody's assigns Aa2 rating to TDIC (UAE)

DIFC, March 02, 2009: Moody's Investors Service has assigned Aa2 long-term local and foreign currency issuer ratings to the Tourism Development and Investment Company PJSC. The outlook is stable. These are the first ratings that Moody's assigns to TDIC.

TDIC was established in 2005 as a corporate entity and as the de facto implementation agent by decree of the Government of Abu Dhabi with a clear strategic mandate to develop the Emirates' tourism industry. The company is currently developing around 60 residential, hospitality and cultural projects with an expected total cost of AED 100 billion (USD 27 billion). In order to carry out its mandate there will be significant funding requirements which are expected to be largely met by third-party debt, land sales and ongoing government subsidies and funding. Leverage is expected to peak in 2010, but should subside thereafter when developed residential units will be sold. Given its primary mandate to develop the local tourism industry, the degree of exposure to the real estate market is however relatively limited compared to regional peers.

GCC could follow world into recession - oil expert

The GCC ecomony could fall into recession if the current global economic crisis lasts for more than a “couple of years”, the former acting secretary general of OPEC has warned.

In an interview with the Kuwait news agency KUNA, Dr Adnan Shihab Eldin said the Gulf countries were being spared the worst of the financial crisis for the time being.

The region would enjoy on-going positive economic growth of between two and three percent for 2009, although lower than the seven and or eight percent the region has been used to.

Nasdaq Dubai launches gold securities trading today

Nasdaq Dubai will list Dubai Gold Securities under the name of "Dubai Gold" today. Trading will be according to spot gold prices.

According to a note by MAC Capital Advisors, each gold security will represent ownership of a 10th of an ounce of gold. Gold is stored on behalf of investors by HSBC, for a fee of 0.4 per cent per year.

"Initially, a creation basket of 50,000 shares will be issued. DGSLLP, the issuer, retains the ability to issue up to a billion shares according to market demand. The shares are expected to initially trade at a 10th of the spot gold price in increments of $0.10. Liquidity for Dubai Gold is virtually unlimited as it is backed by the London OTC gold market," the note said.

Hedge funds ‘keep powder dry’ on loans

Hedge funds cut their borrowing to almost nothing in the wake of the collapse of Lehman Brothers, according to research by the UK’s financial watchdog.

Data compiled by the Financial Services Authority show leverage fell to just 1.15 times hedge fund net assets in October, down from almost twice a year earlier.

Saudi foreign assets dip by SR28bn in January

Saudi Arabia's foreign assets dipped by more than SR28 billion (Dh27.7bn) in January to maintain their fall for the second successive month after several years of a steady growth, official figures showed yesterday.

Although the world's oil superpower recorded its largest ever budget surplus in 2008, the foreign assets of its central bank plunged back to their September level apparently because the government focuses on slashing debt and maintaining high expenditure in 2009 to offset an economic downturn.

From around SR1,709.9bn at the end of 2008, the assets of the Saudi Arabian Monetary Agency (Sama) shrank to nearly SR1,681.3bn at the end of January, a drop of SR28.6bn.

Samba predicts mergers in banking sector to offset impact of crisis

UAE banks could be forced to embark on mergers this year to escape the adverse effects of a sharp slowdown in the domestic economy and the global credit crunch, a key Saudi bank and economists said yesterday.

A steep fall in fourth quarter profits by most banks that have released financial results for 2008 signalled a tough year ahead and this should prompt further support by the UAE Government, the Saudi American Bank (Samba) said.

In a study sent to Emirates Business, Samba said that despite recent cash injections by the government into some banks and other measures, UAE bank credit growth is projected to sharply slow down this year as many of them are concerned about asset quality in a slowing economic environment while others are streamlining lending activities and striving to boost deposits.

Let’s go back to raising real capital for the real world

If you want to see financial Armageddon in all of its savagery, forget Wall Street, London or even Reykjavik, and go instead to Edinburgh. The Scottish capital, home to both collapsed RBS and HBOS, is at the heart of the disaster that has overtaken British banking, and will never again be the dynamic wealth-creating centre that enabled it to dominate the UK banking business.

Edinburgh was the financial hub that funded the Scottish industrial revolution in the 19th century, full of thrifty, shrewd businessmen – “canny” was the word they applied to themselves – and when Scottish heavy industry went bad in the 20th century, it reinvented itself as the centre of what we now call the “financial services industry”.

It is a mirror of the great disaster that has overtaken global finance, and a role model for how not to run a financial system.

Iran will not back further Opec cuts

Iran will not support a new round of oil production cuts at OPEC’s coming meeting in Vienna, the country’s oil minister told local press on Sunday.

“I do not think we move towards cutting production again. Instead, a mechanism should be defined to repair prices in the oil market,” Gholamhossein Nozarisaid, according to remarks published on the website of Press TV.

Mr Nozari did not offer more details on what he thought the “mechanism” should be. His comments come a day after Chakib Khelil, the Algerian minister of energy and mines, said “an additional production cut is very likely” in Vienna.

Saudi cuts drilling activity

Drilling activity in Saudi Arabia may drop by about 20 per cent this year, as the world’s biggest oil exporter slows major oilfield development following a surge of activity in the past three years.

But so far there is no evidence of a similar trend in the UAE, where there has been no recent push to develop oilfields, and the state-owned Abu Dhabi National Oil Company (ADNOC) has scheduled several big projects.
“It’s no surprise that the Saudis had a huge surge in drilling activity that is now falling off,” said Raja Kiwan, a Dubai-based analyst with PFC Energy. “The Saudis will be completing a capacity expansion to 12.5 million barrels per day this year.”

