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Monday, 13 April 2009

Gulf gambles on a rosy future for aluminium

With aluminium prices at multi-year lows and little expectation of any improvement for the next 18 months at least, now could be a worrying time to be investing billions of dollars in new smelters. But, in keeping with the Gulf states’ oft-stated diversification strategies, aluminium executives in the region are confident that they will come out long-term winners.

The stakes are high. Large-scale smelters cost billions of dollars and the nature of aluminium production means that a smelter has to run at capacity or else shut down – and the costs of closure and then restarting are prohibitively high.

In the meantime, metal prices are rock bottom. Aluminium is selling for about $1,450 a tonne compared with near $3,380 last July.

Saudi Arabia seeks to avoid real estate ills

Affluent Saudis often complain that they have only two local investment options: playing the stock market or trading real estate. Disillusioned with the volatile local bourse, many now regard property as their only outlet.

Authorities in the kingdom have watched the dramatic real estate boom and bust in neighbouring Dubai, especially affecting buyers who purchased off-plan units. And they have taken note.

Late last year, Dubai drastically curtailed off-plan sales and imposed tough penalties on developers who were not delivering. Saudi Arabia has followed suit, although the problems in the kingdom have not yet approached those of Dubai.

UAE's Ajman Bank revises strategy amid crisis

New Islamic lender Ajman Bank AJBNK.DU is revising its strategy amid the global economic crisis until the market improves over the next year, its chief executive said on Monday.

The bank, one of eight Islamic lenders in the United Arab Emirates, had originally planned an aggressive rollout in the federation and across the Gulf Arab region.

But it has pulled back from its pan-regional expansion and curbed plans to participate in the local real estate and credit card business as the global financial crisis sweeps across the region.

Executive says a bank collapse could be possible

DUBAI, April 13 (Reuters) - Islamic banks will face a crisis scenario by the end of September that could include forced consolidation if liquidity does not return to the financial sector, a leading banker said on Monday.

Sohail Zubairi, chief executive of Dar al-Sharia consultancy, said retail lending will be hit first if bank funding remains sparse through the third quarter but that worse could be in store, including a possible bank collapse.

"Anything is possible in this scenario," he told the Reuters Islamic Banking and Finance Summit in Dubai. Dar al-Sharia was set up in July 2008 by Dubai Islamic Bank to provide financial and legal expertise for the Islamic finance industry.

"There is a real threat to the business of Islamic banking," Zubairi said, referring to the Islamic lending sector overall. "If the liquidity does not return, we will not be able to continue doing our business."

"Our problem is the liquidity. We haven't lost anything. We have been making profits. But we are suffering because of the lack of liquidity," he said.

Reuters Summit-Islamic finance scholars should engage globally

Islamic finance scholars are not doing enough to promote the industry globally as an alternative to traditional banking after the global financial meltdown, a top executive said on Monday. Sohail Zubairi, chief executive of Islamic consultancy firm Dar al-Sharia, a unit of Dubai Islamic Bank DISB.DU, said Islamic scholars had not responded to the economic crisis with a unified voice, missing an opportunity to push the industry into Western financial centres.

"My personal view is we don't have a central voice in Islamic finance," Zubairi said. "They did not reach out to the conventional financial centres.

"We are not doing a service to the world by keeping it to ourselves...These things are to be told. Sharia tells you that it is not for Muslims only it is for humanity."

The big emerging market economies will weather the storm (Registration required)

Will big emerging economies be sunk by the global crisis? This column says that they should be able to avoid external payments defaults and systemic banking crises, provided that they allow exchange rates to adjust and refrain from running outsized fiscal deficits.

The IIF forecasts net private capital flows to emerging markets will decline dramatically from $930 billion in 2007 and $470 billion in 2008 to a paltry $170 billion in 2009. Commercial bank lending is forecast to turn negative this year. This “sudden stop” has already forced several emerging markets to request IMF programmes. In addition, exports are collapsing on the back of the global recession. The six largest emerging markets or EM-6 (Brazil, China, India, Korea, Mexico and Russia) have been hit hard. However, they are in a sufficiently strong position to fend off an external solvency and a systemic banking sector crisis (the hallmarks of most of the emerging markets crises of the past 15 years) thanks to manageable foreign currency and foreign liquidity mismatches.

UAE-focused funds excel in Q1 ZAWYA (Registration required)

Although UAE markets were see-sawing during the first quarter, some UAE-focused funds managed to buck the trend and emerge as some of the region's best performing funds during the period. Indeed, Makaseb Emirates Equity Fund a was the region's best performing fund in the first quarter, rising 14.71% during the period, compared to 6.62% by its benchmark MSCI UAE Domestic, according to Zawya Funds Monitor.

