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Monday, 20 July 2009

Dubai - FT Special Report (PDF 3 page)

Headlines include:

City-state forced to rein in ambitions

Economy: Recession exposes need for reform

Trade: Jebel Ali is weathering economic storm so far

Financial services: Buffeting for banks from credit crisis

Real estate: Are prices at the bottom?

Property profile: Dubai takes a battering in the property downturn

Employment: Expatriates scurry home as jobs evaporate

Education: Lessons to be learnt as schools face scrutiny

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Vivendi / Zain

Vivendi, the French media and telecoms conglomerate, was at pains on Monday to say it was merely “interrupting” talks about acquiring a controlling stake in Zain Africa, the African arm of the Kuwaiti mobile group. Possibly this is just a reference to the sacrosanct August vacances. But judging by the 4 per cent jump in Vivendi’s share price, shareholders are hoping negotiations remain suspended come the rentrée in September.

On paper, Zain’s Africa business looks an attractive target: its operates across big swathes of sub-Saharan Africa, one of the industry’s few remaining growth markets. The region is consolidating fast; Vodafone in May cemented control of South Africa’s Vodacom, while India’s Bharti Airtel and rival South African outfit MTN remain in talks about a potential $23bn tie-up.

Vivendi, majority owner of the number-two operator in France, wants a piece of the action, too – but not at the expense of its dividend or credit rating. Taking control of Zain, which analysts have valued at $10bn-$12bn, would therefore have required some form of rights issue. That would have been a hard sell. While Vivendi has made a success of its controlling stake in Maroc Telecom, the potential synergies with Zain looked modest, with few prospects for in-market consolidation of network infrastructure – one of the key value-drivers in telecoms deals.

The problem is where Vivendi goes from here. Jean-Bernard Lévy, chief executive, needs to find new growth somewhere to fund a dividend that Bernstein reckons should grow from €1.40 per share this year to €1.62 per share by 2011. Yet Vivendi’s core French mobile and media businesses are structurally challenged.

Cherry-picking the best of Zain’s African business may be one option, although getting a good value could be difficult if a partial sale attracts other bidders. In any case, shareholders who want exposure to Africa should simply take a stake in Zain themselves, rather than support Vivendi in paying an unjustified premium.END

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RAK capital's upcoming sukuk issue assigned 'A' rating, says S&P

Standard & Poor's Ratings Services said that it had assigned its 'A' credit rating to the upcoming sukuk being issued under the US$2 billion certificates (sukuk al-ijara) issuance program from RAK Capital.

As per the original rating of the program in May 2008, we expect all issuances of certificates under this program to be rated 'A'. The rating on the program (and any issuance under it) is thereby equal to, and fully reliant on, the rating on the Emirate of Ras Al Khaimah (A/Stable/A-1).

RAK Capital is a Cayman-based special-purpose entity established for this transaction. The transaction structure allows the Emirate of Ras Al Khaimah to raise funds on Sharia (Islamic principles) compliant terms, with better distribution and sales perspectives, rather than to distinguish its obligations under this transaction from those under a conventional bond.

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The Fake Sheikh is back in town…

… and we’re not talking the News of the World’s fancy dress enthusiast Mazher Mahmood.

Yesterday afternoon news organisations the world over received a fax (yes, a fax, remember those?) from an organisation called Arabian Peninsula Group announcing a $49.50 bid for US car stereo-maker and Essex boy-racer staple Harman International.

Now, an S&P 500 company with a $1.7bn market cap being subject to a near-100 per cent premium hostile offer is a big story, certainly big enough for Bloomberg to flash the news. But Bloomberg appear to have pulled their story yesterday after checking the facts and realising something wasn’t quite right.

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Praesidium LLP and DIFC Produce the First Comprehensive Guide to Islamic Finance. (PDF 180pages)

The Islamic finance industry is expected to more than quadruple in value within a decade from its current size of between $800 billion and $1 trillion, as it captures the savings of half of the world's 1.6 billion Muslims, a new study predicted on Monday.

