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Wednesday, 28 October 2009

UAE: No Default Risk! (Re-post)

UAE used to be one of the most promising markets in MENA if not in the world. With the vast increase in projects and the high dependence on leverage, the affect of the financial crises hurt them the most, both in their stock market and their property market. The sukuk market also had is share of downfall, where some of the sukuks issued by big name like Nakheel and Emaar Properties stated yielding around 40% as the risk of default was apparent.

Nevertheless, worst might be over for the UAE and defaulting seemed to be out of the question. The graphs below show a huge slump in the CDS spreads from their peak in mid january due to the support from the government to the local entities.

Dubai 5 year CDS spreads

Abu Dhabi 5 year CDS spreads

Saudi Aramco’s WTI snub

Remember those problems WTI crude had earlier this year with Cushing delivery? Remember how they cast a doubt on the grade’s position as a global oil benchmark?

Well it seems Saudi Aramco, the state oil company of the world’s top oil exporting nation, may have been more worried about the issue at the time than it originally made out.

In any case, on Wednesday, the state producer made abundantly clear what it thought of the benchmark. Here’s the press release from energy OTC pricing agency Argus (our emphasis):

Dubai Prices $1.25B 5-Yr Dlr Bonds, AED2.5B 5-Yr Sukuks At Par

The government of Dubai on Wednesday sold $1.25 in dollar-denominated bonds and 2.5 billion dirhams worth of Islamic bonds, or sukuks, at par in a two-tranche, five-year debt offer, according to a fund manager's term sheet.

The dollar tranche carries a coupon of 6.396% and yields 406 basis points over comparable Treasurys. The dirham-denominated portion of the sukuk has a coupon of 370 basis points over the three-month Emirate interbank offered rate.

The total value of the offer, around $1.93 billion, is lower than the market had previously anticipated.

With its economy hit by a sharp downturn in real estate, Dubai needs to raise new funds to help pay existing debt, which combined with the borrowings of its corporate proxies is said to exceed $80 billion. The country becomes the latest sovereign entity from the developing world to tap international capital markets in a bid to seize lowered risk premiums for issuers.

Dubai Islamic Bank, Mitsubishi UFJ, Standard Chartered and UBS AG are acting as lead managers on the transaction.

Terms were as follows:

Amount: $1.25 billion
Maturity: Nov. 3, 2014
Coupon: 6.396% (Midswaps plus 370 basis points)
Price: Par
Spread: 406 basis points over Treasurys
Amount: AED2.5 billion ($681 million)
Maturity: Nov. 3, 2014
Coupon: 370 bps over 3-month Emirate interbank rate.
Price: Par

Dubai official statistics clearly in need of revision (Re-post)

It was hard not to miss this headline today in Gulf News: ‘Dubai’s GDP rises 0.3% in first quarter despite the global downturn’ according to figures released by the Dubai Statistics Centre.

Lest we forget the comparative period is Q1 2008 when the Dubai economy was overheating with a massive real estate and construction boom and traffic gridlocked at rush hour.

U.A.E. Falls for Second Day on Earnings, Lower U.S. Sentiment

United Arab Emirates shares fell for a second day, leading losses across the Persian Gulf, as Aldar Properties PJSC reported a decline in profit and lower consumer confidence data from the U.S. dampened investor sentiment.

Aldar, Abu Dhabi’s biggest property developer, slid the most in a week after it reported yesterday a 44 percent decline in third-quarter earnings. Abu Dhabi National Energy Co, the emirate’s state-controlled oil and gas company known as Taqa, retreated for a second day. Emaar Properties PJSC, the biggest developer in the U.A.E declined the most since Oct. 18.

“We have a very high correlation with the international markets these days whether negative or positive,” said Joice Mathew, head of equity research for United Securities LLC in Muscat. “Consumer confidence levels in the U.S. are having a negative impact not just on our markets, but markets around the world.”

