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Thursday, 19 March 2009

Global's UAE Weekly Report - March 19, 2009 (5 page PDF)

Moody’s Places Kuwait Ratings on Review for Possible Downgrade

Kuwait’s sovereign ratings were placed on review for possible downgrade at Moody’s Investors Service today.

“The rating action was primarily motivated by the recent resignation of Kuwait’s government and the dissolution of parliament -- the latest bout in the disruptive conflict between the executive and the legislature,” Moody’s said in a statement today.

“These events reflect an erosion of institutional strength which is of particular concern given the current challenges presented to Kuwait by the global economic and financial crisis,” it said.

The affected ratings are the Aa2 local and foreign currency government bond ratings and the Aa2 country ceiling for foreign currency bank deposits, Moody’s said. Kuwait’s local currency country ceilings and country ceiling for foreign currency bonds remain at Aa2 and are not included in the ratings review.(END)

U.A.E. Rules Out Liquidating Amlak Finance, Tamweel

United Arab Emirates economy minister Sultan Bin Saeed al-Mansouri ruled out liquidating the country’s biggest mortgage lenders and backed a merger of the two companies.

Amlak Finance PJSC and Tamweel PJSC won’t be liquidated, he told reporters at a press conference in Dubai today. A merger of the two mortgage providers would be a “good option,” he added.

The government rescued the two lenders in November, taking them into state control, after they suspended new home loans. The state set up a committee last month to decide whether to merge, liquidate or restructure the two companies separately.

“We see it as our responsibility as the government to make sure that no entities, whether it is Amlak, Tamweel or others can be affected by this kind of crisis,” al-Mansouri said.

Real-estate prices have fallen 25 percent in Dubai from September’s peak and 20 percent in Abu Dhabi, Morgan Stanley said in a Feb. 2 report.(END)

Saudi Stock Market Weekly Report Week Ending Wednesday, 18 March 2009 (Registration required)

Short View: Fed’s shock and awe

The Federal Reserve is on a war footing and it is using the Powell doctrine – only go to war as a last resort, and do so with overwhelming force.

The stunning news that it would buy $300bn (€222bn) in Treasury bonds (and spend a lot more on many other fixed-interest securities) also used another classic military strategy. It had the element of surprise.

Even after the central banks of Japan, Switzerland and the UK bought bonds and successfully pushed down interest rates (“quantitative easing“), and even though the Fed said three months ago that it might buy bonds, nobody expected such a drastic move. Fed officials had downplayed it in recent days.

Investment Dar Isn’t Considering Sale of Aston Martin (Update1)

Investment Dar Co., the Kuwaiti financial services company that owns half of Aston Martin Lagonda Ltd., said the British luxury carmaker isn’t for sale.

“Aston Martin is a core asset in Investment Dar’s portfolio,” Amr Abou El Seoud, senior executive vice president, said today in a response to questions from Bloomberg News. “We are not looking to sell our stake in the company and are committed to continuing to work closely with Aston Martin’s management to develop the business.”

The Kuwaiti company, which controls 50 percent of Gaydon, England-based Aston Martin, said March 16 it may sell “non-core assets” as part of a strategy to focus on unspecified parts of its banking, real estate and luxury-goods operations. Ulrich Bez, chief executive officer of Aston Martin, said March 17 he didn’t expect an auction of the stake in the automaker.

ADCB gets Dh6.6b funding from government

Abu Dhabi Commercial Bank (ADCB) has received Dh6.6 billion in terms of deposits from the UAE Federal Government, which would be converted into Tier II capital after getting approval from shareholders at the bank's annual general meeting due March 31, ADCB's chief executive officer said Wednesday.

Ala'a Eraiqat said ADCB received the sum in two tranches from the government - each tranche was worth Dh3.3 billion - and conversion of the total sum into Tier II capital would boost the bank's liquidity and its capital adequacy ratio.

"In 2009, we are well positioned in terms of liquidity and capital adequacy," said Eraiqat.

Moody's may downgrade HSBC Bank Middle East

Moody's Investors Service said it might downgrade HSBC Bank Middle East due to pressures on asset quality and profitability in the regional countries that the bank operates.

The ratings agency said that the bank's Aa2 long-term local currency rating and the foreign currency deposit and debt ratings were also placed under review for possible downgrade.

