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Thursday, 22 July 2010

Qatar's Gas-Fueled Growth May Slow by Half, Economic Adviser to Emir Says - Bloomberg

Qatar, the world’s fastest-growing economy, may slow by more than half two years from now as the country completes its largest energy projects.

The Persian Gulf emirate, with the world’s third-largest reserves of natural gas, will likely post “double digit” growth for the next two years, said Ibrahim Ibrahim, economic adviser to Qatar’s emir. Expansion will cool after that to an annual nominal rate of no more than 9 percent, assuming the government follows the guidance of senior economic planners, he said yesterday in an interview in the Qatari capital of Doha.

The International Monetary Fund forecasts that Qatar’s gross domestic product will increase this year by 19 percent, faster than any other economy and double the country’s growth rate for 2009. Energy wealth helped Qatar’s economy triple in size since 2004. The population has doubled over the same period, as thousands of foreign workers arrived to build plants for liquefying natural gas and the world’s biggest facility for converting gas to liquid fuels.

Dubai World document reveals price of failure, UAE Conglomerates, Industry - Maktoob Business

Dubai World warned that lenders, aside from the government's own support fund, would face a "significantly" worse deal if its debt plan fails and it is forced to seek liquidation, according to the debt restructuring plan outlined to bankers on Thursday.

The document seen by Reuters also said the repayment of an initial $4.4 billion, five-year debt tranche would be financed by its Istithmar World portfolio and its Infinity investment -- two segments that were ringfenced from the conglomerate's debt proposal agreed by a core group of bankers in May.

Infinity, which dropped plans to develop an island dedicated to fashion after the property market collapse, is in a joint venture with MGM Resorts International. Dubai World bought a 9.5 percent stake in MGM in 2007.

Emaar Returns to Second-Quarter Profit on Sales of Dubai Tower Apartments - Bloomberg

Emaar Properties PJSC, the builder of the world’s tallest tower in Dubai, reported a second-quarter profit after handing over properties to buyers.

Net income was 802 million dirhams ($218 million), compared with a year-earlier loss of 1.28 billion dirhams, Emaar said in a statement today. Analysts predicted earnings of 745.5 million dirhams, according to four estimates compiled by Bloomberg.

The developer, which opened the 200-story Burj Khalifa in January, said it completed sales of about 24 percent of the properties in the building as of the end of June. About 90 percent of Emaar’s revenue is generated in Dubai, where the company is based.

Dubai World Sees $23.5 Billion Restructuring in Months After Bank Meeting - Bloomberg

Dubai World Sees $23.5 Billion Restructuring in Months After Bank Meeting - Bloomberg

Dubai World, the state-owned company seeking to renegotiate the terms on $23.5 billion of debt, said it expects to complete the restructuring process in the “coming months” after a meeting with its creditors in the emirate today.

“As is customary at this stage of the process, this was an informational session and no resolution was sought in the meeting,” Dubai World said in an e-mailed statement. “Creditor banks will now have the opportunity to review the information provided before responding to the proposal. “The company expects to complete the restructuring over the coming months.”

Dubai World made the presentation to about 70 banks at the Atlantis hotel after a group of its seven biggest lenders said May 20 they agreed to its broad terms. The terms agreed by the main banks were unchanged when presented to other creditors today, two people who attended the presentation said.

Dubai Shares Fall on Earnings Concern, Dubai World Meeting; Kuwait Gains - Bloomberg

Dubai shares fell for a third time this week amid investor concern about earnings and Dubai World as the state-owned company seeking to renegotiate the terms on $23.5 billion of debt met with creditors in the emirate.

The DFM General Index lost 0.2 percent to close at 1,528.97 as Emirates NBD PJSC, the United Arab Emirates’ biggest lender, by assets fell the most since July 18 and Dubai Investments PJSC, the Dubai-based investment company with stakes in more than 40 companies, ended a five-day winning streak. Emaar Properties PJSC, the builder of the world’s tallest tower, closed unchanged before reporting a second-quarter profit after a year-earlier loss. The DFM Index rose 0.6 percent this week.

