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Tuesday, 30 June 2009

DP World Among Four Dubai Companies Downgraded by S&P, Moody’s

DP World Ltd., the Middle East’s biggest port operator, and three more companies controlled by Dubai’s government were downgraded as the emirate struggles to convince investors it has sufficient funds to repay their debt.

DP World, Jebel Ali Free Zone, a government-owned industrial park, and the Dubai Multi Commodities Centre Authority, a tax-free business park, had their credit ratings cut by Standard & Poor’s. Dubai Holding LLC, the state- controlled entity that is in talks to merge some of its units with Emaar Properties PJSC, was lowered at Moody’s Investors Service on concern the region’s property slump will continue.

“This reappraisal is the result of increased uncertainty regarding the government’s willingness to provide” cash support to state-owned firms in meeting their debt obligations, S&P said.

Iraqi oil

The foreign army moves out; the foreign oil men move in. Iraqis may fear their energy being sold off on the cheap, but need not worry. Terms for operating rights offered at auction on Tuesday for eight oil and gas fields were so harsh that two failed to find bidders. And the auction of the country’s giant Rumaila field almost collapsed – until BP stepped in and accepted a flat $2 fee per for each barrel of oil produced, half what it asked for.

In this case, Iraq has certainly got a good deal. If BP boosts Rumaila’s production to Baghdad’s 1.7m barrels per day target, it would take some $365m in fees a year, about a thousandth of annual revenues. Use company margins obtained elsewhere, and pre-tax profits might reach $40m – although that is before factoring in higher Iraqi costs, especially security. Even if BP more than doubles Rumaila’s production to its own heady target of 2.85m bpd, it would still only earn $120m a year, about 0.6 per cent of forecast group profits. In return, Iraq would have increased oil production by three quarters, without putting any capital at risk.

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UAE mega-bank merger hit by setback

The UAE's Federal National Council, the government's advisory body, on Tuesday failed to agree on a law governing the newly-created Emirates Development Bank, after members questioned the reasons behind the merger of the two smaller banks and the new state-backed bank's role.

Thirteen out of thirty one council members present at the meeting - the council's last before it adjourns for the summer - voted to review the law again from scratch at another meeting.

The FNC "needed more time to make sure how the bank will help develop the housing and industrial sectors", said Younis al-Khoori, the Ministry of Finance's director general.

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Emaar May Have to Raise Funds After Merger, Nomura Analyst Says

Emaar Properties PJSC, the Dubai property developer that announced a plan to combine with part of Dubai Holding LLC last week, may have to raise funds if it proceeds with the transaction, Nomura Holdings Inc. said.

Emaar, the Middle East’s biggest developer, is in talks to merge with three units of Dubai Holding, a state-controlled organization that’s also based in the sheikhdom. The deal would be the largest in the Dubai property industry this year.

“Emaar may have to raise equity, and possibly a lot, to support its private development counterparts,” Chet Riley, a Dubai-based analyst at Nomura, wrote in a note to clients.

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Emirates NBD Adds 4 Billion Dirhams to Tier I Capital

Emirates NBD PJSC, the United Arab Emirates’ biggest lender by assets, sold 4 billion dirhams ($1.09 billion) of bonds to the Dubai government to meet a capital target set by the central bank.

It will pay interest of 6.45 percent for five years and a floating rate thereafter on the “Tier I” securities sold to Investment Corp. of Dubai, a government-owned holding company and the bank’s controlling shareholder, the lender said today in an e-mailed statement.

The sale lifts Emirates NBD’s Tier 1 capital ratio to over 11 percent, from 9.4 percent in December, the statement said. The central bank set a June 30 target of 11 percent for Tier 1 capital, a gauge of a lender’s ability to absorb losses.

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The Green Brief #13 (June 29) (Re-post)

These are the important happenings that I can positively confirm from Monday, June 29 in Iran.

1. There was a human chain planned for today. The plan had been to form it between Tajrish Square and the Railway; however, the route was guarded heavily by Basijis, plainclothesmen and security forces. Nonetheless, people at gathered Mellat Park, Valiasr Field, Vanak and Valiasr Avenue and were trying to form a human chain. The police tried to disperse the crowd and stop the human chain from being formed. There were reports of clashes as well which cannot be fully confirmed. Reports of police smashing people’s windows for honking their horns and slashing their tires with knives.

2. Cell phone services were cut off around Valiasr as well as other parts of Tehran. The Basiji had Daneshjo Park under their control and helicopters were flying all over the place, especially over Valiasr. Today was one of the few times when the government cut off phone lines in order to disrupt communications between protesters and hinder their coordination of the event. During the event, several people were arrested as well. Most of Tehran was crawling with Basijis carrying sticks, some on motorcycles sporting camouflage vests. Protesters and some other people were wearing green wristbands in support of Moussavi.

3. Larijani, the speaker of the parliament today said that CNN had given money and cell phones to protesters to portray a wrong image of Iran. He added that the unrest was not an important event and it will be easily overcome and that it was just another experience for the Islamic Republic.

