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Monday, 29 March 2010

Big funds sit out UAE rally, wary on Dubai rescue

Institutional investors are sitting out the recovery on UAE stock markets, wary about Dubai's debt rescue proposal and hesitant about prospects longer term, analysts say.

Broader issues like liquidity and market breadth may prevent foreign institutions from coming back to UAE exchanges, which are dominated by property and banking stocks that are closely linked and which lack defensive counters.

In addition, UAE is not included on the MSCI Emerging Markets Index .MSCIEF against which large institutional funds benchmark their performance, meaning many fund managers cannot buy UAE stocks regardless of how attractive valuations are.

Carlyle enters Saudi with lighting firm stake

Private equity firm The Carlyle Group on Monday said it had acquired a 30 percent stake in Saudi Arabia's General Lighting Company, the kingdom's largest lighting fixture manufacturer.

Carlyle did not provide financial details for the transaction, which closed on Monday and marks the fund's first investment in Saudi Arabia, the largest economy in the Middle East.

Equity for this investment, Carlyle's third in the MENA region, will come from Carlyle MENA Partners, a growth capital and buyout fund that closed in March 2009. Carlyle, which worldwide has nearly $90 billion of assets under management, established its Middle Eastern presence in 2007 and has now regional offices in Cairo, Dubai and Istanbul.END

Dubai World guarantees revealed

Dubai has offered Dubai World creditors some guarantees on rescheduled loan repayments in an additional concession that the government says illustrates the generosity of last week’s proposal to inject $9.5bn to help restructure the ailing conglomerate.

Since the tabling of the $24.8bn restructuring proposal, some creditors
to the state-owned conglomerate have complained about sub-commercial interest payments and preferential treatment for bondholders and financial creditors of Dubai World’s development arm Nakheel, which forms the lion’s share of the restructuring.

A person close to the government rejected these complaints, arguing that Dubai World’s unsecured creditors, which are owed as much as $14.2bn, received the best deal they could expect given others made loans on a secured basis.

DIFC loses its appetite for the lavish gathering

The Dubai International Financial Centre (DIFC) is scaling back its annual conference this year because of a dwindling appetite for lengthy, lavish gatherings.

The DIFC Week, which in past years brought to Dubai the likes of Il Divo, the singing group, Maria Bartiromo, the CNBC television anchor, and Steven Levitt, the co-author of two Freakonomics best-sellers, was delayed from last year to the first quarter of this year.

With markets still in a state of uncertainty, however, organisers decided to push the gathering back to May and shorten it from a week-long investment fest to a two-day get-together called the MENASA Forum.

Nakheel to distribute $1.5bn before deal

Nakheel Properties has pledged to spend US$1.5 billion (Dh5.51bn) to finish stalled developments even before creditors agree to a debt restructuring plan presented last week by its parent, Dubai World.

The proposals are contained in a letter seen by The National that was sent to thousands of investors in stalled Nakheel projects the day after a $23.5bn debt restructuring plan was presented to creditor banks of the Dubai World conglomerate.

The plan includes $8bn of fresh funds for Nakheel, the developer of Dubai’s Palm islands.

Tadawul’s First ETF

Saudi Arabia’s Tadawul has successfully launched their first ETF (exchange traded fund), Falcom Saudi Equity ETF (Falcom 30).  As per Tadawul’s description, FALCOM Saudi Equity ETF aims to provide investors with long-term capital appreciation and growth. The Fund passively invests in the listed Saudi equities in order to achieve the results that correspond to the performance, before fees and expenses, of the Benchmark Index.
The funded has ended its first trading day with 12.8 million shares traded at a value of SAR271.3 million. The NAV increased by 4.5% while the Tadawul index was down 0.09%. At first I thought that the ETF should mirror the Tadawul index, then I found out that it has its own index which 30 stocks that have the following criteria:
  1. – Sharia compliant as per Falcom’s Sharia screening.
  2. – For each stock to be eligible, non-trading days in the Saudi Stock Exchange (Tadawul) must not exceed 7 trading days during the past quarter.
  3. – Top 30 floating market capitalization stocks. The stocks should also be member of Tadawul public indices.
The following tables shows the current index composition:
Tadawul SymbolISINCompany NameTrading Name
1020SA0007879055Bank AlJaziraBJAZ
1120SA0007879113Al Rajhi BankAl Rajhi
1140SA000A0D9HK3BANK AlbiladAL Bilad
2350SA000A0MQCJ2Saudi Kayan Petrochemical CompanySaudi Kayan
2060SA0007879170National Industrialization CoIndustrialization
2250SA000A0B89Q3Saudi Industrial Investment GroupSIIG
2290SA000A0HNF36Yanbu National Petrochemical CompanyYANSAB
1211SA123GA0ITH7Saudi Arabian Mining CompanyMA’ADEN
2380SA120GAH5617Rabigh Refining and Petrochemical CoPetro Rabigh
1150SA122050HV19Alinma BankAlinma
2010SA0007879121Saudi Basic Industries CorpSABIC
2020SA0007879139Saudi Arabia Fertilizers CoSAFCO
2260SA000A0B63Y2Sahara Petrochemical CoSahara Petrochemical
2310SA000A0KFKK0Saudi International Petrochemical CoSipchem
2330SA000A0LE310Advanced Polypropylene CompanyAPPC
3020SA0007879451Yamamah Saudi Cement Co. LtdYamamah Cement
3030SA0007879469Saudi Cement CompanySaudi Cement
3040SA0007879493The Qassim Cement CoQassim Cement
3050SA0007879501Southern Province Cement CoSouthern Cement
4190SA000A0BLA62Jarir Marketing CoJarir
5110SA0007879550Saudi Electricity CompanySaudi Electricity
2050SA0007879162JSavola GroupSAVOLA Group
2280SA000A0ETHT1Almarai CompanyAlmarai
7010SA0007879543Saudi TeleComSTC
7020SA000A0DM9P2Etihad Etisalat CoEtihad Etisalat
7030SA121053DR18Mobile Telecommunications Company Saudi ArabiaZain KSA
4100SA0007879659Makkah Construction & Development CoMakkah
4250SA000A0MR864Jabal Omar Development CompanyJabal Omar
4300SA11U0S23612Dar Alarkan Real Estate Development CompanyDar Al Arkan
4030SA0007870054The National Shipping Co. of Saudi ArabiaShipping
What is an ETF?
“ETFs are investment funds divided into equal units traded on the exchange during trading time, similar to stocks. ETFs enjoy advantages of both mutual funds and stocks.
Like other investment funds ETFs are composed of a basket of assets (listed companies shares), however unlike mutual funds ETFs are traded on the exchange. ETFs are more transparent since they track the movement of the underlying assets index and investing in the index by the same proportions. It is easier for investor to measure the performance of the ETF by tracking the movement of the underlying assets index. ETF units are traded by Bids and Asks during trading time.” (
Difference between ETFs, mutual funds and stocks:
CategoryETFsMutual FundsStocks

