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Monday, 23 March 2009

Dubai Bond Risk Falls to Lowest in 2009 on Loan Deals (Update1)

Dubai bond risk declined to the lowest this year on improving prospects that state-owned companies will get loans to refinance debt.

The cost of protecting against a default by the Dubai government fell to 650 basis points today from 669 on March 20, CMA Datavision prices show. The cost had surged to 1,000 basis points last month on concern Dubai will struggle to refinance its debt.

“Spreads on Dubai debt will come down further,” said Mohieddine Kronfol, managing director at Dubai-based Algebra Capital Ltd. “People are getting more comfortable with Dubai’s fundamentals. Also, some of the steps which the government has taken to ease the economic crisis have begun to work.”

MGM Mirage Faces Suit Over Dubai World Vegas Project (Update2)

MGM Mirage, the casino operator controlled by billionaire Kirk Kekorian, was sued by a unit of Dubai World, the state-owned investment group, claiming it defaulted on a Las Vegas joint venture.

Dubai’s Infinity World unit accused MGM of breaching its obligations under an agreement to jointly design, construct and operate a development on the Las Vegas strip called CityCenter. The lawsuit was filed yesterday in Delaware Chancery Court.

MGM’s admissions in its filing with the Securities and Exchange Commission on March 17 “constitute a breach of the CityCenter joint-venture agreement and puts the CityCenter development project at risk,” Dubai World said in an e-mailed statement today.

Abigail Hofman: Sexy banking, the old-fashioned, boring way (Registration required)

A more frugal future looms, one where simple is the new sane.

Franklin Templeton increases Dubai Algebra stake

Franklin Templeton Investments, which manages about $377 billion in assets, increased its stake in Dubai's Algebra Capital to 40 percent on Monday and said it wanted to grow its business in the Middle East and North Africa.

Franklin Templeton, a unit of one of the largest publicly traded U.S. mutual fund managers Franklin Resources Inc (BEN.N), originally bought a 25 percent stake in the Dubai-based fund manager in Sept 2007, in the midst of an oil price rally that had left the world's top oil-exporting region flush with cash.

"This investment ... recognises the long-term opportunities in the (Middle East and North Africa)," William Yun, a Franklin Templeton Investments executive vice president, said in a statement.

Suspects plead not guilty in Mizin trial

The former executive manager of Mizin, the real estate development arm of Tatweer, firmly denied charges of bribery and financial irregularities, amounting to nearly Dh49 million, in court on Sunday.

"God forbids! God forbids! That's prohibited by God& nothing of that sort happened," declared the Emirati and former Mizin executive when he appeared before Presiding Judge Al Saeed Mohammad Barghout at the Dubai Court of First Instance.

Meanwhile, his suspected accomplice - a Lebanese engineer - strongly denied his bribery and financial irregularities charges, stating: "Untrue! Untrue!"

Ruler's Court mourns death of Ahmed Al Maktoum

The Court of UAE Vice President, Prime Minister and Ruler of Dubai His Highness Sheikh Mohammed bin Rashid Al Maktoum is mourning the death of Sheikh Ahmed bin Juma Al Maktoum, who passed away today morning.

Monday, March 23, 2009

Aabar-Daimler: Abu Dhabi makes a bid for the auto sector? (Registration required)

Aabar, an investment vehicle out of Abu Dhabi plans to take a large 9.1% stake in the German automaker Daimler for $2.1b. The deal involves the investment fund taking up new equity issued by Daimler to help the carmaker meet its capital needs (as Bloomberg notes it had losses of 1.5b euros in Q4 as sales dropped and costs from its operations with Chrysler mounted). This purchase, if approved would make Aabar, Daimler's largest stakeholder surpassing the approximately 6.9% owned by Kuwait. DIC, a Dubai-based investor bought and then sold a stake in Daimler earlier this decade. The deal seems to be in part a joint venture, in which the funds will go towards electric car development and an engineer training center in Abu Dhabi. In this way it partly resembles several deals that Mubadala, a direct investment arm of the Abu Dhabi government, has forged, most notably a deal with GE last year that focused on alternative energy (see here for more on the deal)

I must note to begin with that the Abu Dhabi government is a minority shareholder in Aabar, but this seems to be one of a series of government-linked investors who are seeking out new investments, trying to kick start diversification. I’ve noted in the past that Dubai and Abu Dhabi created a well established set of institutions for domestic and foreign investment, in most cases with a sectoral focus, prioritized for domestic investment. Of these institutions, those of Abu Dhabi are more likely to have funds available as they had higher shares of cash reserves or rather were less leveraged. Though even they may have less cash on hand or at least less new capital to invest. This purchase should thus be viewed in this context.