"Fund strategy for 2009 will be a combination of stock selection and asset allocation tactics," notes a Makaseb commentary on the fund in February. "The reason for focusing on asset allocation is that markets are not stable yet and market conditions are still bad."

Emirates Equity Fund is not the only UAE fund that has had a good run. National Bank of Abu Dhabi's UAE Islamic Fund was the third best performer, returning 9.95% in the first quarter, in what can best be described as volatile market conditions.

Sucker’s rally now coming to an end (Blog)

Whatever the technical reason for the 25 per cent rise in the S&P over the past five weeks, or a more modest eight per cent bounce in GCC regional stock prices, the absurdness of this sucker’s rally ought to be obvious to all.

Unemployment is still rising, house prices are still falling, and the fundamentals of bank balance sheets are still deteriorating with total bad debts unknown except that we know they must be getting worse.

Global trade fell off a cliff in the first quarter of the year. Even Mercedes car sales to the oil-rich of the GCC fell 23 per cent. The collapse of the world’s second largest economy, Japan has been unprecedented.

Abu Dhabi will focus on expanding private sector

Abu Dhabi said yesterday it would focus on achieving sustainable growth and expanding the private sector as part of its long-term development strategy that stretches to the year 2030.

The policy was outlined by Nassir Ahmed Khalifa Al Suwaidi, Chairman of Abu Dhabi Department of Economic Development (DED), which has just replaced the Department of Planning and Economy (DPE).

Suwaidi said the presidential decree to change the name of DPE illustrated the commitment of the country's leadership to realise the objectives of Abu Dhabi's Vision-2030 development plan.

Nakheel has no plans to lower its stake in Australia's Mirvac Group

Nakheel, the real estate arm of Dubai World, is not planning to lower its stake in Australia's Mirvac Group even though it has backed out of the consortium that was bidding to develop Barangaroo, a $2.6 billion (Dh9.5bn) project on east Darling Harbour of Australia.

"Nakheel is adjusting to market conditions and aligning its business model to meet demand. This is a responsible decision in light of the current global financial environment," a company spokesperson told Emirates Business.

Mirvac Projects, Leighton Projects and Macquarie Property Development and Finance told an Australian newspaper that Nakheel's departure from their tender did not jeopardise the bid.

Khalifa Fund plans venture capital

Khalifa Fund is planning to launch a multi-million-dirham venture capital fund to finance small- and medium-sized enterprise (SME) start-ups.

"We believe there is a limited access to venture capital funds and we believe there is a need for it," said Halah El Sokari, the organisation's Director of Strategy and Planning.

"We are currently working on the full details of the fund, which will give opportunities to nationals and also to expatriates where there is opportunity for technology transfer."

NBQ refuses to cancel Dh2.36bn deal with Global Investment House

National Bank of Umm Al Qaiwan (NBQ) has refused to return $250 million (Dh918m) to Kuwait-based investment bank Global Investment House and is seeking instead to complete a debt conversion for which the cash was received as advance payment.

According to a July deal, NBQ would issue convertible bonds to Global for Dh2.359 billion. The deal set a premium of Dh6.15 per share over and above the face value of Dh1. NBQ's shares currently trade at about Dh4 on the Abu Dhabi Securities Exchange.

Global would have the option to convert the instrument into 330 million new shares of NBQ, which would expand the bank's paid-in share capital by 25 per cent and give Global a 20 per cent shareholding in NBQ.

What is needed is some good, old-fashioned faith

As government after government around the world dig into their coffers to bail out failing banks and companies, it is sentiment that is now leading markets and not the other way around. Whether in developed economies or in the Gulf, it no longer seems that pure economics and government-intervention mechanisms, however rational, might be sufficient to induce the “green shoots” of confidence and market revival. Complex market blowouts and recessions are no longer to be entirely solved using mathematical modelling and pseudo-scientific assumptions.

The reason is simple. For such modelling to be applicable, standard economic analysis has to assume that economic agents – investors and consumers – act perfectly rationally. Under such scenarios, optimum predictive equilibrium-based outcomes and models can be derived.

But life is not so simple. If real life followed the route map set out by economic theory, why is there no rush to borrow when rates are at near zero? And why are depositors, savaged by low returns on bank deposits, not returning to the real economy and buying depressed assets? In the climate of fear now gripping the world, share prices will be marked down and consumption expenditures postponed. Rallies can be short-lived if confidence retreats, and when that happens market gains are shed with a vengeance. The world’s ailing stock markets, and the savage losses in Gulf bourses, testify to this. People need more assurances. The Gulf is experiencing another rally due to the “feel good factor” following the meeting of the leaders of the Group of 20 leading and developing nations in London and the sheer size of the US$1.1 trillion (Dh4.04tn) package related to IMF programmes. If the promised funding does not materialise quickly, then despondency and selling will return.

