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Monday, 8 February 2010

Kuwaiti Central Bank Cuts Repo Rates By Quarter Point

Kuwait’s central bank cut its one- week and one-month repurchase rates by a quarter percentage point, a day after reducing its benchmark interest rate.

The one-week rate was lowered to 1.50 percent and the one- month to 2 percent, according to data posted on the central bank Web site today. The overnight repo rate remained unchanged. The one-week and one-month rates were last cut in July 2009.

The central bank yesterday reduced its discount rate by half a percentage point to 2.5 percent. That cut, the sixth since October 2008, aimed “to provide an atmosphere conducive to the growth of non-oil sectors in the local economy by reducing the cost of lending,” Central Bank Governor Sheikh Salem Abdul Aziz al-Sabah said, according to the state-run KUNA news agency. The last reduction in that rate was on May 13.

Kuwait’s economy is estimated to have contracted 1.5 percent last year, compared with a 6.3 percent expansion in 2008, according to the International Monetary Fund. Oil prices peaked at more than $147 a barrel in July 2008 and fell to a low of about $34 a barrel in December of the same year. Oil now trades at about $72 a barrel.END

Lord Mayor of the City of London addresses students in Dubai

The Lord Mayor of the City of London, Alderman Nick Anstee, spoke to Cass Business School students and alumni at the Emirates Towers Hotel today. This event was organised in partnership with the British Business Group (BBG).

More than 200 senior figures from London and the GCC business and finance sectors were present.

As head of the City of London Corporation, which provides business and local government services to the City – one of the world’s leading financial centres - the Lord Mayor of London's principal role today is ambassador for all UK-based financial and professional services. It is an elected role for one year and the position is unpaid and apolitical. The Lord Mayor is also Chancellor of City University, the parent organisation of Cass Business School. This role should not be confused with the Mayor of London who is accountable for the strategic government of Greater London.

No offers for Kuwait Zain Africa assets: statement

Kuwaiti telecoms company Zain, whose chief executive resigned last week, said on Monday it has not received any offers for the sale of its Zain Africa assets.

"With regard to information published in a local newspaper on buying Zain Africa assets, the group would like to state that there are no offers at present," the company said in a statement on the bourse website.

Zain, the Gulf's third-largest telecoms company by market value, halted talks in October to sell African assets to appease potential buyers of a stake in Zain Group.

Chief Executive Saad al Barrak's resignation comes amid uncertainty over the fate of a delayed $13.7 billion deal for Kuwaiti family conglomerate Kharafi Group to sell a 46 percent stake in Zain at 2 dinars per share to a consortium of Asian investors.END

Financial claims over Dubai yet to be heard

The special tribunal set up by Dubai’s ruler to deal with financial claims against state-owned conglomerate Dubai World has not yet started hearing cases, the court's chief said on Sunday.

"No cases have actually come but there is a lot of discussion about it," Sir Anthony Evans, chief justice of the DIFC Courts and head of the special tribunal, told reporters on the sidelines of a law conference, without giving details.

"We are still setting it up," added Evans, a former High Court Judge of England and Wales.

Dubai Shares Rise as Salama Posts Profit; Kuwait Gains on Rates

Dubai shares rebounded from yesterday’s decline as Islamic Arab Insurance Co. said it returned to profit in 2009. Kuwait’s index rose after the central bank reduced interest rates.

Islamic Arab Insurance, known as Salama, jumped the most in almost two months after it reported earnings for the year after a loss in 2008. Dubai Islamic Bank gained as the lender signed an agreement with the Ministry of Finance. Emaar Properties PJSC, which has the biggest weighting in Dubai’s index, pared some of yesterday’s losses. The Dubai Financial Market General Index gained 0.9 percent to 1,645.48 at 12:34 p.m. in the emirate. The Kuwait Stock Exchange Index advanced 0.4 percent to 7,132.5, the highest in three months, after the central bank cut interest rates by half a percentage point to boost economic growth.

“The market is still unstable because Emaar has yet to publish its earnings,” said Kifah Maharmeh, general manager at Abu Dhabi-based Al Dar Shares & Bonds. Kuwait’s rate cut “will most likely be positive for the medium term, as it will encourage more liquidity into the market.”

Full Ownership for Foreign Investors

The UAE might give 100 per cent ownership rights to foreign investors for major industries and projects, according to Shaikha Lubna Al Qasimi, Minister of Foreign Trade (MoFT).
“The government of the UAE is working towards preparing new economic legislations to eliminate difficulties facing the business sector in the country, enhancing the business atmosphere and the investment environment, and supporting competitiveness.”