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Private investors sell 49% stake in EIB to government

Private sector investors yesterday agreed to sell their 49 per cent stake in the Emirates Industrial Bank (EIB) to the Federal Government.

The Ministry of Finance previously owned 51 per cent of the bank and the government now becomes the sole owner. A number of investors held 49 per cent of the stake, who agreed unanimously to the sale.

The move is intended to speed up the merger of EIB with Emirates Real Estate Bank (EREB) to create Emirates Development Bank (EDB), which will have a capital of Dh10 billion. The formation of EDB was approved by the Cabinet last week and the new bank is expected to be wholly-owned by the government, which has pledged to contribute Dh5bn to the venture. The merger will be one of the largest to have taken place in the UAE's financial sector.

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S&P gives 'developing' rating to Emaar

International rating agency Standard & Poor's yesterday said it has revised the CreditWatch implications for 'BBB+' long-term credit ratings on property developer Emaar to 'developing' from 'negative' following the announcement of merger talks with Dubai Holding's property subsidiaries.

The rating action reflects the prospective benefits on Emaar's credit profile from a merger with the real estate businesses of Dubai Holding Commercial Operations Group (DHCOG), said a statement. "The developing implications also reflect the downward pressure on the ratings from the weak Dubai real estate market if the merger is not completed," said Alf Stenqvist, Credit Analyst at S&P.

The current ratings on Emaar reflect the group's important role and strong position in the Dubai property development market as one of three government-related master developers, and its strong relationship with, and minority ownership by, the Government of Dubai (not rated). The ratings also reflect the group's low debt leverage and strong asset base. The main constraining rating factors include the inherent risks in the cyclical property development industry and the group's large exposure to the weakening of the real estate market.

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CDS spreads halve on improved confidence

Though the credit default swap (CDS) spreads of Dubai has fallen by about 50 per cent from the levels of 1000 basis points (bps) to about 500 basis points since February, indicating a substantial fall in the risk perception on the emirate, this has failed to reflect on Dubai bond yield so far.

While Abu Dhabi bond is currently trading at about five per cent yield, the Dubai bond, launched in 2008 and maturing in 2013, is trading at yields as high as 8.5 per cent.

During the same period, the Abu Dhabi CDS has dropped from 450 bps to just about 230 bps.

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Porsche rejects VW offer as Qatar seeks deal

The battle over the future of Porsche Automobil Holding SE escalated on Monday when the German sportscar maker announced it received a written offer from state-owned Qatar Investment Authority over a possible stake sale, just hours after it rejected an offer from Volkswagen AG.

"We received an offer from Qatar to acquire a stake and take over (Porsche's) options on Volkswagen stock," Porsche spokesman Albrecht Bamler said.

The offer will form the basis for upcoming talks with Qatar on the purchase price, he said, adding that the Porsche and Piech families - which control 100 percent of Porsche's voting stock - still have to examine the Qatari proposal.

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Jail term for issuing bad cheque

An Egyptian businessman has been jailed for three years for issuing a $6.18 million (about Dh22.7 million) cheque which bounced in Dubai, although he claimed that he signed it in Cairo.

The Dubai Court of Misdemeanour found the renowned Egyptian businessman, N.B., guilty of signing a bad cheque. Meanwhile, he still undergoes a second trial for signing another bounced cheque for $1.83 million.

Presiding Judge Omar Ahmad Abdul Baki, who pronounced Monday's judgment, also referred the suspect to the Dubai Civil Court where he faces a civil lawsuit.

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IPIC signs $5 bln syndicated loan -banker

Abu Dhabi government-owned International Petroleum Investment Co (IPIC) has signed a $5 billion syndicated loan, increased from a launch amount of $3.5 billion, banking sources close to the deal said on Monday.

Co-ordinating bookrunners Bank of Tokyo-Mitsubishi UFJ, HSBC and Santander invited banks to join the deal with commitments of $400 million and despite the increased final amount, lenders have been scaled back by around 30 percent, the sources said.

The loan, which will be used to finance IPIC's recent acquisitions, as well as for general corporate purposes, was launched in May.

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Towers take turn for the worse

At the height of the property boom, developers in Dubai competed to outdo each other with increasingly grand designs. But no rivalry was as interesting as the race to build buildings that rotate, giving home owners 360-degree views of the world.

For an industry obsessed with views, it was the ultimate prize that would translate into large premiums and healthy profits.

While builders in Brazil and the US had built smaller rotating buildings, three developers in Dubai announced buildings that would have put the UAE in the architectural vanguard.

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IEA doubts Iraqi oil target

Baghdad’s plan to more than double Iraqi oil output in the next eight years may be too ambitious, the International Energy Agency (IEA) said yesterday on the eve of the country’s historic first post-war auction of oil contracts to foreign firms.

“Despite tremendous international interest for the country’s oil development projects, official plans to increase production by 3.5 million barrels per day (bpd) to reach 6 million bpd by 2017 appear over-optimistic given the many political and security risks that continue to challenge the government and industry,” the energy adviser said.