“Investors are being cautious,” said Hassan El Salah, deputy head of institutional equities at Al Ramz Securities in Abu Dhabi. There has been “last minute selling before any announcement by Dubai World, especially by banks exposed to the company,” he said.

Kuwait's KFH booked $270 mln provisions in H1, Kuwait Banks, Banking & Investment - Maktoob Business

Kuwait Finance House (KFH), the country's biggest Islamic lender, set aside 78 million dinars ($270.2 million) to meet loan losses in the first half of 2010, a top executive said in aired remarks on Thursday.

"Most of them (78 million) are against credit operations and a small portion is against investments," Abdul Nasser al-Subeih, KFH's deputy chief executive told Dubai-based Al Arabiya Television.

"We took enough provisions in the second quarter," Subeih said without providing a figure.

Dubai World ready to use tribunal for debt deal | Reuters

Struggling state firm Dubai WorldDBWLD.UL is ready to use a special tribunal to force rebel lenders into line on plans to delay repayment of $14.4 billion in debts, according to a source familiar with the matter.

The source spoke ahead of a key meeting on Thursday for creditors of the once fast-growing Gulf Arab emirate, now laboring under more than $100 billion of debt including those of its flagship conglomerate.

"It's unlikely all 73 banks will accept terms which means it will likely go to a tribunal," the source said, adding that if the majority support the plan, the tribunal can compel holdouts to get in line so the restructuring can proceed.

Cagamas Sukuk `Big Step' for Malaysian Middle East Sales: Islamic Finance - Bloomberg

Duet Mena Ltd. and Algebra Capital Ltd., Dubai-based managers of $500 million, said they may buy Islamic bonds from Malaysia’s Cagamas Bhd., the first under a new structure that complies with the Persian Gulf’s stricter religious laws.

Cagamas, the nation’s biggest mortgage holder, plans to seek funds in the oil-rich region by offering 5 billion ringgit ($1.5 billion) of notes that meet the guidelines of the Bahrain- based Accounting & Auditing Organization for Islamic Financial Institutions. Fatwas, the judgment of a scholar based on his interpretation of Shariah law, from Malaysia aren’t generally accepted in the Middle East.

Demand from Dubai investors would benefit borrowers in Malaysia, the largest Asian sukuk market. Saturna Sdn., the Malaysian investment fund whose Washington-based parent oversees $3 billion of Islamic assets, said it is counting on the sale to attract funds from the Middle East.

UAE firms eyeing India for funds and expansion

More UAE firms are turning to India for funds and expansion in order to benefit from the resilience of the country's economy to the global financial crisis.

While Dubai-based alternative investment firm Evolvence Capital on Wednesday launched its third India-focused fund, UAE's incumbent Etisalat looked set to strengthen its presence in the Indian Subcontinent with reports suggesting it is close to buying a 26 percent stake in Reliance Communications.

Meanwhile, Zulekha Hospitals, a UAE-based health care group, said on Wednesday that it is planning to expand and restructure its affairs in the UAE and the Indian subcontinent. Clyde & Co, a leading law firm in the Middle East, is advising Zulekha on the restructuring as well as obtaining a $24 million convertible loan facility from the IFC, a member of the World Bank Group.

How the DIFIC Counter-Claim against Bisher Barazi could drag Dubai back into the debt morass from which is most recently emerged.

So I have decided to have a closer look at the “Fraud Sweep” going on in the DIFC. I’ve written once already on what the Dr. Omar aspect of it which, despite his payoff and release remains an open question. It will actually be quite difficult to assess where the Dr. O part of the case is because it is going on in Dubai Courts to the extent that it is being done within a legal system at all.

Then there is the drama of Bisher Barazi. It’s being played out in the DIFC courts with and unusual level of transparency. Both Bisher’s complaint and the response of the DIFCI are viewable by the public. Just go to the DIFC Courts website and click on “anonymous login,” search DIFIC, double click on the case and the documents come right up. They make for interesting reading.

