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Monday, 25 January 2010

Get Briefed: Prince Alwaleed Bin Talal (Interview)

Prince Alwaleed Bin Talal Bin Abdul Aziz Alsaud is chairman of investment company Kingdom Holding, which went public on the Saudi stock exchange in 2007. He is the world's 22nd wealthiest person, according to the 2009 Forbes World's Billionaires list.

Kingdom Holding contains his investments in companies such as Citigroup ( C - news - people ) and News Corp. ( NWS - news - people ), as well as Four Seasons Hotels and Fairmont Hotel management companies, among many others.

Alwaleed joined the Singapore government investment arm and several other investors in a $12.5 billion capital injection for Citigroup in January 2008; the size of his personal investment is undisclosed. He is also an investor in mainstream technology companies like Apple ( AAPL ), Motorola ( MOT ) and AOL.

$100 mn Oman India investment fund to be launched soon

A $100 million Oman India fund that will invest in various sectors in both countries is expected to be launched shortly. Oman is looking forward to invest in India's small and medium enterprises.

'The joint investment fund whose corpus will be contributed equally by both countries will be launched soon,' Oman's Minister of Commerce and Industry Maqbool Ali Sultan told IANS while he was here for a trade summit organised by the Confederation of Indian Industry.

In November 2008, India's largest commercial bank State Bank of India (SBI) and Oman's State General Reserve Fund (SFRF) signed a memorandum of understanding (MoU) to promote a joint investment fund with a $100 million corpus to be contributed equally.

Shell & Big Oil's Exploration Challenge

The oil business used to be simple. Find oil. Drill hole. Sell oil. Buy Stetson and private jet.

These days, you have to corral an army of engineers in the desert to build an enormous factory to transform natural gas into a liquid to be used like oil. The capital cost of Royal Dutch Shell's Pearl gas-to-liquids plant in Qatar is a cool $18 billion or more—10% of its market capitalization. Like Chevron's Gorgon liquefied-natural-gas project offshore Australia, it shows what big integrated oil companies are capable of.

But have they neglected bread-and-butter exploration for lower-risk, lower-return engineering projects? Certainly, investors are unimpressed. A decade ago, the international oil companies, or IOCs, accounted for 79% of energy-sector market capitalization and nearly all its net income. Today the figures are 53% and 62%, according to Sanford C. Bernstein. Shell trades at a discount of 13% and 36% respectively to the 2010 forward price-to-earnings multiples at Petroleo Brasileiro and BG Group. But their estimated five-year average output growth is 5% and 9% compared with Shell's 3%, around the IOC average.

Dubai Holding suffers S&P ratings blow

Standard & Poors on Monday downgraded and removed its rating of Dubai Holding Commercial Operations Group, an investment vehicle owned by the ruler of Dubai, citing insufficient information.

Dubai Holding’s non financial arm, which spans real estate, business parks and hospitality interests, was lowered from BB+ to B on the grounds that group is likely to have weaker cash flow than previously expected, S&P said in a release.

DHCOG, which includes hotel chain Jumeirah and Dubai Properties, has been hit hard by Dubai’s recession and real estate crash. Many analysts expect it to face debt repayment problems this year after another Dubai state-linked conglomerate, Dubai World, said in November that it would call a standstill on $26bn in debts.

Dubai Stocks Gain Most in 3 Weeks on Speculation Drop Overdone

Dubai’s index gained the most in more than three weeks, leading Gulf markets higher, on investor speculation that declines this month are overdone given growth prospects.

Emaar Properties PJSC, the United Emirates’ biggest developer, added the most since Jan. 3. The Dubai Financial Market, the only Gulf Arab stock market to sell shares to the public, gained the most in more than a month. The DFM General Index rose 2.8 percent, the most since Jan. 3, to 1,614.3. The measure closed at the lowest since Dec. 9 yesterday.

Declines of 10 percent this month have left the 32 companies in Dubai’s benchmark index valued at about 5.1 times estimated earnings, data compiled by Bloomberg show. That compares with 12.9 times for the MSCI Emerging Markets Index. Dubai’s 14-day relative strength index closed yesterday at 29. A reading below 30 indicates a security is poised to gain, according to some technical analysts.

Saudi Arabia: Positive Outlook

As promised last week, I will discuss the 2010 macro outlook of the major GCC countries. Since Saudi Arabia is the largest economy in the GCC, I will begin with it.

Overall, Saudi’s economy is improving due to the hike in oil prices which increased export revenues and market sentiment.

