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Tuesday, 12 January 2010

Dubai Stocks Fall Most in Week Before Results; Arabtec Drops

Dubai shares declined the most in more than a week before fourth-quarter earnings later this month and as Arabtec Holding Co. retreated on concern that a proposed stake sale would dilute shareholder value.

Arabtec, the United Arab Emirates’ biggest construction company, fell for a third day. Emaar Properties retreated the most in almost three weeks and in Abu Dhabi, Aldar Properties PJSC closed at the lowest level in a month. Residential rents in Abu Dhabi will probably continue to fall in the first quarter, Landmark Advisory said. The DFM General Index lost 2.4 percent, the most since Jan. 4, to 1,759.05. Abu Dhabi’s benchmark index dropped 0.6 percent and Qatar’s measure slid 1.4 percent.

“There is no catalyst to buy here, especially ahead of fourth-quarter earnings,” said Julian Bruce, director of equity sales at EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank. “Arabtec is seeing further selling due to concern over dilution in the proposed deal.”

Barclays Favors Selling Nakheel Bonds After 75% Surge


Investors should sell Nakheel PJSC’s bonds after they rose as much as 75 percent from record lows as parent Dubai World is likely to offer bondholders recovery values below current levels, Barclays Capital said.

Nakheel’s 3.6 billion-dirham ($980 million) floating-rate note due in May rose to 71 cents on the dollar yesterday, gaining 58 percent from the Dec. 7 low, Bloomberg data showed. Nakheel’s 2.75 percent bond due January 2011 traded at 63 cents on the dollar. Prices for the note have gained 75 percent since Dec. 9.

“The final recovery value for Nakheel is likely to be negotiated at 40 percent to 50 percent,” London-based analysts including Alia Moubayed and Milena Ianeva wrote in a report released yesterday. “We would therefore be sellers of Nakheel 2010 and 2011 paper at current levels.”

Gulf bank provisions soar 40 pct in '09

Provisions against asset and credit losses by Gulf banks jumped 40 percent to $9.4 billion in 2009 as the sector reeled from a toxic cocktail of real estate defaults, corporate debt crises and investment losses, Markaz forecast on Tuesday.

"The year 2009 can truly be declared as a year of provisioning," Markaz, also known as the Kuwait Financial Centre, said in a report.

Markaz said it expects provisions against the impairments of assets and credit losses ended 2009 at 1.52 percent of Gulf banks’ total loans, up from 1.13 percent at the end of 2008.

Qatar, Exxon petchem plant to cost $6 bln - report

Qatar Petroleum and Exxon Mobil's (XOM.N) planned petrochemical complex will cost about $6 billion, Qatar's oil minister said in a speech carried by the Kuwait's state news agency KUNA.

That was about double the initial estimated cost of the plant. The two companies gave no updated cost estimate when they announced they had signed a deal to build the complex last week. [ID:nLDE60510Q]

The plant would be 51 percent owned by Qatar Petroleum and was due to start up in fourth quarter of 2015. It would include one of the largest ethylene glycol plants in the world, Attiyah said.

Kuwait's Global shareholders okay debt plan

Shareholders of Kuwait's Global Investment House (GLOB.KW) approved a restructuring deal on Tuesday to transfer its main investments and real estate assets to two new units.

FINANCIALS

Global reached a deal with creditors last month to reschedule $1.7 billion in debt, and entered into new three-year facilities with each of its 53 lending banks. [ID:nGEE5B90V7]

Global is one of the largest investment companies in the Gulf Arab state facing problems amid tight credit conditions.END

What Caused $20 Bil. Discrepancy in Reports on UAE Nuclear Deal?

A barrage of domestic news reports have highlighted the Dec. 27 Korea-United Arab Emirates (UAE) contract, pointing out that a Korean consortium is scheduled to design, build and operate nuclear power plants for the Middle East country's energy program for the next 60 years.

As the first case of Korea's export of nuclear technology, there is no doubt that the multibillion-dollar contract is a major economic, technological and diplomatic achievement for the country, which built its first commercial nuclear plant in 1978.

However, a closer look at foreign media reports, including those from the UAE, indicates that the deal is not as lucrative as projected by the domestic reports.

