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Wednesday, 18 March 2009

Emirates Islamic to convert state deposits to capital

Emirates Islamic Bank said on Wednesday it would convert federal government deposits into regulatory capital as part of a plan to enable banks to bolster capital as they face a rise in provisions.

Emirates Islamic, a unit of Emirates NBD is the latest bank in the UAE seeking to strengthen its base of Tier 2 capital as loan defaults mount and they take provisions for potential bad loans to come.

The UAE finance ministry set up a Dh70 billion ($19.06 billion) facility last year to deposit money into banks.

ADCB to Convert $1.8 Billion Government Deposits Into Capital

Abu Dhabi Commercial Bank PJSC, the United Arab Emirates’ third-biggest bank by assets, plans to convert 6.6 billion-dirham ($1.8 billion) of federal government deposits into Tier 2 capital.

The bank plans to seek shareholders approval for the conversion at a meeting on March 31, its Chief Executive Officer Ala’a Eraiqat said in Abu Dhabi today.

The bank received the deposit as part of a government plan announced in October to inject 70 billion dirhams ($19 billion) into local banks to relieve the impact of the global credit crisis.

Tier 2 capital is a bank’s secondary capital and includes items such as undisclosed reserves, general loss reserves and subordinated term debt. It protects depositors after the value of Tier 1 capital has eroded. Tier 1 consists of items such as common stock, retained earnings and perpetual preferred stock.

Bahrain Economic and Strategic Outlook - March 2009 (Open PDF)

"Bahrain has recorded exceptionally high growth during the past few years. Since 2003, the nominal growth rate has been consistently in high double digits. Higher oil prices and huge liquidity in the region helped Bahrain to record robust performance over the past five years. During 2008, we expect that the real GDP to have grown at 6% as the region remained largely unaffected by the economic crisis during the first half of 2008. However, global economic slowdown coupled with substantially lower oil prices, reduced oil production and lower consumer spending has severely marred the economies in the region and this will impact Bahrain as well with the economic growth rate expected to come down to around 2.5-3.0% for 2009 with more of a downside risk."

Sovereign wealth funds: Nobody wants to be first to buy in

To say that foreign funds have generally not felt welcome in Japan would be an understatement.

Until recently, foreign funds of all stripes, whether activist hedgers or longer-term private equity, were generally jumbled together and described unflatteringly as “vultures”.

Japanese red tape was another barrier that put off many foreign outfits.

Gulf Arab Currency Pegged to Basket Feasible by 2020, EIU Says

The single currency that Gulf Arab states are planning will be linked to a basket and is possible by 2020 rather than next year’s deadline, the Economic Intelligence Unit said.

“The GCC countries will peg their common currency to a trade-weighted basket of currencies by 2020, although one or two states may opt out of this initiative,” the Economic Intelligence Unit said in its 2020 outlook report. “Most of our interviewees thought it feasible that the GCC would have monetary union by 2020, though not by 2010.”

Gulf Cooperation Council members Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain and Qatar agreed in December to a 2010 deadline for monetary union. The countries have yet to decide on a location of a central bank and convergence criteria. Bahrain central bank Governor Rasheed al-Maraj said last week the 2010 deadline would have to be revisited.

Kuwaiti Stocks Fall as Government Collapses; Dubai Retreats

Kuwaiti stocks declined the most in two weeks, led by National Bank of Kuwait and Investment Dar Co., on concern that the government’s resignation will delay passage of an economic-stimulus plan.

National Bank of Kuwait, the country’s biggest bank by assets, dropped 5.5 percent, while Investment Dar Co., the financial-services company that owns half of Aston Martin Lagonda Ltd., sank 5.4 percent. The Kuwait Stock Exchange Index lost 1 percent, and the Kuwaiti dinar declined 0.5 percent to 0.2935 to the U.S. dollar in Kuwait trading at 3 p.m. today.

“There is a bit of nervousness among investors,” Faisal Hasan, head of research at the Kuwait-based Global Investment House KSCC, said in an interview from Kuwait City. “This political uncertainty might delay the approval of the economic stimulus plan which was to be debated in the parliament.”

Cirque du Soleil Says Dubai Investors Will Hold Stake (Update1)

Dubai’s Istithmar World and Nakheel PJSC will keep their stake in Cirque du Soleil Inc., said Daniel Lamarre, chief executive officer of the circus, amid reports that the funds are considering asset sales.

“They are going through a difficult period, that’s no secret,” Lamarre told reporters today after a speech to the Montreal Board of Trade. “But investing in the Cirque is the best investment they ever made.”

Istithmar Chief Executive Officer David Jackson told the Financial Times last week that the state-owned fund would consider selling some of its investments to repay some of its related companies’ debts. The report didn’t say whether the Montreal-based circus was one of those investments.

Adic eyeing $250m buyouts

Abu Dhabi Investment Company (Adic) said yesterday it expects buyout opportunities to begin emerging in the Middle East and North Africa as valuations are hit by the global financial crisis.

The investment firm, owned by Abu Dhabi Investment Council, said it was looking for companies with solid cash flows in sectors that are likely to be least affected by the economic downturn such as healthcare, education and telecommunications.

The group expects deals to emerge in the UAE, Saudi Arabia, Turkey and Egypt, Adic Chief Executive Nazem Al Kudsi said, adding that opportunities would arise for small and medium-sized deals of up to $250 million (Dh918m).

