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Tuesday, 31 March 2009

Whatever happened to frontier markets?

Merrill Lynch’s international investment strategist Michael Hartnett posed the question in a report released on Tuesday, in which he noted, inter alia:

For much of the decade Frontier markets were an uncorrelated, outperforming asset class.

- Between 2000 and 2008, the Frontier market index had a low 32% correlation with the S&P 500, compared with 78% for Emerging Markets
(EM) and 86% for Developed Markets.

- Between January 2000 and August 2008, annualized returns from Frontier Markets were 19% versus 8% from Emerging Markets.

- And the perceived risks from Frontier markets were falling thanks to policy improvements - external debt as a share of GDP fell in almost all regions , most dramatically in Africa from 70% to 14% in Africa

Abu Dhabi’s IPIC Pays $4.4 Billion for No. 2 Stake in Cepsa

International Petroleum Investment Co., the state-owned company in Abu Dhabi seeking to capitalize on falling asset prices, agreed to pay 3.3 billion euros ($4.4 billion) to raise its stake in Cia Espanola de Petroleos SA.

IPIC will own about 47 percent of Cepsa, Spain’s second- largest oil producer, up from 9.5 percent before, the Abu Dhabi- based company said today in a statement. Cepsa, which closed at the end of last year at 67.60 euros a share, rose as much as 2.1 percent in Madrid trading after Banco Santander SA and Union Fenosa SA agreed to sell their stakes for 33 euros a share.

“The price looks reasonable for both sides,” said Francisco Salvador, a director at broker Venture Finanzas.

Rasmala lists MENA fund on Irish bourse

Rasmala Investments has listed its MENA Equity Opportunity Fund on the Irish Stock Exchange.

The Dubai based investment bank said that the fund will be the first publicly listed fund to offer international investors access to the MENA region.

“Many investors can only invest in instruments that are listed on a recognised exchange such as the Irish Stock Exchange,” said Eric Swats, Rasmala’s head of asset management.

“We are confident that we will be able to leverage our experience and on the ground presence in the MENA region as well as our access to top fund managers across the Middle East to deliver significant investment opportunities and unlock value in these exciting, rapidly growing markets.”END

Dubai will emerge stronger once again

Germans use the term schadenfreude to describe the experience of taking delight in the misfortune of another. It's an experience that's visibly reflected in international media coverage of Dubai these days. Indeed, for over a decade, Dubai has been portrayed as a model case study of economic reform and diversification. Now, the media seems equally keen to dramatise the city's challenges.

The media's fascination with creating celebrities and then equally delighting in their fall is, of course, nothing unusual. Movie stars and musicians will vouch for that. Of late, Dubai – with its international resonance and symbolic value as a global Arab metropolis – seems to be the favourite theme.

Not too long ago, we had the rather wry credit crunch catchphrase, "Dubai, Mumbai, Shanghai or goodbye" reverberating across media. The narrative at the time was a city supposedly insulated from the financial implosion that was still unraveling in the West. Going by the torrent of media commentary about Dubai recently, that narrative has come full circle. One prominent international glossy recently ran a story that simply said, "Goodbye Dubai."

Tier 1 capital targets may pose challenges for some banks in UAE

Raising Tier 1 capital ratio to 11 per cent by June 30 this year and adding a percentage point by the same date next year could prove a challenge for some small- and medium-sized banks in the UAE, analysts said.

The UAE Ministry of Finance has said banks that receive federal deposits will have to achieve a Tier 1 capital ratio of 12 per cent by next year in two phases.

The ministry, as an initiative to inject liquidity into the banking system recently, has parked Dh50 billion with the national banks – proportional to each bank's asset book size.

Power plants face funds challenges

A lack of long-term project financing may force the Abu Dhabi Water and Electricity Authority (ADWEA) to issue a bond or seek help from government entities to finance a power plant, a senior official said today.

But ADWEA has no intention of delaying construction of the US$2.5 billion (Dh9.18bn) Shuweihat 2 complex, which will generate 1,500 megawatts of electricity and almost 454 million litres of fresh water a day when it goes onstream in 2011, said Abdulla al Nuaimi, ADWEA’s director of privatisation.

