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Friday, 27 March 2009

Investcorp Bids Credit Hedge Fund Adieu

It looks like the 16-month marriage between hedge fund seeder Investcorp and Washington Corner Capital Management, a distressed and credit-focused hedge fund, is over.

Spokesmen for Investcorp confirmed that the $4 billion seeding firm is unwinding its $50 million investment in the emerging hedge fund, which it seeded in November 2007. The firm was unavailable for further comments.

“We’re not under pressure to sign up funds, but, for example, we got Washington Corner and Stoneworks Asset Management at about the same time because we thought both of them were interesting,” Deepak Gurnani, co-head of Investcorp’s hedge fund, told FINalternatives at the time.

Investors put billions into emerging market equity funds

Funds dedicated to emerging market equities reported their largest weekly inflows since May 2008 during the week ended March 25th, Merrill Lynch said in a report on Friday.

These funds attracted $2.3bn in a third consecutive week of inflows, including $1.6bn through ETFs.

The top talking points, according to Merrill’s Josh Hartnett international investment strategist:

The money is 1) going in via diversified “global EM” category, 2) going in via ETFs which indicates retail & hedge fund activity and 3) going to EM rather than developed market funds.

Retail interest in EM picking-up a bit; inflows should make LO investors less fearful of redemptions/encourage lower cash levels. But no doubt flow numbers show that HF’s are using EM ETFs as a way to quickly raise risk levels; note EEM up a staggering 24.3% in March (that’s 1784% annualized).

Country focus: Indian tiger wounded but still in the hunt (Registration required)

In the first of a series of country-specific reports, Patrick Sherwen examines the complex and dynamic political and financial situation in India.

No so long ago, India – and its BRIC brothers Brazil, Russia and China – was considered not only a great investment opportunity, but one of the new drivers of global economic growth. Today, through the lens of global financial crisis, the perception is very different.

The Indian government has cut its growth estimate to 7.1%, from 9.6% in 2007 to 2008, which is optimistic compared with the 5.5% estimate offered by Citigroup. This is considerably better than the pre-liberalisation rate of about 3.5%, but still disappointing, and has dashed hopes that India would be more or less immune to the current troubles.

With an election only months away, what can investors expect to happen next? Will India return to its tiger-ish performance or will its previous growth be exposed as nothing more than an Indian rope trick?

Las Vegas Development Might File for Bankruptcy (Update 2)

CityCenter, the troubled residential and casino development in Las Vegas, has hired a law firm, Dewey & LeBoeuf, to prepare for a potential bankruptcy filing, people briefed on the matter said on Thursday.

Its developers, MGM Mirage and Dubai World, will likely fail to make a $220 million debt payment due Friday, these people said. The sprawling and unfinished $8.6 billion project may file for bankruptcy within days, though an agreement could be reached before then.

Talks among the developers, MGM Mirage and Dubai World, and their lenders are already under way.

Global's Kuwait Weekly Report - March 26, 2009 (PDF)

Al Boom loses Dh1.1 billion compensation claim

A court on Thursay dismissed a Dh1.1 billion civil compensation claim which Emirati businessman Abed Al Boom earlier lodged against the Dubai Public Prosecution.

Advocate Salim Al Sha'ali, who represents Al Boom, told Gulf News that he will appeal the Dubai Civil Court's primary judgment which was handed yesterday.

Al Sha'ali earlier lodged the civil lawsuit against the Public Prosecution which represents three government bodies, Dubai Police and Departments of Economic Development and Financial Control.

Global crisis shatters the decoupling myth

The economic fundamentals of the region are generally better than those of the rest of the world. The GCC countries have a combined population of 35 million and are cushioned by US$1.2 trillion (Dh4.4tn) of foreign assets, making it possible for their governments to implement expansionary fiscal policies. However, those GCC countries which are more integrated into the global economy, and whose financial systems have high loan-to-deposit ratios, are affected more than others (UAE and Kuwait more than Saudi Arabia). The myth that the region is decoupled from the rest of the world has been shattered. Not only is it not decoupled, but the region is very much influenced by what happens elsewhere.