Dubai Sukuk Sale Said to Get Bids Worth $6.55 Billion

Dubai’s planned Islamic bond issue attracted bids worth $5 billion for the dollar-denominated offer and 5.7 billion dirhams ($1.55 billion) for the dirham-floating note, bankers involved in the deal said today.

The emirate’s five-year fixed rate dollar bond may be priced to yield 375 basis points above the midswap rate, while its dirham Islamic bonds, or sukuk, may be priced at the same spread above the three-month interbank offered rate, according to the bankers who didn’t want to be identified because the sale hasn’t been completed.

Dubai and its state-controlled companies are raising funds after they amassed $80 billion of debt during a four-year real- estate boom, which produced the world’s tallest building and largest man-made islands. The global credit crunch had raised concern that the second-biggest sheikhdom in the United Arab Emirates may be unable to meet its debt obligations.

Federation of Euro Asian Stock Exchanges, October Newsletter (PDF)

TheFEAS September Newsletter, the monthly bulletin, bringing you general secretariat news, Member statistics on stock, bond and other volume comparisons on a monthly, year-to-date and prior period basis, in addition to market cap, currency changes, number of companies traded and index fluctuations, has been put on the FEAS website.

Here are some headlines from this issue:

- ABU DHABI SECURITIES EXCHANGE: Abu Dhabi Securities Exchange (ADX) today announced that the Global index provider, FTSE Group (“FTSE”) has finalized its annual review of country classification for the FTSE Global Equity Index Series (GEIS) and confirmed that the UAE is to be promoted to Secondary Emerging market.
- BAHRAIN: Bahrain Financial Exchange (BFX), the first multi - asset exchange in the Middle East and North Africa, launching in Q1, 2010, has announced the establishment of its Product Development Working Groups (PDWGs) for Islamic and Conventional asset classes.
- EGYPTIAN EXCHANGE: During the annual Summit organized by Africa Investor (Ai) in collaboration with NYSE Euronext, The Egyptian Exchange (EGX) won the award of the second most innovative African Exchange in 2009.
- ISTANBUL STOCK EXCHANGE: FTSE Index Company announced that, as a result of its annual country classification review, Turkey has been placed on its Watch List for possible promotion in FTSE’s Global Equity Index Series from Secondary Emerging to Advanced Emerging status.
- ISTANBUL STOCK EXCHANGE: Common Index between the Greek and Turkish equities’ markets. Athens Exchange and Istanbul Stock Exchange jointly announced on September 28, the issue of a common index. The Greece & Turkey 30 Index (GT-30), which is a customized index will be calculated, maintained and distributed by STOXX Limited, the leading provider of European equity indexes.
- TEHRAN STOCK EXCHANGE: In compliance with the Privatization plan 22,936.8 million Shares of state-owned Telecommunication Company of Iran Co (Equivalent of 50 percent of outstanding shares of company) were sold through one block trading on Tehran stock exchange at a price of Rs 3,409 per share. The value of this deal totaled $7,819 million. This deal was the biggest trading in the history of Tehran Stock Exchange.

Bond order book crosses Dh9bn on high demand

The fixed-rate dollar sukuk by Dubai, whose order book is reported to have crossed $1.5 billion (Dh5.5bn) on active demand, is likely to be priced in the range of 6.5-6.7 per cent, according to analysts.

The order book for the second part of the issue, which is a floating-rate dirham sukuk, is more than Dh3.5bn. It is likely to be priced at 375 basis points above the three-month Eibor, which was 1.955 per cent on the Central Bank website yesterday.

However, a source involved with the offering, told Emirates Business: "The deal is not over yet. We have not yet finalised the size and terms of the transaction."

Central banks need tools to halt bubbles

Gulf central banks should be given greater powers to help avert another asset bubble, says a senior official of the IMF.

The regulators need extra monetary policy tools to allow them greater control within markets, Dr Masood Ahmed, the director of the IMF’s Middle East and Central Asia Department, said yesterday.

