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Wednesday, 26 January 2011 - Foreign bankers run into Saudi sands

The Kingdom Tower at night in Riyadh
City of broken dreams: Riyadh has offered little reward for many western investment banks
Dubai’s infrastructure, relative liberalism and gaudy villas may make it the natural investment banking hub for the Arab world, but Saudi Arabia is potentially the region’s most lucrative market.
Yet about half a decade on from a “big bang” of financial reforms that caused scores of blue-chip international financial institutions to set up bases in the largest Arab economy, business has resoundingly failed to live up to the hopes of fee-hungry bankers.
A stock market crash in 2005-06 wiped about $500bn off the Saudi bourse and hastened a drive by the then recently formed Saudi Capital Markets Authority to reform and liberalise the country’s financial sector.

Qatar to Win Second VW Board Seat, Lower Saxony Says

Volkswagen AG's third-largest shareholder Qatar Holdings LLC will receive another supervisory board seat after the annual general meeting in May, Lower Saxony Prime Minister David McAllister said in an interview.

"It's pretty obvious that Qatar will get a second seat," McAllister, who represents Lower Saxony on the board, said today in Doha. "We are very glad that Qatar has committed itself." Lower Saxony is VW's second-biggest owner.

Qatar Holdings LLC, part of the country's sovereign wealth fund, has a 17 percent VW stake and one representative on the board. The fund also has a holding in Porsche SE.

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Egypt: markets alarmed by protests | beyondbrics –

Egypt’s financial markets left no doubt about the significance of the daring street protests against the country’s president: stock prices tumbled on Wednesday, the currency weakened, and the cost of insuring against a government bond default rose.
The Egyptian authorities moved to stop events spiralling out of control by banning demonstrations and warning that participants would be detained. But a leading opposition member insisted that further protests were planned. The market reaction underlined profound uncertainty about where all this could lead.
Egypt’s benchmark stock index, the EGX30, closed down 6.1 per cent on Wednesday, its biggest one-day drop since November 2009. The cost of insuring against the country defaulting on bond interest payments rose by 9 basis points to its highest level since June 2009.

Insurance firm IPO to test battered UAE market | Reuters

Abu Dhabi-based Insurance House is planning a small initial public offering (IPO) in February, banking sources said, the latest company to test investor demand after a drought of stock market listings.

The United Arab Emirates has not seen an IPO in about two years as the global economic downturn and Dubai's debt crisis dented investors' appetite.

Insurance House, a unit of Abu Dhabi-listed Finance House FH.AD, is planning to raise 66 million dirhams ($18 million) by listing on the Abu Dhabi Securities Exchange (ADX), the sources said.

Dubai Shares Advance on Earnings Expectations, Aramex Gains - Bloomberg

Dubai shares advanced a second time this week as Aramex PJSC said it expects earnings to grow and on investor confidence fourth-quarter results will beat expectations. Oil rebounded from an eight-week low.

Aramex, the company with the fifth-heaviest weighting on Dubai’s benchmark, increased to the highest in three months and Emirates NBD PJSC, the United Arab Emirates’ biggest bank, gained 2.1 percent. The DFM General Index rose 0.3 percent to 1,627.97 at the 2 p.m. close in Dubai. Saudi Arabian shares fell the most in a week.

“Aramex has a strategy of expanding into emerging markets and we expect significant growth for the company over the next two years,” said Samir Murad, assistant vice president of research at NBK Capital in Kuwait.

Porsche Supervisory Bd Chairman:Talks With Qatar Were Positive -

Porsche Automobil Holding SE (PAH3.XE) supervisory board chairman Wolfgang Porsche said Wednesday that talks with Qatar over the German auto maker's planned capital increase were "positive".

Speaking at the sidelines of the Qatar Motor Show, Wolfgang Porsche confirmed that the Gulf Arab state, which owns a 10% voting stake in Porsche, will take part in the capital increase.

Porsche's holding firm wants to raise EUR5 billion by issuing new preference shares and common stock to reduce debt as part of a complex merger with Volkswagen AG (VOW.XE), Europe's largest auto maker by sales.

DP World in Talks to Buy 25% Stake in Hamburg Port, Bayan Says - Bloomberg

DP World, the Dubai government- controlled ports operator, is continuing talks to purchase a 25 percent stake in Hamburg Port, Al Bayan reported, citing Hans- Joerg Schmidt-Trenz, chief executive officer of Hamburg Chamber of Commerce.

China is competing to buy the same stake, the newspaper said.