The CPI decreased sharply from 11.1% in July ‘08 to 3.4% in October ’09, mainly due to the recession and the reduction in imported inflation. Credit Suisse estimates the nominal GDP to return to pre-crises levels in 2010. The rise in nominal GPD is higher than the increase in inflation, thus, boosting real GDP growth to 2.6% in 2010 and 4.7% 2011. Also, the fiscal and current account balances are expected to grow at a rate of 12% and 19% respectively.

Looking at the chart above, Saudi Arabia has the highest net external assets/GDP ratio of 80%. This constitutes a 70% positive difference from the Global EM. It is estimated that Saudi’s foreign assets to be around USD395 billion in ’09 and will grow by 25% in ‘10. Moreover, Saudi is considered a low leveraged economy where the government debt accounts for only 15% of the GDP.
One of the strong drivers of growth in Saudi Arabia is the implementation of their government-spending plan. This plan is focused on infrastructure projects with 63% of the total budged expenditure allocated to such projects. According to Bloomberg, in 2009 the Saudi Arabian General Investment Authority (SAGIA) announced that they will execute a USD400 billion infrastructure projects spending spree over the next five years. This year Saudi announced a USD144 billion planned expenditure in their 2010 budget. Government spending accounts for 30% of the total GDP.

On the equities side, Tadawul All-Share index’s listed companies are expected to show an increase of 30% in their 2010 bottom lines which beats its GCC peers.
Having said all that, I believe that Saudi Arabia will show positive returns this year especially in the consumer and banking sector.

S&P pulls Dubai Hldg unit rating, cites weak cash

Standard & Poor's on Monday withdrew its rating on a unit of Dubai Holding, which is owned by the ruler of Dubai, saying the division's cash position was "materially weaker" than it expected.

The ratings agency cut Dubai Holding Commercial Operations Group (DHCOG) to B from BB+ and said it opted to withdraw it due to a lack of timely information and documents, renewing scrutiny over the financial health of the emirate.

Dubai rocked global markets on Nov. 25 when it asked for a delay in repaying $26 billion in debt linked to its state-owned Dubai World conglomerate and its property units.

"Dubai on Lake Michigan: The Emirate of Chicago, Sheikh Richard M. bin Richard J. Al Daley Ruler"

Ever since I established an email address ( connected to this blog I have been getting all kinds of email. Some have emailed me suggestions for things to write about and other have suggested things I should stop writing about altogether. Some have encouraged me and others have suggested my talents may lie elsewhere. These emails I take in their stride. Then there are some that concern me, one recent commenter suggested that I am an ex-DIFC insider who was terminated and is taking my revenge. This is untrue but it gets at the question of motive. I have tried to address that before but I have thought of a better way to make that point.

I am originally from the City of Chicago which I think has a lot in common with Dubai. Both are the commercial centers for their regions, and aspire to be truly global cities. They are similar generally and there are many specific things they share as well. Both are ruled by absolute monarchs who derive their power from their fathers. These men are at their core honest champions of their cities but both are surrounded by questionable people and are often given bad advice. Both have political machines that reward the friends and punish the enemies not of the City but of the machine. The ruler though himself clean decides who among his associates can get rich, and just how rich.

I have written about Naser Nabulsi who fired the head of the DFSA for not playing ball with him politically. In Chicago we have the Cook County Board President firing the political supporters of his rivals. Chicago's problems are so deep that it seems we need watchdogs to watch the watchdogs.

I have written about Dr. Omar appropriating for himself wealth that should belong to the DIFC bondholders and ultimately to Dubai itself. In Chicago we have a state representative who has stolen art from a public university to adorn her office and refuses to return it. We have City Employees setting up a fake charity, compelling thier subordinates to donate to it, and paying themselves the money.

I have written extensively about the Dubai financial crisis at the level of municipal finances. Chicago faces its own fiscal problems. I have suggested Dubai equitize assets, Chicago faces the same tough choices of privatizing city services and infrastructure.

Similarly in the same way that Dubai looks to Sheikh Khalifa to save it Chicago looks to Barak Obama to deliver federal support to the city.

So you see, fiscal irresponsibiity, dishonest politicians, patronage, cronyism, self dealing none of these things are unique to the Dubai experiance or the Arab experience or even the emerging market experience.

They are part of the human experience.

There are two important differences between Chicago and Dubai. One is that in Chicago there is almost always a US attorney who, if he throws enough Chicago politicans in jail, can become a Senator. Thus the feds are always out there hunting the Chicago politicians. The feds are usually a few steps behind and usually require something like a bitter ex wife as a star prosecution witness to get anything done but the crooks in government have to sleep with one eye open.

