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Monday, 22 February 2010

U.A.E. Banks Are Owed $15 Billion by Dubai World, Moody’s Says

United Arab Emirates banks, which are owed about 55 billion dirhams ($15 billion) by Dubai World, may be able to absorb losses if they are repaid 60 cents on the dollar, Moody’s Investors Service said.
“U.A.E. banks would incur losses amounting to only around 9 percent of their capitalization as of year-end 2009,” Moody’s wrote in a report e-mailed today. “This would hurt 2010 profits, but not jeopardize solvency.” The banks’ Tier 1 ratio, a measure of financial strength, is unlikely to drop below the required minimum of 8 percent even if they take a 40 percent “haircut,” according to the ratings firm.
Dubai World may offer its creditors 60 cents on the dollar after seven years, Zawya Dow Jones news service said Feb. 14, citing unidentified people familiar with the plan. A spokeswoman for the emirate said that day no such offer had been made. More than 90 banks worldwide, including Emirates NBD PJSC, the U.A.E’s biggest lender by assets, and third-ranked Abu Dhabi Commercial Bank PJSC, are owed money by Dubai World. The holding company announced plans to alter terms on about $26 billion of debt Dec. 1, roiling global financial markets.

Dubai World debt: to pay or not to pay?

Further developments in the Dubai World restructuring saga.
The Dubai government is no longer seeking preferred creditor status, according to Reuters. If true, that removes a key sticking point in the $22bn debt work-out discussions.
From Reuters.
“The government wants to show it’s handling this in the most equitable way, everyone gets a fair shot,” a source familiar with the matter said on Monday. “We are going to put forward a plan that shares the recoveries with the lenders.”
That is a concession from the government,” a source familiar with the matter said. “We haven’t let go of our want but we will continue to fund on an unsecured basis,” the source said, adding: “We’re not going to do this forever.”
All of which is rather different to the noises coming out of Dubai earlier this month. Its beleaguered conglomerate Dubai World was reportedly considering offering bank creditors 60 per cent of their money back over seven years, backed by a government guarantee but with no interest paid.
What seems clear here is that the negotiations are going to be played out in the press with the market having to decide what’s bluff and what’s not.
To wit, Reuters is also reporting that Dubai is unlikely to repay Nakheel’s 2011 $980m sukuk:
“It is very unlikely that the bond will be paid off,” the source. “Incredibly unlikely.” The person, who spoke on condition of anonymity, said all options are on the table for the issue which comes due May 13.
That includes offering new paper for existing debt or, if needed, administration.
And here’s the price action in that bond on Monday.

Bahrain Stocks Gain Most This Year on AUB Dividend Speculation

Bahrain’s benchmark index advanced the most this year, led by Ahli United Bank BSC on investor speculation the country’s largest bank may propose a dividend similar in size to the one last year.
Ahli United, which has a weighting of 18 percent in the Gulf country’s benchmark, surged 9.7 percent, the most since November. Bahrain Commercial Facilities Co., a retail lender and car seller, jumped the most since October. The Bahrain All Share Index added 1.6 percent, the most since Dec. 14, to 1,537, bringing the gain for the year to 5.4 percent. Kuwait’smeasure added 0.3 percent and Qatar’s gauge 0.1 percent.
“Investors are anticipating a high dividend similar to last year’s, so they’re buying” Ahli United, said Essa Buheji, research analyst, TAIB Securities in Bahrain. He also pointed at the bank’s increase in Ahli United Egypt and the acquisition of a stake in United Commerce & Investment in Libya earlier.

Kuwait's KIPCO ekes out modest fourth quarter profit

Investment firm Kuwait Projects Co (KIPCO) (KPRO.KW) posted a net profit of 0.71 million dinars ($2.46 million) in the fourth-quarter, according to Reuters calculations on Monday.


Full year net profit came in at 46.32 million dinars, up from 24.1 million in net profit in 2008, the firm said in a statement on the Kuwaiti bourse website on Monday.

KIPCO had a net loss of 59.46 million dinars in the fourth quarter of 2008, according to previous financial data.END

Dubai World unlikely to pay off Nakheel debt

Dubai World which is in talks to restructure some $22 billion debt, is unlikely to pay off developer Nakheel's $980 million Islamic bond, a source familiar with the matter said on Monday, and all options are open.

"It is very unlikely that the bond will be paid off," the source. "Incredibly unlikely."

The person, who spoke on condition of anonymity, said all options are on the table for the issue which comes due May 13.

Al-Rajhi, Arcapita launch $500 mln Gulf property fund

Al Rajhi Capital, the investment arm of Saudi Arabia's Al Rajhi Bank 1120.SE and Bahrain's Arcapita Bank has launched a $500 million Gulf property income fund to capitalise on falling prices, the firms said on Monday.

The two companies will seed a joint investment of $50 million for the fund, which will focus on logistics warehouses, healthcare and education-related assets in Saudi Arabia and the Gulf Arab region, they said in a statement.

Saudi Arabia has earmarked around $400 billion to boost infrastructure over the next five years and is looking to cater for growing demand for new housing from the young population in the world's largest oil exporter.