Moody's said it also placed bank's financial strength rating, global local currency deposit ratings: foreign currency deposit ratings: foreign currency debt rating for senior debt obligations and foreign currency debt rating for subordinated obligations have also been put on the watch list for possible downgrade.

UAE accounts for lion's share of investments in Iraq

UAE-based companies and funds are the largest investors in Iraq by value, having committed more than $31 billion (Dh113.8bn) since 2003, representing 50 per cent of all investments in value terms, data released this week has shown.

Most of these projects were announced in 2008, the same year that the UAE forgave $7bn of Iraqi foreign debt and reopened its embassy in Baghdad, making it the first Arab country to reopen a permanent presence in the nation, according to research by Dunia Frontier Consultants, a firm based in Washington DC, and Dubai.

"We will see a continued and increased proportion of regional money enter into Iraq for the first time in 2009 as regional firms and funds rebalance their investments towards primarily regional ones," Dunia said.

Scania plant to open in Jafza

Swedish truck and bus manufacturer Scania's new industrial facility for assembly of complete vehicles situated in Jafza (Jebel Ali Free Zone) will be open for business later this month.

With this industrial plant, Scania will become the first automotive assembler in the UAE and will supply completed vehicles to the whole GCC.

Located in a 20,000 square metre industrial site in Jafza, the facility meets the highest environmental standards and is a Green Building, Gold Leed certified. The installation will have the capacity for customisation of about 1,400 vehicles per year.

Permanent repo may be a solution

Economists and bankers have suggested the establishment of a permanent repo system by the UAE Central Bank in order to ensure healthy liquidity.

"Short-term funds cannot serve the purpose as they bring in unhealthy liquidity, which cannot be relied on for the long term," said Shayne Nelson, Standard Chartered bank's Mena Chief Executive.

He said things are improving for the UAE and Dubai, and the several government liquidity-boosting initiatives have started bearing fruit.

A man's world but nothing without a woman or a girl

If the Chinese are right when they say that women hold up half the sky, we may be in for trouble in the UAE.

It is well known that there is a serious gender imbalance in this country, thanks largely to the armies of imported construction workers needed to help build the nation’s skylines.

Construction and real estate are the UAE’s largest employers and, while there is no shortage of females in real estate, it would be a head-turner indeed to see a woman in one of those Ashok Leyland buses hurtling between the dusty building sites of Abu Dhabi and Dubai.

US ambassador says UAE profile is growing

The emirate’s decade-long economic boom has helped it become one of the region’s most powerful political voices, the US ambassador said yesterday.

Addressing a meeting of the American Business Council in Dubai, Richard Olson, who took up his post in October, said the new administration in Washington would work closely with its allies on such regional issues as the Arab-Israeli conflict, Iran’s nuclear programme and Sudan.

“We seek the advice of the UAE on these thorny political issues, particularly in the case of Iran, in the case of Afghanistan and Pakistan, and on the question of support for the Palestinian Authority and more generally the Israeli-Arab conflict.

Dubai business courts set up hotline for urgent hearings

The special court system serving the Dubai International Financial Centre (DIFC) has established a 24-hour hotline through which litigants can appeal for an immediate hearing of their cases.

“The DIFC is a hub for international business, which operates around the clock, seven days a week,” Mark Beer, DIFC courts registrar, said in a statement. “To support this business and its global stakeholders’ requirements, the courts need to be able to deal with urgent matters as they arise.”

The DIFC Courts also announced an online case management system, dubbed intercom, intended to streamline scheduling and the management of electronic records and documents.

Three cheers for Dubai

Earlier this year, a friend of mine who runs a small PR company in Dubai moved with his team into a new office in Dubai Media City. And the situation he encountered had been unthinkable just a month or two earlier. Everywhere people were packing up, vacating offices, tearing down company signs. Apparently, my friend had the choice of at least a dozen or so offices to choose from.

In recent weeks, the media have been full of articles and reports on the impact of the global economic crisis on the Gulf countries, and particularly Dubai. Just last week a piece in the New York Times spoke of thousands of foreigners leaving the emirate every day, dumping their cars at the airport. While this may have been exaggerated, it is true that the "Dubai miracle", where nothing could go wrong, has ended. The state had to disclose that it is $70bn in debt – about 100% of its GDP; almost half of real estate developments are now either "indefinitely postponed" or outright cancelled; and there is an exodus of professionals and workers.