Prices of the region’s main exports, such as oil, petrochemicals and minerals, are determined by world markets. The fact that the Gulf currencies have been pegged to the US dollar since the mid-1980s means that the exchange rate and domestic interest rates are also determined mainly by factors beyond our control. But above all, the region is an active participant in world financial markets. It is estimated that the private sectors of the region own US$1.8tn worth of foreign assets. The fear and panic that has hit the world has affected us. If our portfolio abroad suffers we tend to reduce our exposure to our regional stock markets.

We are forecasting an average oil price of US$40 a barrel this year. This is also believed to be the price per barrel assumed in the Saudi budget for the year. Oil prices may well drop below $30 if the US dollar strengthens against the euro, say to its purchasing power parity of $1.18, and there is a greater than expected slowdown in emerging countries, especially China which will grow at 3 per cent instead of the assumed 8 per cent.

Government moves to issue benchmark bond

The Abu Dhabi Government is moving to develop a more mature debt market by issuing a “benchmark” bond, bank sources say.

The news follows calls from officials and analysts for Gulf governments to issue the bonds, which are necessary for developing debt markets. A bond market attracting a larger number of buyers and sellers could eventually provide companies with an alternative way of raising funds, which have grown scarce since the financial crisis forced banks to cut lending.

The government bond is likely to raise at least US$500 million (Dh1.83bn) and be designed to set a pricing standard against which corporate bonds could then be priced. On Tuesday, the Bahrain government announced plans to issue a similar $500m sukuk. Qatar is also reported to be planning to issue its own benchmark bond.

Lufthansa sees UAE ‘imbalance’

Announcing a big increase in its services to the UAE, Germany’s flagship airline, Lufthansa, complained of an “imbalance” in competition with Emirates for air travel between the two countries.

The two carriers have a long-standing rivalry stemming from the threat Emirates poses to Lufthansa’s market share on long-haul routes between India and North America, and between Europe and East Asia.

Lufthansa complained about the difference in handling fees in Dubai and unequal opportunities in the two markets, prompting a swift response from Emirates.

Investors to control Iraq oil contracts

After months of criss-crossing Europe talking to investors, Iraq’s oil minister has decided to allow foreign companies to take a controlling interest in projects to boost oil production, reversing an earlier rule limiting them to minority status.

The move had been sought by international oil companies seeking a role in developing Iraq’s vast resources, after they had expressed concerns about the severity of the terms on offer. It follows a pivotal meeting last month in Istanbul and at this month’s OPEC conference in Vienna, where Iraqi officials met the heads of several companies.

“In Istanbul there were many questions and changes suggested to the model contract. We have found most of the suggestions and changes reasonable,” Hussein al Shahristani, the Iraqi oil minister, said after the OPEC conference in Vienna. “We fully understand that the companies do not feel comfortable with making such large investments if they don’t have control over the operating group to make sure they produce according to the time schedule.”

Decision imminent on Shahin prosecution

A decision will be reached within 10 days on whether to refer to court the case of Zack Shahin, the former CEO of the property company Deyaar and the first executive arrested as part of Dubai’s year-long corruption investigation, the Attorney General said yesterday.

“The investigation is 90 per cent complete,” Issam Humaidan told reporters at Dubai’s third annual Judicial Forum. “The file is with me and I will be reviewing it over the next few days, a decision will be made with regards to this case within the next 10 days.”

This month marks the first anniversary of Mr Shahin’s detention on allegations of betrayal of trust. Last month Mr Humaidan said investigations were nearing a conclusion and that charges of money-laundering were also being considered.

The Geithner plan explained (Click for video)

The plan announced this week by the US Treasury secretary Tim Geithner is designed to clear away a large load of so-called “toxic assets” clogging up America’s financial system. But what are these assets? And how will the plan work?