Emaar of Dubai Said to Sell 5.5 Year, Dollar Benchmark Sukuk - Bloomberg

Emaar Properties PJSC, the United Arab Emirates’ biggest developer by market value, may sell a 5.5-year benchmark size dollar-denominated Islamic bond, according to two people with knowledge of the sale.

The pricing is expected on Jan. 27, the people said.

Nakheel: legal claims not delaying restructuring - Maktoob News

Legal claims against Dubai World property unit Nakheel are not delaying the developer's proposed restructuring plan, its chairman said on Wednesday.

Sources familiar with the matter said last month that the company's restructuring was being complicated by new claims from trade creditors that could lead to more legal headaches down the road.

Nakheel will also not need additional financing from the Dubai government, Chairman Ali Rashid Lootah told reporters on Wednesday.

Egypt Index Drops Most Since May After Protests Against Mubarak Government - Bloomberg

Egyptian stocks tumbled the most since May after thousands took to the streets of Cairo and other cities yesterday in protests against the government of President Hosni Mubarak.

The benchmark EGX30 index fell 4 percent, the most since May 25, to 6,455.07 at 10:33 a.m. in Cairo, extending its decline this year to 9.6 percent. Egypt’s market was shut for a holiday yesterday.

The protests, rare in their size in Egypt, were inspired by a popular revolt that forced Tunisia’s President Zine El Abidine Ben Ali into exile on Jan. 14. A policeman and two protesters died in clashes yesterday, state-run Nile TV reported, citing an unnamed interior ministry official.

Nakheel repays sukuk; expects 100% creditor approval in two weeks - Emirates24|7

The chairman of Nakheel, the real estate unit of Dubai World, said in a press briefing today that the property firm ihas repaid its $750m sukuk, which matured on January 16. Nakheel had said in December that it intended to pay out a total of $871.6m to settle the debt, including profit distributions and other costs.

The sukuk was issued in 2008 with a principal of $750m. “Yes, we have paid it,” Nakheel Chairman Ali Rashid Lootah said at a briefing in Dubai.

In a regulatory filing to the Nasdaq Dubai stock exchange last month, Nakheel had announced that it planned to use funds from the Dubai Financial Support Fund (DSFS) to repay the sukuk. It had said then that the Dubai government had "made available sufficient funds to allow for the repayment in full."

gulfnews : Mideast joblessness world's highest

The Middle East's unemployment rate is the highest in the world, new figures from the International Labour Organisation (ILO) revealed yesterday.

The ILO report, Global Employment Trends 2011, said current estimates for 2010 show a 10.3 per cent level of unemployment in the region. The youth unemployment rate is almost four times the adult rate.

The outlook for 2011 is also bleak with economic growth projected at 5.1 per cent — short of pre-crisis trends — and little change is expected in the unemployment rate over the next 12 months.

Interest legal under Sharia, court rules - The National

Two courts made a mistake when they exempted a borrower from the interest he owed on delayed loan repayments on the grounds that it was forbidden by Sharia, the Supreme Court has ruled.

The judgment, in court documents released yesterday, involved an unidentified bank owed more than Dh200,000 in interest by a man from Umm al Quwain. The bank's demands for interest were rejected by two lower courts on the grounds that charging interest violated Islamic law.

On appeal, the Supreme Court ruled that the bank's right to charge interest was in line with both UAE secular laws and Sharia.

Value Partners Credit Fund Returns 19% on SE Asia, Middle East - Bloomberg

Value Partners Credit Fund, whose 19 percent return last year beat Asian peers, has been betting on convertible and high-yield bonds in Indonesia, Malaysia and the Middle East, said senior fund manager Fawaz Habel.

Last year’s number brought the $55 million fund’s return since its July 2009 inception to 39 percent, according to fund documents. Eurekahedge Asia Fixed Income Hedge Fund Index advanced 14 percent last year and 27 percent since the hedge fund that bets on rising and falling prices of publicly traded bonds started trading with $10 million.

Bond prices have rallied since 2009 as investors demanded lower returns to hold risky debt. Credit hedge funds like Value Partners’ have been turning to what Habel termed “less followed, less understood” countries as the bargains in the more established markets thinned.

Buy into Middle East growth - MoneyWeek

Each week, a professional investor tells MoneyWeek where they'd put their money now. This week: Ghadir Abu Leil-Cooper, investment manager, Baring MENA Fund, Barings Asset Management.

Equity markets across the Middle East and north Africa have been doing well recently. The MSCI Arabian Markets ex-Saudi Arabia Index rose 18% in US dollar terms over the course of 2010. Yet regional equities have only just returned to the levels seen at the start of 2009's fourth quarter, before concerns over the scale of Dubai's debt and the global recovery surfaced.

