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Tuesday, 23 March 2010

Dubai ready to present $26 bln debt plan -sources

Dubai World to present plan on March 24 - sources

Dubai World [DBWLD.UL] will present plans to restructure its $26 billion debt pile to creditors this week, with details emerging as soon as Wednesday, sources familiar with the discussions told Reuters.

The plan on how the Gulf Arab emirate plans to repay its commitments will be discussed with an informal committee, which represents 97 creditors to the state-owned conglomerate, in Dubai, said the sources, who spoke on condition of anonymity.

State-owned Dubai World, which has ringfenced key assets such as ports operator DP World DPI.DW from the restructuring, has been in talks with a panel made up of seven banks.

Iraqi oil increase could redraw the Gulf map

It might seem premature to address how the world oil market and other regional powers will accommodate rising Iraq oil production capacity -- considering that the outcome of Iraq's recent election remains unresolved, and the process of putting together a governing coalition has barely begun. But some of the broad dilemmas that more Iraqi oil will create are structural in nature, and not terribly dependent on the new government's makeup. One thing's for sure: Both Saudi Arabia and Iran will face major challenges to their interests if this scenario plays out.

The Saudi-Iraq axis is simpler than the Iran-Iraq one. If Iraq's production capacity rises to even half of the clearly unrealistic 12 million bpd by 2020, which was a goal cited by Oil Minister Hussein al Shahristani, it will likely serve to maintain some of the current overhang of spare capacity for longer than would have otherwise been the case. This would prevent a retightening of the world oil market that may have put upward pressure on prices. Saudi policy will have to confront how to deal with this situation -- both in terms of whether to delay investment in their own capacity, and how to accommodate what has the potential to be a much stronger second-place producer within OPEC. At some point, Saudi Arabia may approach the new Iraqi government for a discussion about how to renegotiate the system of OPEC quotas in order to accommodate Iraq's increasing oil production with both countries' interests in mind. But depending on how the bilateral relationship evolves, achieving this sort of cooperation may be problematic. Iraq has already added written provisions into its service contracts with foreign oil companies dealing with government-mandated output cuts. This demonstrates that the Iraqi side is beginning to grapple with the idea that it may at some point be adding capacity to an oversupplied market and need to exercise restraint.

The implications of increasing Iraqi oil are even more complicated when it comes to Iran. US secondary sanctions under the Iran Sanctions Act (ISA) have been reasonably successful at hindering development of additional Iranian oil and gas production capacity. While they haven't stopped activity altogether, they've kept it at a level where the volume of oil available for export is likely to continue its gradual slide over the next decade as production declines and domestic demand continues to grow. In this scenario, an eventual retightening of the world oil market with attendant higher prices would clearly be in Iran's national interest, helping it to maintain revenues even while volumes fall a bit during the next several years. The increase in Iraqi capacity, however, could prevent this from happening -- taking a toll on Iran's government finances, and potentially creating tension between the two Gulf neighbors. Given the substantial amount of Iranian influence within Iraq, and the still-latent disputes about the border and control over the Shatt al Arab waterway, this market-driven tension could potentially spill over into the geopolitical realm.

Abu Dhabi exchange to list ETF this week

The Abu Dhabi Securities Exchange (ADX) will list its first exchange-traded fund (ETF) by the end of this week, Emirates Business 24-7 reported, citing an interview with the bourse's deputy chief.

Last week, Saudi Arabia approved the kingdom's first exchange-traded fund, accessible to foreigners as part of efforts to open up the biggest Arab bourse.

"We have readied well for the launch of the Exchange Trading Funds," Deputy CEO of ADX, Rashid Al Baloushi told Emirates Business Rashid Al Baloushi, ADX's deputy chief executive officer told Emirates Business.

Dubai Shares Rise to Two-Month High on Confidence in Debt Terms

Dubai shares climbed to the highest in more than two months on rising investor confidence that Dubai World, the state-owned holding company that’s negotiating $26 billion of debt, may present a better than expected proposal.

