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Thursday, 28 January 2010

Abu Dhabi Fund to Woo Asian Investors to Middle East, Africa

Invest AD, the fund manager owned by Abu Dhabi Investment Council, is in talks to form partnerships with institutions in China and Southeast Asia as it seeks to attract investors to the Middle East and Africa.

The Abu Dhabi-based fund manager is looking to team up with asset managers including units of “large banks,” and “quasi sovereign and sovereign names” that also offer it access to investment opportunities in Asia, Mohammed Al Hashemi, chief executive officer of Invest AD’s investment management division, said in an interview.

“Many investment institutions have had a great deal of interest in the Middle East and Africa, and specifically the African continent; the asset prices there are cheaper than other zones around the world,” Al Hashemi said in Singapore today. “At the same time we are equally looking to Southeast Asia, China, the investment opportunities there.”

Will growing Iraqi production dent the oil price?

Iraq plans to almost quintuple its oil production capacity by 2017, which could be enough to overwhelm expected demand growth and weigh heavily on the oil price. But will Iraq achieve its ambitious targets?

YES, says David Cline
Iraq has recently agreed service contracts for several large-scale oil projects. These include output commitments that, if met, would boost Iraqi oil output to remarkably high levels. These contracts could almost quintuple Iraq's production capacity by 2017 to 11.75m barrels per day (mb/d), close to the International Energy Agency's projections for Saudi Arabia. We calculate that an equivalent rise in Iraqi output could cater for most of the anticipated growth in global oil demand in the next eight years, assuming that this rises by 1.5 per cent per annum.
This would leave only a modest need for extra oil from other sources. The IEA is not expecting material growth in non-Opec supply, but it forecasts a significant rise in Opec output of natural gas liquids. In addition, Opec nations other than Iraq, especially Saudi Arabia, have oil output capacity that is currently 6.2mb/d above actual production.
Sceptics claim that politics, security, inadequate infrastructure and potential Opec quota constraints will prevent any large and rapid build-up in Iraqi capacity. All these are challenges, but the figures cited above are underpinned by binding contracts with expert oil companies that have commercial incentives to deliver agreed output levels within contractually defined timeframes. This points to a considerable upwards force on output capacity.
It is unclear whether Iraq will agree to an Opec quota being re-imposed, and at what level a new quota might be set. The issue is bound to be divisive and could ignite old rivalries, threatening Opec's effectiveness, to the detriment of oil prices. Also, a rise in Iraq's capacity on such a scale would be seen as a significant headwind for prices, even if it did not translate into rising output. Spare capacity in Opec is a closely-watched parameter because it gives one indication of oil market tightness.
These factors point to Iraq being an emerging force on oil prices that could become a major influence until the end of the decade. Those expecting the imminent return of China-fuelled oil price increases may be disappointed.
David Cline is head of European oils (equities) at RBS

NO, say Richard Savage and Alex Martinos
After years of glacial progress, Iraq recently grabbed the attention of oil-market watchers by striking deals with international companies to boost production from several giant oilfields. The output targets being discussed - pushing production from 2.5mb/d to 12mb/d within the next decade – are substantial and, if achieved quickly, would have a real impact on the balance of global oil markets.
Iraq undoubtedly has enough oil - that has long been known - but the scale of these plans, set out by oil minister Dr Hussain al-Shahristani, is quite new.
A major, rapid production increase, as envisioned by Dr al-Shahristani, is not entirely unprecedented - Russia managed something comparable in the 1990s, although this was a recovery to previous levels, not a new high. However, in the case of Iraq it must be seen as highly unlikely. Even though the worst of the post-invasion strife seems, thankfully, to have passed, the country still faces a raft of challenges.
Upcoming elections, the withdrawal of US forces, unresolved disputes with the Kurdish minority and ongoing security concerns are likely to ensure progress is slow, and Iraq remains a tough place for the oil industry to operate. Companies looking to raise production may face logistical and technical problems resulting from the neglect of the country's oilfields and infrastructure, while a rapid upturn in activity could push oilfield services costs sharply higher. Moreover, the 12mb/d target is, arguably, inflated after a licensing process that encouraged competing companies to set high production targets for each field, with limited economic penalties if these are subsequently missed.
On balance, while new Iraqi production may come onstream in the coming decade, it is likely to flow at much less dramatic rates. A slower output increase (the IEA sees production creeping past 3mb/d by 2014) is likely to see Iraqi oil helping to offset increasing non-OECD demand and declining non-Opec production, rather than flooding the markets in the near-term. As such, Iraq represents only a limited threat to today’s relatively stable high oil price.
Richard Savage and Alex Martinos are energy analysts at Mirabaud Securities

Will Iraq succeed in boosting oil production to levels that could have a material impact on the oil price? Leave your comments here - we'll use the best ones in the magazine!

