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Monday, 7 February 2011

Shuaa Capital halves losses in 2010

Investment losses drove Shuaa Capital to an overall loss in 2010, the investment bank said on Monday, as it sheds risky assets and turns the business around after the burst of Dubai's property and asset bubble.

The Dubai-based investment bank halved its loss in 2010 to 223.6 million dirhams ($61 million), from 529.8 million dirhams in 2009.

The fourth-quarter loss was 186.7 million dirhams, compared with 154.3 million dirhams a year earlier, driven by impairments and lower valuations.

Egypt debt auction: a qualified success | beyondbrics –

Egypt has just completed an auction of E£13bn ($2.2bn) in short-term sovereign debt – and in the circumstances it can be counted as a success, even though foreigners largely stayed away. It chose to sell E£2bn less than planned and yields were higher than at the previous auction. But given that the two auctions came either side of a near revolution and multiple credit rating downgrades, they weren’t that much higher. The details are here:

Egypt sold E£7bn of 3-month Treasury bills yielding 10.972 per cent, compared with a yield of 9.499 per cent in the previous auction. It sold E£4bn of 6-month T-bills yielding 11.484 per cent, versus the previous 10.62 per cent. And it sold E£2bn of 9-month bills yielding 11.657 per cent, against the previous 10.52 per cent. That data comes courtesy of Barclays Capital.

The auctions seem to have depended on buying by local banks, which are very liquid and already make up much of the market.

MIDEAST STOCKS-Zain Saudi up as Kingdom extends deal deadline | Reuters

Zain Saudi Arabia (7030.SE) hit a three-week high on Monday after Kingdom Holding 4280.SE extended the deadline for its offer to buy a stake in the telecoms operator.

Middle East markets were mixed, with investors cautious as they await further developments in Egypt.

Zain Saudi climbed 2.9 percent to its highest finish since Jan. 15.

NBK Capital Puts Egypt Forecasts on Hold Amid Unrest - Bloomberg

NBK Capital, a regional investment management company, has put its recommendations for Egyptian stocks under review, citing political instability in the North African country.

“Given that the situation is becoming increasingly erratic, we emphasize that our forecasts for Egyptian equities do not hold anymore,” NBK Capital’s Middle East and North Africa research team said in a note to clients dated Jan. 30.

NBK Capital had a “buy” recommendation on Ezz Steel, Egypt’s biggest producer of the metal and rated Orascom Construction Industries “hold.” It had an “accumulate” on Telecom Egypt, the country’s monopoly fixed-line operator, and on Oriental Weavers Co.

FT Tilt - Moody's sees Mideast banks facing manageable Egyptian challenges(Registration)

Moody's Investors Service identifies the Middle Eastern banks with significant credit exposure to Egypt, but doesn't see huge risks just yet:

Although several Middle Eastern banks have operations in Egypt, those with more significant exposures when measured against their total size include Lebanon's Bank Audi (Ba3 stable; D-/Ba3 stable), at 9%, Blom Bank (Ba3 stable; D-/Ba3 stable), at 6%, Jordan's Arab Bank (A3 stable; C+/A2 stable), at 6%, and Kuwait's National Bank of Kuwait (NBK, Aa2 stable; C+/A2 stable) at 6%. Egyptian exposures approximate group Tier 1 capital for Bank Audi and Blom Bank.

All named banking groups, particularly the Lebanese banks, are highly liquid and should not face immediate difficulties in meeting elevated deposit withdrawal demands. Even in the absence of a system-wide run on deposits, the population's pent-up need for cash after a week of bank closures will lead to higher than normal deposit withdrawals. The size of the named Middle Eastern banks' Egyptian subsidiaries remains modest compared with that of their respective parent groups and should receive adequate liquidity support if they need it.

Guest post: Egypt, shine a light | beyondbrics –

What started as a revolt in Tunisia has now spread to Egypt and appears irreversible and far-reaching in its potential impact on the entire Middle East. And while it’s too early to discuss the implications on the Egyptian economy and capital markets, we can envisage three distinct phases taking place over the next year: the current phase of the crisis, a transitional phase until elections take place, and finally a post-election phase.