The industry, which offers Shariah-compliant financial services, is expected to grow 15-20 percent annually to more than $4 trillion in invested funds in about 8-10 years, Praesidium, a consulting company, and the Dubai International Financial Centre (DIFC), said in a report.

"The market for Islamic finance is relatively untapped," Abdulla al-Awar, the chief executive of DIFC told Maktoob Business. "The financial crisis raises questions on issues such as sub-prime lending and over leveraging of debt instruments, both of which are not permitted under Islamic finance. So the prudential aspect of Islamic finance is especially attractive during the financial crisis."

Ratings agency Standard & Poor's said in May that the $700 billion global Islamic finance market would weather the economic downturn better than banks that charge interest, and that the long-term pipeline for sukuk - Islamic bond - issuance was healthy.

The report, published by Praesidium and released by the DIFC on Monday, said current market penetration of Shariah-compliant financial products is about 20 percent of the Arab population.

"This figure is expected to rise dramatically and it is expected that within the next decade, 50 to 60 percent of the total savings of the world's Muslims will be in the form of Shariah compliant products," the report said.

Consulting company Ernst & Young said recently that while the appetite for sukuks declined along with international debt issuance in the economic downturn, the first quarter of 2009 saw sukuk issuances oversubscribed many times.

A revival of the sukuk market is expected in the second half of this year and in 2010. Ernst & Young estimates the sukuk market will issue $27.5 billion in bonds this year.

The report by Praesidium and DIFC said assets under management in Islamic funds are estimated to be between $50 billion and $70 billion and the total value of sukuks issued is valued at more than $88 billion, of which $13 billion - or 15 percent - are listed on NASDAQ Dubai.

DIFC's Awar said Dubai will continue to remain the heart of Islamic finance.

"Dubai has the natural advantage both in terms of demography and geography. Dubai is strategically located in a region which boasts two-thirds of global oil reserves," he said.

"This region also represents a large and wealthy Muslim population, increasingly demanding Shariah compliant financial products."

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Gosaibi: The $10 billion Fraud (Re-post)

It seems as though the Gosaibi story continues to gain momentum and the interest of the global community. The dominant merchant family of the Kingdom shook the Gulf region when in May parts of the family conglomerate, Ahmad Hamad alGosaibi & Brothers (AHAB), defaulted, and prompted lawsuits in various countries. This week the shock turned to astonishment.

Documents filed in New York’s state Supreme Court claim that AHAB has been a victim of a “massive fraud” orchestrated for years by its managing partner and son-in-law, Maan al Sanea. In AHAB’s claim they allege that Mr Sanea “misappropriated” around $10 billion in the alleged swindle.

AHAB claims that Mr Sanea was until very recently a “senior executive” of its financial-services arm – the Money Exchange – which mainly handles remittances of workers inside and outside Saudi Arabia. The statement by the company claims that Mr Sanea made use of this position to borrow from banks “using forged or falsified documents”. He then “diverted the funds received to his own use.” Having these huge amounts of cash constantly sloshing around in the Money Exchange’s accounts allowed Mr Sanea to siphon off some of it by, among other things, writing fraudulent cheques, and transferring cash to people, companies and accounts that he “controlled directly or indirectly”. It continues to say that Mr Sanea told AHAB employees not to record the transactions in the company’s books and in July 2006, it alleges, he sent a memo to senior employees of the Money Exchange telling them to withhold any messages intended for the board of directors and “to deliver those communications to him instead”. AHAB says Mr Sanea’s maneuvers allowed him “to continue looting AHAB and to conceal the massive scope of his thievery from AHAB and its Board”.

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Iran’s Economic Conditions: U.S. Policy Issues

The Islamic Republic of Iran, a resource-rich and labor-rich country in the Middle East, is a central focus of U.S. national security policy. The United States asserts that Iran is a state sponsor of terrorism and that Iran’s uranium enrichment activities are for the development of nuclear weapons. To the extent that U.S. sanctions and other efforts to change Iranian state policy target aspects of Iran’s economy as a means of influence, it is important to evaluate Iran’s economic structure, strengths, and vulnerabilities.

