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Wednesday, 3 March 2010

SHUAA GCC Investor Confidence Index slips 7.8% in February

SHUAA Capital today issued its GCC Investor Sentiment Report, the only report of its kind for the Gulf markets. The SHUAA GCC Investor Confidence Index and its country sub-indices have a range between 0 and 200.

A number greater than 100 represents positive sentiment while a number lower than 100 represents negative sentiment.

The GCC Investor Confidence Index fell 8.9 points in February as uncertainty around the Dubai World debt restructuring plans weighs on investor sentiment.

EFG Expands Into Syria, Starts Private Equity Fund

EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank, will open an office in Damascus with a local partner and start a Syrian private equity fund at the same time.

EFG-Hermes has a 70 percent holding in EFG-Hermes Syria, while Syrian businessman Firas Tlass has a 30 percent stake, the Cairo-based company said in an e-mailed statement today.

“The recent reforms undertaken by the Syrian government to liberalize the economy and facilitate the business environment have made Syria a compelling investment opportunity,” EFG- Hermes’ Chief Executive Officer Hassan Heikal said in the statement.

Dubai Stocks Fall Most in a Week as Arabtec Has Quarterly Loss

Dubai shares fell the most in a week after results at Arabtec Holding Co., the biggest construction company in the United Arab Emirates, disappointed investors.
Arabtec, which is in the process of selling a 70 percent stake to Aabar Investments PJSC, closed at the lowest in almost three months after recording its first quarterly loss as a publicly traded company. Emaar Properties PJSC,the developer of the world’s tallest skyscraper in Dubai, retreated for a second day. Dubai Financial Market, the only Gulf Arab stock market to sell shares to the public, fell the most in a week as it reported a decline in full-year profit. TheDFM General Index lost 1 percent to 1,573.15.
“We were holding our breath for the Arabtec earnings to get a good sense of where the property food chain is,” said Saud Masud, a Dubai-based analyst for UBS AG. “What we got was not very positive. The Aabar deal is a must now.”

First-ever $20bn Abu Dhabi bonds to help bailout Dubai (Re-post)

Abu Dhabi is preparing investor presentations for an upcoming maiden bond issue for as much as $20 billion, according to a report from Thomson Reuters yesterday.
It said JP Morgan, Citibank and Standard Chartered are working with the Abu Dhabi debt management office on the issue but no date has been set. Abu Dhabi requires debt finance both for its ongoing construction program and to assist Dubai in its debt restructuring process.

Dubai debt details

More details continue to emerge about the extent of the Dubai debt problem from the latest report from the International Monetary Fund.
Morgan Stanley told its clients that it reckons the bilateral debts of Dubai government related companies amount to between $10 billion and $20 billion, while the new total for syndicated debt from the IMF is $109 billion. This brings the total Dubai Inc debt to a maximum of $129 billion.
Then The National newspaper cites a study from UBS that notes Dubai Inc will not to want to leave half-built projects. UBS estimates another $60 billion is required to foot this bill. Total liabilities then top $189 billion.
And who is owed this money? UBS points out that the biggest liabilities are with Dubai banks which are owned at least in part by Dubai Inc. Thus the idea that the Dubai Government can somehow shed its liabilities is seriously compromised.
As UBS concludes: ‘Such a large ownership share by domestic financial institutions, the largest of which are majority-controlled by the government, may make it easier to reach majority-based consensual agreement, which reduces the risk of involuntary debt restructuring or outright default’.
On the other hand, it makes a recapitalization of the local banking sector look more and more likely, and perhaps at least part of the money from the first-ever Abu Dhabi sovereign debt issue will have to go into the local banking sector.

UAE resolution

However, as a visiting banker from JP Morgan told ArabianMoney yesterday the debt problems of the UAE are actually among the simplest in the world to understand and resolve. They are debts against investment projects that have gone wrong, not runaway government budget deficits.
Things are becoming clearer and more transparent, and the IMF report is a major contribution to identifying the scale of the problem. Yet even with the wealth of Abu Dhabi this is a tricky circle to square.
Abu Dhabi raising money on its good credit to bailout Dubai, whose international credit standing is among the lowest in the world right now, would likely be a contribution to the final solution, although all this is still speculation at this stage.END

Bahraini banks start to feel downturn

Bahrain’s financial services sector has remained in good health despite the global downturn, but government officials are monitoring local companies closely after big losses at several banks and investment houses, a government official says.

The financial services sector, which accounts for about 27 per cent of economic activity in the nation, recently began to show signs of stress after two large investment companies announced significant losses in the final quarter of last year.