Air Arabia PJSC, the United Arab Emirates’ biggest low-cost carrier, advanced to a four-month high after approving a dividend. Drake & Scull International, a Dubai-based construction company, also rose to the highest since November after it was awarded a contract for infrastructure development works in Abu Dhabi. The DFM General Index climbed 0.7 percent to 1,776.32, the highest since Jan. 11, after losing 0.6 percent yesterday. The index has jumped 12 percent this month.

“As we hear more discussion and rumor on Dubai World debt, it seems to be that sentiment is improving overall,” said Julian Bruce, director of equity sales at EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank. “After a brief period of profit-taking we’re starting to see investors accumulate stock again.”

Secrets of Kuwaiti ultra high net worth, revealed by a Swiss Banker

Research conducted by Heinrich Weber, Swiss Banker and author of ‘The Ultra High Net Worth Banker's Handbook,’ estimates that there are 150 ultra high net worth individuals (UHNWI) in Kuwait after the crisis with an average wealth of US$370 million.

In comparison, estimates show that there are around twenty thousand (20,000) UHNWI in existence today, with more than 25% or 5,150 of them residing in the United States.

Between them, they possess wealth that exceeds US$5,000 billion, which is equivalent to 10% of the world's estimated total wealth.

UAE rules out 100 pct foreign ownership

Legislation to relax restrictions on foreign investment in the UAE will come into force later this year, but 100 percent foreign ownership of companies will not be allowed, a senior Abu Dhabi official said on Tuesday.

"It will not be 100 percent. There will be some improvement in foreign ownership from 49 percent,” Mohammed Omar Abdulla, undersecretary of Abu Dhabi's department of economic development, told reporters at a conference in Abu Dhabi,

“The law will bring some relaxation," Abdulla added, declining to be more specific.

Qatar-related gas issuers may be downgraded-Moody's

Ratings agency Moody's said it may downgrade four Qatari government-related issuers, saying they lack a formal agreement guaranteeing government support and it should not be assumed that Qatar would back any debt if troubles arise.

It said natural gas firms Ras Laffan I, Ras Laffan II, Ras Laffan 3 and gas transport company Nakilat Inc were under its microscope.

The move comes just three weeks after Moody's downgraded seven firms in the rival Gulf energy exporting emirate of Abu Dhabi, citing a lack of explicit guarantees of government support for the entities.

My Thoughts on the Damas Undertaking (Re-post)

I have to be totally honest. When I first saw the news on Bloomberg that the DFSA had dissolved the board of Damas and taken action against the brothers Abdullah I engaged in not a small amount of triumphalism. After all I had been railing against these guys and the inaction of the regulatory authorities in my blog for months. Whenever I logged into Bloomberg right after checking the markets I would look up Damas news to see if there was anything I could write about.

When the news finally went across the tape, I felt vindicated. I felt as though my blog had played a role in bringing it about. By constantly harping on it and claiming that it would undermine the confidence of the markets in the DIFC and thereby damage the Dubai World restructuring I felt that perhaps I helped force the powers that be in Dubai to act. Having read the report of the DFSA I was especially vindicated in my decision to publish the tip I received on the true purpose of the Dubai Ventures vehicle. Of course the DFSA report contains many things on which I did not report so perhaps I didn’t have too much to do with it. I’ll console myself with the thought that somehow the 50,000 page views that my Damas articles have gotten over the past few months had at least some influence on the decision of the DFSA to act if not a decisive one.

The DFSA report itself reads like a spy novel with a surprise ending. It opens with a cast of characters and a list of weapons. First the villainous Brothers Abdullah and their tools of espionage and deception: the various legal entities, assets, and liabilities front companies and the like. Then there is our hero the DFSA with its’ virtuous arsenal outlined in the section entitled “Relevant Legislation and Rules.” When you get into the main body of the it has exciting chapters like “The 42.5 Million Transaction” or “The Gold Transaction” or, exotically unless you have been there, “The Sharjah Transaction.” Step by step, transaction by transaction you can see our hero stalking his prey. Layer by layer a truly astounding series of frauds are uncovered.