“The market is still too difficult to give long-term financing,” Mr al Nuaimi told a power conference in Abu Dhabi.

UAE utilities form cable joint venture

The Abu Dhabi Water and Electricity Authority (ADWEA) and Dubai Electricity and Water Authority (DEWA), yesterday launched a Dh500 million (US$136.1m) joint venture to make high-voltage cables for local use and export to GCC countries.

Abu Dhabi and Dubai are seeking to diversify their economies and develop industrial sectors. The venture is a rare example of industrial co-operation between the two and expands a 50-50 partnership in Ducab, the cable maker.

“The project is a reflection of the UAE’s vision to grow the industrial sector and national infrastructure,” said Saeed al Tayer, the chief executive of DEWA.
Half of the shareholding will be held by Ducab, with the two emirates equally controlling the rest.

Abu Dhabi's bond issue gains pace

Bankers on the Abu Dhabi bond roadshow arrived in London today, having spent the past few days talking to investors in the US.

Citigroup, Deutsche Bank and JPMorgan Chase are looking to raise between US$2 billion (Dh7.34bn) and $3bn for the Department of Finance.

The offer is part of the emirate’s plan to eventually borrow up to $10bn in the international capital markets, and will be a significant test of how the global financial crisis may affect economic development plans.

DIB fraud is big enough to 'influence' the economy

The $501 million reportedly defrauded in the Dubai Islamic Bank (DIB) case by seven suspects is enormous enough to influence the course of the economy, argued a prosecutor before a court on Monday.

"The reportedly defrauded amount, $501 million (Dh1.8 billion), is massive and influences the economy of Dubai and the UAE," said Tarek Yaqoub Al Khayyat, Deputy Head of Deira's First Public Prosecution, in his argument when he addressed Presiding Judge Hamad Abdul Latif Abdul Jawad.

"As if the global crisis was not enough and there came the suspects, who were avaricious and held a grudge against the city and the country that welcomed them and helped them earn them a living. They waited for an opportunity to betray and stab Dubai in the back. They proved to be ill-minded and ungrateful to this country. We ask the Dubai Court of First Instance to implement the harshest punishment possible against the defendants so that nobody would ever dare to do what they did," Al Khayyat said.

Dubai will always be hub of commerce

The various cultural and econ-omic events that took place in Dubai in February and March have proved beyond doubt that the emirate will always be an international centre for such activities. Dubai, just like any other open city, interacts with the rest of the world in all aspects. And those who think they are sheltered from the repercussions of global events are wrong.

All countries, without exception, have been hit by the global financial crisis. But the crisis has affected developed parts of the world more than the less developed, and those who were slow and did not move forward.

The UAE - and Dubai, the trading hub, in particular - is naturally facing more challenges than other countries in this region. Actually, it would be surprising if Dubai had not been affected, just like any other active and expanding city.

Bahrain seeks to exploit the downturn

After years spent in the shadow of its neighbours, Bahrain is hoping to claw back some of the business it has lost as a financial centre in the Arab world.

While rivals such as Dubai have been hit hard by falling property prices and scandals, Bahrain has only wobbled. Two regionally owned but locally based banks, Gulf International Bank and Arab Banking Corporation, have admitted heavy losses from investments in the sub-prime property market. But the island’s promoters say they are the exceptions that prove the rule.

“In tough times, people want to be in the most stable place,” says Kamal Ahmed, chief operating officer of Bahrain’s Economic Development Board. “Of course, nobody is immune to the crisis, but we have certainly shown we are less exposed.”

Deluge of Gulf bonds promises market boost

Underworked regional bond traders will soon be handed a much-needed fillip by a deluge of sovereign bond issuance by Gulf governments.

Kuwait, Qatar, and Abu Dhabi and Dubai in the United Arab Emirates are all planning to issue billions of dollars worth of bonds. These are primarily to secure financing for important development projects and government-owned subsidiaries, and in some cases to plug budget deficits.

Yet analysts say the most valuable contribution from fresh government bonds would be to provide a vital benchmark yield that Gulf companies can use to improve pricing and kick-start a badly needed regional corporate bond market.