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Sunday, 10 May 2009

Makaseb (Mashreq) Monthly Commentary for April 2009 (PDF)

  • Corporate earnings for the quarter have been broadly in line with expectations. For the top 10 banks (by market cap) in the region with details out so far, Net Loans are down 1% sequentially, while balance sheet size has fallen 1.5% for the quarter. On the operating front, real estate results lok similar. In Saudi Arabia, Sabic produced a stunner for the quarter, reporting a loss of SAR 974 million for the quarter, on the back of a SAR 1.2 billion good will write down related to their plastics business. Excluding the write down, net profit would have been SAR207 million for the period; accounting for Sabic’s share of Saudi Fertilizer’s profit of SAR 525 million (SAR 225.6 million for Sabic) for the quarter implies that as a whole, Sabic’s operating profit was about zero, undoubtedly due to the negative contribution of the plastics division
  • Market strength (although over a very small period of time) in the face of weak operating performance may be perplexing to some, but makes perfect sense. Correlation between earnings and price performance in the short run is very low, and a similar relationship (basically none) holds between capital market returns and GDP growth over the short term. Counter trend bear market rallies tend to be quick, and large. Investors should be clear that the entire region has been in a bear market since about late 2005-for an emerging market this is a pretty long bear, now almost 4 years and counting. The level of recent volatility, the almost universal sense of doom regarding the region’s economic prospects, and reluctance of professional investors to participate (as evidenced by most regional funds having high cash and fixed income allocations) would suggest that the process of finding a bottom for this great bear market has begun
  • Corporate earnings are not likely to provide much to cheer investors in the near term. Capital markets will remain volatile as investors take their cue from random variables (like the return of the S&P 500 Index from the day before) with limited relevance for the region. A strategy of gradually adding risk to portfolios, while focusing on fundamentally sound names, will pay rich dividends over the long run. As yet, it is not the time to be adventurous.
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Strategies aim to delivery amid oil volatility

Sovereign wealth funds are mostly dependent on oil revenues for inflows and have had to cope with huge changes in the past year as the oil price rose then fell.

However, many are taking lower prices in their stride and appear confident in the strategies they have put in place to manage a sudden fall in the oil price.

Some funds, such as Norway’s Government Pension Fund Global, have built up such massive reserves that inflows, whether small or large, are merely a fraction of the size of the fund. Furthermore, the fund’s investments are highly diversified bonds and equities that help generate oil-independent revenues.

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Middle East and North African economies coping well with global crisis, says IMF

The International Monetary Fund (IMF) today said that economic growth in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region is projected to decline from 5.7% in 2008 to 2.6% in 2009.

Releasing the IMF's 'May 2009 Economic Outlook for the Middle East and Central Asia' today at the Dubai International Financial Centre (DIFC), Masood Ahmed, Director of IMF's Middle East and Central Asia Department, said: "The Middle East and North Africa will be negatively affected by the current global economic crisis, but it is likely to fare better than many others. This is in part due to prudent financial and economic management, and in part to the fact that oil exporters in the region can draw upon their large reserves to cushion the impact of the global slowdown for their own economies and for the economies of their neighboring countries with whom they have growing economic links."

Ahmed said the global crisis is affecting the MENAP region in three indirect ways. "The sharp drop in oil prices is shrinking revenues for oil exporters as well as import costs for oil importers; the contraction in global demand, trade, and related activity is lowering exports, tourism, and remittances; and the tightening of international credit markets and lower investor appetite for risk, is slowing down capital inflows, depressing local asset prices, and reducing investment," he added.

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DP World Sukuk Limited - Statement

In light of the suspension of trading in its shares, the Board of DP World has been informed by its ultimate majority shareholder Dubai World that Dubai World has received an approach from, and is engaged in discussions with a regional private equity firm which may or may not result in a transaction regarding a minority stake in DP World, coming largely from the free float.

Consequently shareholders of the company may wish to exercise caution in dealing in their shares.


© Press Release 2009

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Barneys New York says it has no plans to close flagship stores

Barneys New York said it has no plans to close two of its seven flagship stores, denying a report by the Wall Street Journal.

“There is no truth to the WSJ story at all,” Dawn Brown, a spokeswoman for Barneys New York, said in an e-mail. The Journal reported today that Barneys is trying to close the Barneys store in the Shoppes at the Palazzo and another in an unidentified location.

Robert Christie, a spokesman for Wall Street Journal parent Dow Jones & Co., declined to comment. David Jackson, chief executive officer of Barneys New York’s owner, Istithmar World Capital, did not immediately respond to an e-mail seeking comment.

Istithmar, a unit of government-owned Dubai World, said April 14 it provided “significant” additional capital to the retailer to help it manage costs. The funding would give Barneys New York flexibility to work with vendors and financial intermediaries, Istithmar said.

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Kuwait financial sector 'nearly stable'

Kuwait's financial sector is more stable than in the fourth quarter but it is too early to say whether it has totally overcome the impact of the global crisis, the Gulf Arab state's central bank governor has said.

In October, Kuwait had to step in to save Gulf Bank, the only major bank in the Gulf Arab region requiring a government bailout. Meanwhile several major investment firms are struggling to get new loans.

Latest data on liquidity levels and earnings released by local banks are among indicators showing that the global financial crisis is now biting less, Sheikh Salem Abdul-Aziz al-Sabah told al-Rai newspaper in an interview.

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Oman's solar power bid attracts robust international interest

Oman's maiden foray into large scale renewable energy development has generated mammoth international interest. A record 50-plus firms have so far signalled their desire to participate in a competitive tender for advisory services linked to the planned establishment of a major solar power plant in the Sultanate. Several leading players associated with solar energy development, as well as business conglomerates, consultants and financial institutions, are among the unprecedented line-up of firms that have expressed interest in the tender. The deadline set by the Tender Board for the submission of bid offers is May 25, 2009.