The other is that Chicago has a realtively free press. Not entirely, the City and the State Government do initimidate the press to some extent and the press sometimes tries to play kingmaker by glossing over the problems of one candidate and focusing on those of another. But now and again there have been true heroes who have emerged like Mike Royko who point out when the Emperor has no clothes. Though his columns were sarcastic you could tell how deeply he cared about Chicago.

Though I am no Royko to be sure, I care deeply about both Dubai and Chicago. One is my home and the other a place where I spent some of my most productive years. Both are a complex mix of deep flaws and great potential . The potential of each can only be realized if the flaws are identified and addressed. Dubai has a generational opportunity inside this crisis. There is an opportunity for Dubai to save itself if Sheikh Mohammed can only convince himself to limit his own power and make everyone, including himself, equal before the law. If Sheikh Mohammed can save Dubai and reassure foreign investors by instituting a more limited monarchy, that model can be followed by other monarchs in the region to benefit not only investors but the Arab world writ large. I think that bloggers in the region have a part to play aiding the reformers by pointing out the errors of the current system.

I know it makes some people unhappy to read my criticism but in the face of the present crisis, which threatens both Chicago and Dubai, the silence of reasonable people is far more destructive than my or any words can ever be.END

Obama bank plan unattractive for investors-Habtoor

Khalaf al-Habtoor, chairman of the Habtoor Group, said Obama's proposals to split traditional banking activities from riskier areas had destabilised the markets.

The company, one of the United Arab Emirates' largest family businesses, was one of several Middle East investors that bought into Barclays in 2008 as the lender looked to boost its capital to weather the financial crisis.

Speaking to Reuters on Monday, Habtoor said the group was no longer looking at the financial sector.

DP World warns on container traffic

Full-year profits at DP World, one of the world’s largest container terminal operators, are set to fall after it handled 8 per cent fewer containers in 2009 than in 2008.

However, the Dubai-based company, controlled by debt-laden Dubai World, said in a trading statement it had performed less poorly than the overall container ports market because of its emphasis on faster-growing emerging markets.

This month, DP World announced plans to seek a London Stock Exchange listing after more than two years of disappointing share price performance following its November 2007 listing on the Dubai International Financial Exchange, now Nasdaq Dubai.

Good regulations lead to solid market

The property markets of the Emirates have been hit hard by the global recession, but the financial pain has been made much worse by the lack of an adequate regulatory framework.

During the boom, developers were allowed to launch projects with nothing but a small registration fee, an artist’s rendering and a sales team. Buyers were allowed to obtain home financing of up to 97 per cent of the cost of a property and many of them bought more than one apartment they could not afford as speculative investments.

Now those risky moves are coming back to haunt both sides. Legal disputes have multiplied between banks, developers and buyers.

Future looks bright for economies in region

The Middle East is expected to rebound sharply from last year’s doldrums as rising commodity prices and increased demand for exports fuel the region’s economic growth. In addition, increased public spending and greater availability of cross-border credit are expected to support growth.

Rupert Wright spoke to Berna Bayazitoglu, a managing director of Credit Suisse in the investment banking division, based in London, for her perspective on the economic outlook. She is the head of macroeconomic research for emerging markets in eastern Europe, the Middle East and Africa.

Emerging markets show much greater growth potential than the developed world. Is this also true with regard to the Middle East this year?

The downturn in the four countries that we follow in the region – Kuwait, Saudi Arabia, Qatar and the United Arab Emirates – was not as dramatic as that seen in other emerging markets such as Russia and Turkey in 2009. Nevertheless, these four countries fared quite differently from each other: in 2009, the UAE contracted the most at an estimated 3 per cent and Kuwait by 1.3 per cent – worse than our global contraction forecast of 0.8 per cent. On the other hand, Saudi Arabia probably averted the recession and grew 0.5 per cent, while Qatar stood out with an impressive [projected] growth rate of 7.3 per cent. In 2010, these countries should benefit from the rebound in global demand and the increase in oil prices. But the recovery dynamics will be somewhat different across these four countries just as their experiences during the downturn were different from each other. We forecast growth rates in Saudi Arabia, the UAE and Kuwait to range between 2.1 per cent and 2.6 per cent this year, below Credit Suisse’s expected global growth rate of 4.3 per cent. On the other hand, we expect Qatar to nearly double its growth rate to 14.2 per cent in 2010, remaining one of the world’s fastest-growing economies. Qatar’s economy is buoyed by the expansion of its natural gas sector.