Will Dubai collapse? Of course not. And for three very good reasons:

Investcorp buys majority stake in L’Azurde

A Middle East private equity consortium led by Bahrain-based Investcorp has agreed to acquire a majority stake in a Saudi Arabian gold and jewellery company, betting that the Middle East’s young and affluent demographic composition will see off the worst of the downturn.

The group will take a total 70 per cent stake in L’Azurde, the world’s fourth largest gold and jewellery manufacturer, in a deal that values the company at more than $300m, financiers behind the deal told the Financial Times.

Investcorp – which has owned Tiffany, the jewellery chain, and Gucci, the luxury goods group – will take a 51 per cent stake in L’Azurde.

Saudi exporters fall foul of investors


When the Saudi Arabian stock market crashed last summer, amid collapsing oil prices and fears of the contagious effects of the global economic meltdown, the authorities asserted that the kingdom was insulated from the worst effects of the crisis

The government backed its case when it announced a sharply expansionary budget in January, including plans to run its first budget deficit in seven years.

But the assertions and spending plans are having only a limited effect on investor sentiment. The Saudi stock exchange, or Tadawul, the largest in the region, continued to drop, losing 9 per cent of its value this year, and more than 50 per cent since August.

Gulf sees a chemical future

In the US film The Graduate, a family friend offers the protagonist, played by Dustin Hoffman, some simple career advice: “I want to say one word to you. Just one word. Plastics.”

It is counsel the Gulf states have heeded. Seeking to capitalise on their comparative advantage – abundant and cheap access to hydrocarbons, the building blocks for many petrochemicals – governments have invested heavily in domestic industries.

The credit crunch, however, has thumped the chemical industry in recent months. A collapse in global manufacturing has sent the price of plastics, synthetic rubber and other petrochemical products tumbling – and with them, the profits of the industry.

Gulf investment banks must adapt or die

Investment banking firms in the Middle East need to adapt, speedily, to the realities of the new world emerging from the economic crisis. Their business models, which are built on leverage, proprietary trading, and investing equity capital and borrowed money in illiquid assets, are not sustainable. They will not be able to generate the same high returns on equity as before.

To survive, they need to become either niche players in their respective markets, concentrating on brokerage, intermediation and advisory services, or they should merge. Better still, they should be acquired by commercial banks. Those who resist change will be forced to shut down or become irrelevant.

The traditional sources of revenue for the region’s investment banks have been declining. Primary capital markets are virtually closed. With the exception of Atheeb in Saudi Arabia and the opening of the Damascus stock exchange, there has barely been an initial public offering, corporate bond or sukuk issued in the region since the third quarter of last year. Mergers and acquisitions are scarce, assets under management have shrunk in value, trading volumes and brokerage fees are way below previous levels, while mark-to-market losses on illiquid investments have risen.

Libya in move to lure foreign banks

Libya is considering offering private sector banking licences next year in an effort to attract foreign banks to the oil-rich north African country, which has recently shed its pariah status after mending relations with the US and Europe.

Farhat Bengdara, governor of the Central Bank of Libya, told the Financial Times that in 2010 Libya would “set up criteria” and advertise for licences “according to our study of the market”.

This would be “the second” phase of Libya’s move to open its banks to foreign investors after the sale of minority stakes in two of its three state-owned banks in the past two years.

Socialist People's Libyan Arab Jamahiriya Assigned 'A-/A-2' Rating; Outlook Stable; 125th Rated Sovereign

Standard & Poor's Ratings Services today said it had assigned its 'A-' long-term and 'A-2' short-term foreign and local currency ratings to the Socialist People's Libyan Arab Jamahiriya (Libya). The outlook is stable. At the same time, a Transfer & Convertibility assessment of 'A-' was assigned. With this rating, Standard & Poor's now rates 125 sovereigns worldwide.

"The ratings on Libya are supported primarily by what we consider is one of the strongest balance sheets among 'A' rated sovereigns, comprising substantial public assets and negligible debt; relatively low financial contingent liabilities; and the solid medium-term growth prospects of the country's energy sector," Standard & Poor's credit analyst Ben Faulks said. "The ratings are constrained by our view of the limited transparency of official decision-making in Libya compared with that in many of its peers, as well as uncertainties surrounding the effectiveness of reforms to promote private sector development, which are at an early stage of implementation. We believe Libya's economic structure is not as developed as most peers with, for example, the banking sector in the early stages of modernization."