Gulf Finance House (GFH), which is heavily exposed to property projects across the region, lost US$607 million (Dh2.22 billion) for the quarter, while another investment company, Arcapita, revealed losses of $159m for the period.

GFH negotiates reprieve on debt

Gulf Finance House (GFH) has reached an agreement with creditors to delay the repayment of a US$100 million (Dh367.3m) Islamic loan, the last large chunk of debt that the struggling Bahraini investment company has sought to postpone.

GFH, which is undergoing a sweeping reorganisation under Ted Pretty, its acting chief executive, will repay a fifth of the loan this month, the company said.

The remaining $80m will be repaid in $20m blocks every six months for two years, retiring all of the debt by mid-2012. Under the original loan terms, $50m was to be repaid this month, with the remaining $50m repaid next year.

To tax or not to tax – that is the Dubai question

There has been speculation that the Dubai authorities are on the verge of introducing some form of taxation for at least as long as I’ve been in the UAE, the past three years or so.

Now that the financial crisis has made the logic all the more compelling, and the thinking is coming from so many authoritative bodies, you have to believe there is something in it this time.

In late 2006, long before credit crunches and collateralised debt obligations had broken upon the world, the move towards some form of taxation was regarded as a part of the policy of economic diversification away from oil dependency.

Darn it, every time we order Chinese I get the same fortune "You will own more Dubai assets." (Re-post)

Generally if you are a blogger the prediction business is a bad business. This is because it is pretty easy to look up your old predictions and find out whether they worked out or not. In an earlier incarnation of this blog I recommended two trades. One was a sale of SPY strangles which manifestly did not work out. The other was trading a reverse collar on gold which has worked out quite well. In my last post I tried to predict the prices of all assets in dollar bloc countries based on an attempt to read the mind of the Chairman of the Federal Reserve. I know it’s a bad business but in this case I can’t resist.

So what have we found out about the Dubai World saga in recent days? Interestingly Arabtec and Aabar have extended the due diligence period. This is a little disturbing but more interestingly Arabtec, now that it is almost going to be owned by Abu Dhabi has stopped work on a Nakheel project because Nakheel has not been paying it. Do you think Arabtec would have stopped this work if Abu Dhabi were not involved? I think not. So what does it say about Abu Dhabi support for Dubai World if one of its own future contractors has stopped work on Nakheel for lack of payment? Nothing good.

There are also the recent reports out from Moodys and the IMF about the exposure of the Emirati banking system to Dubai World. It turns out that the exposures of ADCB and Emirates NBD to Dubai are quite substantial. Emirati banks are owed something on the order of $15 billion by Dubai World entities and billions more by other government related entities. The IMF suspects that massive amounts of capital will have to be raised by the Emirati banks in the event that there is a partial recovery to the creditors of Dubai World, especially if it is on the order of $0.60 on the dollar.

And what of that report that the $0.60 on the dollar figure was something contemplated by Dubai World? Dubai has denied that this offer was made but that is not inconsistent with the article which said the offer was under consideration not that it had been made. Also one has to remember the penalties in terms of access and other tragedies that might befall journalists that one would suffer for printing a wholly fictitious story in Dubai about Dubai. Personally I think there must be some truth in the report at least as an indication of the scale of losses the creditors of Dubai World are likely to suffer.

The creditors of Nakheel are likely to do far worse. We won’t have to wait too long to find out how much worse, Nakheel has requested details of its bondholders in case it has to offer a securities swap to them. Well, it will have to because it doesn’t look like it has the capacity to pay them and from the Arabtec work stoppage I think we might be able to infer something about the level of support that Nakheel can expect from Abu Dhabi.

I think the easiest way to try to estimate what is going to happen over the next few months is to try to put yourself in the position of the most powerful actor in the unfolding drama: Abu Dhabi. So it is probably clear to the powers that be in Abu Dhabi that Dubai World is largely insolvent. At the very least Nakheel and Limitless are almost certainly insolvent, and Istithmar probably has negligible positive equity if it were to be liquidated. So whether the value of the Free Zones and DPW is larger than the balance sheet hole in Nakheel (also doubtful) will determine whether there will be much left to pay the creditors of the parent company. It is also possible that Nakheel is seeking information about its bond holders to try to discover whether or not it is likely to be able to secure approval for a securities swap. If enough vulture funds have bought the Sukuk to block a restructuring and force a default in what I think is a vain hope that Abu Dhabi will rescue it again, then they won't even be able to effect the swap. I think it is increasingly likely that the restructuring, if it occurs, is likely to be highly coercive to the creditors and that an outright liquidation is growning more likely.

