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Sunday, 27 December 2009

Bank of Nova Scotia Believes in Dubai

Hard to believe that it took another year, but a Canadian bank has finally set-up shop in the Dubai International Financial Centre. The Bank of Nova Scotia (BNS), Canada’s most international of financial organizations, was the first to make the move.

I discovered when I was through there in November 2008 that despite having 850 international members, DIFC didn’t have one Canadian among them at the time. I should claim “discover”, the Executive Director of DIFC made the point pretty clearly. He invited our firm to be the first, in fact! Obviously, there were reams of Amercian firms coining it at the time, such as Goldman Sachs (GS) and Citibank (C) (despite what the Globe and Mail reported earlier this week, BNS is the first Canadian institution at DIFC, not the first North American one).

Scotia’s focus will likely be on gold trading, but this is great news for any Canadians who intend to make their way to DIFC Week in March. Canada is now on the map, and the federal government has upgraded our post in Dubai to a full Consulate, as well. All good.

Kuwaiti Shares Rise to 7-Week High on Agility; Abu Dhabi Falls

Kuwaiti shares climbed to their highest in almost two months led by Agility after the company said merger talks between its Qatari unit and Gulf Warehousing Co. are in the final stages. Abu Dhabi’s measure declined.

Agility, the Middle East’s biggest storage and logistics provider, surged the most in 11 months in Kuwait trading. Emirates Telecommunications Corp, the United Arab Emirates’ biggest phone company, closed at the lowest in two weeks. The Kuwait Stock Exchange Index increased 0.8 percent, the biggest fluctuation among the Gulf’s seven benchmarks, to 7,112.6. Abu Dhabi’s ADX General Index fell 0.1 percent.

U.S. stocks gained on Dec. 24, pushing the Standard & Poor’s 500 Index to a 15-month high, as rising commodity prices boosted metal producers and reports showed the economy is improving. Oil closed at $78.05 a barrel on Dec. 24, up 1.8 percent. On the Abu Dhabi Securities Market shares valued at 114 million dirhams ($31 million) traded today, compared with the 50-day average of 242 million dirhams.

Dubai Properties restructures its corporate team, outlines new corporate strategy

Dubai Properties Group (DPG), a member of Dubai Holding, today unveiled a new corporate strategy outlining the direction, focus, and vision that positions the company to enter its next phase of growth with a sharply defined strategic plan. Dubai Properties Group develops and manages properties, communities and destinations.

Through its subsidiaries Salwan and Dubai Assets Management, DPG also provides related end to end solutions for a variety of services including sales, leasing, facilities management and security.

As a key part of the new corporate strategy, Khalid Al Malik, Group CEO of DPG, also announced the Group's new leadership team, including heads of both corporate functions and the group's business units, along with a strengthened corporate governance structure to help effectively manage the business. The leadership team, led by Al Malik, will oversee essential corporate functions and manage the company's augmented portfolio of business entities.

Dubai debt crisis follows world’s worst realty crash in 2009

In the laws of gravity what goes up most will fall furthest, and that certainly proved true of the Dubai real estate market in 2009, a year that most participants would like to forget and some still refuse to acknowledge has actually happened.

By the middle of 2009 studies by leading estate agents placed Dubai at the very bottom of a global league table of property markets with prices down around 50 per cent on a year earlier. Of course, the background is a market where prices had quadrupled in five years until this year of reckoning.

The scenes in Dubai in 2009 have been reminiscent of the Asian Financial Crisis of a decade earlier with abandoned building sites on every corner and vacant patch of desert. It is a sight to bring tears to the eyes of developers, bankers and property owners.

Abandoned construction sites

Usually in property crashes there is one unfinished development that symbolizes all that went wrong. Dubai has a number of candidates: the second and third Palm islands; the map of the world in islands offshore; the abandoned skyscrapers of the Dubai International Financial Centre and the Business Bay; or the extremely quiet City of Arabia where dinosaurs were again supposed to walk the earth.

However, surely the shining symbol of Dubai’s excess is the Burj Dubai, the world’s tallest building, which is still set to open on January 4th. You can not get much more symbolic that an 800-metre tower with 1,044 apartments, 160 hotel rooms and even 3,000 car parking spaces.

Through-out modern history constructing the world’s tallest building has often been a signal that a property market is at the top and about to crash, as my book ‘Opportunity Dubai’ noted in 2008 (still on sale from the link above). Fortunately for Dubai the Burj Dubai is the work of stock market listed Emaar Properties, the most financially sound of local developers whose first-mover advantage in the market was played to great advantage.

Limitless debt

It is the state-owned Dubai World property developers Nakheel and Limitless that brought us the Dubai debt crisis of December, a crisis that ended as suddenly as it began with Abu Dhabi agreeing a new bond issue for Dubai at the eleventh hour. But how else could the world’s worst realty crash have ended?

