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Thursday, 30 April 2009

Dubai World may consider restructuring group debts, as Dubai entities placed on creditwatch negative

Dubai World, the government-owned investment group, is considering “all options” to manage debt, including the restructuring of a US$3.5 billion Islamic bond issued by its property unit Nakheel, Standard & Poor’s Ratings Services said.

“Recent media reports indicate that Nakheel is opening a dialogue with existing holders of its US$3.5 billion sukuk coming due in December 2009, with a view to restructuring the debt,” the rating agency said today in an e-mailed statement.

“S&P has discussed these reports with Dubai World and has been told that ‘all options’ in dealing with outstanding liabilities are being considered as part of an ongoing review, including a restructuring.”

Global's UAE Weekly Report - April 30, 2009 (PDF)

CityCenter Funding No Longer in Question (Update 1 Analysis)

MGM Mirage and Dubai World said late Wednesday they have resolved their differences and received the $1.8-billion secured credit facility from lenders necessary to complete and open CityCenter, a $10-billion mini-city between MGM’s Bellagio and Monte Carlo resorts on the Las Vegas Strip. Anchored by the 4,000-room Aria hotel-casino, the multi-tower development remains on schedule to open for business during the fourth quarter, according to the partnership.

The revised partnership agreement and financing plan has Dubai World and MGM Mirage funding their remaining $800 million in equity contributions to CityCenter through letters of credit, and for Dubai World to reimburse MGM Mirage for the equity payments it made to lenders on behalf of the partnership while the two were litigating.

Another key term of the partnership agreement has MGM Mirage now “responsible for completion costs to the extent net condominium proceeds are less than $243 million and for completion costs in excess of the current budget of $8.5 billion.” MGM says that until CityCenter is completed any obligation in this regard “will be supported by the assets of Circus Circus Las Vegas and certain adjacent land through a completion guarantee.”

George Magnus, green shoot weed-whacker

“Recession’s end“, Bloomberg commentators included in their headlines on Wednesday night, while others noted that inventory reductions indicate that the economy is nearing a bottom. Green shoots, green shoots, green shoots, blah blah blah.

UBS’s senior economic adviser George Magnus is here to put an end to all this talk of plants, taking aim via his weed-whacking financial commentary this morning on banks, capital and what’s really needed to fix the financial system. Here are some excerpts:

This paper is about why it is such a slog to fix the financial system, and why we can’t really entertain ideas about economic recovery, other than short cyclical hiccoughs, aka green shoots, until it is fixed. The plot hasn’t changed since we first heralded Minsky’s financial instability as the template for this crisis, but the story evolves and the numbers change. So we will examine below where we are in terms of financial stability, and, using the just published IMF Global Financial Stability Report, highlight the key numbers that matter when it comes to three overarching, but incomplete, tasks: full re-capitalisation of banks, the swapping of debt-for-equity as part of a major debt restructuring, and the isolation of bad assets.

Saudi Stock Market Weekly Report - 29-April-2009

DI could redeem some investment

Dubai Investments (DI), one of the largest diversified holding companies in the UAE, said it incurred losses on its investment portfolio due to mark-to-market requirements but has "prudently" managed the challenging market conditions of 2008 and expects growth in 2009.

The mark-to-market accounting rules set asset values as per the prevailing market prices.

DI's interests range from dairy products to glass production and real estate development. It made a profit of Dh1.58 billion in 2008 with total income of Dh4.36 billion.

Hedge funds battle to attract investments

As delays in payments to investors continue, hedge funds are finding it difficult to attract new investments despite reduced redemptions, according to a senior executive.

Kamal Fayad, Fund Manager and General Partner for Evolvence Middle East and North Africa (Mena) hedge fund, said: "People are still afraid to invest. It is tough to raise cash even now. The performance of the regional market is still uncertain and factors like tight liquidity are keeping investors at bay."

Most funds are struggling to handle redemptions. Recent reports have indicated a slowdown in redemptions in hedge funds in the first three months of this year.

ENBD to private-place perpetual bonds

Emirates NBD, which reported a net profit of Dh1.26 billion for the first quarter of the current year, will be issuing Dh3.5 billion worth Tier 1 perpetual debt notes in the second quarter through a private placement.