We are likely to witness profoundly negative short-term repercussions when it comes to Egypt’s economy, capital markets and investment outlook. The complete paralysis of all economic activities, excluding the Suez Canal, in and by itself a US$5bn annual rent check for Egypt, is estimated to cost US$300m daily. And given the rentier nature of the Egyptian economy where the state is the predominant recipient of such rents that include the Suez Canal, tourism, oil & gas, etc., it is likely that many of those sources would be compromised in the short term in the absence of strong, domestic productive sectors. And this doesn’t include paying for the damage to the current infrastructure including roads, commercial and residential buildings, historical sites etc. and the cost of increased subsidies to pacify Egypt’s young and restive population.

With a budget deficit of over 8 per cent of GDP and a gross debt/GDP ratio of 75 per cent plus, the Egyptian state will undoubtedly face fiscal pressures even if they resort to financing the deficit locally, which is the bulk of the current debt stock anyway. Egypt’s exchange rate regime will also come under pressure. Already, the one-month NDF market is pointing towards a 10 per cent depreciation from the pre-crisis spot price and this is before any capital flight takes place (highly likely assuming no capital controls). This would help fuel inflation over and above the increase via elevated food prices which had already taken place, and put additional pressure on an already tight stockpile of foodstuff and medicinal reserves. In turn, it would considerably derail an economy that was projected to grow at 5 per cent plus in real terms this year. But to put it in perspective, the Egyptian debt ratio appears palatable by international standards (Greece’s debt/GDP ratio is 130 per cent and its 5-year CDS trades 580 bps wider than Egypt) and it is likely that multilateral institutions such as the World Bank and the IMF would be eager to lend a hand.

Egypt turmoil spurs Saudi market outflows: Jadwa | Reuters

Foreigners withdrew more than 1 billion riyals ($267 million) from Saudi Arabia's markets as unrest in Egypt fueled concern about the stability of the region, a top executive at Jadwa Investment Bank said.

Turmoil in Egypt, which sparked a region-wide slump in stock markets, has raised risk premiums and will likely delay planned bond and equities issuances from Middle East borrowers.

"We think over 1 billion riyals was withdrawn through the swap agreement in the last three days of January, which reflects an increase in the risk premium foreign investors attach to this region," Paul Gamble, head of research at Riyadh-based Jadwa Investment, said in an interview.

U.A.E. 2010 Bank Bad-Loan Provisions Rise 36% - Bloomberg

Bank provisions for problem loans in the United Arab Emirates surged 36 percent in December from a year earlier, the federation’s central bank said.

Provisions rose to 44.3 billion dirhams ($12 billion) in December from 32.6 billion dirhams a year earlier, according to data posted on the central bank’s website today. Deposits exceeded loans for the third month and rose 6.8 percent to 1.05 trillion dirhams. Loans rose 1.3 percent to 1.03 trillion dirhams.

The U.A.E. is struggling to boost bank lending after a credit squeeze in a market that had been growing more than 30 percent annually in the previous three years. The central bank last year cut its benchmark repurchase rate to 1 percent and the government guaranteed local bank deposits and interbank loans, created a 50 billion-dirham credit facility and said it would provide banks with 70 billion dirhams.

UPDATE 1-Doha Bank does not see big hit from move | Reuters

Qatar's Doha Bank DOBK.QA does not expect a major financial impact from the central bank's decision to separate the Islamic operations of conventional lenders in the Gulf Arab state, its chief executive said on Monday.

"It's not much of a surprise, as we had signals earlier from the central bank," Raghavan Seetharaman said in an interview.

"About 89 percent of our books are conventional, so we don't see it taking a big hit."

Vodafone in Egypt | beyondbrics –

“Vodafone, there’s blood on your handsets.” So says this petition set up by, currently gathering signatures at a rate of almost one a minute via Twitter in protest at pro-government text messages carried by Vodafone in Egypt.

As Edward Hadas and Sarah O’Connor argue in Lex live today, it is a lot easier to pass judgement from a safe distance than it is to make decisions on the ground. Vodafone’s choice – if it had one – was not only between doing the right thing and making profits, but also between doing the right thing and protecting the safety of its Egyptian employees.

Vodafone says it was “instructed” to send the messages and does “not have the ability to respond to the authorities on their content”. To infer that Vodafone had no say in the matter may be stretching things. But the company is clearly unhappy and has protested to the Egyptian authorities.

Own goal as Qatar orders non-Islamic banks to close their Islamic divisions « ArabianMoney

Western banks like HSBC and Standard Chartered that also offer their clients Islamic banking alongside traditional banking have been told to close their Islamic operations in Doha.

This is a blatantly protectionist move designed to win business for local Islamic banks while at the same time removing the competition posed by the rigorous internal systems and international networks of the giants of global banking. It is a step backwards for Islamic banking in the long-run.