“Such legislations tackle the spectrum of foreign investment, commercial companies, industry and competitiveness in addition to a new labour law. After getting the approval of the Cabinet, the government is determined, in some of these legislations, own high percentages of their projects, which might reach 100 per cent for major industries and mega projects,” the Minister said in an interview in the context of her visit to India to attend the India-Arab Investment Project beginning in New Delhi on Monday (February 8).

Dubai Determined to Repair Reputation After Dubai World Fallout

Dubai wants to repair the damage to its reputation after it roiled world markets with a request to delay debt payments late last year, said Nick Anstee, the 682nd lord mayor of the City of London.

“They are absolutely determined to mitigate that reputational damage by arriving at a solution because they want to continue to deal and trade with people who have been part of building Dubai to what it’s today,” Anstee said in an interview in Dubai today after meeting government officials.

Dubai World announced Dec. 1 it was seeking to alter terms on about $26 billion of debt. Property unit Nakheel PJSC, which is building palm-tree shaped islands off the emirate’s coast, paid back $4.1 billion on Dec. 14 for a maturing Islamic bond after Abu Dhabi bailed out Dubai. Dubai World has so far failed to present a restructuring offer to lenders and declined to say when a deal could be struck.

Tensions arise from ratings downgrades

At least 10 companies in the Gulf have severed ties with credit ratings agencies in the past year, highlighting tensions arising from a series of downgrades and revised assumptions of government support.

Disputes between companies and the agencies that rate them have only intensified following Dubai World’s announcement in November that it would seek a standstill agreement on US$26 billion (Dh95.49bn) of debt, analysts say.

A central catalyst of the disputes has been a change in how the agencies, which gauge the risk of default on loans, bonds and other financial obligations, treat government-owned companies. All three big ratings agencies – Standard & Poor’s, Fitch Ratings and Moody’s Investors Service – have recently pulled back on assumptions of government support.

Iran sets up fund to finance oil ventures

Faced with the prospect of tougher sanctions over its nuclear programme and with western investors pulling out, Iran has set up a fund to help finance the development of its crucial oil and gas sector, and has implicitly asked its neighbours for help.

“The National Energy Fund, with the help of the resources of four local banks and the central bank, has been established to help finance major parts of the oil industry’s activities,” the official IRNA news agency yesterday quoted the oil minister Massoud Mirkazemi as saying.

While suggesting Tehran would encourage domestic companies to play a greater role in Iran’s major oil and gas developments, he also reached out to neighbouring countries, saying the fund would enable local and foreign firms to participate in energy ventures.

Kuwaiti bourse to lure foreign investment

After many delays, the Kuwait Stock Exchange is about to become the last bourse in the six GCC countries to create an independent market regulator.

The move is designed to enforce transparency on listed firms, which in turn should encourage more foreign investment. The bourse is the second-largest among GCC countries, behind Saudi Arabia.

“Any regulatory effort which imposes stringent requirements in transparency and disclosure rules is a welcome addition for foreign investors,” said Hassan Awan, the head of buy-side equities research at The National Investor, a brokerage firm based in Abu Dhabi. “They avoid being in loosely regulated regimes.”

Bridges between London and the Gulf

The City of London’s relationship with the flourishing commercial centres of the GCC is as strong as ever, but given the challenges and opportunities facing all of us, we would benefit from it being even stronger.

That is why I am here in Abu Dhabi and Dubai leading a delegation of bankers, lawyers, insurers, asset managers and consultants – some of whom are already doing significant business in the UAE, while some are still looking at the possibilities – to demonstrate our commitment to the region, to share our experiences and build on our substantial links.

The past three years have not been easy ones for the world economy, and we have all endured the impact of bank failures, falls in the volume of trade and declines in asset prices. London has certainly felt the chill but because it is a centre that is internationally owned, internationally managed and internationally staffed, and is focused on the whole picture of global trade and development, global recovery and readjustment are offering scope for new business.

DMCC asks Dubai World to drop logo

The Dubai Multi Commodities Centre (DMCC), once described as a unit of Dubai World, is distancing itself from the troubled conglomerate that is trying to restructure its debt.

The DMCC has formally asked Dubai World to remove the DMCC logo from the Dubai World website, where it is listed under “Our Portfolio” alongside companies owned by Dubai World such as Nakheel, Istithmar World and DP World.