“Central banks need to think not just about price stability but financial stability, that means looking at asset markets,” Dr Ahmed said. “That’s easier said than done as the tools for doing this are complicated, but that’s one of the tasks they need to look at.”

Aldar: the worst behind us

Aldar Properties, the developer behind the Abu Dhabi Grand Prix leisure project, said profits fell 43.4 per cent in the third quarter, but added that the property market has started to recover.

Net income fell to Dh429.8 million (US$117m) in the latest quarter compared to the same period last year, the company said.

Aldar also reported improving investor appetite for land and said the industry had moved past the worst of the property downturn.

Banks book Dh1.1bn in bad-loan charges

Two of Abu Dhabi’s biggest banks set aside a total of almost Dh1.1 billion (US$299.4m) in provisions as they braced for further possible losses on their loan books from defaulting customers.

Abu Dhabi Commercial Bank (ADCB), the emirate’s third-largest lender, booked Dh810m in bad-loan charges, while National Bank of Abu Dhabi (NBAD), the largest UAE lender by market capitalisation, set aside Dh284m.

The move virtually wiped out ADCB’s third-quarter profit, while NBAD posted a 41 per cent gain in the period.

Damas audit uncovers 50 deals

Unauthorised transactions valued at US$165 million (Dh606m) that led the chief executive of Damas International to resign this month included about 50 investments in a wide range of property projects, hospitals and regional companies.

The Middle East’s largest jewellery chain took stakes in the Bupa Cromwell Hospital in London, a shopping mall in Turkey and the Meydan City horse-racing-themed project on the outskirts of Dubai, according to a source familiar with the matter.

One of the largest deals involved the construction of twin 49-storey towers, called Angsana Hotel and Suites, on Sheikh Zayed Road. Most of the funds were spent on deals involving property transactions, but some cash was spent on other investments, including acquiring shares in Villa Moda, the Kuwaiti luxury retail chain.

Dubai's Veiled Obligations

Dubai officials are in London and Frankfurt this week on the final leg of a global tour to persuade investors the sheikdom is through the worst. On offer are $6.5 billion of conventional and Islamic bonds to fill government coffers just before Dubai and its corporate proxies face $5 billion of debt repayments.

With $10 billion still available under the bailout program underwritten by the Abu Dhabi-based Central Bank of the United Arab Emirates, Dubai will avoid a default.

But the preliminary offering documents for the $4 billion euro medium term note and $2.5 billion Islamic bond, or sukuk, leave questions unanswered. The biggest is over Dubai's total borrowings. According to the documents, Dubai's direct debt is about $19 billion, considerably less than the $80 billion most analysts estimate is the minimum.

Qatar targets increased gas exports to China

Qatar is eyeing more gas exports to China and Asia, where stronger demand can meet the tiny emirate’s fast-rising gas production.

As the gas-rich emirate inaugurated the latest liquefied natural gas export facility on Tuesday, the energy minister said the government is discussing more long-term contracts with Chinese and other customers as it sticks to its aim to double national output to 77m tonnes a year by September 2010.

Abdullah bin Hamad al-Attiyah said he was a big believer in the Chinese market.

Wait goes on for Dubai’s £10bn bond

Where is Dubai’s $10bn bond? The question has been making the rounds in Dubai business circles, as bankers and executives wonder when the emirate will bite the bullet and ask the United Arab Emirates central bank – which is bankrolled by Abu Dhabi – for the second tranche of a $20bn bail-out agreed earlier this year.

Bankers had been expecting the funds, structured as a Dubai five-year bond issue to which the central bank subscribes, to be disbursed in the summer, and help ease jitters about Dubai’s ability to repay some of its debt. It is estimated that $50bn (€34bn, £31bn) of debt comes due over the next three years.

Now, at the start of every week, the bankers tell you the $10bn is coming this week, while Dubai’s government has allowed the speculation to spread by sticking to vague statements.