Iraqi oil may rival Saudi Arabia



Iraq's ravaged oil industry is on the verge of a major reconstruction and experts now believe that by the decade's end it could rival the world's top oil producers.

But major challenges lie ahead.

Iraq's success depends in large part on a mosaic of international investments.

Dubai Nakheel To Make $10.3 Mln Payment On 2011 Sukuk

Troubled property developer Nakheel Tuesday said it will make a $10.3 million distribution payment on an Islamic bond, or sukuk, that matures next year.

The payment is scheduled for Jan. 19 for the $750 million trust certificates due in 2011, Nakheel said in a statement on the Nasdaq Dubai Web site, without giving further details.

Nakheel's parent company Dubai World is this week expected to make a formal standstill request to creditors for $22 billion in debt while it devises a restructuring plan.

Dubai sent shockwaves through global markets in November when it requested a six-month freeze on debt repayments linked to Dubai World and its property units Nakheel and Limitless.

In December, Abu Dhabi stepped in with $10 billion in financing, of which $4.1 billion were used to repay Nakheel's sukuk that matured in December.

The remainder of the funds will be used to meet Dubai World's financing needs until the end of April.

HH Sheikh Ahmed Bin Zayed Al Nehayan, Managing Director of the Abu Dhabi Investment Authority (ADIA) (PDF 11pages)

The following interview with HH Sheikh Ahmed Bin Zayed Al Nehayan, Managing Director of the Abu Dhabi Investment Authority, was published in Germany’s business daily newspaper Handelsblatt on 11 January, 2010.

The interview was conducted by Michael Backfisch, Middle East Bureau Chief of Handelsblatt.

1.To many people, there is still a lot of mystery around sovereign wealth funds and how they operate. How would you define ADIA?

The SWF label can be confusing because it is used broadly to cover dozens of institutions which actually have very different objectives, strategies and styles.

We prefer to be seen simply as a globally-diversified investment institution, with the difference being that our owner is the Government of the Emirate of Abu Dhabi. But I like to think that ADIA is unique. First and foremost, we have a truly long-term focus and are able to build strategies that aim to outperform the market over an extended period. We are also one of the most established funds and have been refining our approach to investing over more than 30 years. And lastly, we are fortunate to have not only a large number of very talented in-house professionals, but also close relationships with many world-class external managers whose combined expertise gives us a global perspective and insights into market flows and trends.

ADIA’s sole mission, which has not changed in over 30 years, is to secure and maintain the current and future welfare of the Emirate of Abu Dhabi. This ensures that our investing strategy stays focused on long-term trends rather than the ups and downs of individual cycles.

Saudi tycoon gears up for investment spree

Saudi tycoon Prince Alwaleed bin Talal said on Monday he is gearing up his Kingdom Holdings group for major new investments including Gulf hotels and a one-kilometre-tall tower in Jeddah on the Red Sea.

Alwaleed said he was transferring 180 million of his own shares in US banking giant Citigroup into Kingdom Holdings at no cost to shore up its balance sheet.

“I am very positive about the future,” he told a rare press conference at his headquarters, the Kingdom Tower skyscraper in Riyadh.

Be warned: The next crisis is imminent

According to a survey by Complinet, a provider of compliance solutions, 77 per cent of financial gatekeepers warn that the next global crisis is “imminent”. The survey, called The Forgotten Crisis: As Markets Start to Recover Has Anything Really Changed?, found that the majority of regulators predicted a significant economic downturn within the next five years.

“The continuing lack of company transparency and accountability to the markets and the public makes the possibility of another crisis almost assured,” warned one anonymous respondent.

The survey revealed that only 40 per cent thought their firm had changed its habit of rewarding based on a better understanding of risks associated with the business. In other words, risk takers are still being rewarded, although at least they acknowledged that those outside the financial world resent the bonus culture. When asked, do you believe the current bonus culture encourages uncontrollable risk-taking, questionable valuation practice or short-term attitudes to performance and product life-cycles? 72 per cent answered “yes”.