As far as the foreign creditors are concerned I’m pretty sure no one in the UAE will care very much. Dubai is going to be shut out of international capital markets for some time if only because it’s credibility has been obliterated. Abu Dhabi will still have access but not require it because of its capacity to fund itself. The trouble is that a coercive restructuring of Dubai World has a very good chance of touching off a banking crisis inside the UAE. This is because the balance sheets of ADCB and Emirates NBD will be severely damaged and they may be forced to raise capital. Let’s assume that happens. What will be the next move.

Well, I don’t think that ADCB will have difficulty raising capital or receiving support from the Central Bank given the influence of Abu Dhabi on that institution. What about Emirates NBD? Well, remember Emirates NBD is the largest bank in Dubai and was created in a forced merger between Emirates Bank and the National Bank of Dubai. I remember laughing as I read about it when it was announced because there were no merger terms announced at the time, it was just announced that they were merging. It was clear that Sheikh Mohammed had decided that Dubai needed a banking champion and to create the largest bank he could be compelled the merger between the two largest banks. The CEOs knowing they had to do what the Sheikh told them but not knowing how to go about it simply announced the merger but no terms.

Fast forward to today. The Dubai World crisis is presenting Abu Dhabi with yet another opportunity to strip Dubai of more assets. If you think about if the Sukuk holders force a default, the liquidation of Nakheel would be a bonanza for Abu Dhabi based investors. While any international investor can buy the bonds of Nakheel only GCC nationals can buy the real estate behind them. So in a liquidation sale cash rich GCC nationals (read Abu Dhabi nationals as opposed to Dubai nationals) will be able to scoop real estate from panicked Sukuk holders. I’ll bet you a dollar that when the Dubai World restructuring is announced ADCB and Emirates NBD will both be forced to raise capital. ADCB will receive a combination of aid from ADIA or Aabar and the Central Bank. Emirates NBD on the other hand will be forced to merge FDIC style with a stronger institution based in Abu Dhabi. First Arabtec, then Emirates NBD. Who knows what’s after that?

Dubai's DFM 2009 earnings fall

Dubai Financial Market (DFM) (DFM.DU), the Arab world's only listed bourse, saw full-year profit slump on lower trading commissions, however it swung to a fourth-quarter net profit.

Annual earnings stood at 346.6 million dirhams ($94.39 million), DFM said in a statement, down from 604.97 million dirhams in 2008.

Revenues totalled 502.9 million dirhams, the statement said, about half of the 1.01 billion dirhams reported in 2008.

Dubai World Coughs Up the Knickerbocker

The former Knickerbocker Hotel site near the heart of Times Square has become the latest Dubai World investment to go belly up, as well as the target of investors wanting to pick up the property at a discount price.
Istithmar World Capital, the private-equity arm of the Dubai government's investment fund, recently handed back the keys to the 300,000-square-foot building at 42nd and Broadway to its lender, Danske Bank A/S, after defaulting on its $300 million mortgage. The property, which served guests like Italian tenor Enrico Caruso during its heyday, was part of the Dubai firm's ill-fated strategy of running "upmarket hotels in gateway cities," said a person familiar with the matter.
Noah Rabinowitz for The Wall Street Journal
The former Knickerbocker Hotel in Times Square has drawn interest because of its prime location.
In recent decades, the property has been operated as an office building known as 1466 Broadway. But Istithmar emptied it of most of tenants as part of a plan to convert it back into a hotel.
While there are plenty of struggling properties on the market, the building is attracting interest because it represents one of the best development sites in the Times Square area for a new hotel. Its appeal is enhanced because, besides paying $300 million for the building, Istithmar also spent $76 million to buy an adjoining vacant lot.
The bank has hired Jones Lang LaSalle to market the property and is getting a lot of interest, said Ben Singer a Jones Lang LaSalle broker. Among the interested bidders is Sitt Asset Management, the New York real-estate company that sold Istithmar the building in 2006, according to people familiar with the matter. Sitt executives didn't return calls seeking comment.

Egypt courts China for Suez special zone

One of China’s premier investment zones is expected soon to replicate its successful development model near the southern approaches to the Suez canal, according to Egypt’s investment minister.

The Egyptian government is negotiating with the Tianjin Economic-Technological Development Area, which it is courting to help build the Suez Economic Zone. Under Egyptian law, TEDA could take up to a 49 per cent stake in the $1.5bn (€1.1bn, £1bn) project.

“SEZone is going to be the first of its kind linked to a big investor,” Mahmoud Mohieldin told the Financial Times in an interview. “The final negotiations will hopefully be taking place very soon.”