The brothers Abdullah siphon millions of dollars out of the company into their private accounts. When money is tight they conspire with Dubai Ventures to rig an IPO on the DIFX in order to swindle $170 million out of international investors which they promptly use a variety of means to steal. They use company funds to buy a building in their own name and then sell the building back to the company for a huge multiple of the original price and pocket the difference. Over two tons of gold go missing into the pockets of the Abdullah brothers never to be heard from again but are magically replaced from the company’s own stocks. Money is borrowed in the name of the company and paid out to the brothers. Land owned by the brothers is sold to the company for 46 million AED without any independent valuation. To the Brothers Abdullah Damas is a treasure house to be systematically looted, to the shareholders it is a house of mirrors: a mystery, wrapped in a riddle locked in an enigma.

But the DFSA is on the case. With every paragraph we can see our hero get closer and closer to the quarry. Stalking him, laying the trap, ready to spring... It’s like watching James Bond tailing a Evil Mastermind, through the labyrinthine streets of some ancient city. The Mastermind is so confident that he is above the law that he doesn’t even notice the agent stalking him. He brazenly goes about hatching and executing his evil plans little knowing that the Bond/TheDFSA are hot on is tail, watching, building the case, planning, waiting for the moment to strike.... Then, the moment comes. The Mastermind turns his back and Bond/DFSA springs into action, reaching into is coat pulling out his weapon and plunging it into the back of the villain... WHO BURSTS OUT LAUGHING BECAUSE OUR HERO HAS JUST SPENT MONTHS STALKING HIM IN ORDER TO STAB HIM WITH A SAFETY PIN.

I don’t want to admit it but that’s how the thing reads on the first pass. If you read the entire document the punishment does not seem at all to fit the crime. These guys stole 600 million AED or almost $170 million, the entire proceeds of the IPO not counting the fraudulent investment in the IPO from Dubai Holding. I’m sorry did I say steal? The DFSA calls them loans with non-commercial terms that is without interest and with no fixed repayment date or schedule. Hmmmm... what is the difference between a gift with an option to repay and a loan with no obligation to repay? Or for that matter between having someone steal from you or borrow it without interest for an indefinite period? If you’re a shareholder, nothing.

The Abdullah Brothers borrowed/stole it using every kind of scheme and ruse imaginable and what does the DFSA do? It fines them $3million, $2.7 million of which is suspended indefinitely. So the bill due to them: $300,000. To put that in perspective if the Brothers Abdullah invested their ill gotten gains in 2 year T-Notes they would have earned their fine twice over in the time it took the DFSA to investigate their frauds, no problem DFSA. Heck, if you wait three That is an awesome deal. So what do the shareholders get out of all this? The same deal the Brothers Abduallah negotiated with themselves and the Board which was recently fired. They promise to pay back all the money over time and if they don’t they agree to hand over their shares which are now worth vastly less than $170 million. Actually, try less than half that. Not such a great deal, it sounds like the Abduallah Brothers come out on top.

That’s one way to read it and that’s how it appears on the surface but, as with so many things in Dubai, you have to look a little bit past that to get the whole story. One of the things that the DFSA order does is compel the Brothers Abdullah to provide a list of all their assets both those they own free and clear and those which are encumbered in some way. It then places a lien on behalf of Damas on all these assets. Their original agreement with Damas gave them quite a bit of leeway as to whether and how they disposed of what assets they have with regard to repayment of the funds they withdrew from the company for their personal use. Now virtually all their assets are pledged to the undertaking, not simply their shares in Damas. Also the undertaking empowers the DFSA to seek additional legal action for the enforcement of this pledge in DIFC courts, decisions of which can then be handed to Dubai courts for enforcement.