Back to the old drawing board


There were towers entwined in a sensual waltz, a city resembling a chessboard and an underwater hotel straight from the realms of science fiction. Dubai was going to have it all, at a time when the city was a playground for the architectural world.

Of course, these planned developments did not come cheaply. Dancing Towers was part of a multibillion-dollar project, while Chess City was to cost US$2.6 billion (Dh9.55bn). The Hydropolis underwater hotel would have cost $500 million, while the Dynamic Tower was a $700m development.

“In any market that is on the rise there’s always a risk of hubris, and that’s across the world,” says Ian Albert, a regional director at the property consultancy Colliers International.

ADIA chief reaches out to German public

Abu Dhabi’s largest sovereign wealth fund, the Abu Dhabi Investment Authority (ADIA), has reached out to the German public in an apparent effort to distinguish itself from other Gulf funds that have been buying major stakes in the country’s car makers.

The leading German business daily, Handelsblatt, published a rare interview yesterday with Sheikh Ahmed bin Zayed, the managing director of ADIA, in which he reiterated the fund’s policy of avoiding active management of the companies in which it invests.

“Our investment strategy is designed to produce steady returns over many years through diversification, rather than by building concentrations of risk through a few large transactions,” Sheikh Ahmed said.

Q+A-Dubai World set to make formal standstill request

Dubai World is expected to soon make a formal standstill request to creditors for $22 billion in debt while it devises a restructuring plan.

STOCKS | BONDS

Dubai sent shockwaves through global markets on Nov. 25 when it said it would request a standstill on billions of dollars in debt linked to Dubai World and its property units Limitless World and Nakheel [NAKHD.UL], developer of palm-shaped islands.

Following are some answers to frequently asked questions about the upcoming standstill agreement:

WHAT WILL THE STANDSTILL INVOLVE?

Lenders expect one umbrella agreement from Dubai World. The standstill request will ask the more than 90 creditors to agree to delay bond and loan repayments for a specified period of time, while the company comes up with a detailed plan for restructuring its debt pile.

WHY IS DUBAI WORLD REQUESTING A STANDSTILL?

A standstill is usually requested when a company is unable to service its debt, and needs time to devise a restructuring plan. Dubai World laid bare the depth of its financial difficulties last November. A $10 billion lifeline from wealthier neighbour Abu Dhabi last month helped stave off a default on Nakheel's $4.1 billion Islamic bond and provided enough funds to service debt until April. These funds are conditional upon a standstill agreement being secured. Banks had lent to Dubai government-linked firms with the implicit understanding they were backed by Abu Dhabi or the federal government.

WHO ARE THE KEY PLAYERS?

Creditors - There are more than 90 creditors with exposure to Dubai World and its subsidiaries.

"The Big 6" - A coordinating committee of six banks has been formally formed to negotiate on behalf of all creditors. These are Royal Bank of Scotland (RBS.L), which is also the agent bank on Dubai World's $5.5 billion loan; Standard Chartered (STAN.L); Lloyds (LLOY.L); HSBC (HSBA.L); and local lenders Emirates NBD ENBD.DU, and Abu Dhabi Commercial Bank ADCB.AD.

Auditor - The banks have appointed KPMG to audit proposals from Dubai World.

Restructuring officer - The government of Dubai, acting through the Dubai Financial Support Fund (DFSF), appointed Aidan Birkett of Deloitte as chief restructuring officer for Dubai World along with advisers Moelis & Co and Rothschild.

Legal advisers - Law firm Latham and Watkins is advising Dubai World on the standstill while Clifford Chance has been appointed to advise on the company's restructuring plan.

WHICH PAYMENTS WOULD THE STANDSTILL AFFECT?

The standstill will apply to about $22 billion in Dubai World's outstanding loans and bonds. The next Dubai World obligations to mature are for Limitless, with $1.2 billion in March, Dubai World, with $2.1 billion in June, and Nakheel's $980 million sukuk, or Islamic bond, in May.

WILL CREDITORS ACCEPT THE STANDSTILL REQUEST?