Tamweel, Amlak Merger Delay Is ‘a Concern,’ Tamweel Chief Says

The delay in the planned merger of Tamweel PJSC and Amlak Finance PJSC, two United Arab Emirates mortgage lenders, is “becoming a concern” and hampering communication with shareholders, Tamweel’s chairman said.

“We are slightly concerned that the timeline is becoming too long,” Sheikh Khaled Bin Zayed al-Nehayan said in an interview at the World Economic Forum in Davos, Switzerland, late yesterday. “My hope is that it is going to happen in the first quarter, although I have been proven wrong many times.”

Tamweel and Amlak shares have been suspended since November 2008, when the country’s federal government said it planned to merge the two companies and inject new capital after the global credit crunch blocked their access to new funding. Tamweel plans to seek the market regulator’s approval next week to hold an annual meeting of shareholders to inform them of the progress on the merger, Sheikh Khaled said.

U.A.E Shares Climb as Earnings Restore Confidence, Asia Gains

United Arab Emirates shares gained as earnings boosted investor confidence and Asian markets ended their longest losing streak since 2004. Sorouh Real Estate Co, Abu Dhabi’s second-biggest property developer by market value, added the most in more than three weeks after reporting an increase in operating profit. Dubai Investments PJSC, the holder of stakes in more than 40 companies, rose to the highest in a week. The DFM General Index, which has dropped 11 percent this year, advanced 2.2 percent to 1,599.43 at the close in Dubai. Abu Dhabi’s ADX General Index added 1 percent, the most in almost four weeks.

“International markets experienced positive movement and Asia is trading higher, not to mention our markets have been penalized lately,” said Ali Taqi, director of asset management at AT Capital Management in Dubai. “Results in the U.A.E. have been in line with expectations, and in some cases have beaten estimates.”

Asian stocks ended their longest losing streak since 2004, European shares and U.S. index futures rallied and the yen fell after Federal Reserve policy makers said America’s economy is in a recovery. The MSCI Asia Pacific Index rose 0.8 percent, the first gain in nine days. The Dow Jones Stoxx 600 Index climbed 1.2 percent, the most since Jan. 4, as of 10:27 a.m. in London. “The worst of the storm has passed,” U.S. President Barack Obama said in his State of the Union address last night. Crude oil gained 1 percent to $74.37 a barrel.

Turquoise Iran Investment -Jan2010.pdf - Google Docs

Turquoise Iran Investment -Jan2010.pdf - Google Docs

Abraaj Capital, Palestine Investment Fund Launch $50 Million Private Equity Fund for Palestine SMEs

The Palestine Investment Fund (PIF), a publicly owned investment fund which aims to strengthen the Palestinian economy through key strategic investments, and private equity group Abraaj Capital announce the first closing of a US$50 million private equity fund dedicated to Palestine.

The private equity fund will focus on investing in small- and medium-sized enterprises (SMEs) in Palestine across a range of sectors and stages of maturity. Abraaj is the largest private equity group in the Middle East and North Africa, with offices in six countries.

With a first closing at US$15 million, the private equity fund is the first of its kind dedicated to the Palestinian economy. The initial commitments from the sponsors – PIF and Abraaj – will be supplemented by funds raised from investors in further closings planned later this year.

Koreans eye billions in Gulf deals

South Korea’s biggest industrial contractors have set their sights on billions of dollars worth of oil and gas business in the Gulf this year, their executives say.

Key contracts up for grabs include a natural gas project and chemical plant in Abu Dhabi and new refineries in Saudi Arabia.

Contractors have been drawn to a flood of energy investment in the region as opportunities in East Asia and other areas decline, said HP Kong, the executive vice president and head of marketing at Samsung Engineering.

Dubai reshuffle signals light at end of tunnel

The shake-up at the top of Dubai Inc announced last week may at first glance look like the work of a bureaucratic paper shuffler, but in fact it holds the key to the future economic strategy of the emirate.

It is a sign that, while there is still much to do in resolving individual corporate problems within Dubai’s debt-buffeted structure, there is light at the end of the tunnel that the emirate entered with the decision last November to restructure Dubai World.

The creation of five top-level committees to oversee government strategy – in the fields of economy; security and justice; social and community areas; infrastructure and environment; and health and safety – is a key indicator that Dubai Inc has drawn a line under the financial crisis, and is beginning to plan how the emirate will emerge from the other end.

Big gains from growth of small business

Humble factories, small trading companies and workshops are vital cogs in most economies, and particularly developing countries. Yet in the Gulf they have often been overshadowed by sprawling state and family-owned conglomerates.

