Monday, 5 July 2010
Several Gulf banks teetered during the financial crisis but few have suffered as much as Gulf Bank, one of Kuwait’s largest and most established lenders.
After a client was unable to settle a substantial derivatives trade that went awry in October 2008, rumours of severe losses spread and the lender suffered a bank run – practically unheard of in the region.
As a result of losses on derivatives, loans and investments, the bank posted a loss of KD359.5m in 2008. The Kuwait Investment Authority – a 16 per cent shareholder after subscribing to most of a KD375m emergency rights issue in December that year – replaced the chairman, revamped the board and brought in new management to turn the lender round.
Rating upgrades may be as rare as hens’ teeth these days, but Standard & Poor’s award of a double-A long-term grade to Qatar today should come as no surprise. The country is stinking rich, even by the standards of the Gulf.
Soaring oil and gas sales will bring over $76bn into the finance ministry’s coffers this year, and expand the country’s economy by almost a fifth this year, according to the International Monetary Fund. This has propelled Qataris to the top of the table of the world’s wealthiest people, and impressed rating agencies, economists and bankers alike:
“The upgrade is based on the government’s strengthening fiscal and external balance sheets, with strong growth prospects spurred by new large liquefied natural gas (LNG) projects in 2010-2012,” said Standard & Poor’s credit analyst Luc Marchand.
Standard & Poor’s raised Qatar’s long-term ratings to AA, the agency’s third highest, from AA-, citing “strengthening fiscal and external balance sheets.”
Qatar’s real per capita gross domestic product will gain 11 percent in 2010 amid rising gas output, S&P said in a statement today. The world’s biggest producer of liquefied natural gas aims to increase its capacity to produce the fuel by 43 percent to 77 million tons, with three new production units starting this year.
“Qatar’s economy is weathering the global downturn well, with deflationary pressures and financial sector problems contained by the economic policy flexibility generated by new gas projects,” S&P said in a report issued today.
What’s going on at the banks in the United Arab Emirates? It is an open secret that the deterioration in their asset quality is worse than suggested by the size of problem loans, which credit rating agency Moody’s puts at 4.9 per cent of total loans at the end of last year.
Dubai has been through a devastating crisis. The emirate’s property crash has wiped 50 per cent off values, while in nearby Abu Dhabi the market is down by 30 per cent. Economists expect property prices to fall some more, perhaps even as much as 20 per cent.
Many companies in the region are suffering and few are able to secure new credit lines. It has not gone without notice, moreover, that the non-performing loan to gross loan ratio reported by HSBC Bank Middle East was 7.3 per cent – a “better indication” of reality, according to Fitch Ratings.
Qatar shares advanced, ending a six- day drop and leading Gulf markets higher, as Asian stocks increased and crude oil gained. Industries Qatar climbed the most in almost a month.
The QE Index rose 1 percent, the most since June 21, to 6,832.23 at 12:13 p.m. in Doha. Industries Qatar, the second- biggest petrochemicals maker in the Middle East, climbed 1.2 percent and Qatar National Bank SAQ increased 1.8 percent ahead of earnings tomorrow. The Bloomberg GCC 200 Index rose 0.7 percent, led by petrochemical and energy companies. Dubai’s Index rose 0.2 percent, paring the drop for the year to 18 percent.
Emerging-market stocks advanced for a second day, led by technology companies, on speculation consumer spending will withstand a slowing global economic recovery. The MSCI Emerging Markets Index climbed 0.2 percent. Asian stocks rose, following the MSCI Asia Pacific Index’s biggest weekly drop in more than a month, amid takeover news in Australia and as a weaker yen boosted the outlook for Japan’s exporters.
IFA Securities LLC, a Dubai-based brokerage established by Kuwait’s International Financial Advisors KSCC, closed after stock markets tumbled and volumes slumped.
“The costs of operations were too high considering the current state of the market” and low trading volumes, said Emad Eldin Abbas, operations manager at IFA. The company plans to reopen in a year, after having combined with another brokerage, Abbas said. IFA has 13 employees.
Dubai’s benchmark stocks index has plunged more than 80 percent from its record in 2005. About 43 million shares traded in the emirate today, compared with a six-month daily average of 190 million. Eleven brokerages in the United Arab Emirates have either shut this year or are in the process of closing, The National newspaper reported in June, citing the market regulator.
Libya should buy a strategic stake in BP PLC to take advantage of its weak share price following the giant oil spill in the Gulf of Mexico, the country's top oil official told Zawya Dow Jones.
Shokri Ghanem, chairman of Libya's Nation Oil Co. said he will recommend buying a stake in BP to the Libyan Investment Authority, or LIA, the North African state's sovereign wealth fund.
"BP is interesting now with the price lower by half and I still have trust in BP, I will recommend it to the LIA," Mr. Ghanem said in a telephone interview Monday. "It's a good opportunity for bargain hunters," he added.
Mr. Ghanem's remarks follow local press speculation that oil-rich Middle East investors are considering a strategic investment in BP as it continues to battle the oil spill in the Gulf of Mexico. The spill, now in its 76th day, ranks among the largest in U.S. history and has hurt the region's fishing and tourism industries.
"We are not selling any assets right now but we do wish to sell $10 billion of noncore upstream assets over the next 12 months; if people want to buy BP shares we always welcome new shareholders," said John Pack, a London-based spokesperson for BP.