International Energy Agency Rejects Possibility Crude Oil Output is in Terminal Decline

Over the next year or two, you will likely find yourself paying a LOT more at the gas pump. Big changes are taking place in the oil industry. With increased global demand and declining supply, easy oil is not so easy anymore.

Everything is about to get more expensive. From gasoline to anti- freeze, life jackets to golf balls, and eye glasses to fertilizer. There are very few things in the modern world that aren't made from oil, made by machines dependant on oil, or shipped by vehicles powered by oil.

The implications, at first glance, appear to be the opposite of good news. In fact, it's enough to strike panic in the hearts and wallets of the average consumer.

Abraaj sees first Saudi deal within 6 months

Dubai-based private equity firm Abraaj Capital may close its first transaction in Saudi Arabia within the first half of the year with a deal most likely to be in healthcare or education, an executive said on Sunday.

The Middle East's biggest private equity firm, which has raised about $7 billion since inception in 2002, is yet to announce its first deal since opening its Saudi branch in May.

Tightening credit conditions in the kingdom have brought about more opportunities but "high valuations" were still a hurdle to the conclusion of deals, Sari Anabtawi, head of Abraaj's Saudi affiliate, told Reuters.

Saudi Arabia not to increase spending, minister says

Saudi Arabia, the world's largest oil exporter, will resist pressures to increase spending, as the country aims to keep its fiscal reserves at a "good level," the country's finance minister said on Sunday.

Ibrahim al-Assaf also said economic indicators gave cause for optimism for the Saudi economy but more broadly he sounded a note of caution, saying the Group of 20 richest nations should not rush into withdrawing their economic stimulus packages just yet.

"It could lead to another dip in the world economy," he said, at a conference in the Saudi capital, Riyadh

Oman to invest more than $6 bln on power generation

Oman plans to spend more than $6 billion by 2016 on strengthening its capacity to generate electricity, including building a new plant, an official said in remarks carried by the sultanate's state news agency ONA.

Industrial and economic growth has boosted the need for electricity during the past decade to 3,808 megawatts, ONA said on Sunday, citing the chairman of state-run Public Authority for Electricity and Water, Mohammed al-Mahrouqi.

Oman has begun preparatory work on a 440 megawatt station scheduled to be ready in 2012, Mahrouqi said, adding the country planned to expand two other plants.

First Eastern to launch Dubai fund

A leading Chinese financial group is in advanced preparations to launch a Dubai-focused investment fund, highlighting global interest in a rebound in Gulf economies.

Dubai said last November it would call a standstill on billions of dollars in debts, prompting a second bail-out loan of $10bn from oil-rich Abu Dhabi to prevent a damaging default.

The crisis of confidence surrounding the city’s $100bn-plus debt pile capped a year of deep recession as the overheated real estate sector finally crashed.

First Eastern Investment Group, an independent Hong Kong-based firm, is aiming for a $250m fund, of which it will supply anchor capital of $50m.

The fund – testament to ever-closer business ties between China and the Gulf – would appear to be the first to target the troubled Dubai economy in a bet that the city will be able to recover as higher oil prices lift the prospects of the oil-rich Gulf.

First Eastern is in talks with Abu Dhabi-based investors to supply a further $50m and it plans to tap Chinese and global interest in the fund in the coming weeks.

Victor Chu, First Eastern chairman, told the Financial Times that his group believed that the Dubai economy would recover and progress on a more sustainable footing.

He said the fund would focus on investing in regional business services companies, in areas such as shipping and oil.

Some sectors of Dubai’s economy, such as aviation and trade, have weathered the crisis better than the harder-hit businesses in finance and real estate. But the loss of liquidity has left many companies – including those in Gulf states less affected by the crisis – short of credit.

The fund would also seek to invest in Gulf hotels, which would be refashioned to cater for the growing number of Chinese visitors to the region.

“We want to support sustainable businesses connected to Dubai as a trading, logistical and financial centre,” Mr Chu said. “We would use our contacts to also help them expand in China and across Asia.”

A successful fund launch by First Eastern would mark the latest in a number of initiatives to capitalise on rising Chinese interest in investing overseas.

First Eastern’s securities arm holds investment banking licences in Hong Kong, London and Dubai and it is looking to acquire a presence in the US. It is also aiming to raise a Rmb6bn ($878m) local-currency fund in China, after becoming the first foreign private equity group allowed to set up a Shanghai-incorporated subsidiary.

Companies from the Chinese province of Wenzhou are planning a trip to Dubai next month to invest in assets as the market starts to stabilise, but local brokers report that wholesale transactions are still rare as sellers have been unwilling to lower their offers to reasonable levels despite the severe correction.END