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Tuesday, 20 October 2009

GCC Daily Stock Market Bulletin (PDF courtesy Arqaam Capital)

Free Markets in Pakistan: A Long Way to Go (Re-post)

There is more to Pakistan than just suicide bombs. Economic growth, and its distribution, is also important, and not just because economically marginalized people have a greater propensity to join up with the terrorists. Pakistan desperately needs foreign investment to overcome persistent budget and trade deficits, but flows have been hit hard by the triple threat of political instability, redoubled terrorist activity, and the world economic crisis. In the year to July 1, foreign direct investment (FDI) fell from $5.4 billion to $3.7 billion, and even the previous year’s figure is nothing to get excited about for a country with 175 million people. Nigeria, with around 150 million people and a lower per capita GDP than Pakistan, attracted $20 billion of FDI in 2008 – true, it does have oil, which Pakistan does not – and Egypt, a slightly richer country with just over 80 million people, took in $8 billion in the year to July 2009, down from $13 billion the previous year.

Political instability, armed insurrection, and attacks on foreign visitors are not powerful motivations for foreign investors to whip out their checkbooks, but Nigeria has disputed Presidential election results, widespread corruption, and armed groups with a habit of kidnapping foreign workers, while Egypt has also had questionable elections, faces tremendous uncertainty over the succession to President Mubarak, and has suffered a number of well-publicized terrorist attacks on foreign tourists. Pakistan is a more dangerous and instable place right now than either Nigeria or Egypt, but other factors also contribute to its anemic performance in attracting foreign investment.

A lot of learned books and articles have sought to explain the phenomenon, but I haven’t read many of them and even if I had I wouldn’t bore you by trying to summarize them here. But an article in yesterday’s Dawn newspaper provides some clues. The story, entitled “Officials seize, sell sugar at Rs40 a kilo” reports that Karachi city government officials have cracked down on retailers selling sugar at more than the official price of Rs40 (about 50 U.S. cents), seizing their tocks and forcing them to sell at that price. From October 1 to 18, over 100 people have been jailed and more than 400 shopkeepers have been fined. As a local colleague explained it to me, during the month of Ramadan, which ended a few weeks ago, sugar prices skyrocketed, going from around Rs38 a kilo to Rs55. Pakistanis like their tea sweet, and they drink a lot of it, so this is not a trifling matter.

Mubadala Seeks to Triple Assets in Three Years, Official Says

Mubadala Development Co., an Abu Dhabi government-backed investor that announced an $8 billion joint venture with General Electric Co. last year, aims to triple its assets in three years, a company official said.

“That is a very realistic and achievable target,” Matthew Hurn, Mubadala’s executive director of group treasury, said in an interview late yesterday in London. “We’re long-term, patient developers and deployers of capital; which means that actually a lot of the benefit doesn’t come back until the plans are operational.”

Abu Dhabi, which holds about 8 percent of the world’s oil reserves, is investing in other industries as it seeks to diversify its economy. It is targeting aerospace, energy, water and health care as key industries. Mubadala’s investments include private equity firm Carlyle Group and Ferrari SpA.

Qatar May Make $1 Billion Selling Barclays Shares After Bailout

Qatar will make about 633 million pounds ($1 billion) as it sells shares in Barclays Plc a year after it helped bailout Britain’s second-biggest bank.

Qatar Holding LLC, the Doha-based arm of the Qatar Investment Authority, plans to exercise warrants to sell more than 379 million Barclays shares, the companies said today in a statement. Barclays fell as much as 5.5 percent.

Barclays raised more than 5 billion pounds from Middle Eastern investors last year, triggering criticism from shareholders including Legal & General Group Plc who weren’t first given an opportunity to buy new stock. Barclays has surged since touching a March low, as it avoided government aid unlike Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc.

Earlier story here

NBAD, Aldar Among 8 Abu Dhabi Firms Seeking Investors

National Bank of Abu Dhabi PJSC and Aldar Properties PJSC, two of the biggest listed companies on the Abu Dhabi bourse, are among eight firms from the emirate seeking investors at meetings in London today.

“There is a mountain of cash built up in pension funds all over Europe now,” Tom Healy, the exchange’s chief executive officer, said in an interview late yesterday in London. “Investors have been slow to invest but we’re now seeing a lot more interest to invest in Abu Dhabi companies.”

Abu Dhabi, capital of the United Arab Emirates and source of almost the entire country’s oil output, is looking to boost stock market liquidity following last year’s slump. The benchmark index lost 47 percent in 2008 as oil tumbled and the worst financial crisis since the Great Depression prompted investors to pull out of the region. The index is up 34 percent this year.

Kuwait's Global reaches deal with creditors

Kuwait's Global Investment House, the country's largest investment bank, has reached an agreement with creditors over a five-year debt restructuring plan to start by 2010, a person familiar with the situation said on Tuesday.