BP's shares last traded up 3.5% at 333 pence ($5.06). Shares have dropped from as much as 640 pence before the April 20 blast aboard Transocean Ltd.'s (RIG) Deepwater Horizon drilling rig—leased by BP for its Macondo well.
"Gulf sovereign wealth funds and other investors from the region might express interest given the record of investing in companies in distress which have brought confidence and placed a 'floor' under the companies' share price and prevented further depreciation," said John Sfakinakis, chief economist at Riyadh-based Banque Saudi Fransi-Credit Agricole.
Mohammed Layas, Executive Director of the Libyan Investment Authority, said Monday he had "no comment at this stage."
The LIA in 2008 acquired a stake of less th an 2% in Italy's Eni SpA, which has extensive operations in Libya, after buying shares on the open market. The state fund was also targeting other energy investments including in international oil companies, Mr. Ghanem said in June 2009.
"A stake in BP could bring privileged access to sophisticated production know-how," said Eckart Woertz, director of economic studies at the Dubai-based Gulf Research Center.
Libya has stepped up overseas investments since economic sanctions were lifted on the country in 2004. It has also attracted significant investments from oil firms including Eni, Total S.A. and Occidental Petroleum in recent years.
BP and its Libyan partner, the Libya Investment Corp., or LIC, in May 2007 signed an exploration and production deal with NOC worth at least $900 million for the onshore Ghadames and offshore Sirt areas, covering an exploration area of around 54,000 square kilometers.
BP said earlier Monday the cost of the response to the Gulf of Mexico oil spill so far is $3.12 billion, as it ramps up oil-containment efforts following storm surges caused by Hurricane Alex. The cost figure includes containment, relief-well drilling, grants to Gulf states, claims paid and federal costs, BP said in a statement.
An interesting report from Saudi Arabia: the country’s king reportedly said at the weekend that he had ordered oil exploration cease in order to keep reserves for future generations.
From Dow Jones, quoting the Saudi Press Agency:
RIYADH (Zawya Dow Jones)–Saudi Arabia’s King Abdullah has ordered a halt to oil exploration operations to save the hydrocarbon wealth in the world’s top crude exporting nation for future generations, the official Saudi Press Agency, or SPA, reported late Saturday.
“I was heading a cabinet meeting and told them to pray to God the Almighty to give it a long life,” King Abdullah told Saudi scholars studying in Washington, according to SPA.
“I told them that I have ordered a halt to all oil explorations so part of this wealth is left for our sons and successors God willing,” he said.
There are times when deciphering the meaning of a statement or comments by an official in the Gulf can be a tricky business.
And a statement put out on the official Saudi Press Agency quoting King Abdullah was a case in point. It had the kingdom’s ruler saying he had ordered the world’s top oil producer to halt oil exploration operations to protect the country’s hydrocarbons wealth for future generations.
It quoted him as saying the order had been made at a cabinet meeting and, unsurprisingly, the SPA statement was picked up by news wires and internet sites.
Shariah-compliant loans slumped to a five-year low in Europe, the Middle East and Africa in the first half on credit-ratings downgrades and falling property prices.
Islamic syndicated loans declined 40 percent to $2.2 billion, compared with a 5 percent drop in total lending to $304 billion, according to data compiled by Bloomberg. Real-estate prices have dropped 50 percent in the United Arab Emirates from their peak in August 2008, according to estimates from Colliers International.
“Banks have plenty of liquidity but they have been very selective when it comes to where they would like to deploy it,” Faisal Hijazi, the business development manager of rating services and Islamic finance in Dubai at Moody’s Investors Service, said in a July 1 interview in Kuala Lumpur. “Real- estate and investment companies seem to be the most seriously challenged when it comes to refinancing.”
Old Dubai” evokes the bustling area around the Creek, where the Gulf emirate’s commercial tradition began, with dhows plying their trade with eastern ports and merchants haggling in the souks.
But in the wake of a global financial crisis that hit the city-state hard, old Dubai has come to represent something deeper – a longing for a return to roots, to the basic businesses that transformed it from sleepy fishing village to flourishing port town.
Strategically located between Africa, the Middle East and Asia, Dubai has long thrived as a trade hub. Many residents now hark back to the Dubai they knew before the city became obsessed with real estate. The frenzied development of apartment blocks, malls and business parks dazzled the world – before the property market collapsed and, along with the impact of the global turbulence, left the emirate with more than $110bn (€87bn; £72bn) of debt.
South Korean groups are taking an increasingly large chunk of infrastructure projects in the Middle East as the country attempts to stamp its mark on the lucrative region.
Companies from the country last year won $36bn worth of infrastructure and construction projects – a quarter of all such contracts up for grabs in the region, according to the Middle East Economic Digest. This compares to only $2.3bn in 2003.
The deals are important to South Korea, because it is trying to showcase its companies’ ability to win foreign contracts through a willingness to work closely with local workers and to transfer knowledge – something that has never really been their forte in the past.
Underpinned by its huge natural gas resources, Qatar is poised to become the third largest economy in the GCC region by 2012, research has shown.
Beyond an 18.5% real GDP growth forecast for Qatar in 2010, the highest worldwide, the International Monetary Fund (IMF) forecasts 14.3% in 2011 and 9.2% for the country in 2012.
Qatar is set to become one of the top “macroeconomic picks” by investors in the Mena region, Bank Audi says in a study titled “A mix of opportunities and challenges for the World’s fastest growing economy”.