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Tuesday, 30 November 2010

UAE markets contract despite Abu Dhabi property rally

Rising property stocks in Abu Dhabi could not help lift its bourse into positive territory on a day which saw UAE markets contract before the close of trading.

In Abu Dhabi Aldar Properties rose 1.4 per cent to Dh2.21 and Sorouh Real Estate gained 1.2 per cent to Dh1.63 on the day the company's chief operating officer said the developer had started an aggressive 'default avoidance' programme after seeing up to eight per cent of buyers on its Reem Islands project pull out of contracts. RAK Properties, which rose 2.2 per cent during intraday trading, closed flat at Dh0.45. However the Abu Dhabi Securities General Index closed marginally down at 0.05 per cent to 2,729.87 points.

The Dubai Financial Market (DFM) General Index dropped 0.3 per cent to 1,668.82 points as Emaar Properties slipped 0.8 per cent to Dh3.62, after rising 1.4 per cent earlier in the week as its chairman said the property sector will pick up.

Saudi Arabia, Kuwait Seek Gas to Supplant Use of Oil for Power - BusinessWeek

Saudi Arabia, the world’s largest oil exporter, and neighbor Kuwait seek to add natural gas supply to avoid burning crude and refined products to generate power, officials from the two nations’ state oil companies said.

“We are picking up gas exploration,” Ahmad Al-Sa’adi, vice president of gas operations at Saudi Aramco, said today at a conference in Doha, Qatar. “Any liquid fuel we are burning comes at the expense of our exports.”

Middle East oil producers like Saudi Arabia, Kuwait and the United Arab Emirates are largely dependent on gas found together with crude oil. Output of the fuel is crimped because the Organization of Petroleum Exporting Countries limits the amount of gas that can be extracted.

Damas swings to profit, but only just - Emirates24|7

Damas International, the Dubai-based listed gold and jewellery group, recorded marginal profits for the six months period ended September 30, 2010, compared with a net loss during the corresponding period of last year, the company announced.

Damas’ six-months net profits stand at Dh4.25m compared with a net loss of Dh714.87m during the same period of 2009.

The company’s profits are largely on the basis of a reversal of impairment losses on equity accounted investments (based on settlement agreement entered with a related party), which boosted its bottom line by over Dh12m, compared with a net impairment provision of over Dh138m last year.

Gulf sovereign fund takes a punt on Russia

Mubadala Development Company, the Abu Dhabi-based sovereign wealth fund, is investing $100m with the Russian hedge fund Verno Capital.

The deal is being touted as the first time a heavyweight Gulf-based investor has taken the leap to invest in Russia.

Verno was founded by Dimitri Kryukov and a senior team who all previously worked at Kazimir Partners. Before establishing Verno about a year ago, Kryukov and his Kazimir colleagues delivered annualized returns to investors of 30% from inception in 2002 to 2008.

Dubai Received First LNG Cargo From Qatar Yesterday, Shell's Barry Says - Bloomberg

Dubai received its first cargo of liquefied natural gas from Qatar yesterday, said John Barry, vice president for technical and production in the Middle East and North Africa for Royal Dutch Shell Plc.

“Shell is not an equity investor in the project” and serves instead as a project and technical adviser, Barry said at a conference in Dubai today. “Shell is also involved in sourcing the LNG.”

Dubai began discharging the LNG at 1:00 am today, he said.

gulfnews : Emirates NBD raises $410m

Emirates NBD, the UAE's largest bank by assets, raised $410 million (Dh1.5 billion) through a multi-currency loan structured around its portfolio of syndicated loans to corporates, the bank said in a statement on Monday.

The loan, priced at a margin of 1.75 per cent above the applicable reference rates, was fully subscribed by JP Morgan.

"This successful transaction is a testament to the market's confidence in Emirates NBD as a premier financial institution in the Middle East, with an established track record, solid fundamentals and excellent future prospects," Emirates NBD chief executive Rick Pudner said in a the statement.

Debt restructuring of UAE companies is crucial: IMF

The successful restructuring of troubled UAE companies will help to determine the IMF's outlook for its economy, says a senior official at the fund.

"The issue of dealing with that will be important, as will other issues like the outlook for energy prices [and] global growth," said John Lipsky, the first deputy managing director of the IMF.

Mr Lipsky was speaking on the sidelines of the World Economic Forum Summit on the Global Agenda in Dubai yesterday.

UAE airlines want cheaper credit for rivals

Etihad Airways and Emirates Airline have backed rivals by lobbying for European and American carriers to be eligible for government support, or export credits, on Boeing and Airbus purchases.

The two UAE carriers are among 10 international airlines that have formed a group called Aviation Alliance, the primary goal of which is to end the "Home Country" rule, which was agreed to through the Organisation for Economic Co-operation and Development (OECD).

That rule prevents airlines based in the countries that produce Airbus and Boeing planes from receiving government-backed loans at attractive rates.

France rejects Qatar's Areva investment terms-paper | Reuters

French President Nicolas Sarkozy rejected conditions set by Qatar for its participation in a planned capital increase by French nuclear reactor maker Areva (CEPFi.PA), Les Echos said in a preview of its Monday edition.

Qatar is only prepared to take part in the capital hike if it can invest in Areva's mining activities, Les Echos newspaper said. The Financial Times has also reported that Qatar is seeking guarantees over the value of Areva, for example by having an option to take shares in its uranium mining division.

Areva, which is almost 90 percent owned by the French state, is planning a capital increase which it hopes will raise up to 3 billion euros ($3.94 billion) to finance future development projects."