Since 2000, Iran has enjoyed broad-based economic growth. However, strong economic performance has been hindered by high levels of inflation and unemployment and low levels of foreign investment. Some contend that President Ahmadinejad’s expansionary monetary and fiscal policies have worsened unemployment, inflation, and poverty in Iran. Iran’s economic growth is expected to slow in 2009.

Iran has long been subject to U.S. economic sanctions, and more recently, to United Nations sanctions, over its uranium enrichment program and purported support for terror activities. Such sanctions are believed by some analysts to contribute to Iran’s growing international trade and financial isolation. Iran’s economy is highly dependent on the production and export of crude oil to finance government spending, and consequently is vulnerable to fluctuations in international oil prices.

Zain rejects Vivendi offer (Re-post)

According to Al-Qabas Kuwaiti daily newspaper, Zain has formally rejected an offer from Vivendi to buy a majority stake in Zain Africa. The offer was rumored to be $10.5B for a 65% stake. The reason for the rejection is rumored to be the payment mechanism proposed by Vivendi. I guess Zain wants cash now, while Vivendi can only pay in installments because it promised to maintain its BBB rating and deliver dividends of at least 50% of its adjusted Net Income. For more insight on Vivendi’s financing options, kindly refer to my comments on Oikonomia’s recent post, “Zain-Vivendi Deal: Mission Impossible”.

GCC Market Review – July 2009 (PDF)

The performance of GCC markets were mixed during the June-09. Two of the markets - Kuwait and Oman ended the month on a positive note whereas rest of the four markets witnessed losses during the June-09. In fact most of the markets performed well during the first half of June-08; however performance turned negative during the second half of the month. Investors’ concern about exposure of the GCC banking sector to Saad and Al Gosaibi groups of Saudi Arabia impacted the market performance during June-09. Though there has been no confirmed news about total exposure to these two groups, newspaper reports suggest that the total exposure (including International banks) might exceed US$10bn. In the absence of any other significant regional developments, markets continued to be impacted by international developments. The decline in international markets during the second half of the month impacted regional markets’ performance. Price of OPEC Basket crude touched its highest level of 2009 on 11th June; however the subsequent fall in oil prices impacted regional markets. Looking forward, the performance of regional markets in short-term will depend on corporate earnings for Q2-2009. The performance of Q2-2009 is expected to be better than Q1-2009; however Saad and Al Gosaibi episode might impact banking sector performance. The medium-term performance of markets will depend on economic recovery but in the short-term we are likely to see stock-specific movements.

Global's Jordan Weekly Market Report - July 16, 2009 (PDF)

Global's GCC Islamic Index–Weekly Brief dated July 16, 2009 (PDF)

Global's GCC Weekly Market Report – July 16, 2009 (PDF)

Brighter outlook for new Gulf share listings

Gulf companies with stalled IPO plans could return to the market by the first half of next year as higher oil prices and the return of bank lending encourages new share sales.

Top international accountancy firms Pricewaterhouse Coopers and Ernst & Young expect to see investor appetite return for regional companies in 2010, despite continuing volatility across Gulf markets.

“Many companies that shelved IPO plans when the markets turned last year will now be thinking about when they should be reinvigorating their IPO plans for a 2010 listing,” said Steven Drake, who heads Middle East capital markets at PriceWaterhouseCoopers, the accountancy and advisory firm. “As it takes several months to prepare for a listing I expect to see IPO volumes pick up around Q1 or Q2 2010.”

Gulf bourses: consolidate or cooperate

Jeff Singer, the head of NASDAQ Dubai, likes to compare the region’s stock exchanges with mid-19th century railway companies in North America’s frontier lands.
“Go back to the 1870s, when the railroad boom was in full swing. Different railroads were laying track literally 100 metres from each other.