I think Barazi’s complaint is kind of funny. Once Dr. O had been thrown out the new sheriff in town decided to clean house and basically told Barazi to go home. Barazi says that when the DIFCI told him to pack his things they said they were acting on the orders of the Financial Control Department, the organization looking into what happened to all the money that has gone missing from DIFCI. Barazi considered himself to have been terminated and according to his contract he had three months paid leave coming to him. The DIFC didn’t pay him. The new governor told him he would look into it. Nothing happened. He spoke with the guys from Finance Control and they told him he was not under investigation and that they had not ordered his suspension. He had a meeting with the governor and was told that he had no rights and if he wanted anything he should go to court. This he has done and he is suing DIFIC for $484,000 including $122,000 for “emotional damage.”

It seems to me that the new Governor of the DIFC quite reasonably wanted Barazi out once Dr. O had gone and told him to get lost. For some reason the guy decided to claim that it wasn’t his idea but that of the Finance Control department. My guess is that this is a simple administrative error. When they got rid of Barazi, nobody called HR to figure out precisely what Barazi’s contract said and he’s trying to take advantage of that for a few hundred thousand on what he surely thinks will be his way out of Dubai. Well, given the DIFCI counter-claim he’s getting more than he bargained for.

As humorous as Bisher’s complaint is the response from the DIFCI is absolutely hilarious. They begin by nitpicking when Bisher started at the DIFC, when he transferred over to DIFCI, that his 150,000 AED/month compensation was actually 90,000 in salary and 60,000 in housing allowance. Then in a bit of he said/she said they deny that the DIFIC ever told Bisher to leave the office.

This is where it starts getting bizarre and deadly serious.

DIFIC claims it did not order Barazi to leave. So if the DIFIC did not tell Barazi to leave, who did? Well, says DIFCI, the Dubai Government Audit Team. Oh, OK, and what evidence do they present for this version of events? A newspaper clipping about Dr. Omar. Yep, you heard me, they present a few lines from an article in Gulf Business saying that Dr. Omar has been arrested and released pending charges of financial irregularities. Surely if the Dubai Government Audit Team ordered the suspension of Mr. Barazi there must be better documentation o this fact than a newspaper article that not only doesn’t mention Mr. Barazi by name it doesn’t name anyone but Dr. Omar. Call me crazy but I would think that the Dubai Government Audit Team would have better records than that I mean, they are an audit team after all.

Then they claim that Bisher tried to resign. They claim they did not accept his resignation but rather placed him on “investigation leave.” What evidence is there of this? None is provided. They do say that “Although the claimant contends that the defendant has failed to provide any evidence of instruction from the Audit Department, the Claimant has in fact admitted that he was aware of the investigations.” How Barazi’s awareness of the investigation constitutes notification that he has been placed on “investigative leave” I have no idea. Sitting here in the New York Public Library, I too am aware of the investigations but I am not aware of having been placed on investigative leave. Surely the easiest way to prove the existence of instructions from the Audit Committee to place Barazi on administrative leave would be to provide the instructions. The fact that the DIFCI cannot do this I think actually proves Barazi’s point, not theirs.

Then come the serious allegations. DIFCI says that once it became aware of the Audit Team’s investigation it retained KPMG to conduct an independent review of the actions of the former managers of DIFCI. They claim that Mr. Barazi “breached his fiduciary duty and conducted himself in ways which would warrant his termination” it describes these things as “fraud, dishonesty, misrepresentation, and breach of trust.” Serious indeed. So what precisely does DIFCI accuse Barazi of?

Procurement of an Unlawful Bonus

This crime will be familiar to anyone paying attention to the Dr. Omar saga. DIFIC claims that Bisher and Dr. Omar conspired to pay themselves $1.2 million and $3.3 million respectively in “investment bonuses.” Then comes the zinger “The Claimant justified the Investment Bonuses by misrepresenting that DIFCI had realized an income of $60,000,000 in the 2007 financial year but deliberately failed to disclose that financial statements showed that DIFCI suffered a net loss of $80,000,000 over the same period.” At first glance this looks pretty damning and if Barazi cooked the books he should go to prison full stop. But that’s not what they accuse him of, they accuse him of using realized income to justify a bonus when the net position of the firm was negative. It’s entirely possible for them to have realized a $60 million gain on a transaction while the book of open positions was down $140 million.