The latest industry data show Saudi rig activity down 5 per cent in January from a year earlier, including a 10 per cent drop in onshore drilling, which accounts for about 80 per cent of all oil and gas drilling in the nation. Overall, 97 rigs were active, down from 102 the previous January, according to the international oilfield services companies that compiled the data. But in the UAE, January drilling activity was up 27 per cent, with the number of active rigs increasing to 33 from 26. Some of the extra rigs may have been contracted as long as six months ago, when oil prices were peaking.

Abu Dhabi reviewing its Citigroup investment

Abu Dhabi is assessing its US$7.5 billion (Dh27bn) investment in Citigroup as the bank’s problems deepen and consequences of a possible nationalisation become clearer, according to sources close to the Abu Dhabi Investment Authority (ADIA).

ADIA invested $7.5 billon last year in Citi through convertible bonds that pay 11 percent in interest, but it must start converting the bonds into 235.6 million shares in Citigroup from March next year.

“Nothing has changed from ADIA’s perspective at this point. ADIA’s convertible bonds are due for conversion in a phased manner between March 2010 and September 2011, and that stands,” an Abu Dhabi government official told Reuters.

“But it is carefully assessing its options due to the latest events -- although no decision is taken yet,” he said declining to be named due to confidentiality issues.

A spokesman for ADIA, thought to be the world’s largest sovereign fund, declined to comment.

Dubai January hotel occupancy slips

The success story of Dubai’s hospitality sector is souring, with hotel profit margins in January showing signs of the industry feeling the pinch of the economic downturn.

In recent years, the Dubai market has performed strongly compared with the rest of the region as the supply of hotel rooms failed to meet demand. But with the economic crisis cutting tourist numbers, occupancy rates have fallen and prices are coming down.

“What we are seeing is the classic knee-jerk reaction to a fall in occupancy, with waves of panic pricing. The last thing revenue managers want to do is to suffer twice – both from the fall in occupancy and then in rate”, said James Chappell, the managing director of STR Global, a US-based industry research firm.

Shuaa and DBG settle dispute

The long-running dispute over a convertible bond between Shuaa Capital and Dubai Banking Group (DBG) ended amicably yesterday when the investment bank’s shareholders voted in favour of a compromise.

The agreement allows Dubai Banking Group to delay by one year the conversion of a mandatory bond into shares originally due last October, because of Shuaa’s declining share price.

“It is the best decision under the circumstances,” said Iyad Duwaji, the chief executive of Shuaa Capital. “It is in line with what the board had recommended to its shareholders.”

Bond market organisation ‘close’

Gulf-based banks, law firms and other market participants are close to launching a professional bond market organisation, a US Treasury envoy told a regulators’ conference in Dubai.

Michael Grifferty, a regional adviser for government debt issuance, said a bond and sukuk market would be the “spare tyre which needs to be inflated” to help in the economic crisis.

“In the next months, we will see a market organisation where market players and service providers will... provide input to regulators,” said Mr Grifferty.

UP opens door to merger

Union Properties, Dubai’s third-largest property developer, would welcome a merger if the partner brought a genuine advantage to its overall business operations, the company’s chief executive says.

Speculation of consolidation among Dubai’s biggest developers has mounted since the downturn hit the property sector, where prices have fallen by an average of 25 per cent since their peaks last September, according to a recent report by Morgan Stanley.

“I am a big supporter of mergers, especially at times like this,” said Simon Azzam, the chief executive of Union Properties. “If a merger makes business sense due to the synergy of the two businesses and adds a genuine advantage to the company’s overall operations, brings liquidity and shareholder benefits, then we would welcome such initiatives and discussions.”

Emerging market finance: a gap to fill

Two years ago, nearly a trillion dollars flowed into emerging markets as investors in rich countries toured the globe in the hunt for yield. Now there is a melancholy long, withdrawing roar as private capital flees to safer havens.

In the past, when the money stopped flowing in, it precipitated financial meltdowns – across Asia and in Russia in the 1990s and in Latin America a decade earlier. This time, it is increasingly clear, the official institutions set up to cushion the impact are too small for the task.

Net capital flows to emerging markets will drop to just $165bn (£115bn, €130bn) this year, down from $929bn as recently as 2007, according to estimates by the Institute of International Finance, which represents the world’s leading financial companies. Net lending from commercial banks, the IIF says, is likely to go into reverse.

Hedge funds

The great unravelling goes on. Hedge fund clients pulled out $74bn in January, according to TrimTabs – the second highest withdrawal on record behind December’s $117bn. Some funds that froze redemptions in panic last year are now relenting: Fortress, Tudor and Threadneedle are reported to be following Citadel’s lead in allowing investors access to their cash when they want it.

That is brave: after a rare up month for the industry in January, February could prove to have been as grotty as November and December. But relaxing defensive restrictions is the right decision – for two reasons. First, it acknowledges that the industry is built on mismatched liquidity. Consider the banks financing hedges through their prime brokerage arms – a lot of that funding is overnight, and the remainder can be clawed back, if necessary, in a hurry. Funds of funds, guardians of perhaps 30 per cent of total industry assets under management, might invest in a fund on a quarterly basis while offering their own investors monthly terms.

Concerns linger over Dubai economy

Dubai’s $10bn loan lifeline from the federal United Arab Emirates government has eased fears of imminent defaults in the debt-laden emirate but concerns remain about the health of its economy, bankers and analysts said on Friday.

The UAE’s central bank said last Sunday it would underwrite $10bn of a $20bn bond issuance by Dubai, initially causing jubilation among bond and equity investors in the statelet.

But towards the end of the week, the cost of insuring against the default of Dubai state-backed companies again started to rise, and the Dubai stock market ended the week down 2 per cent, despite surging 7.9 per cent on Monday on news of the bail-out.