The Public Authority for Electricity and Water (PAEW) has been tasked by the government to study the feasibility, as well as oversee the implementation of a large-scale Solar Power Project (SPP) in the Sultanate. The project, billed as "strategic and urgent", is among a broad range of initiatives that are being supported by a Ministerial Committee set up last year to oversee renewable energy development in the Sultanate. As a first step, the PAEW plans to appoint a qualified consultant to assist in the realisation of the government's goal of setting up a solar power generation facility in Oman.

According to officials, the Solar Power Project is envisaged as a privately financed venture guided by the same principles that govern the establishment of Independent Water and Power Projects (IWPPs). It will be implemented within the framework of existing legislation in Oman, and the Sector Law in particular. A key part of the consultant's brief is to provide an overview of existing solar power projects, as well as details of ownership structures and commercial arrangements with regard to existing operations around the world.

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Continuity of works and payments two biggest challenges

Continuity of work and payments are the two biggest challenges facing Arabtec, said its CEO in an exclusive interview with Emirates Business. Riad Kamal, CEO at Arabtec Holding, added that the borders are opening up for the group and hopes are pinned on good news from Abu Dhabi and Russia this month.

Are you looking at joint ventures in the UAE and the region? Consultants are now saying that there is potential in design-build projects.

Whenever it is necessary for us to form JVs with architectural or engineering firms, we will do it. But there is no such thing as a permanent JV. It will be on a project to project basis. Alliances are extremely useful. We are continuously looking at the right alliances to improve our chances of getting the job and doing it right. Our alliance with Samsung and Besix has been terrific, the one with Max Bogel has worked very well and likewise, with WCT.

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Bank downgrades in Middle East rise in Q1

Global ratings agency Fitch Rating assigned negative outlooks to five banks in the Middle East and Africa during the first quarter of 2009 compared to four in the previous quarter with none of them on positive watch.

New negative outlook was assigned to HSBC Bank Middle East "AA?" in the UAE, in line with the parent. The one negative watch at the end of first quarter related to Bahrain's Investcorp Bank "BBB?". The one Evolving Watch, assigned to Tamweel "A" in the UAE, remained at the end of first quarter. There were no positive outlooks, evolving outlooks or positive watches in the Middle East and Africa at the end of first quarter.

Fitch, however, said negative rating actions in the first quarter remained high, although the number was lower than the peak in fourth quarter of 2008. It took 188 negative rating actions in first quarter, compared with 266 in fourth quarter of 2008. The reduction was mainly caused by less negative rating actions in emerging markets in first quarter, while negative rating actions in developed markets remained high. In contrast, there were no positive actions in emerging markets and only a small number of positive actions in developed markets in first quarter.

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UAE to launch investment firm for women

The UAE will launch a company that will provide investment and asset management services for women and families within an ongoing programme to support female business, the project manager said yesterday.

The Central Bank has already approved the company, which will be announced shortly as one of a handful of household investment services ventures in the region, said Fatima Al Jaber, Chief Executive Officer of Abu Dhabi-based Al Jaber Holdings.

Al Jaber, who will head the new company, announced the project at an Arab women investment conference, which opened in the capital yesterday.

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Air Arabia profits climb 32%

The budget carrier Air Arabia, based in Sharjah, posted a net profit in the first quarter of Dh103 million (US$28.1m), a 32 per cent rise on the first quarter of last year, after gaining from lower fuel prices and passengers switching to low-cost travel.

The results contrast sharply with the global airline industry that is expected to lose $4.7 billion this year due to sharply falling demand.

The growth in net profits exceeded the pace of both new revenues and passengers, the airline said Saturday. Revenues were up 21 per cent compared with the first quarter last year to Dh463m, while passenger traffic rose 26 per cent to about 951,000 customers.

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Downturn reshapes Dubai’s property landscape

There is a two-bedroom apartment on the 25th floor of Jumeirah Beach Residence with an excellent view of Dubai’s property market; where it has been and where it is heading.

In February, the apartment’s British owner sold it for Dh1.5 million (US$408,000) to a compatriot, reaping a Dh680,000 profit on what he had paid for it less than two years earlier – a return equal to 44 per cent a year.

Then in mid-March, as the global economic crisis raged on, the apartment’s new owner decided to sell it for a little more than Dh1.43m to a Russian buyer, escaping with a loss of about Dh66,000. That works out equal to a loss of 42 per cent a year.

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Region poised for railway boom

The Middle East will become the world’s fastest-growing railway region, experts predict, thanks to big projects in the UAE and wider GCC.

The four-day Mena Rail 2009 conference in Dubai this week has drawn strong interest from international companies and consultants, organisers say. With Gulf states embarking on rail projects to ease road congestion and carry freight efficiently and cost-effectively, Symon Rubens, managing director, Middle East, for Terrapinn, the conference’s organiser, said delegates were coming from Europe, Asia and Australia, drawn by the chance to win contracts for billion-dollar projects.

“This year there are general announcements and massive projects,” he said. “There are tenders out and there is a lot of business to be won. There is a global spotlight on the Middle East rail projects.”

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Saudi shares surge to 6-month high led by petrochemicals

Saudi stocks surged almost 4% Saturday to close above 6,000 points, led by petrochemical stocks and as global oil prices traded around US$58, a year high.

The Tadawul All-Share Index rose for a fourth session, ending 3.75% higher at 6,019.69 points, its highest close since 5 November.

Saudi Basic, the world’s largest chemical maker by market value, known as Sabic, and Saudi International, or Sipchem, rose to their highest this year after they agreed to work together on projects in Jubail Industrial City on the Gulf coast.

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