Good infrastructure continues to attract companies to Dubai

Companies are still flocking to Dubai despite difficult times, thanks to the emirate's advanced infrastructure and its status as a major financial centre, a board member of Dubai Financial Services Authority said yesterday.

"The Gulf economy is clearly strong and I am optimistic about it in the long term. Every economy at the moment is suffering major pressures. Dubai and the UAE no different from that. But I do think fundamentals here are good. Dubai is a major international business centre; infrastructure here is very strong. Companies are coming here even in difficult times," Lord David Currie, DFSA Board Member, told Emirates Business.

He said the present economic tumult is likely to see the US and Europe as less strong economies and could have a long-term, deep impact unless global economies take effective measures while resisting the temptation to resort to protectionism at the same time.

'Arab states should adopt a currency basket'

The Gulf and Arab countries should drop the dollar peg of their currencies and adopt a currency basket, since the dollar has damaged both global and American economies, said delegates at the fourth Dubai Police Academy International Conference.

The event, which discussed the legal, economic and security aspects of the global financial crisis, called on decisionmakers in Gulf countries to convince the US to accept a new financial and monetary world order that is governed by a basket of currencies, where the dollar's share does not exceed 25 per cent.

It proposed a new gold standard against a basket of currencies to replace the free dollar standard. And, as a first step, it said oil producers should revoke their 1970s commitment to price oil in dollars, devising a new mechanism instead in which the dollar has no big effect.

Gulf banks witness fall in assets as funds are still hard to raise

Gulf banks suffered from a decline in their assets in January for the first time in many months as they struggled to get funds to offset a severe liquidity shortage triggered by the global financial distress, according to official figures.

With the exception of Qatar, which has not yet provided data for January, the combined assets of the banks in the other countries of the six-nation Gulf Cooperation Council (GCC) recorded a drop despite measures by monetary authorities in some members to support the banking sector with cash injections and relaxation of reserve requirements.

Central Bank plans rate cut to stimulate economy

A plan to cut interest rates is to be introduced by the UAE Central Bank along with a number of other measures, Governor Sultan Nasser Al Suwaidi revealed yesterday.

The move to reduce bank rates is designed to ease the economic slowdown caused by the shortage of liquidity that has resulted from the international financial slowdown.

"We have almost finished the plan and will announce the details soon," added Al Suwaidi.

Citi and Sovereign Funds: A Post-Mortem (Registration required)

I was remiss in not finalizing a piece on the effect on SWFs of Citi's preferred securities to common stock conversion a few weeks back. But a few queries encouraged me to finish and post it - so here it is... mostly written February 27/28 at the time of conversion. There has been a lot of talk about whether the U.S. government’s attempts to shore up the capital base of banks like Citigroup were being complicated by the stakes that sovereign funds and other ‘private’ investors took in the bank. Sovereign funds of Abu Dhabi, Kuwait and Singapore were among those that provided capital to the bank holding company back in November 2007 and January 2008, in exchange for fairly high interest payments.These deals varied in structure. GIC and likely Kuwait (along with others that co-invested with them like Saudi Prince Alwaleed bin Talal and Sandy Weill) have reportedly agreed to convert their shares. ADIA's investment, structured as debt, continues unaffected. See the press release for details on the conversions. Now most of the “private” holders of preferred shares have been encouraged to convert their preferred shares to common stock to boost the company's tangible common equity. “Encouraged” may be an interesting term given the carrot and stick approach. The stick of course was the loss of dividends paid to preferred shareholders. The carrot was getting a larger share of Citi than previously negotiated. Based on details relating to Singapore’s investment, the new shares seem to covert at around 3x the amount of equity from the initial deal, ie diluting common stock holders by 74-75%. It is not clear if the other preferred stock holders (those that trade freely) will convert on the same terms.

S&P applies credit rating downgrades across Dubai

Standard & Poor’s lowered its ratings on a series of big government-linked companies in Dubai on Tuesday, owing to the emirate’s deteriorating economic outlook.

The credit rating agency also put four Dubai-based banks on review for downgrade, predicting that a contracting economy and wilting property market will weigh on the emirate’s financial institutions.

Dubai’s half-decade of rapid growth and extravagant construction projects has been abruptly reversed by the credit crunch, exposing an $80bn pool of largely short-term debt.

Libya eyes more property in west

Libya’s $70bn sovereign wealth fund is on the lookout for investments in western real estate markets, as Muammer Gaddafi’s regime flexes its financial muscle after emerging from its international isolation.

Unlike many Middle Eastern funds, which are sitting on substantial losses, the Libya Investment Authority was set up only in 2007 and is scouring the globe for opportunities in the downturn.

In an interview with the Financial Times in Tripoli, Mohamed Layas, the LIA’s chief executive officer, said that after buying, through an affiliate, an office block in London, the fund was looking for more investments in property.

Emirates to cut New York capacity

Emirates will stop flying its two Airbus A380 aircraft on the New York JFK route from April, having only started the service just eight months ago. The aircraft instead will be redeployed this summer to Toronto and Bangkok.

In June, the airline plans to allocate one of the two A380s currently serving New York to its thrice-weekly route to Toronto, while the second superjumbo will be placed into service on one of the Emirates' twice-daily flights to Bangkok, according to Emirates Business.

"Effective from June 1, 2009, two of Emirates' Airbus A380 aircraft, currently operating on one of the two daily Dubai-New York JFK services, will be redeployed to the three-times weekly Dubai-Toronto service and to one of the two daily Dubai-Bangkok services," an Emirates spokesperson told the newspaper.