This will help the bank achieve the Central Bank requirement of reaching minimum 11 per Tier 1 capital ratio by June 30, 2009. Emirates NBD, which had a Tier 1 capital ratio of 9.4 per cent as of December 31, 2008, could improve it to 9.7 per cent as of March 31, 2009 leaving a gap of 1.3 per cent more to be achieved within three months.

To a question whether these notes will be exclusively placed with Investment Corporation of Dubai (ICD), the largest shareholder in the bank, Sanjay Uppal, group Chief Financial Officer of the bank said: "The modalities of the private placement are still being worked out."

'Second quarter to see growth in many sectors'

Orhan Osmanoy, Chief Executive Officer of The National Investor, said stock markets in the UAE have not reached the maturity phase yet and their age does not exceed eight years.

"It is not right to blame the foreign investor and consider him the reason for losses in the markets."

The national investor is the main factor in the market and Abu Dhabi market is having big opportunities to develop.

Market conditions force ADX to delay ETFs further

The Abu Dhabi Securities Exchange (ADX) is postponing plans to launch exchange-traded funds (ETFs) due to market conditions, its chief executive said yesterday.

Speaking during an international investment forum in Abu Dhabi, Tom Healy said the global financial crisis had delayed plans to introduce ETFs but stressed such plans remain on track.

ADX had already delayed the launch of ETFs from the end of 2008 to the first quarter of 2009, and then again to April.

Bank warns of further bad loans

Emirates NBD, the UAE’s biggest lender, yesterday warned that non-performing loans would continue to rise through the year, as analysts predicted the credit profile of Gulf banks would worsen.

The bank’s first-quarter net profit rose 5 per cent to Dh1.3 billion (US$354 million), beating analysts’ estimates, as it cut costs. But the bank is taking a “cautious stance” on the rest of the year.

“Uncertainties remain,” said Rick Pudner, the chief executive of Emirates NBD. “We will take measures to offset possible adverse effects of the current economic environment.”

US to blacklist Iran's petrol suppliers

US Senators have introduced a new bill to restrict Iran’s imports of petrol, targeting a key energy source for the country’s economy.

The proposed law, supported by 25 members of the Senate, would grant the Obama administration the power to bar any company that sells petrol to Iran from operating in the US market. The law’s backers say it would pressure the Iranian government to change course on its nuclear policy, but experts say it could also push political tensions in the country to the breaking point.

Iran has tremendous reserves of crude oil, but the growth in its oil refining capacity has not kept up with demand, forcing it to import petrol and other oil products.

Emaar withholds dividends

Shareholders of Emaar Properties gathered last night at the company’s annual meeting in Dubai to learn there would be no dividend.

“Because of the world financial crisis and the shortage of liquidity in the market, the board of directors has recommended that we will not be distributing any dividends this year,” said Mohammed Alabbar, the chairman of Emaar.

More than 80 per cent agreed with the move, with one shareholder saying: “We have to consent, but we hope it’s really in the interest of the people.”

Mubadala offers $1.75bn bonds

Mubadala Development, the Abu Dhabi Government’s strategic investment arm, offered US$1.75 billion (Dh6.42bn) in bonds to international investors, just days after publishing its annual report for the first time that disclosed almost Dh12bn in losses.

Bankers familiar with the deal told Reuters that it included $1.25bn in five-year bonds that were likely to pay an interest rate 3.95 percentage points more than the rate on five-year US treasury bonds.

Mubadala will also sell $500 million in 10-year bonds, bankers said, at 462.5 basis points over US treasuries. That would translate into an interest rate of roughly 6.2 per cent on Mubadala’s five-year bonds.

Dubai rents plummet in new RERA index

The long-awaited updated RERA rental price index has been published, entitling tenants to up to a 50 percent discount on previously issued guidelines, Arabian Business can reveal.

The new index, which appears in the form a 'Rental Increase Calculator' on Dubai property watchdog RERA’s (Real Estate Regulatory Authority) website, allows tenants to negotiate significantly cheaper rents than the ones previously issued by the government body in January. Landlords use the index to set rents in Dubai.