Gaming Today : No bailout needed for Dubai World

It came as good news for MGM Resorts International (MGM) over the weekend when city-state Dubai announced that it won’t need another financial bailout this year.

Dubai World, a debt-ridden offshoot of the emirate, is a 50-percent partner with MGM in CityCenter, as well as a major holder of MGM stock.

Last year, much to the embarrassment of Dubai leader Sheik Mohammed bin Rashid Al Maktoum (a major player in the U.S. thoroughbred racing industry), Dubai needed a $10 billion bailout from its oil-rich neighbor, Abu Dhabi. That triggered reports that Dubai World would be forced to sell some of its holdings to address its major debt problems.

AFP: Dubai property sector fell by five percent in 2010: official

The construction and real estate sectors in Dubai have registered a near five percent fall in 2010, a top Dubai government official told AFP on Monday of the sector hit hard by the financial crisis.

"I believe that all the main sectors have registered varying proportions of growth (in 2010), except property and construction which saw a five percent drop," Sami al-Qamzi, director general of the Dubai department of economic development, told AFP.

Growth in the construction sector is based on supply and demand, thus "its recovery will take a longer time," added Qamzi, who was speaking on the sidelines of the Global Agenda Summit in Dubai.

Sukuk Snap Five-Month Rally on European Debt: Islamic Finance - Bloomberg

Islamic bonds slumped in November, snapping a five-month rally, as concern Europe’s debt crisis will spread reduced demand for higher-yielding assets in emerging markets.

Average yields on sukuk climbed 19 basis points, or 0.19 percentage point, in November to 5.04 percent, the highest level since September, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Yields had dropped 194 basis points from May 31 until the end of October. The extra yield investors demand to hold non-Islamic emerging market debt instead of U.S. Treasuries rose 16 basis points in the month to 261 yesterday, according to JPMorgan Chase & Co.’s EMBI+ Index.

“The sukuk market doesn’t work in isolation,” Scott Lim, chief executive officer at Kuala Lumpur-based MIDF Amanah Asset Management Bhd., who oversees the equivalent of $670 million of assets, said in an interview Nov. 26. “Europe is having too many structural problems and this is only the beginning. It is going to be challenging for the bond market.”

A Proxy to the Saudi Residential Real Estate Market « Alpha Dinar- talking GCC finance


As I promised last week (click here), I will tell you how to best position yourself if you are betting on the Saudi Mortgage Law. When the supply finally catches up with the demand the whole economy will grow and all sectors will benefit. Banks will take their share by growing their loan portfolios and increasing their NIM’s (net interest margin). Real estate brokers, landlords and land developers will benefit from the increase in volume in sales.
An obvious investment would be real estate, however, if you don’t have enough capital or simply you cannot own land in Saudi, the best way to capture this growth is to long Dar Al Arkan stock. In my opinion this stock is a proxy to the Saudi residential real estate market.
Dar Al Arkan, incorporated in 1994, is the largest listed real estate developer in Saudi Arabia. It was established by six Saudi families, in which they control 70% of the equity and rest is free floating in the Tadawul exchange. Since inception the company has grown to be from a basic infrastructure constructor to become one of the leading real estate developers and homebuilders. Given its young aged demographics, Saudi Arabia is highly in demand for new infrastructure. Dar Al Arkan has positioned itself to be the leader in mid-income housing development.
Revenue
Currently most of Dar Al Arkan’s revenues are generated through land sales. However, revenue is expected to be more diversified in the coming few years when the company is ready to sell its’ units and a stream of rental income is expected to come in. Moody’s expect the revenues to be around SAR11 billion in 2013 from SAR5 billion in 2009. Historically the company has been generating high gross income margin of around 50% backed by high margin land sales; nevertheless, this number is expected to decrease to around 30% as revenue diversifies more.
Debt and Liquidity
Due to the nature of the company and given it cannot sell off-plan properties it has to fund itself through other mediums. They have taking both short-term and long-term debt to fund their projects. As per the second half results, Dar Al Arkan has SAR7.6 billion in borrowings. Initially cash from land sales will settle a small portion of the debt, however the debt is expected to decrease when they start selling their unites in 2012. The company has high leverage ratios, however, it is justified due to the nature of the business. I expect the debt ratios to decrease in 2012 when they sell the projects they are working on. Moreover, I expect the profitability ratios to improve, as they will have more sources of revenues.
Below is the price chart of Dar Al Arkan. The stock is trading at all time lows, down 38% this year as compared to the Tadawul index, which is up 3%. Although I like the story of Dar Al Arkan the chart frightens me a bit as it indicate that the market anticipates further delay on the law. There is defiantly a big risk factor, however I would still take a bet on it.


FT.com / Middle East - One year on and Dubai seeks to raise its game

 Emiratis walk past the Burj Dubai Tower

When it was announced that Dubai’s top three government officials were to provide an “economic update” at the weekend, it was telling that rumours quickly began to swirl. Investors braced for another big announcement from the emirate.

Some judged that the only reason for these officials to speak would be a statement on the emirate’s debts, estimated at $110bn by the International Monetary Fund.

The event harked back to a year ago on November 25, when the government asked to freeze debt payments on up to $25bn owed by Dubai World, a troubled conglomerate brought low by real estate speculation and leveraged foreign purchases.Some judged that the only reason for these officials to speak would be a statement on the emirate’s debts, estimated at $110bn by the International Monetary Fund.