Deutsche Bank and Abu Dhabi Commercial Bank are leading the debt restructuring, which is expected to be signed before the end of November, the person told Zawya Dow Jones.

Global is expected to make its first 10% payment to each creditor in 2010, the person added.END

Qataris sell Barclays

But look who is helping — why, it’s Barclays Capital. He never misses a trick that Diamond Bob.

Aside from the fees, Bob and BarCap will also gain some useful points in those all-important investment banking league tables.

From the RNS on Tuesday morning:

Qatar Holding LLC (”Qatar Holding”) announces its intention to sell 379,218,809 Ordinary Shares in Barclays PLC (”Barclays”) by way of an accelerated bookbuild and to exercise an equivalent amount of warrants to satisfy its obligations under the bookbuild (the “Transaction”). The exercise price of the warrants is 197.775 pence.

Credit Suisse Securities (Europe) Limited has been appointed as Sole Bookrunner with Barclays Capital acting as Lead Manager with respect to the Transaction. Bookbuilding in relation to the Transaction will commence immediately. It is anticipated that the books will close on or before close of business on 20 October 2009. Final terms for the disposal will be announced in due course.

Ahmad Al-Sayed, CEO and Managing Director of QH said: “The decision to exercise the warrants and dispose of the resultant shares forms part of Qatar Holding’s portfolio management program and does not impact on our current intention to remain a long term strategic shareholder in Barclays. The transaction will result in proceeds for Barclays of approximately £750 million.

John Varley, Group Chief Executive, Barclays, said: “We are happy to be working with Qatar Holding on a placing derived from the exercise of some 50% of its warrants. The effect will be further to broaden the base of our share register. Qatar Holding is our largest shareholder and a key partner of the Barclays Group.”

We will keep you posted on how the placing is going, but shares in Barclays are down 20p at 362p in early trading.

OIL AND THE GLOBAL RECESSION (Re-post)

Global Witness, an international NGO, has a new report out predicting a major oil "supply crunch" in the next five years that will make oil unaffordable for developing countries. The group predicts that there will be a gap of 7 million barrels per day between supply and demand.

This seems overly alarmist, because there's still a lot of excess capacity in the system. Saudi Arabia alone has 4 million barrels of excess capacity: The kingdom could produce 12 million barrels per day, but it only pumps 8. Iraq is planning to triple its production capacity at Rumaila, from one million barrels to 2.8 million. And so on.

In the long run, yes, we're going to run out of oil, and there are good short-term reasons to reduce consumption. But alarmist "we're running out of oil NOW!" rhetoric isn't helpful.

Testing the limits of Islamic debt

The default of two prominent Middle Eastern investment companies is shaping up to be a test case for the $1,000bn Islamic finance industry on how Islamic bonds, or sukuk, are settled.

Until recently, the market for bonds that comply with Islamic law, or sharia,, was one of the fastest growing niches of the international financial industry, with issuance soaring from virtually nothing less than a decade ago to about $100bn of sukuk bonds outstanding this year.

However, like many of the complex financial products conjured up during the past decade, Islamic bonds are facing their sternest test yet.

Middle East fund managers slash fees

Fund managers in the Middle East are increasingly slashing their fees in a move to beef up their asset baskets.

Roberto Demartini, Associate Director of Fund Research at S&P, said: "Managing a fund in the Middle East costs 20 per cent higher compared to the emerging funds managed from Europe. A number of groups here are encouraging investments by charging less.

"Management fees run at around 1.5 to two per cent, entry fees range up to five per cent while performance fees run up to 20 per cent. In comparison, in Europe there is no performance fee.

Bahrain pressing on after slowdown


This city’s annual property exhibition is a modest affair compared with rivals such as Cityscape in Dubai, but the healthy throng of visitors this weekend suggests there is life yet in the Bahraini real estate market.

When the financial crisis hit last year, severely hurting the global property sector, the cranes in Bahrain merely slowed. Hammer blows echo at night from Marina West, a group of luxury high-rises emerging from the palm plantations on the island’s east coast. Bahrain Bay, a vast reclaimed development off Manama’s north shore, is still “on track”, billboards reassure passing motorists.

The organisers of the Bahrain International Property Exhibition (Bipex) have yet to release official figures, but about 10,000 people are thought to have visited the show, compared with a record 13,500 last year. Judging by the licence plates in the exhibition centre car park, a high proportion came across the causeway from neighbouring Saudi Arabia.

Purchase brings merger of two lenders closer

The new Emirates Development Bank (EDB) moved a step closer to reality after the Government acquired full ownership of one of two lenders that are being merged.

The Ministry of Finance signed an agreement to buy the remaining 49 per cent of Emirates Industrial Bank (EIB), which is being merged with the Emirates Real Estate Bank (EREB) to create the lender.