"Dubai’s soon to be official April Rental Index"

Obama action expected soon on UAE nuclear pact

President Barack Obama is expected to soon certify a nuclear energy agreement with the United Arab Emirates, setting the stage for action in Congress on a pact that could be worth billions of dollars to U.S. companies, a U.S. business official said on Wednesday.

Danny Sebright, president of the U.S.-UAE Business Council, told Reuters he expected Obama to issue a presidential determination that the agreement, signed in the last days of the administration of former President George W. Bush, is in the best interests of the United States.

That would set the stage for U.S. Secretary of State Hillary Clinton to formally notify Congress of the United States' intention to enter into the nuclear energy cooperation deal with one of Iran's neighbors, giving lawmakers 90 days to vote down the pact if they choose, he said.

MGM Mirage, Dubai reach pact to finish CityCenter

Casino operator MGM Mirage said Wednesday that it agreed with partner Dubai World and the pair's lenders to finish an $8.5 billion casino complex on the Las Vegas Strip.

MGM Mirage said Dubai World, the investment arm of the Dubai government, would drop a lawsuit it filed against the Las Vegas-based casino company, which is majority owned by investor Kirk Kerkorian.

The pact secures MGM Mirage's payment obligations for construction costs with its Circus Circus Las Vegas casino and adjacent land. MGM Mirage and Dubai World each agreed to fund their remaining payments for CityCenter with letters of credit, and the lenders agreed to immediately fund $1.8 billion to finish the project, rather than wait until each partner had fully paid its share.

Comment: Gulf must learn lessons of crisis

At the recent G20 summit, leaders of the world’s leading economies committed themselves to a wide-ranging and specific set of actions aimed at shortening the global economic crisis and strengthening international financial regulation.

International groups such as the Financial Stability Forum (now renamed and empowered by the G20 as the Financial Stability Board), the Counterparty Risk Management Credit Group, which comprises leading international banks, and the Committee of European Bank Supervisors have also made recommendations on how the structure and regulation of financial markets can be improved.

We have yet to see an equivalent Arab response to the crisis; still less, a set of recommendations for what Arab financial markets can learn from the turmoil in the west.

Mubadala appoints former BP executive

Mubadala, a state investment vehicle of Abu Dhabi, on Wednesday said it had appointed a former BP executive to its oil and gas division in a sign of the company’s growing ambitions in the sector.

Steve Peacock, who was BP president Middle East and South Asia, takes over as chief operating officer for Mubadala Oil and Gas, with the company seeking to become a ”globally competitive oil and gas exploration and production company.”

Mubadala is wholly owned by the Abu Dhabi government and has been one of the oil-rich emirate’s more active investment vehicles, with a portfolio that straddles an increasingly broad range of sectors, from finance to aerospace and real estate.

Islamic banks take share of the pain

Islamic prohibitions against fixed interest and most complicated financial instruments have helped Islamic banks avoid the avalanche of derivative debt losses that have wreaked havoc across the world financial system.

Devout Muslim investors have also fared better when buying global equities that do not violate Islamic principles. Sharia screening has shielded them from exposure to over-leveraged corporates, conventional banks, gaming companies and sellers of alcohol such as hotel groups, all of which have suffered from precipitous drops in value.

The FTSE All-World Index has shed 42.3 per cent over the past 12 months, while the sharia-compliant version of the index has lost 37.6 per cent over the same period.

Almarai prospers on diet of dairy

At what is claimed to be the world’s largest integrated dairy company, young men in white overalls hose down parlours while black-and-white Holstein cows stand patiently as milk is sucked from their udders.

It is a process that is repeated almost non-stop throughout the day. Almarai churns out 674m litres of milk a year from a herd of some 55,000 cows that are spread across six farms and milked four times a day.

The setting could not be further removed from the landscape of rolling green fields normally associated with dairy farming. These farms are in the midst of sprawling desert in the heart of Saudi Arabia. Outside temperatures can exceed 50°C in the summer and, rather than lush grass, the cows lie on sand.