“DMCC is the brand name of Dubai Multi Commodity Centre Authority (DMCCA), which was established by royal decree in 2002 and is thus wholly owned by Dubai Government. DMCC is financially and legally separate from Dubai World,” a spokeswoman for DMCC said.

Aldar invites project partners

Aldar Properties, the largest developer in Abu Dhabi, will link with outside companies on its completed projects to raise cash and outsource some operations functions.

The announcement comes during a protracted slowdown for the property sector and is seen by analysts as a way for Aldar to increase its income in a depressed economic climate.

“This is not about people just putting money in and getting their name on something,” said Areej al Naqbi, the director of business development at Aldar. “It’s a full partnership programme, including branding, marketing, hospitality and whatever we decide to do with the business venture.”

Kuwait Outlook: Neutral

I was going to leave Kuwait until the end of my GCC outlook marathon, but due to the new government-spending plan I decided to bump it in front of the UAE.

Kuwait’s GDP is expected to grow the least in the region, from a 1.3% contraction last year to a 2.5% growth in 2010. This year’s GDP is expected to be around KD32 billion.

Political conflicts remain the greatest concern not only for local investors, but also international ones. As a matter of fact, Kuwait is the only country in the MENA region that is expected to show FDI outflows.

Although Kuwait has the slowest growth in GDP, major political issues, and overall negative sentiment; it has the second highest fiscal surplus in the MENA region. This year is no different from any other year as there always has been a surplus, but the only difference this time is that a government-spending plan is going to be implemented.

We all heard the news that came out last week about the KD4.78 billion government spending plan that’s going to be implemented in the FY2010/11. The main content of this plan is to enrich the private sector by projects which include a warehousing company, health insurance company, low-cost building company, the famous Khairan City, and an electric utility company.

I hope I’m not too optimistic but this plan should at least improve the total macro outlook of the country.

Banking Sector

A major concern I have for Kuwait is the banking sector. Provisions will continue throughout the year as the quality of loans is still questionable. In 2009, more than 30% of the bank’s loan book is attributed to personal loans, whereas 54% of the personal loans are paid on installments. In addition to that, about 30% of the money borrowed is used to purchase securities in the market.

Another 30% of the loans are given to the constructions and real estate sector, a sector doesn’t look very promising right now with current conditions. The highly leveraged commercial real estate market in Kuwait grew much faster than the demand. This will affect the cash-flows expected from these projects sparking a potential default on loans outstanding. For more details on this subject read “Got-Tenants?”.

These risks are not reflected in the stock prices as Kuwait’s banking sector is trading at a premium to GCC banks in terms of P/E. Banks in Saudi Arabia, UAE and Qatar are all trading a discount to Kuwaiti ones by an average of 60%.
The aggregated losses of all listed companies in the Kuwait SE equalled USD 11.3 billion (KD 3.2 billion). This means that it will take us 2.8 normalized quarters of USD 4 billion each, or 8.3 quarters of USD 1.37 billion which were recorded in 2Q ’09 to recover the losses.For more details on this subject read “How bad was Q4 2008

There are many negative catalysts on Kuwait’s story; nevertheless, this outlook can turn around if the spending plan was properly implemented. My verdict? Neutral on kuwait

What better way to compliment the Burj Khalifa than naming this the Parthe-Nahyan?

Dubai has had its mantle of most interesting sovereign debtor taken from it this week by countries in Southern Europe. There are some interesting similarities and differences between these two regions and I think it makes sense to discuss them comparatively. It also gives me a chance to branch out from talking about Dubai so exclusively.

Greece and Dubai have come to their problems differently. Dubai borrowed a massive amount of money to finance the construction of major infrastructure projects inside the Emirate as well as to buy international trophy assets. The implementation of the construction projects probably involved a lot of siphoning off of funds by Emirate merchant families thus the actual value that went into them was less than was borrowed. With the onset of the international financial crisis the earning power of those assets is now substantially less, and in the case of real estate spectacularly less, than when the money was lent leading to the threat of default. Additionally the prices of the international trophy assets have all declined.

The Greeks have run into problems because even before the crisis began they were running a fairly substantial budget deficit and as a result piling up substantial debts. The structural issues with the Greek deficit can be found in many EU countries but they are a worse in Greece. There is a substantial welfare state as elsewhere in the EU but the rule of law is also weaker and there is widespread tax evasion or avoidance. There are also strong unions in the public sector which make it difficult for the government to rein in spending. These issues were exacerbated by the financial crisis. Government outlays for unemployment and stimulus increased but also tax revenues declined. International maritime shipping isa major industry in Greece and has been particularly hard hit by the declines in international trade.