Bankers have said the lenders have few alternatives other than to accept the standstill request, which will pave the way for a debt restructuring and rescheduling. However, expectations are that security will take the form of an explicit guarantee from the federal government of the United Arab Emirates (UAE) or the Abu Dhabi government. Dubai's new bankruptcy law could provide additional incentive to strike a deal. [ID:nLDE5BD03U] Banks will also want to avoid a debt default, forcing them to write off loans, which would show up on their balance sheets.

WHAT IF CREDITORS REJECT THE STANDSTILL PROPOSAL?

Dubai would have to repay all outstanding obligations as they matured, which is considered virtually impossible under the current circumstances. Creditors could try to seize collateral or equity stakes in the companies and sell the assets but syndicated loans agreements are quite complex and Dubai has already moved to ringfence key assets, such as ports operator DP World.

HOW LONG WOULD THE STANDSTILL LAST?

Dubai World is aiming to submit a detailed restructuring plan to creditors by the end of April, according to a company spokesperson. Until then, all interest payments would be paid.

WHAT HAPPENS IF A STANDSTILL IS AGREED?

Rescheduling debt and restructuring the company would begin and most likely involve partial repayment through asset sales, stretching the remaining loans out over a longer maturity period and matching repayments to cash flows. Bankers have said one scenario could be to negotiate each company's outstanding debt payments individually and not with the parent company. There is also rising concern about refinancing the rest of Dubai's outstanding debt, due for maturity in the next two to three years. The standstill would only apply to Dubai World, but once agreed, other Dubai Inc entities could choose to take a similar path.END

Sovereign Debt Crisis Could Be Story of 2010

The opening last week in Dubai of the Burj Khalifa, the world's tallest building at 2,717 feet, is a physical reminder of an under appreciated risk for 2010: the possibility that countries that rode the debt issuance boom of the mid-2000s will have trouble paying their creditors. (The Philadelphia Inquirer and Britain's The Independent have also documented the human cost of Dubai's rapid construction.)

Any review of the credit crisis or a look into Federal Reserve Chairman Ben Bernanke's reappointment hearings, will note the number of people who believed that residential real estate issues were limited to a fraction of the population falling in the category of "subprime" borrowers. So it seems thus far with sovereign debt issues, with only Iceland and Dubai (a part of the U.A.E.) making headlines; Dubai received a bailout from neighboring Abu Dhabi, while Iceland was not so fortunate and is moving toward holding a national referendum to decide whether to bail out foreign bank depositors (indications from the President of Iceland suggest they will not, saving the country significant debt in the process).

Sovereign debt issues so far pale in comparison to problems with the U.S. financial system, but as the Burj Khalifa serves to remind, many countries took on debt for various purposes and not all the uses of those cash borrowings were economic. Ominously, just as with subprime mortgage debt, some investors are warning that the problems right now are merely the calm before the storm.

Citigroup Rises on Saudi Prince’s Remarks

Hurrah! The worst is over for Citigroup (C), according to the bank’s largest shareholder, Prince Alwaleed bin Talal of Saudi Arabia, who owns $4.3 billion worth of Citi stock in his Kingdom Holding company.

bin Talal tells Reuters’s Souhail Karam and Ulf Laessing that “the worst is behind them” and that Citi will be profitable this year, though he couldn’t say if it would be this quarter.

Mind you, bin Talal last week transferred his shares of Citi from his personal account to Kingdom Holding.

Perhaps he’s not as bullish as he sounds.

At any rate, Citi shares today are up 4 cents, or 1%, at $3.63.END

Qatar Airways Plans To Sell Shares In 2015 - CEO

Qatar Airways plans to sell shares in an initial public offering in five years' time, Al Arabiya Television reports Monday, citing the carrier's Chief Executive Akbar Al Baker.

Qatar Airways is waiting for the right time to sell shares and "that would be possible after three consecutive years of profit gains," Al Baker told Al Arabiya.END

Bahrain promises arbitration independence

The Kingdom of Bahrain has set out its stall as the new go-to place for arbitration with what it claims is a world first: a national law that guarantees the independence of arbitral decisions.

Its new ADR statute means that where companies have elected to use Bahrain as their seat of arbitration, the country’s national courts cannot get involved - a common problem in other jurisdictions that leads to delays and uncertainty.