While strong and stable oil prices remain a key foundation for regional growth and performance, this is by no means the whole story. A number of economies are diversifying away from hydrocarbons. This is creating opportunities across a range of sectors. Elsewhere, political risk remains a key consideration when investing in the region. We continue to monitor the events in Tunisia closely. While this is clearly a de-stabilising factor over the short-term, we believe that job creation and structural reform is a must, given the young and growing population. Indeed, demographics across the region are attractive. The fast-growing, increasingly affluent middle class means we're very positive on the long-term domestic demand story. Elsewhere, we expect strong oil prices to support state infrastructure investment, providing a further source of economic stimulus.

UAE: Fitch Removes Commercial Bank of Dubai from Rating Watch Negative | Finance

Fitch Ratings has affirmed Commercial Bank of Dubai's (CBD) Long-term Issuer Default Rating (IDR) at 'A-' with a Stable Outlook, Short-term IDR at 'F2', Individual Rating at 'C', Support Rating at '1' and Support Rating Floor at 'A-'. The Individual Rating has been removed from Rating Watch Negative (RWN) and affirmed at 'C', following clarification of the bank's exposure to Dubai World, which has been subject to debt restructuring, Global Arab Network reports according to a press statement.

The affirmation of CBD's Long- and Short-term IDRs and Support Rating reflects the extremely high probability of support from the UAE authorities, if needed. Fitch's opinion of likely support is based on the long history of support for banks in the UAE and the bank's prominent Dubai shareholders. The affirmation of the Individual Rating reflects the bank's adequate profitability and asset quality. It also reflects high asset and liability concentrations as well as its limited franchise and diversification.

A sharp deterioration in asset quality or a material decline in profitability could place downward pressure on the bank's Individual Rating. An upgrade is considered unlikely.

Dubai regulator orders monitoring of Tunisia funds | Reuters

Financial firms in Dubai have to to be on the watch for funds from Tunisia that may be funnelled through the Gulf Arab emirate, the regional business hub's financial regulator said.

The move came days after European Union officials said the bloc could freeze the assets of Tunisia's ousted president Zine al-Abidine Ben Ali, following similar moves by some European governments.

The Dubai Financial Services Authority (DFSA) said in a statement that financial companies had to "be alert to the potential outflow of licit and illicit assets" from Tunisia and Algeria.

BUY: Orascom Construction Industries « Alpha Dinar- talking Gulf finance

In our latest post, “Saud” highlighted the political risk in Egypt and the buying opportunities created by the recent Egyptian stock market sell-off. Some really great companies are on sale, and I would be a buyer of Orascom Construction Industries (OCIC EY). OCIC is not only the largest listed construction contracting company in the MENA region, but also a major producer and exporter of fertilizers. The stock is down 6% since the outbreak of the Tunisian revolution, thus, creating an attractive entry-point. The weakness in the Egyptian Pound is yet another advantage for OCIC as costs are in Egyptian Pounds but revenues are mostly in stronger international currencies. Trading at EV/EBITDA multiples for 2011 and 2012 of 8.9x and 7.3x respectively, the company is decently valued for estimated EPS growth of over 100% from the end of 2009 to 2012.
OCIC has a strong balance sheet with no meaningful debt-outstanding until 2013. In addition, its hybrid exposure to fertilizers and construction is an ideal leverage on the global growth story. Fertilizer prices have been rising since June of 2010 and are expected to continue their upward surge as grain prices increase, the Chinese extend their high tariff period, and the market expects a bad crop in 2011. Moreover, there is a seasonality factor in play as the spring application season is at the door. In fact, Credit Suisse raised their price assumptions on fertilizers on January 14th. OCIC has a clear cost advantage in fertilizers as it benefits from low cost long-term gas contracts in Egypt and Algeria. These factors will contribute to a solid year for OCIC’s highly-lucrative fertilizer business.
The construction side of the business has been a drag in the short-term as the company’s backlog of contracts continued to decline. Please refer to the “Backlog Breakdown” below for greater details on OCIC’s major customers. Qatar alone accounts for 18.3% of the backlog, while Abu Dhabi stands at 15.2% and GCC Other stand at 3.6%. With the Qatar 2022 World Cup bid all sealed up, we expect more from Qatar. More importantly, I expect a substantial increase in contracts from the GCC on the back of surging oil prices. This is what drove the out-performance of OCIC in the 2007-2008 period and I expect a similar albeit less-pronounced pattern to emerge in the 2011-2012 period.