Ireland and the UAE: a tale of two crises

As an Irish citizen living in Dubai, I have often been struck by the similarities between the Republic of Ireland and the UAE: comparable populations (between 4 million and 5 million), living alongside a dominant neighbour (Britain and Saudi Arabia), and both living off their wits as commercial entrepreneurs in a competitive global business environment.

The histories of Ireland and the UAE also demonstrate the importance of migrant labour, but in rather different ways. For many years after independence 90 years ago, Ireland’s biggest export was its people. Hundreds of thousands of Irish left the country to seek their fortunes abroad, as my parents did in the 1940s when they went to England, and helped sustain their families by sending some of their hard-earned money back – what we call “remittances”.

The Emirates, on the other hand, has been a magnet for migrant labour since its inception in 1971. The armies of workers that helped build Dubai and Abu Dhabi into world-class cities are the direct equivalent of the Irish navvies who rebuilt Britain after the Second World War. The UAE workers, too, have helped sustain their families at home by sending cash back to Kerala, Karachi and Guangzhou.

Kuwait's Gulf Bank trading to resume on Tuesday

Shares of Gulf Bank in Kuwait will resume trading on Tuesday, after they were suspended late last year, state news agency KUNA reported on Sunday.

The bank is one of the country’s largest financial institutions, and was one of the first in the region to report losses in the wake of the subprime fallout that had brought some of the world’s largest financial houses to their knees.

“The central bank decides to resume the trading in shares of Gulf Bank starting the day after tomorrow,” KUNA said in an alert.

In October, the central bank halted trading in Gulf Bank until the end of a restructuring plan ordered by the government after the bank said it made 375 million dinars ($1.29 billion) in derivatives losses.

In December the bank made a rights issue for 376 million dinars, which was taken up by existing shareholders and the Kuwait Investment Authority (KIA), the country’s sovereign wealth fund. The KIA now holds a 16 per cent stake in the institution.END

RAK Petroleum takes control of Oman sites

RAK Petroleum has gained full ownership of two oil and gas exploration sites in Oman after a British partner firm backed out of the venture, the company said on Sunday.

RAK will raise its stake in the two onshore exploration blocks near the UAE border, which are thought to contain natural gas, from 50 per cent. Indago Petroleum, the partner firm, will pay RAK $3.5 million (Dh12.8m) to prematurely abandon the joint exploration agreement.

The move follows RAK’s announcement last week that it would increase its stake in an existing offshore field in the Gulf by purchasing a subsidiary of Canada’s Heritage Oil for $28 million.

Iraq, Russia revisit Hussain-era deals

Seeking to improve political and economic relations, Iraq and Russia have agreed to work together to restore oil development contracts which were disrupted by the 2003 US-led invasion of Iraq.

Those could include a US$3.7 billion (Dh13.59bn) deal to develop Iraq’s West Qurna oilfield that Baghdad signed, and later cancelled, with a Russian consortium led by Lukoil while Saddam Hussein was in power.

“The goal has been set to restore the contracts concluded between Russian and Iraqi companies before the war,” Sergei Shmatko, the Russian oil minister, said in Moscow after a meeting at the weekend between the Russian and Iraqi leaders. “I believe that this is a very big move.”

Kuwait awaits fiscal promise

When Kuwait’s emir, Sheikh Sabah Al Sabah, dissolved the country’s democratically elected parliament last month, analysts and international lenders looked on with a mixture of disquiet and hope.

On the one hand, the quarrelling between the country’s parliament and its cabinet, which is led by the ruling Al Sabah family, raised some concerns about Kuwait’s stability.

After the dissolution of parliament, Moody’s Investors Service placed the country’s sovereign credit rating on review for a possible downgrade over fears of deeper political strife in the future.

Bank stocks and SHUAA and UPP (Blog)

Obviously there are people who have made good money trading shares or buying and holding (and then hopefully selling) UAE banking stocks, SHUAA, UPP, DEYAAR, and othes lately.

Many stocks have gone up recently and fast.

One thing I will bet on is that not many were able to catch the big gains in the various shares. Also, not many caught the recent floor in prices, and held shares for substantial gains. It is also a sure bet that those who did catch the recent lows in prices will not sell until prices collapse 50% or more.