Rather than small and medium-sized enterprises, many Gulf governments have often focused their ample financial resources on supporting state-owned “national champions” to diversify their economies.

The emphasis may be about to change, as governments realise that a more vibrant SME community could be instrumental in weaning locals away from state jobs, diversifying economic output and creating work for young populations – strategic aims for all the Gulf countries.

Jadwa funds fly high after turbulence

Asset managers live and die by their funds’ performances but, after last year’s turbulent financial markets, some local players can still hold their head high when they meet their investors.

There are myriad funds that invest in the Middle East. Some focus on sectors such as petrochemicals or banking, others on larger markets such as the United Arab Emirates and Saudi Arabia. However, most funds concentrate either on the Middle East and north Africa region (Mena), or the narrower Gulf Co-operation Council country markets.

According to figures compiled for the Financial Times by Lipper, the mutual fund data provider, the best-performing non-sector-specific Gulf-focused fund last year was Jadwa Investment’s Jadwa GCC Equity, which returned 29.6 per cent, compared with the 9.2 per cent average of 47 funds registered by Lipper. The MSCI GCC Index rose 15.9 per cent last year.

Comment: Turkey is a tempting target

Turkey’s economy took a beating last year. Gross domestic product in the first nine months dropped a whopping 8 per cent. Unemployment is in double digits and government finances in deficit. By these measures, the year ahead looks challenging.

With the country’s political leaders looking southwards to the Middle East and seeking to ease relations with neighbours such as Syria, investors from the Arab world are eyeing Turkey. The country could also provide some Arab countries with a road map of reform to follow, especially those without significant oil reserves.

Middle Eastern investment in Turkey by non-private equity firms has been substantial. The largest foreign direct investment in Turkish history was the $6.6bn purchase of Turk Telecom in 2005 by Saudi Oger.

Rivals Taxi as Iraqi Airways Rebuilds

Iraqi Airways, which since 2004 has leased used jetliners, recently ordered new aircraft from Boeing Co.

In a potentially hopeful sign for Iraq's battered economy, foreign airlines are increasing service to the country as its national airline is rebuilding after two decades of war, sanctions and neglect.

Flying in Iraq remains difficult due to continuing security concerns and because airports and air-traffic control systems are just starting to be modernized.

Islamic finance "safe" billing is myth: Qatar regulator

Despite being billed as a safer alternative to traditional banking because assets must underpin deals, Islamic bondholders have found they may not have any more legal safeguards than conventional counterparts in the event of default.

Such issues were highlighted after sukuk -- or Islamic bonds -- had the first ever defaults last year.

Sukuk, one of the flagship products in the $1 trillion Islamic finance industry, are structured as profit-sharing or rental agreements and returns are derived from underlying assets because Islamic laws prohibits paying or earning interest.

The Davos Agenda: Sending a message to Beijing and missing Dubai

1) Had a quick aside with a journalist friend from the gulf; we quickly agreed on the most notable absence from the proceedings -- Dubai. Shouldn't be surprising, given how extraordinarily savvy they've historically been at branding themselves and generally speaking the vocabulary of globalization. Call them the Tiger Woods of the World Economic Forum.

2) Conversation with a senior member of the official U.S. delegation. Their highest priority here on the foreign policy side -- getting a strong message across to China. Apparently they've been given pretty broad parameters to talk tough on cybersecurity in particular. To quote: "Google isn't such a big deal, but what it represents is enormous." The Obama administration wants Beijing to understand there are serious consequences if there's no change in behavior.

3) Breakfast with one of the American CEOs; he's most worried about regulatory policy globally and limitations on capital flows accordingly. I suspect we'll see a huge amount on this issue over the course of the meeting -- after all, the world economic forum has historically been the voice of globalization. With a few exceptions this year, it still will be. But the challenges are getting harder to ignore -- all sorts of signals that the world is now moving in a different direction.

Ian Bremmer will be blogging from Davos this week sending reports and commentary from inside the World Economic Forum.

Gulf Gap in Davos Belies Booming Saudi Arabia, Qatar Economies

The program for this year’s World Economic Forum in Davos features no speakers from Qatar, Dubai or Abu Dhabi in any of the conference’s 230 events. Five spots are occupied by Saudis and four by Kuwaitis.

“I think the absence of the Middle East is quite conspicuous,” said Ibrahim Dabdoub, chief executive officer of the National Bank of Kuwait, interviewed in the conference center in the Swiss village. “It’s a pity that Gulf involvement is so low.”

Especially for anyone looking to make money. Six weeks after Dubai almost defaulted on $4.1 billion in debt, the region as a whole is set to prosper.