Dubai Holding eyes debt options

Dubai Holding, a conglomerate owned by the emirate’s ruler, is looking at options that could include restructuring to deal with as much as $20bn in debts as the Gulf commercial hub looks to grapple with broader debt issues.

The group, which spans financial investments, hospitality and real estate, could become the second large entity in Dubai to restructure debts after government-owned Dubai World tabled a restructuring proposal last week, including a $9.5bn injection of new money to help restructure $24.8bn in debts.

Talks between creditors and advisers had picked up in the weeks before Dubai World’s announcement, which was broadly welcomed as it pledged to repay creditors in full over time but with question marks over interest rates.

The Calculus Behind Dubai's Nakheel Repayment

The Dubai government's decision to pay the equivalent of $1.7 billion to redeem in full the sukuk instruments issued by crisis-hit property developer Nakheel was a painful one. But people familiar with the decision-making said the alternative would have been much worse, a possible showdown with hedge funds and distressed debt investors that could leave Nakheel with unfinished property projects and knocking confidence in the wider economy.
In addition, the emirate was concerned that failing to pay the sukuks, structured instruments that behave like bonds but which conform to the rules in Koran that prohibit the payment of interest, would hit the fledgling market for Islamic finance.
Nakheel is the property arm of Dubai World, Dubai's flagship conglomerate, famed both for its palm-shaped development off the emirate's coast and its towering debts which helped put its parent company in deep trouble. At the height of Nakheel's woes last December Nakheel's 3.6 billion United Arab Emirates dirham (about $980 million) 2010 and $750 million 2011 sukuks were trading at around 38% of face value. Repayment in full means hedge funds and distressed debt investors who bought then have made a mint.
Bloomberg News
Buildings under construction at Nakheel's International City project in Dubai, which has decided to redeem in full $1.7 billion of Nakheel debt.
The repayment, and hedge-fund profits, is only possible because Dubai will pump $8 billion into Nakheel and convert to equity some $1.2 billion in debt owed to the government. However, the people familiar with the plan said the emirate's hand was forced because Nakheel urgently needs to repay trade creditors to finish projects it has underway.
Under the restructuring plan the trade creditors will be repaid and work continue. But before this can happen, Nakheel's restructuring proposal must be approved by all creditor classes, including the sukuk holders.
One of the people familiar with the matter said an extensive cost-benefit analysis was done on whether the sukuks should be restructured instead of being paid in full. Proposals considered during the painstaking negotiations that have ensued since Nakheel's parent company Dubai World shocked international markets last November by asking for a debt standstill, have included creditors taking haircuts of up to 40%.
According to estimates from UBS AG analysts, half Nakheel's $22 billion of liabilities are related to trade creditors.
However, the person said it was decided the sukuks should be paid in full and on time because the economic cost to do otherwise would be too high as it would leave the restructuring process open to being blocked by a single class of creditors. The risk: distressed debt investors could hold enough of one class of credit to effectively veto the complete deal. It is a pattern common in other restructurings: distressed debt investors will negotiate hard for the most favorable deal for them, as they have far less to lose than the original debt investors, having bought when the debt had already tumbled in value. These aggressive tactics can stall restructurings for many months.
A spokeswoman for the Dubai government said a significant part of the rationale behind repaying the sukuks was to get the "Nakheel engine running again". "We looked at the cost of restructuring against paying them as they fell due and the conclusion was it would make more economic sense to pay them as they fell due," she said.
One person familiar with the matter said those involved with the negotiations were also mindful that they did not want to damage the sukuk market. Investor confidence in the sukuk market, which in 2009 was worth $31 billion globally according to Bank of America Merrill Lynch, has been shaken following defaults in the past year from Investment Dar of Kuwait and Saudi Arabia's Saad Group.
"The decision to pay-down Nakheel's sukuk should be perceived pretty positively by the sukuk market overall," said Okan Akin, a credit strategist at Royal Bank of Scotland in London. The person familiar with the matter said protecting of the sukuk market was also of particular importance because Nakheel's restructuring plan includes paying 60% of the amount owed to trade creditors via the issuance of new sukuks.
Under the plan, Nakheel and the Dubai government will negotiate with banks to provide a liquid market for the new sukuk, by acting as market-makers. This will allow trade creditors to cash-in the sukuks if they wish. If confidence in the sukuk market is hit, trade creditors could find their new sukuks worth less than expected, and the ultimate goal of getting Nakheel back on its feet would be defeated.