It may be time for the Dubai World creditors to get on the hotline with their lawyers and go to Defcon 1.

If I were a creditor of Dubai World at the holding company level I would be getting very very concerned right now. The remaining Nakheel Sukuk holders I think are pretty much done for considering that they have no recourse to the parent and their bonds are collateralized with undeveloped desert land or non-existent islands. The Dubai World creditors though had a fighting chance because there remain some productive assets in the Dubai World group and not least of which are Dubai Ports World and the Jebel Ali Free Zone. DPW in addition to being a going concern is a publicly traded company with attachable international assets which should east the minds of creditors.

I had thought that not too much would happen with the Dubai World saga until we got close to the expiration date for the Limitless debt (no pun intended) at the end of March at which time it is likely that another cash infusion will be necessary in the likely event that not all the creditors will agree to roll over the syndicated loan. The National, an excellent newspaper in Abu Dhabi has two articles in it this weekend that bring the Dubai World saga back to the forefront.

The first thing they report is that the Dubai Financial Support Fund (DFSF) intends to take security against the assets of DW in exchange for contributions it will make toward interest payments. It’s not clear to me what form of security this would take but The National reports that it would jump ahead of the other creditors in event of default.

This is a highly perplexing move by the DFSF. In the first instance I imagine that the understanding of the Dubai World creditors would be that the purpose of the DFSF support would be to make the chances of a subsequent default near zero. What does it say about the conviction of the DFSF that its support will be effective in preventing default that it is demanding that it go to the head of the queue for recovery in event of default? It doesn’t exactly inspire confidence. If you were a creditor of Dubai World why would you agree to step back in line for recovery of your principal to only get some of your interest payments? No you wouldn’t. You would put Dubai World into default and in the event that you were blocked from recovering the Emirati assets you would pursue them in international courts. Why this would not be obvious to the people at DFSF who are negotiating this I also don’t know.

An even harder to understand story and potentially more damaging is the request by the Dubai Multi Commodity Center to have its logo removed from the Dubai World website. Removing the logo is not a big deal, what is more disconcerting is that DMCC now claims that it is not actually part of Dubai World. This must come as quite a surprise to the creditors of both Dubai World and DMCC as every press release I have ever seen by either group describes DMCC as a member of the Dubai World group and they have reported themselves as such to the financial media for quite some time.

I suppose what really matters is what the prospectuses for the loans at the Dubai World holding company level say. If they say that DMCC is part of Dubai World and the DMCC is now withdrawing itself from the balance sheet of the parent company this is almost certainly a breach of a loan covenant by Dubai World. If not then I would be demanding a strict accounting of everything that flowed into DMCC from Dubai World and what compensation Dubai World got in return.

An even stranger aspect of this is that the Chairman of the DMCC and the Chairman of Dubai World are father and son. Surely this need never have made the papers at all.

You would think that given that the eyes of the world are so focused on the handling of the Dubai World restructuring that this sort of thing would not be possible. You’d be wrong. Just ask the Damas shareholders.END

Qatar to invest $2 billion in India

Stating that New Delhi is a "key partner" of the Gulf Cooperation Council and that 'cash-rich' countries were now "increasingly looking towards India", Qatar has said it will invest a whopping $ 2 billion in the country.

Qatar, which has the highest per capita income in the Arab region, has plans to invest $2 billion in India in infrastructure and other promising sectors, secretary-general of the GCC Chambers, Abdulraheem Naqi said.

India was a key trade partner of the GCC and that cash-rich countries were now increasingly looking towards India to park their investments, Naqi was quoted as saying by 'The Peninsula' newspaper.

Dubai World sale puts QE2 on the block

Debt-laden Middle Eastern conglomerate Dubai World is preparing a firesale of some of its most prestigious assets including the cruise liner QE2 and circus troupe Cirque du Soleil.

The disposals are part of an effort to pay down some of Dubai World's $22bn (£14bn) of debts.

Last week Istithmar, the investment arm of Dubai World, started the process by selling a 13pc stake in Indian domestic airline SpiceJet. It has also entered into talks to sell Inchcape Shipping Services, the UK port agent, with a mooted $700m price tag.