What do quieter times in Egypt mean for Arabian investors? « ArabianMoney

While it is always dangerous to call a turning point in a revolution it seems that President Mubarak’s decision to stand down in September has brought the political factions in Egypt to the negotiating table, making a widespread dissolution into chaos before then very unlikely. Indeed, the banks opened yesterday for the first time since the crisis began and people appear to be getting back to business as ususal.

Of course the Arab World will never be the same again. Egypt has always been a trend setter, a bit like California in the USA. The pressure is on the authoritarian regimes of the region to at the very least lighten up and add a semblance of democracy. Over time this could all be very significant, and we can certainly not rule out another show of people power in Egypt if the regime begins to back track.

gulfnews : Former BP CEO Hayward in talks to float oil firm

The former chief executive officer of BP, Tony Hayward, is in talks to set up a new oil company sponsored by Abu Dhabi's sovereign wealth fund, The Sunday Times reported on Sunday.

The paper said Abu Dhabi representatives are believed to have approached Hayward with an offer to back him with several billion dollars to build an international oil and gas group.

The Abu Dhabi proposal is still in the early stages and is one of several under consideration by Hayward, the weekly adds, citing a source close to the situation.

Egypt Seeks $2.6 Billion in Biggest Bill Sale as Yields Forecast to Climb - Bloomberg

Egypt will try to raise as much as 15 billion Egyptian pounds ($2.6 billion) in a record sale of Treasury bills with bankers predicting yields will rise as foreign investors avoid the auction.

Yields on three-month local-currency bills may rise between 40 basis points and 100 basis points at today’s Finance Ministry auction, according to bankers from three of 15 primary dealers in Cairo. Ahmad Alanani, director of Middle East fixed-income sales at Dubai-based Exotix Ltd., said yields may climb as much as 350 basis points, or 3.5 percentage points, on all maturities and that local banks have enough funds to buy the bills.

A lack of international investor participation may further weaken the pound, which fell yesterday to the lowest level since January 2005, according to UBS AG. Foreigners hold about $9 billion of Egypt’s Treasury bills, equivalent to 20 percent of the total, London-based Barclays Capital said in a Jan. 18 note.

SAMA adds SR25bn to foreign assets in December - Arab News

Oil prices averaging $89 a barrel in December - the highest for any month in 2010 - enabled the Saudi Arabian Monetary Agency (SAMA) to add SR25 billion to its store of foreign assets during the month, taking them to SR1.65 trillion, up 8.7 percent from year-end 2009. Monetary indicators also looked positive: Money supply growth accelerated, deposits grew 4.7 percent and private bank credit growth hit 4.8 percent, the highest in 18 months.

The consistent rise in oil prices in recent months as well as evidence that energy demand growth is picking up in Asia have supported Saudi Arabia's economic outlook. The country has raised oil output to meet demand and progress continues on numerous strategic projects in infrastructure, energy and utilities. Political turmoil and uncertainty in Egypt, which threatens to spread into a number of Middle East countries, may lead to economic ripple effects across the region, although at this stage it appears unlikely developments will constrain the Kingdom's economic performance or adversely impact its banks.

Still, Saudi Arabia's economic recovery is moving at a slow but respectable pace. Total bank claims on the private sector fell slightly in December from November levels to SR775.76 billion, although this still indicates a 5.7 percent rise on the year, the best performance of 2010. The full-year result came in below our initial forecast for credit growth of 8 percent for 2010, although credit growth trends look healthy. Banks should begin to shrug off risk aversion and revive credit growth to 9.1 percent this year, with a return to double-digit growth in 2011, our forecasts show.

HSBC in Talks With Qatar on Bank Order to Shut Islamic Units - Bloomberg

HSBC Holdings Plc is seeking clarification of an order by Qatar’s central bank requiring non- Islamic lenders in the nation to end services that comply with Shariah law.

HSBC Amanah, the Islamic banking unit of Europe’s largest bank, is in discussions with the central bank “to find a workable solution,” the company said in an e-mailed statement yesterday. HSBC has had operations in Qatar since 1954 “and has established strong and positive relations with the regulators,” the statement said.

Qatari Islamic banks rose yesterday, sending Masraf Al Rayan to the highest level since 2008, on speculation earnings will climb following the central bank’s decision. The Feb. 1 statement called for non-Shariah compliant banks to close Islamic branches by year-end and stop taking deposits in those units immediately, said a person familiar with the announcement, who asked not to be identified because the directive hasn’t been made public. Officials at the central bank declined to comment. | UAE raises its share to IMF

His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, on Sunday chaired the Cabinet Meeting at the Presidential Palace in Abu Dhabi.