This competitive behaviour seemed to make no sense. Eventually they rationalised because the customers drove them to it. The same thing is going to happen here.”

There are 18 stock exchanges in the Middle East, eight of which are in the six GCC countries.

GCC losing appetite for US dollar assets

When Timothy Geithner, the US Treasury secretary, visited the region last week he pledged Washington’s support for a strong dollar. The latest data on foreign lending to his government helps explain why.

Worries about the health of the US dollar appear to be curbing the Gulf’s appetite for US assets, particularly its desire to lend money to the increasingly indebted US government.

According to the latest US Treasury data, Gulf oil exporters sold a net US$940 million (Dh3.45 billion) in US long-term securities in May, the latest period available, led by a sell-off of a net $1.36bn of long-term US treasury bonds.

Bank manager arrested for fraud

Authorities have arrested five suspects who allegedly tried to make fraudulent withdrawals worth Dh154 billion from the UAE Central Bank, Abu Dhabi Police said on Sunday.

Two separate alleged scam attempts occurred within 39 days, said Colonel Maktoum Al Sharifi, director of the Criminal Investigation Department (CID) of Abu Dhabi Police.

"The first attempt involved a manager of a branch of a bank operating in the country, identified as A.M.F, 31, and two visitors. They were an IT engineer identified as A.H.A, 34, and A.K.B, 36," Al Sharifi said.

Saudi Arabia's Index falls to two-week low

Saudi Basic Industries (Sabic) the world’s largest petrochemical maker, declined after saying it won’t pay dividends for the first half of the year, pushing Saudi Arabia’s Tadawul All Share Index to its biggest drop in two weeks.

Sabic shares tumbled 8%, the most in three months, to SAR60.50 following the comment today by Vice President Mutlaq al-Morished on Dubai-based Al-Arabiya television. The company yesterday said second-quarter profit fell 76% from a year earlier as crude prices plunged.

Sabic said on 14 March it planned to pay a cash dividend of SAR3 a share for 2008. The company, 70% owned by the Saudi government, has cut jobs and reduced output as the worst recession since World War II weakened demand for plastics used for everything from packaging to car bumpers. Profit was also hurt by the slump in crude prices from a high in July 2008.

Essar looks to rope in UAE co for African venture

In a bid to expand its African footprint, the Essar Group has entered into “exclusive” discussions with the UAE’s Dhabi Group, an investment
firm led by the Abu Dhabi royal family, for investing in the telecom portfolio of its African assets.

“The transaction will involve an equity infusion into these businesses (of the Dhabi Group), as growth capital. It will be the basis of a partnership to create a significant presence in Africa,” said the Essar Group in a statement in Mumbai on Sunday.

“We are running exclusive discussions and will decide on our investments after 8-12 weeks,” Essar Group director (strategy and planning) Vikash Saraf told ET. He, however, did not specify whether the group will be a majority stakeholder in the proposed investments.

Saudi miner Maaden reduces Q2 loss by 59 pct

Minerals firm Saudi Arabian Mining Co (Maaden) reduced losses by 59 percent in the second quarter in 2009 but posted profit on operational levels as gold revenues rose, the firm said on Sunday.

Maaden posted a net loss of 7 million riyals ($1.87 million) in the three months to June 30, compared with a loss of 16 million riyals in the same period last year, Maaden said in a statement on the Saudi bourse website.

The company, a major mining player in the Middle East which floated in July 2008, attributed the loss to provisions for the Islamic tax of Zakat.

Aussies face bribe charges in Dubai

Two Australian businessmen have been formally charged with fraud, almost six months since they were thrown into a Dubai prison.

Melburnian Matt Joyce and Marcus Lee, from Sydney, were arrested in January on suspicion of bribery while working on a development project for the United Arab Emirates (UAE) government-owned Nakheel property group.

Joyce's lawyer Martin Amad today told ABC Radio formal charges had been laid, although the exact details of the allegations were still not known.