The Kingdom has recently launched its Bahrain Chamber of Dispute Resolution, which is working in partnership with the American Arbitration Association and will be known as the BCDR-AAA.

James McPherson, the chamber’s chief executive, said several multi-national companies have already signed contracts naming Bahrain as the seat of arbitration and he expects cases to start coming through his door this year.

The BCDR-AAA’s caseload will be swelled by another new local law. It says any cases worth $1.3 million or greater involving multi-nationals that would ordinarily have come before the Kingdom’s national courts will be automatically sent to the arbitration court for a binding resolution.END

First ever Dubai mortgage foreclosures, what next?

Barclays Bank has won the first foreclosure case in the history of Dubai, according to an exclusive report on Bloomberg today, leaving the floodgates open for more foreclosures in the emirate where prices have fallen by 50 per cent over the past year.

Last September Moody’s forecast that 12 per cent of the 27,000 residential mortgages in the emirate would default within 12-18 months, or more than 3,000 homeowners. The largest mortgage provider Tamweel also has several foreclosures pending in the courts.

Market maturity

And while bankers hail these foreclosures as a sign of the growing maturity of the lending market in Dubai – something that will encourage more lenders into the market in the future – the immediate impact on the market is likely to be a further shake-down in prices.

For as in the rest of the world banks that foreclose on home loans will tend to dump these properties at a discount to get their money back. Such foreclosure auctions could depress the whole market.

Given that Deutsche Bank forecasts that 30,000 units are to be delivered in this year – causing a probable oversupply in the market place – then the impact of foreclosure sales on selling prices could be considerable.

What is more difficult to predict is the likely demand for such property at auction. If repossessions are in relatively limited supply they will have little impact on secondhand property prices. If there is really a flood of them prices could tumble again.

Price support

But ironically the very fact that mortgage repossessions are now happening in Dubai can also be seen as a strength for the future. International and local banks that had kept the supply of Dubai mortgages under tight control are going to be more willing to grant mortgages with the assurance of repossession.

And in the long run it is the availability of home finance that drives most global housing markets. Thus far Dubai has been unusual in being mainly a cash market, and as that changes the positive impact on house prices will be considerable.

Buying a Dubai repossession in a foreclosure auction ought therefore to prove a very good buy in the longer term.END

Russian stocks roar as markets wake from winter hibernation

Russian stocks roared out of their winter holiday hibernation today, spurred by rising oil prices and China’s demand for commodities.

The dollar-denominated RTS stock index soared 7.5% to 1,553 points,while the rouble-denominated MICEX bourse jumped 5.5% to 1,444 in the first day of Moscow trading after the 10-day New Year and Orthodox Christmas lay-off.

Market participants said the two exchanges surpassed gains registered by Russian GDR and ADR shares listed in London and New York during the holidays. “The Russian greyhound came out of the traps late but pinged past everyone else,” said one Mosc0w-based trader. “It was a little surprising considering half of the brokerage desks are still on holiday.”

Saudi craving for oil comes at a price

As Saudi Arabia’s economy has grown in recent years, industrial capacity and car ownership have increased exponentially with it.

It is no surprise that demand for oil is increasing at such a rate that, when combined with a shortage of gas and the inefficiency of power generators, supplies by the world’s biggest oil exporter are likely to be constrained, analysts warn.

Domestic Saudi consumption of oil jumped by 16.4 per cent year on year in August because of an unprecedented surge in the burning of crude, according to a report by the International Energy Agency in November. As a result, the IEA has revised up its forecasts for Saudi domestic oil consumption to 2.6m barrels a day in 2009 and 2.8m barrels a day this year.

Jordan seeks to rekindle trade with Iraq

A free trade agreement between Jordan and Iraq that comes into force this month is meant to breathe new life into an economic relationship which has suffered badly since the US invasion of Iraq in 2003.

A cautious Jordanian attitude, however, prompted mostly by past security concerns, is still seen as putting a break on growth in trade relations.

“There is a lot of hesitation from our local companies here to set up shop there [in Iraq], obviously because of security reasons,” says Amer al-Hadidi, Jordan’s minister of trade and industry. But this is mainly a reflection of the past, he says.