The UAE cabinet agreed to increase the country’s share in the capital of the International Monetary Fund (IMF), thus becoming the Arab state with the single largest contribution to IMF.

Lieutenant General Sheikh Saif Bin Zayed Al Nahyan, Deputy Prime Minister and Minister for Interior and Sheikh Mansour Bin Zayed Al Nahyan, Deputy Prime Minister and Minister of Presidential Affairs were also present at the meeting.

gulfnews : Qatar decision shocks UAE bankers

Qatar's decision to ban conventional banks from offering Islamic banking services has shocked banks in the UAE.

Although many bankers said they do not expect a similar action in the UAE, many said it is setting a wrong precedent and the decision has created uncertainty in banking business in the region.

Qatar's central bank has ordered commercial banks to close Islamic banking operations by the end of 2011. The central bank reportedly issued a circular on February 1, saying "it has been decided to terminate the activities of the Islamic finance services" offered by conventional banks. The order is effective immediately but provided lenders with a grace period until December 31 to shut Islamic banking operations.

BBC News - Egypt causes knee-jerk market reaction

It has been a month of knee-jerk reactions, as Tunisia and then Egypt provided a reason for investors to sell shares, largely in Middle Eastern markets but globally as well.

At its worst point Dubai fell 6% in a day. Kuwait closed down 1.76% and the Qatar exchange closed 2.95% down.

Saudi Arabia, the region's biggest stock market, had one bad 6% fall but has crawled back.

gulfnews : Gulf economies better off with dollar-pegged currencies

Dubai Under the current global economic environment that is characterised by huge interest rate differentials between the developed world and emerging economies, the Gulf's oil exporting economies are better off with their dollar-pegged currencies, John Greenwood, Invesco's Chief Economist, told Gulf News in an interview.

Greenwood said going by the Mundell-Fleming model of the "Impossible Trinity" developed by economists Robert Mundell and Marcus Fleming, the Gulf countries have little choice but to stick to their pegged regime in the current global context.

The term "Impossible Trinity" talks about the problem of choice among three options at the same time.

Space the final frontier for DIFC - The National

More than 100 companies set up in the Dubai International Financial Centre (DIFC) last year - but filling a glut of new office space will be a crucial challenge for the centre.

A total of 113 companies registered in the financial free zone last year, attracted by a reduction in rents and changes in regulations among other things, an operational review released yesterday shows.

The amount of commercial space leased in the centre, meanwhile, grew by 19 per cent. There were 792 companies actively registered with the DIFC at the end of the year.

Kuwait’s CMA Will Protect Minority Shareholders « Alpha Dinar

The wait is nearly over! Kuwait’s Capital Markets Authority (CMA) will be unleashed in March. The CMA will hopefully embark a new era of transparency, accountability, and justice for participants in the Kuwait Stock Exchange. Currently, the CMA is waiting for feedback from fourteen entities on its first draft of the executive rules. The deadline for the feedback is February 15th, and by early March the CMA should have a final draft. The executive rules include 432 articles spread over 121 pages.

One of the most important rules enforced by the CMA pertains to takeovers. We have repeatedly witnessed takeovers in Kuwait that benefit majority shareholders and harm minority shareholders. A new regulation pushed forwards by the CMA forces an acquirer of a stake of 30% or greater to extend its takeover offer to ALL shareholders. The old days whereby only majority shareholders benefit from stake sales will be gone! The CMA will guarantee that all shareholders will reap the benefits of a majority stake sale.

Remember Wataniya Telecom? A majority interest was sold to Qatar Telecom by shareholders led by Kuwait Projects Co. for KD 4.600! At the close of trading on the day the deal was sealed, Wataniya Telecom was trading at KD 3.020- which translates into a KD 1.580 difference. Majority shareholders of Wataniya earned a more than 50% greater return than minority shareholders! Another example is when KIPCO sold 39.2% of Gulf Insurance Company to Fairfax Financial Holdings for KD 0.900 per share and the stock price moved only to KD 0.620, a 45% discount to the offering price.

These takeovers were unfair. They benefited a group more than another. Well, the good news is that these acts will not be permitted by the CMA anymore. We will try to cover different facets of the CMA regulations in future posts and hope