Property booms are always fueled by easy credit and debt. At first there is a real dislocation – like the Dubai decision to sell real estate to foreigners for the first time in 2002. Then there is a genuine surge of interest in the new opportunity.

But this soon gets out of hand as people buy with higher and higher expectations. And remarkably those expectations are at first realized, because the flow of funds from the same buyers drives up prices. No shortage of schemes to take this money emerge.

2008 crash

Eventually the music stops and the credit dries up, and the market crashes. This is what happened in September 2008 with the global financial crisis which suddenly removed the foreign credit lines that had become essential for the majority of the Dubai projects.

It is probably true that too much construction was approved for too shorter timeframe. That forced up construction prices and fueled the boom to even more unsustainable levels. But the global financial crisis was the pin that burst the bubble.

For 2010 the prospect is a rescheduling of some loans, and the new bankruptcy laws leave open the possible liquidation of projects where the situation is not redeemable. Will the property market deteriorate further before it gets better? That might well prove true but prices have already fallen so far that they simply could not fall by the same amount again.

Architectural review of Las Vegas CityCenter hotel-casino-shopping complex - washingtonpost.com

Architectural review of Las Vegas CityCenter hotel-casino-shopping complex - washingtonpost.com

Fundamental Buy: Kuwait China Investment Co

A tiny niche of Kuwaiti companies qualify as being operationally sound, especially when one looks at investment-specialized ones. When individuals thinks of investing in “operational” companies in the Kuwait Stock Exchange, they may settle on National Industries only to be shocked that a mere 5% of their revenues come from selling bricks! Other investors may settle for buying Zain only to be bored by its pending marathon takeover-run which seems to be never-ending. Another group of investors may take a chance at Agility only to be shocked by the unveil of a major lawsuit. Banks are exposed to such companies deeming them “not the best” of investments.

The Kuwaiti stock exchange has lagged nearly all worldwide markets in 2009 and especially Emerging markets. Think BRIC* countries and you will not be disappointed: markets up an average 70% year-to-date. Fortunately, Kuwaiti investors can get exposure to such growth through an ideal company of their own: Kuwait China Investment Company (KCIC). The company is headed by an internationally-experienced Harvard alumni and most employees which I personally know are very well-educated and trained. Not only that, but also the company’s returns speak for it. It recently listed in the Kuwait SE and is worth a serious look.

KCIC is currently trading at 93 fils, below its 100 fils IPO price. It is treated as another commodity in the investment companies space which is utterly unfair. KCIC is deeply undervalued at these levels. As of Sept. 30th, the company had KD25.5 million of cash on its balance sheet with no long-term liabilities. This accounts to 32 fils of cash per share which provides ample downside protection and illustrates a strong balance sheet in a sector sickened by over-leverage. KCIC earned 15 fils for the last 9 months. If we assume they earn 5 fils next quarter (which is very reasonable since they earned 15 fils during the last 3 quarters), the total comes out to 20 fils of earnings for the year. This means the company is trading at a P/E of merely 5 times earnings!

Savvy investors may argue that KCIC only earned 3 fils during the last quarter and they have a point. However, even if we normalize such trough earnings of 3 fils per quarter, KCIC would earn 12 fils during a year. If we put a 10x P/E multiple on it, KCIC should be trading at 120 fils. A ten multiple is considered low as the US market, BRICs, and some GCC countries all trade above 15 times earnings.

Based on the aforementioned reasons, I recommend adding KCIC as fundamental buy to your Kuwait SE portfolio.

*BRIC: Brazil, Russia, India, China.

Below is a snapshot of KCIC’s Q3 financials(click to view original):

Abu Dhabi in joint bid for EDF network

Sources have revealed that the Abu Dhabi Investment Authority (ADIA) is working with the Canadian Pension Plan (CPP) to submit a joint offer for EDF's electricity distribution network.

ADIA, which is owned by the emirate, is one of the world's largest sovereign wealth funds although it has never published the value of its assets. Estimates range between $350bn (£219bn) and $650bn under management.

Bankers from Goldman Sachs and boutique advisory firm Lexicon Partners have been appointed to advise the consortium on its bid.

S.Korean group wins UAE nuclear deal -sources

A South Korean consortium has won a $40-billion contract to build several nuclear reactors for the United Arab Emirates, industry sources said on Sunday.

The consortium would build the first nuclear power plants in the Gulf Arab region under the deal, one of the largest energy contracts ever awarded in the Middle East and also one of the world's biggest nuclear power plant deals.

"We've won," said one industry source. "We're not sure about the exact figure but I think it's around $40 billion."