The deal is significant both for the sum of money but as a test case for acquisitions which have been stymied by valuation uncertainty as well as financing costs as well as for how the German authorities will view a large stake. It is none too easy to connect the dots, but this does seem to underscore the point that investors prioritizing sectors seen as key to domestic economic development may find it easier to raise capital in a time when inflows are scarce. In particular, investments in high-level manufacturing and technological innovation especially if such companies will set up training facilities in Abu Dhabi, seem to be a key part of the partnerships.

Uncertain future for fund passport

European fund managers fought long and hard to get a deal on a passport that will allow them to run funds in European Union countries without having to set up management companies in each location. Ucits IV, the rules that will bring in the change, was voted through the European Parliament in January and is expected to apply from 2011.

Ucits III, its predecessor, has been a huge success, having handed fund managers a bigger tool box to work with. This has enabled hedge fund managers to reach a wider investor base and traditional managers to offer hedge fund-style strategies in the regulated arena. This week we report on the first commodity trading adviser fund (CTA) to be offered in a Ucits format – a perfect illustration of convergence between traditional and alternative sectors.

Ever-adapting ETFs attract investment banks

When Jan Altmann helped set up Deutsche Börse’s exchange traded platform at the beginning of the decade in the hopes of encouraging the growth of these low-cost index trackers, he did not foresee how large and dynamic the industry would become.

At the time, it was a business segment for asset managers, whose approach was to buy underlying components of the index they were tracking. With regulatory developments allowing derivatives to replace this process, it has become an enticing area for surviving investment banks to expand into.

Under Ucits III, the regulatory framework covering European investment vehicles, investment banks can run ETFs using swaps to replicate the performance of the underlying index instead of investing in its component securities.

White House to unveil assets plan

Tim Geithner, US Treasury secretary, will on Monday unveil details of a plan to take hundreds of billions of dollars of toxic assets off banks’ balance sheets. The plan, for the Treasury to put $75bn to $100bn of troubled asset relief funds into a public private investment scheme, will help determine whether the Obama administration can regain credibility in its handling of the financial crisis. It follows days of frantic leaking, with both the Treasury and the White House denying being the sources.

Hellman & Friedman eyes iShares

Hellman & Friedman is putting together a group of private-equity groups that may bid for Barclays’ iShares unit in a transaction valued at as much as $5bn, reports Bloomberg. Barclays has set a deadline for offers for the end of this week and, according to the WSJ, may finance as much as 80% of the purchase price of iShares. Bain Capital and rival buyout firms TPG and Apax Partners also are suitors for iShares, the WSJ added.

UNB, ENBD plan to raise Tier 1 capital

With Tier 2 capital issues having been dealt with by several banks over the last fortnight, Emirates NBD and Union National Bank seem first off the block in dealing with Tier 1.

Sheikh Nahyan bin Mubarak Al Nahyan Chairman of Union National Bank Group, speaking at the annual general assembly of the bank late on Saturday, said that UNB, this year, will issue Tier-1 capital bonds for the Abu Dhabi government with a nominal value of Dh2 billion. "These will be on a non-cumulative basis," he added.

Emirates NBD is also likely to expand its Tier 1 capital by about Dh3.5 billion, during the current year itself, Sanjay Uppal, Group Chief Financial Officer, Emirates NBD, revealed exclusively to Emirates Business.

'Liquidity in the banks but not in the market'

Pumping more liquidity into the economy is the only way to prevent a downturn, said Union National Bank CEO Mohammad Nasr Abdeen.

The banks have a good level of liquidity but there is a shortage in the market, he told Emirates Business at the group's general assembly. Asked about the Central Bank's plan to reduce interest among banks to one per cent or less, he said: "The problem is not one of reducing the rate of interest among banks. Rather what is needed is a reduction in the rate of interest on deposits and loans.

"In the current situation banks are competing to attract deposits at very high levels of interest and this pushes up the loan rate. This will in future have a negative effect on the national economy. I believe the best solution at the moment is pumping in more liquidity.

DIFC growth must focus on value for money

Dubai’s alleged motto, “If you build it, they will come”, applies above all to the Dubai International Financial Centre (DIFC).

Since it opened in 2004, the DIFC has attracted big international financial institutions by offering them excellent office facilities and a “cluster development”, where like-minded professionals can work, and play, with all the necessary support systems.

Dubai has crammed into five years the decades, even centuries, of organic development that made Wall Street and London’s Square Mile such great places to do financial business. Maybe only Shanghai’s Pudong district has achieved more in global terms.