Taking a “very conservative” view for its medium-term forecast period, ending in 2014, the IEA said Iraqi oil output could slip to 2.2 million bpd by 2011 from about 2.4 million bpd currently, due to an “unexpected accelerating decline” in production from the country’s big southern oilfields. With drilling programmes not expected to deliver results until later in the period, the agency projected capacity rising to 2.7 million bpd by 2014.

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New funds put bank on target

Emirates NBD is close to securing a Dh3.5 billion ($US953 million) government cash injection that will allow the UAE’s largest lender to meet new capital adequacy targets set by the Central Bank late last year.

Most of the cash is expected to come from the Government of Dubai, which owns 56.6 per cent of Emirates NBD through the Investment Corporation of Dubai (ICD), its investment arm.

The bank declined to comment on the funds but analysts expect an announcement to be made today. ICD could not be reached for comment.

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UAE victory hailed as big step forward

Environmentalists celebrated the announcement that Abu Dhabi would be home to a new green-energy agency, saying it would improve the country’s image and encourage ecological efforts worldwide.

Winning the International Renewable Energy Agency (Irena) was gratifying, they said.

“Our efforts from all these years have been recognised,” said Majid al Mansouri, secretary general of the Environment Agency-Abu Dhabi. “Abu Dhabi is something we are proud of; we have initiatives that are being approved worldwide. To have such a prestigious new agency will reflect positively on Abu Dhabi.”

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Qatargas to supply LNG to Poland

The Polish Oil and Gas Company signed a deal on Monday with Qatargas for deliveries of liquefied natural gas (LNG) in a move that lessens Poland's reliance on Russian supplies.

Qatar government representatives signed the agreement with Polish officials in Qatar, Treasury Minister Aleksander Grad told the Polish Press Agency PAP.

The deal is effective for 20 years and will yearly deliver 1.5 billion cubic meters of gas in an agreement worth some US$500 million a year.

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Face-to-face: What's the future for the UAE?

Should there be a focus on government-funded projects to pull the industry through the downturn?

Yousuf Sharaf, Sharaf Industries, Managing Director: Projects like the metro, which has been funded by the government, will continue but will be slower than before just like any other projects. It all depends on the strategies of the business.

Salvatore Saker, Green Precast CEO: The government funded projects are pretty much holding the economy together. In times like this, where the private investor hangs onto his cash, it is the leaders, in many markets, that realise it is up to themselves to keep the economy thriving and providing work. Housing in most countries dominates between 30% to 60% of any economy and it certainly will for the next 15 years.

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Ratings on Arcapita withdrawn

ArcapitaImage via Wikipedia

Standard & Poor’s on Monday withdrew its ratings on Arcapita, a Bahrain-based Islamic investment group, six months after the recession-hit institution was downgraded to junk status.

Shortly before the withdrawal of the rating, which was requested by Arcapita, S&P affirmed its negative outlook on the group. This was based on the bank’s high leverage and its pressured liquidity position, the agency said on Monday. “The ratings reflect our opinion of Arcapita’s stand-alone credit profile and do not include any uplift for extraordinary external support.”

Arcapita has been recapitalising its business since January by tapping shareholders and other funds. Earlier this month, the investment group sold Church’s Chicken, a fast-food chain, to Friedman Fleischer & Lowe, a San Francisco-based private equity group, in one of the biggest US exits of the year.

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Emaar move prompts investor unease

When Emaar Properties announced its merger talks with three government- related developers, it described the move as marking the start of a “new chapter in the annals of real estate globally”.

Yet the initial reaction of investors in the Middle East’s largest developer was less favourable. Emaar’s shares tumbled almost 10 per cent on Sunday, the day of the statement, and a further 2.1 per cent yesterday.

Their concerns are that their holdings might be diluted and about the benefits of an alliance with the three smaller developers – Dubai Properties, Sama Dubai and Tatweer – that have less of a record than Emaar, analysts say.

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Drop in Gulf inflation raises deflation fears

It is not long since soaring inflation was the scourge of the Middle East – the number one concern of policymakers. When living costs rose in 2007 and 2008, workers protested as soaring food prices and rents threatened to cloud the benefits of bumper oil revenues.

Yet in recent months the Gulf has found itself in a very different environment as inflation has dropped from double digits to low single figures, causing some economists to raise the spectre of deflation.

Widespread job losses have replaced the pay rises and labour shortages of the years of plenty: the property bubble has burst, global commodity prices have corrected substantially and banks have experienced a liquidity squeeze.

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Emaar Merger Signals Dubai Inc. Consolidation,M&A Wave

The merger of Dubai's Emaar Properties PJSC (EMAAR.DFM) and three state-controlled property firms could prompt a wave of consolidation in the struggling emirate, analysts say.

"We believe M&A will pickup over the next 18 months in addition to questions around the standalone survivability of several developers," said UBS AG analyst Saud Masud. "We would not rule out mergers within the three key holding entities as well as cross-holding consolidation as Dubai Inc. seeks to strengthen its balance sheet," he said.

The planned merger between Emaar and Dubai Properties LLC, Sama Dubai LLC and Tatweer LLC is Dubai's boldest step yet to stem the collapse of the emirate's real estate market where prices have tumbled up to 40%.

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