The Federal Cabinet passed a draft law in June approving the formation of the Dh10 billion(US$2.72bn) EDB, a move viewed as a first step towards consolidation in the local banking sector, where about 50 banks compete for business. The Government is contributing half of the capital to establish the bank.

Taqa’s former chief gets gentle nudge off the precipice

When Abu Dhabi National Energy Company, also known as Taqa, dropped the Friday night bombshell that its chief executive was stepping down, it did not take long for reporters to ask whether he jumped or was pushed.

Reached on his mobile phone on Sunday, Peter Barker-Homek put on a brave face.
“I’m going into a new career,” he said. “It will be in the oil and gas sector. It’s exciting.”
Mr Barker-Homek denied there was a “disconnect” between himself and the Taqa board. That was soon after Reuters quoted him as saying his decision to resign followed a discussion with the board over the company’s future direction.

The company’s explanation for replacing Mr Barker-Homek with his deputy, Carl Sheldon, was that it was “moving into a new phase of development” and shifting its focus from acquisitions to integrating existing assets. Mr Barker-Homek’s mergers and acquisitions experience “made him ideal to help establish Taqa in its early days”, said Hamad al Suwaidi, the chairman of Taqa.

Dubai to raise new funds in world markets


Dubai and its government-owned companies are paying off loans and seeking to tap international investors for fresh funds as the emirate takes advantage of improved economic conditions to tackle its US$85 billion (Dh312.16bn) debt burden.

The Government of Dubai has invited investors to attend a round of fund-raising presentations starting on Thursday in Europe, Asia and the UAE. The last time Dubai raised funds from international investors was in April last year.

In another positive sign, Nakheel, the heavily indebted developer owned by Dubai World, repaid Dh4.4bn in debt to banks last week.

Dubai plans fixed income, Islamic bond roadshow

Dubai is launching meetings from Thursday to test appetite for future debt from the emirate after one of its most troubled state-linked firms paid off US$1.2 billion in debt, a sign confidence is returning to the emirate.

The Dubai government said on Monday it planned fixed income roadshows across Europe, Asia and the UAE from October 22, but added the meetings were not linked to its US$20 billion bond programme aimed at assisting state-linked firms.

A Banker involved in the transaction told Bloomberg the Government of Dubai plans to meet with fixed income and Islamic investors. Islamic Bank PJSC, Mitsubishi UFJ Securities International, Standard Chartered Plc and UBS AG are arranging the meetings, the banker said.

UAE's Mubadala eyes Asia investments

Abu Dhabi investment fund Mubadala is looking at investment possibilities in Asia, including China, India and Vietnam, a director of the fund told Reuters on Monday.

"We have a balanced portfolio, we look at opportunities in the UAE (United Arab Emirates) and outside," Nasser Ahmed Alsowaibi told Reuters on the sidelines of an investment forum.

"China is on the agenda of course. I would say India, Malaysia, Indonesia, even Vietnam."

Alsowaibi declined to be more specific on industry sectors or companies.

Abu Dhabi Investment House sets Islamic fund

Abu Dhabi Investment House, or ADIH, said Monday it launched a $300 million Shariah-compliant fund to tap opportunities in fast-growing hospitality sectors across the Middle East, North Africa and Asia.

The Hospitality Development Fund, which has a projected 20% internal rate of return, has Bahrain-based Gulf Finance House and Ithmaar Bank as advisors and has already identified several investment opportunities, ADIH said in an emailed statement.

"We are confident to raise target capital within the target subscription period," managing director Rashad Janahi said in the statement.

The fund will invest in hospitality sub-sectors, including airlines, tourism, and accommodation, and will target both new development projects and existing hospitality and entertainment companies with "potential for growth," the statement said.

ADIH was created in 2005 as a private investment company.

Saudi telecoms newcomers find a tangled web


In 2007, Etihad Atheeb Telecom paid $139m for Saudi Arabia’s second fixed-line licence, bringing to an end a monopoly enjoyed by Saudi Telecom, the kingdom’s incumbent provider.

Customers, frustrated by the slow, unreliable internet service of Saudi Telecom (STC), quickly opted for the wireless broadband services, including voice and high-speed data, that Etihad Atheeb began to provide under the brand name Go in certain cities.

But two years on, a group of young Saudis has organised a boycott of STC, in protest at persistent high prices and poor service, while the newcomer’s managers complain that fair competition remains a far-off goal.

Iranians flock to first hypermarket

There have been no advertisements to announce the opening of Hyperstar, Iran’s first international-style hypermarket.

Yet word of mouth has quickly made the store into a top development in Tehran, because Hyperstar is heavily associated with Carrefour, the French retailer.

The store was supposed to be branded as Carrefour – the world’s second largest retailer – and not Hyperstar, a new brand of Carrefour’s franchisee in the Middle East: the Dubai-based Majid al-Futtaim (MAF).