On the surface this seems like a pretty weak judgement, and according to the letter compared with what one would expect in the United States it is a pretty weak judgement but it is important to remember the context. What this undertaking essentially does is economically destroy one of the most prominent business families in Dubai. It is important to remember what the financial position of the Abduallah Brothers most likely is. I joked earlier that if they invested their ill gotten gains in T-Notes they would earn back their fine every ten weeks or so. The truth is they did not invest in T-Notes, they invested in Dubai and other real estate projects right through the peak of the market. I would say it is a near certainty that they cannot afford to repay Damas, which they are obligated to do on a timeline and for which all their assets have now been pledged. Whether they are fined $300,000 or $30 million makes no real difference, they are going under because of the repayment clause. This is not over, the undertaking is the beginning not the end of the travails of the Abdullah Brothers. When they miss the first instalment of their payments to Damas we will see what the DFSA does to enforce this agreement, then we’ll know whether it has teeth or not.

I think there is another aspect of this that might not be obvious to a Western observer. The school of Sharia law practiced by the courts in the GCC does not necessarily have the concept of precedent. It is up to the judge to interpret the Koran and the Hadith according to the dictates of his own heart as he sees them in the circumstances presented to him. This makes it extremely difficult to obtain legal certainty and therefore Arab businesspeople will go to almost any length to stay out of court. In such a world, in order to have orderly commercial relations with other Arabs it is therefore essential to maintain a reputation for probity.

Such a reputation has real commercial value because if you have a reputation of dishonesty people won’t deal with you because they know they cannot enforce contracts against you. The Abdullah brothers were among the most prominent families in Dubai and the public exposure of their malfeasance, even if it was suspected before, will do real commercial damage to them. This undertaking fundamentally destroys the asset that was most important to the Abdullah brothers and the only thing that would enable them to recover: their good name. This sort of thing almost never happens in the middle east because the preservation of face is so important. The fact that the powers that be in Dubai have allowed one of their most prominent members to be so publicly humiliated is, though small, a real step forward.END

Mashreq rating revised on deteriorating assets

Fitch Ratings yesterday downgraded UAE-based Mashreqbank's (Mashreq) rating to 'C/D' from 'C' and kept it on Rating Watch Negative (RWN) due to its deteriorating asset quality.

Simultaneously, its long-term issuer default (IDR) 'A' with stable outlook, short-term IDR 'F1' and support rating '1' have been affirmed. The support rating floor is affirmed at 'A'.

The downgrade of the Individual rating reflects Fitch's concerns on the bank's deteriorating asset quality owing to its substantial exposures to the troubled Saudi groups, Saad and Algoosaibi, which are now impaired (and around 50 per cent reserved), exacerbated by large volumes of retail defaults in the UAE during the year, although this remains performing.

Saudi group sues Damas brothers in $22m claim

A Saudi private equity company is suing the three brothers who ran Damas for more than US$22 million (Dh80.8m) after accusing the jewellery giant of not paying for shares it acquired before the Dubai company went public two years ago.

The Riyadh-based private equity house filed its claim against the three Abdullah brothers, Tawfique, Tawhid and Tamjid, at the Dubai International Financial Centre (DIFC), according to documents obtained by The National.

The legal action, which had not been previously disclosed, is a further blow to the brothers as they deal with the aftermath of a Dubai Financial Services Authority (DFSA) investigation into “unauthorised transactions” that followed the company’s initial public offering in 2008.

Fund seeks to tempt European investors

The National Investor, an Abu Dhabi-based investment company, has launched a fund that it says is the first European Union-compliant vehicle to focus on the Middle East and North Africa region.

The company plans to invest a substantial proportion of the fund’s assets in Saudi Arabia, in an effort to attract foreign portfolio investors to the region’s biggest economy.