Then there’s the question of to whom were they making this misrepresentation? It seems from the counter-claim that the only person required to approve Barazi’s bonus was Barazi. If that is the case then who is to say ex post facto what was a reasonable level of compensation. At the time DIFCI had literally multiple billions of dollars invested. $80 million on the total value of the assets he was managing was not a material number. Paying someone $1.3 million for managing a multi-billion dollar fund, even if it has a marginal loss, as DIFCI did in 2007 is not a big number. The guys running the DIFCI today have decided ex-post facto that this was unlawful but at the time it was awarded it seems to not in fact have broken any laws. Barazi was operating in a system where there was no external review of his compensation. Given the amounts he was investing you could argue he was not taking full advantage of his capacity to pay himself. The people who set up this system in which Barazi and Dr. Omar operated sure as hell breached their fiduciary obligations to Dubai however.

Then there is some stuff about backdating memos regarding compensation. I personally don’t find this too convincing but I don’t have a strong opinion on it. I can easily imagine people in the DIFC playing fast and loose with that sort of thing.

Unauthorized Loans

Apparently Barazi applied for and received some personal loans from DIFCI after the board declared a moratorium on personal loans to employees. Dr. Omar approved the loans and there seems to have been no objection from the Board. They don’t claim that Dr. Omar was not authorized to approve the loans and if he was then the loans were legal. It may have been in poor taste for Barazi to ask for something that had been banned by the board but if it was within the power of Dr. Omar to grant them then I don’t see how this constitutes fraud.

Then there’s my favourite:

Failure to Conduct Due Diligence

Apparently in September 2009 asthe Dubai real estate market was in free fall Barazi decided to buy $1 billion worth of off plan real estate for DIFCI. He decided this on September 28, 2009. On October 5th, he sent a check for the first instalment to the Al Fahim Group and on the same day sent a letter to E&Y requesting due diligence so clearly thet due diligence could not have been completed before the transaction was executed. AH-HA! Caught red handed! He bought off plan Dubai real estate without conducting proper due diligence! Clearly a breach of his fiduciary duty! Given the fact that Dubai was weeks away from seeking a debt moratorium on account of a collapsing real estate market Barazi was almost certainly under a massive amount of political pressure to use DIFCI funds to shore up the market. But this is not why I think that Dubai should give Bisher Barazi a pass on this one. I think they should do it in the national interest of Dubai.

I think this for two reasons: 1.) if the Dubai Authorities are going to prosecute everyone who bought off plan real estate in Dubai without conducting proper due diligence for fraud there will be no one left to pay the subsequent instalments and the rents. Buying off plan real estate in Dubai without conducting due diligence is the national pastime of Dubai. Once the police had finished carting everyone to jail Dubai would need to hire the Saudi police force to throw the Dubai police force in jail for the same crime, and then they would have to find some other police force to throw the Saudi police force in jail for also buying off plan real estate without conducting due diligence. That’s reason number one, it’s simply not possible.

Reason number 2.) is that Nakheel and with it Dubai World have no chance in hell of ever paying back their creditors unless a whole hell of a lot more people buy off plan real estate without conducting due diligence. The last thing Dubai wants is someone actually taking a look at what is actually happening over at the Dubai Waterfront. Someone might realize that the Crescent Shaped Islands do not actually exist. No, no, the last thing on Earth Dubai should be doing is criminalizing the purchase of off plan real estate without conducting due diligence. Hell they should be giving out prizes for it, or allowing people to set their own bonuses as long as they invest some of the proceeds in off plan real estate for which they have not conducted proper due diligence. Now there's an idea...

In my next post I'll tell you the real reason Bisher and Dr. O are in for it. - Tehran adds to carmakers’ woes

Iran’s government has reduced its stake in the country’s two largest car producers, which together form the core of the second most important national industry after oil and gas.

In theory, Iran Khodro and Saipa, the state-owned companies serving the booming domestic car market, should eventually be transformed into private enterprises under the national privatisation plan.

In reality, however, the indebted manufacturers re main under state control.