Oman bourse chief sees just two IPOs in 2010

Only two companies are expected to float on the Omani stockmarket this year, the bourse regulator said on Monday, naming Al-Khalili Group and Qatar Telecom's QTEL.QA local unit.

"So far only two IPO issues are expected to come out this year," Yahya Al-Jabri, executive president of the Capital Market Authority (CMA) told Reuters.

"The Al-Khalili Group's IPO is on finalisation and the Nawras (IPO) will soon come out," he added, without elaborating.

Banks may recoup 60 pct Saad, Gosaibi loans

Middle East banks are confident they'll recoup about 60% of funds lent to troubled Saudi business conglomerates Saad Group and Ahmad Hamad Al Gosaibi Bros. & Co., the chairman of the Union of Arab Banks told Zawya Dow Jones Monday.

"These companies (Saad and Al Gosaibi) have assets," Adnan Yousif told Zawya Dow Jones on the sidelines of a conference. "For Al Gosaibi, I anticipate that banks could recover 60% and for Saad it will be more or less the same."

Global exposure to Saad and AHAB is by some estimates as high as $20 billion with Middle East banks assumed to hold a large chunk of the share. The groups first defaulted on some debt obligations in the second-quarter of 2009 and no resolution has been achieved with creditors.

Qatar Exchange May Start Bond Trading Before Sept.

The Qatar Exchange may start bond trading before September as part of a program to broaden business it handles, said Chief Executive Officer Andre Went.
“We are looking to where we are internally with the exchange and where we are in progress readiness,” Went told reporters at the Beltone Financial MENA conference in Doha today. “It looks good.”
Bond trading may start before the NYSE Euronext Universal Trading Platform is introduced in September, Went said. The exchange also plans to offer trading in sukuks, exchange traded funds and derivatives in the future. Reorganization of the exchange will take 3 to 5 years, Went added.
NYSE Euronext last year acquired a 20 percent stake in the exchange in June for $200 million.

Dubai to take a hit on debt exposure

The Dubai Government “will take its share of any exposure” in the financial restructuring of Dubai World, said a person familiar with the talks between the conglomerate and its bank creditors.

In particular, the Dubai Financial Support Fund (DFSF) will not, for the time being, seek to enforce a claim to be top of the creditors’ queue in negotiations over Nakheel assets, he said yesterday.

That stance, which involved the DFSF assuming preferred creditor status in return for cash injections to keep Nakheel operating, had been seen as an obstacle to progress in the talks about Dubai World’s debts of US$26 billion (Dh95.98bn), including $4.1 bn owed to the DFSF for repayment of Nakheel’s sukuk last December.

Dubai World on verge of presenting debt proposal

Dubai World will present its banks with a restructuring proposal for its $22 billion (£13.5 billion) debts by the end of next month.
An insider close to the Dubai Government said that the struggling state-owned conglomerate will finalise a complete valuation of the group’s assets by the end of February and will have a restructuring offer on the table within the following four weeks.
“We are figuring out the best way to use the cash and assets to get the best result for all constituents,” the source said.
However, the Department of Finance said there would be no fire sale of assets to cover Dubai World’s debts and made it clear that banks may have to wait several years for the group’s portfolio to recover much of its value.

UAE Recovery Hinges On Dubai World Debt Restructuring

The International Monetary Fund said it estimates the total Dubai debt at around $86 billion, not including what it terms `bilateral bank loans.

`Bilateral lending is a bigger concern to us since the scale of lending could be very large and data is practically non-existent, the bank said in an annual report.

The IMF also repeated its stress on the importance of the operational restructuring of the Dubai Government owned entities at the heart of the debt problem, and said it thought the process would take `sometime.

The Airtel Example Delhi inadvertently provides a model for how to deregulate telecoms.