The fund, registered in Dublin, capital of the Irish Republic, is the first in the region to obtain a Ucits licence. This will allow it to be marketed to institutional and retail clients in the EU, a market inaccessible to most offshore funds, says Walid Hayeck, director and head of asset management at The National Investor.

Comment: A watchdog needs more than teeth

Abdulrahman al-Tuwaijri was in a determined mood last summer. There were no “untouchables”, the chairman of Saudi Arabia’s Capital Market Authority told me, and nobody would be immune from a crackdown on insider trading and manipulation of the Arab world’s largest stock market.

It is not unusual to hear bold statements from officials across the region promising to tackle flaws in their systems. The problem, however, is that deeds more often than not fail to match words.

Yet just two months later Prince Ahmed bin Khaled al-Saud was added to a lengthening list of Saudis who found themselves named and shamed by the CMA. Prince Ahmed, chairman of Saudi Chemical Company, and six other board members were fined SR50,000 ($13,300) each for disclosure irregularities. He might not have been a high-profile member of the royal family, but the fact that an Al-Saud had felt the CMA’s wrath sent an important message.

Citi begins long road back to Gulf affections

Vikram Pandit
When the credit crunch began to bite, Citigroup, the US financial behemoth, swiftly received multibillion-dollar infusions of aid from Abu Dhabi and Kuwait’s sovereign wealth funds.
The investments helped the bank survive the financial crisis, and seemed to underline the close ties the US bank enjoyed with the oil-rich Gulf and its most powerful and wealthy institutions and governments.
However, its subsequent single-minded focus on internal issues seems to have strained ties with the two influential sovereign funds, rival bankers say.

Dubai World Tries to End Debt Circus

Dubai World may ask creditors for five to eight years to re-pay its $22 billion in debt as part of a restructuring proposal that could come as early as this week, people close to the matter say.

The Emirates-based, conglomerate and its creditors are also weighing a structure that would give creditors a share of the proceeds from asset sales, or possibly a share in future profit of the group, if it cannot fully meet its interest-payment obligations, one of these people said.

Executives from members of the creditors' steering committee, which include Standard Chartered PLC, Royal Bank of Scotland Group PLC and HSBC Holdings PLC, flew from London to Dubai last week where they held informal talks about the plan, people close to the matter said. The creditors' steering committee represents the interests of Dubai World's 90 lenders, and KPMG, an accounting and business-services firm, is representing it.

A formal proposal could come this week, although a final solution to which all the parties agree could take several months to negotiate, the people said.

A spokeswoman for Dubai World declined to comment. A spokeswoman for Dubai's department of finance also declined to comment.

Extending the time-frame to re-pay the debt would be an alternative to a government-backed proposal that would pay creditors back much faster, but with a 40% "haircut" for creditors. U.K. banks favor a full repayment over a long time period, a person close to the matter said.

Dubai World representatives haven't indicated which assets they might be willing to sell in order to pay creditors. The conglomerate owns assets as varied as DP World, its giant ports operation, a $5 billion investment in a Las Vegas casino development with MGM Mirage, and a 20% stake in Canada's Cirque du Soleil Inc. performance troupe.

Dubai World, the investment vehicle for Dubai, shocked international markets in November when it announced it would seek a six-month standstill on its debts. In December, neighboring Abu Dhabi, the capital of the United Arab Emirates, extended Dubai $10 billion in funds, in addition to a separate $10 billion infusion by the UAE in February 2009.END

Bahrain sacks minister in money laundering probe

A Bahraini state minister said on Monday he had been dismissed, following accusations of money laundering which he denied.

The Gulf Arab state's King Hamad bin Isa al-Khalifa issued a decree dismissing the minister, Mansour bin Rajab, without giving a reason, the Bahraini daily al-Wasat said on its website.

Bin Rajab, a minister of state without portfolio, confirmed his dismissal but denied the accusations.