Kuwait to pass stimulus package

Kuwait’s cabinet today is expected to pass a 1.5 billion dinar (Dh18.99bn) stimulus bill that had become mired in political infighting before the country’s parliament was dissolved last Wednesday.

The stimulus bill, if passed, would be one of the region’s most comprehensive, analysts said today. It is expected to include provisions for handling bad debt and restoring the nation’s banking system to health. While most Gulf countries have responded to the financial crisis with bailouts and cash injections into stalled lending markets, Kuwait’s proposed package represents a more choreographed attempt to buoy up the banks and investment companies that dominate the financial landscape.

“We’ve been waiting for months now, and the only reason why it has been in limbo has been the political deadlock,” said M R Raghu, the head of research at Markaz, a Kuwaiti investment company. “Some groups were totally opposed to it, and others said it was only possible if you rescued citizens and consumers as well [as financial institutions].”

Taqa pays $320m for power assets

Abu Dhabi National Energy will pay US$320 million (Dh1.17 billion) to acquire power plants and electricity transmission lines in the Caribbean, it said today.

The company, also known as Taqa, signed a deal on Friday to buy 50 per cent of power assets owned by Japan’s Marubeni Corporation in four Caribbean countries, sealing a plan that was announced last month.

Taqa officials had declined to say how much the deal was worth until today's statement to the Abu Dhabi Securities Exchange.

Qatari stocks rise on government investment

The government of Qatar has taken steps to strengthen the country’s banking sector by buying troubled assets from its banks. Stocks on the Qatari market rose today following the news.

The government had completed the purchase of as much as 6.5 billion Qatari rials (Dh6.55bn) worth of the local banks’ investment portfolios, Abdullah al Thani, the central bank governor, said on Thursday, according to a Qatari newspaper report.
The Doha securities market, which has fallen 50 per cent over the past 12 months, rose by 2.55 per cent to 4,879.88 yesterday, -buoyed by banking stocks. Qatar National Bank, the country’s largest bank, rose by 3.97 per cent, while Commercial Bank of Qatar rose 4.09 per cent and Qatar Islamic Bank 3.32 per cent.

The banks involved in the deal are the Qatar National Bank, Commercial Bank of Qatar, Doha Bank, Qatar Islamic Bank, Qatar International Islamic Bank, Ahli Bank and Al Kahlij Commercial Bank. The government will buy the banks’ portfolios in exchange for a mix of government bonds and cash.

RTA to rethink Dubai Metro network

Transport officials said today that the Dubai Metro network is being reconsidered in light of cancellations and delays to construction of developments across the emirate.

Officials said the need for some stations had lessened as projects the system was due to serve have since been put on hold.

Speaking today at a conference to announce the metro’s marketing campaign, officials were adamant the metro is on track to open in September.

But, a planned journey on the metro for members of the press today was cancelled at the last minute without reason.

“We are opening on 09.09.09 and we’re 100% sure of that date,” Peyman Younes Parham, director of the Roads and Transport Authority (RTA) marketing and corporate communications, said.

Global's Jordan Weekly Market Report - March 19, 2009 (PDF)

Global's GCC Islamic Index –Weekly Brief dated March 19, 2009 (PDF)

Global's GCC Weekly Market Report – March 19, 2009 (PDF)

Daimler/Abu Dhabi

These days, carmakers need cash any way they can get it. Increasingly, that means begging for handouts from cash-strapped governments. German authorities should therefore feel relieved about Daimler’s announcement on Sunday of a cash injection from Aabar Investments, an Abu Dhabi-based investment fund.

In return for €2bn in cash, the maker of Mercedes luxury cars will hand the part state-owned company new shares worth 9.1 per cent of Daimler. That will dilute existing shareholders. The Kuwait Investment Authority, currently the carmaker’s biggest shareholder at 7.6 per cent, will see its stake fall to 6.9 per cent, for example. Not pleasant, but it could be worse. At €20.27 a share, Aabar’s stake was priced at only a slight discount to the company’s €21.34 closing price on Friday. Had Daimler eventually been forced into a rights issue instead, the discount might have been far steeper.

MidEast fund takes 9% stake in Daimler

Abu Dhabi-based Aabar Investments is to take a 9.1 per cent stake in Daimler in a €1.95bn (£1.84bn) move to bolster the German premium carmaker, becoming its largest shareholder as the company battles against the worst industry crisis in decades.

Daimler said it would increase its share capital by 10 per cent and Aabar would pay €20.27 per share for the entire offering, which will make the part-state owned Gulf company its largest shareholder. The closing price on Friday was €21.34.

The investment comes as carmakers around the world struggle with the impact of the economic crisis and some have asked for government support.