Normal loans go bad every time the economy enters a recession, as companies’ profits fall and mortgage-holders lose their jobs. But on top of that familiar problem, banks and other financial institutions have created complex financial securities, called derivatives, so blindingly complicated that even the people creating them didn’t really understand them.

With the financial markets in a state of high anxiety and uncertainty, no-one can be sure what these assets are really worth. They haven’t just gone sour. They have become toxic.

The banks and financial institutions that own these assets are caught in a bind. No-one wants to buy the assets from them at anything but extremely low prices. Selling them at those knock-down values could mean realizing huge losses and admitting they are insolvent – meaning they cannot meet their own liabilities. But until they can clear them off their books, the banks don’t want to take any more risks by lending out more money. Play the explainer below to see Mr Geithner’s strategy for unblocking the financial system.

State aid urged for Russian banks

Hundreds of Russian banks are likely to go under by the end of the year as the amount of bad loans surges, potentially hitting as much as 20 per cent of credit portfolios, a senior Russian banker has warned.

Pyotr Aven, president of Alfa Bank, one of Russia’s largest private banks, called on the government to move swiftly to recapitalise the top 30 banks and name the institutions that will receive assistance to help kick-start the flow of credit, which has almost dried up amid growing fears over bad loans.

“We can expect that the level of overdue loans for the whole system might reach 15-20 per cent” by the end of the year, Mr Aven told the Financial Times. “Maybe the 20-30 biggest banks, including Alfa, will receive state support – we’re sure."

Kuwait finally approves $5.2bn stimulus

Kuwait’s cabinet finally passed a $5.2bn economic stimulus package on Thursday after a dissolution of its fractious parliament allowed the government to implement the bill unopposed.

The package had previously stalled due to bickering between the cabinet, most of whose members come from the ruling al-Sabah family, and the combative Islamist-dominated parliament, which wanted to question Sheikh Nasser al-Mohammed al-Sabah, the prime minister, over allegedly misappropriating public funds.

Despite its vast oil reserves and $200bn sovereign wealth fund, Kuwait has been one of the Gulf countries most severely affected by the financial crisis. The parliament had delayed several economic laws and rescue bills, finally spurring the emir to dissolve the elected body last week.

Las Vegas Project Weighs Bankruptcy

MGM Mirage has hired counsel for a possible bankruptcy filing by an $8.6 billion resort and casino development in the heart of the Las Vegas strip.

MGM Mirage and investment partner Dubai World appear unlikely to make a $220 million payment due Friday on City Center -- a massive project under construction on 67 acres. MGM Mirage hired law firm Weil, Gotshal & Manges LLP to help prepare a possible Chapter 11 court filing for City Center, as well as to explore other options, according to people familiar with the matter.

A filing could come this weekend, depending on talks among MGM, its lenders and Dubai World, these people said. Of course, there always a possibility that any filing for court-protection could be averted if the talks lead to an agreement.

TrimTabs Estimates All Equity Mutual Funds Post Outflow of $10.7 Billion in Week Ended Wednesday, March 25

TrimTabs Investment Research estimates that all equity mutual funds posted an outflow of $10.7 billion in the week ended Wednesday, March 25, versus a revised outflow of $233 million in the previous week.

Equity funds that invest primarily in US stocks posted an outflow of $9.8 billion, versus a revised inflow of $131 million in the previous week. Equity funds that invest primarily in non-U.S. stocks had an outflow of $921 million, versus a revised outflow of $364 million in the previous week. In addition, bond funds had an inflow of $3.5 billion, versus a revised inflow of $5.6 billion in the previous week, and hybrid funds had an outflow of $323 million, versus a revised outflow of $201 million in the previous week.

Separately, TrimTabs reports that exchange-traded funds (ETFs) that invest in US stocks posted an outflow of $5.0 billion, versus an inflow of $891 million in the previous week. ETFs that invest in non-U.S. stocks had an inflow of $1.6 billion, versus an inflow of $126 million in the previous week.