All eyes will be on India's finance minister Pranab Mukherjee this week as he unveils the Congress Party-led government's first budget of its second term in power. There is little hope for a "big bang" reform of the likes seen in the 1990s. Too bad, because as India's mobile-phone companies show, the private sector can work wonders, if Delhi would only unshackle it.
India's mobile market is a marvel compared to anywhere, and seems downright miraculous in a country where hundreds of millions of poor people still lack electricity. Indians pay among the lowest mobile calling rates in the world—less than one U.S. cent per minute. A handset goes for as little as $50. Competition is so fierce among the 13 providers that they're forced to invent new services, too. Farmers can now receive commodities-price data over their mobiles, and mobile-phone banking is shaping up to be the next big thing. No wonder each month up to 10 million additional customers start using mobile phones. Bharti Airtel's $10.7 bid for the Africa business of Kuwait's Zain suggests Indian companies may now be in a position to export these innovations profitably, too.
Policy makers jealously eyeing India's mobile successes—including perhaps some in Beijing—can note that the smartest thing New Delhi has done is to get out of the way. India in 1994 issued its first licenses for mobile services to two private-sector companies in four geographic areas. In the mid-90s Delhi expanded service to 18 additional areas, and in 2001 and 2002 it issued licenses for two more operators in each market. From there the number of licenses has only continued to expand.
At the same time, the government has cut its licensing fees for service providers. In 1999, Delhi switched from a fixed fee to a percentage-of-revenue model. That freed providers to charge lower calling rates by removing what amounted to a fixed per-user tax. Since then the tax rate has continued to fall, from as high as 12% in 1999 to as low as 6% today. Delhi also cut and then scrapped entirely the "Access Deficit Charge" mobile providers paid to support state-owned telecoms in providing fixed-line services.
Other regulatory improvements have also played a role. Delhi has steadily raised its cap on foreign investment in mobile service providers, to 74% from 26%, though the Indian partner must still have managerial control. Five of the top 10 providers by subscriber numbers enjoy some degree of foreign investment. Foreign investment has offered Indian companies a ready source of capital to fuel expansion and innovation. Notably, price controls have not factored into this success story although India has a form of them: Thanks to fierce competition, the market rate for a mobile call has been consistently less than Delhi's "recommendation" of a fair rate for at least the past decade.
This isn't to suggest that India's mobile-services regulation is flawless. Delhi still doesn't offer nation-wide licenses; providers must obtain approval for each geographic area they want to enter. Auctions for licenses to provide next-generation mobile data services have been marred by delays and allegations of corruption. Nor does Delhi deserve credit for having this liberal model in mind all along. Liberalization has been a messy process, often fueled by the total collapse of earlier regulatory models (as when a botched license auction in the 1990s threatened to bankrupt key providers) or roundabout litigation (with the expansion of licenses in the middle of last decade).
Still, whether deliberately or by accident, India has stumbled its way into a pro-competition model that works. Nor is mobile telephony the only example; automobiles are another. First in 1983 and then in a bigger way a decade later, Delhi opened up its auto sector to foreign competition and investment. It also cut tariffs on imported autos and parts, though they're still high. Despite the strictures that remain on the industry, this opening has been enough to spur investment and production. And competition and innovation. Note that the Tata Nano, billed as the world's cheapest car with an expected price of only $2,500, was developed in India to suit that market.
We recount all this at length to make a simple point: Economic freedom works. Policy makers who want their countries' companies to become world leaders can take a lesson from India's mobile-phone market. Competition at home, not protection, is the surest path to success.END

Debt threat to Kuwait investment houses

Most of Kuwait’s multibillion-dollar investment company industry could be wiped out by debt repayments on the finance houses’ leveraged investments made before the recession, senior bankers have warned.
Spurred by cheap credit, abundant liquidity and few other opportunities in the government-dominated economy, Kuwaitis have set up scores of investment houses to bet on international and regional real estate, private equity and stocks. At its peak, the industry had assets of more than $50bn.
However, much of the spree was financed by short-term loans, and the financial crisis hit the local investment houses like a tsunami, said one analyst.

Kuwaiti investment model feels strain

Buoyed by inflows of petrodollars and cheap credit, Kuwait’s finance houses have been aggressive investors in regional and international markets in the past decade, snapping up trophy assets in everything from luxury car brand Aston Martin to property and stocks.
But the financial crisis has starkly exposed a toxic mismatch between short-term loans and often illiquid assets whilst also highlighting a reliance on paper investment gains rather than asset management or brokerage fees, or recurring revenue from portfolio companies.
The sector’s woes are not new. Problems first emerged towards the end of 2008 and two of the largest finance houses are now tentatively emerging from restructuring after defaulting in the wake of the collapse of Lehman Brothers.

Investments made by the emirate

● Aston Martin (UK luxury sports cars) – Investment Dar (almost 50 per cent).

Grosvenor House Apartments (real estate) –Investment Dar.

Halcore Group (US ambulance maker) – Gulf Investment House.

Stronghaven Inc (US corrugated packaging maker) – Gulf Investment House.

Orbit Showtime (Middle East pay-TV service) – Kuwait Projects Company.

Meezan Bank (Pakistan) – Noor Financial Investment Company (45 per cent).

Tunisair (Tunisian airline) –Global Investment House.

Asian Finance Bank(Malaysia) – Global Investment House.

Courts Mammoth(furniture/electricals in Malaysia and Singapore) – The International Investor (about 50 per cent in both Malaysia and Singapore).

Oil geopolitics shifts as China taps Saudi crude

Saudi Arabia's oil exports to the US last year sank below 1m barrels a day for the first time in two decades just as China's purchases climbed above that level, highlighting a shift in the geopolitics of oil from west to east.

The drop in US demand for oil from the kingdom, traditionally one of its primary sources, is the result of lower energy consumption overall but also greater reliance on imports from Canada and Africa.

China's buoyant economic growth, meanwhile, is prompting Beijing to buy more Saudi oil, a trend Riyadh has encouraged through refinery joint ventures.

Saudi oil flows east as demand in Asia grows

When world oil producers and consumers convened in Jeddah for an emergency summit in June 2008, Samuel Bodman, then US energy secretary, had a simple message for Saudi Arabia: pump more oil now.

As Steven Chu, his successor, flies to the kingdom this week, the agenda instead has a heavy focus on research and technology.

The different messages underscore the fact that crude prices have fallen from $130 a barrel in June 2008 to $80 a barrel. They also reflect a further tilt in the balance of demand growth from west to east.