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Monday, 21 February 2011

FT Alphaville » From Libya to Saudi Arabia

Definitely the strangest sovereign rating action we’ve seen in a while:

Fitch Ratings has downgraded Libya’s Long-term foreign and local currency Issuer Default Ratings (IDR) to ‘BBB’ from ‘BBB+’ and placed them both on Rating Watch Negative (RWN). The Short-term foreign currency IDR has also been downgraded to ‘F3′ from ‘F2′ and the Country Ceiling has been downgraded to ‘BBB’ from ‘BBB+’…

Lack of a political resolution to the conflict and escalating violence would likely result in a further downgrade. This would especially be the case if disruption extended to Libya’s oil production. Political reforms and/or outright regime change is also unlikely to be smooth, given the absence of a mechanism to guide any transition. However, political reforms which successfully quelled unrest would help stabilise the rating.

Libya’s credit profile balances substantial oil and financial wealth against fragile and idiosyncratic political institutions. Sizeable political risk is already incorporated into the rating. With no formal constitution in place, it has never been made clear how and to whom the Libyan leader – who holds no formal political office – would hand over power. This uncertainty is magnified by the present circumstances. Under the system of revolutionary direct democracy presided over by Mr. Gadhafi, there has been limited space for dissent against the government, as recognised by the World Bank’s governance indicators, which Fitch uses as a benchmark.

Libya is the only Fitch-rated sovereign that has no government debt. Moreover, following several years of high oil prices it has accumulated sovereign assets of up to USD139bn (190% of GDP) at end-2009, split between the foreign exchange reserves of the Central Bank of Libya and the investments of the government’s sovereign wealth fund, the Libyan Investment Authority, created in 2007 and granted legal statute in 2010. The strength of the government’s balance sheet substantially exceeds that of Saudi Arabia (‘AA-’), where sovereign net foreign assets are 130% of GDP.

There is no constitution, no plan for when Gaddafi goes — but Libya remains investment grade. Meanwhile, if Libya manages to achieve political reforms without escalating violence (in which case good luck, given the regime’s demonstrated willingness to murder hundreds of people) a ratings downgrade may be avoided.

Umm, okay.

For what it’s worth, at pixel time, Al Jazeera was reporting that Libyan jets were bombing protesters and the UK foreign minister said he had seen information to suggest Gaddafi was en route to Venezuela. (Reuters reports that a senior Venezuelan government source quickly denied it.)

It’s good that Fitch mentions Saudi Arabia, though. Despite a figleaf transition process — the Bayah Council — to govern the successions within the Al-Saud ruling family, we’d note these brief points: King Abdullah is 86 years old, and his successors would be vying for the control of the most absolute of Middle Eastern monarchies.

Which, we’d add, are getting rather rare these days.

And as Libya also shows, the more absolute they are, the harder they fall. Just where that leaves the oil market (which has had a very rough Monday, as the chart below shows) — well, we’re not sure.

Abu Dhabi, Qatar Lead Rise in Mid-East Debt Risk on Oil Concern - Businessweek

Abu Dhabi and Qatar led an increase in the cost of insuring government debt in North Africa and the Middle East on concern political upheaval may spread and disrupt oil supply.

Credit-default swaps on Qatar jumped 7 basis points to 113, the highest level in a year, and Abu Dhabi rose 6.5 to 114, CMA prices show.

Oil rose to a two-year high, fueling concern of global inflation, as violence escalated in the region. Muammar Qaddafi’s son called on protesters in Libya to engage in dialogue or face a civil war while in Yemen, demonstrators took to the streets for an 11th day as President Ali Abdullah Saleh said calls for regime change are “not logical.”

FT Alphaville » Gaddafi exposure, via a SWF

Can political unrest bring down a sovereign wealth fund?

It might pay to ask the question on Monday for a number of companies who have the Libya Investment Authority on their holders lists.

They include Unicredit, most infamously (2.59 per cent, plus a large holding by the Libya Central Bank) …

UAE’s Air Arabia sees full-year net profit plunge 32% - Transport -

Air Arabia, the Middle East’s biggest low-cost airline, said full-year net profit plunged 31.5 percent as rising fuel costs put pressure on margins.

Net profit for the twelve months to December 31, 2010 fell to AED309.56m from AED452m a year earlier, the Sharjah-based carrier said in an emailed statement on Monday.

Revenue for the year was AED2.08bn, a rise of 5.5 percent on the same period a year earlier.

S&P lowers Bahrain ratings on fear of more protests | Reuters

Standard and Poor's lowered its long- and short-term sovereign credit ratings for Bahrain over concerns that the political unrest and demonstrations of the past week will persist.

The rating agency set Bahrain's ratings to A-/A-2 from A/A-1 and placed them on CreditWatch with negative implications. (For full text of statement see [ID:nWLB4757])

Bahrain demonstrators thronged back on Monday into a central square that was the scene of deadly violence last week after a night-time raid by riot police killed four people. Seven people have died and about 230 injured since the protests began a week ago.

MENA stock markets February 21, 2011

ExchangeStatus IndexChange
TASI (Saudi Stock Market)
DFM (Dubai Financial Market)
ADX (Abudhabi Securities Exchange)
KSE (Kuwait Stock Exchange)
BSE (Bahrain Stock Exchange)
MSM (Muscat Securities Market)
QE (Qatar Exchange)
LSE (Beirut Stock Exchange)
EGX 30 (Egypt Exchange)
ASE (Amman Stock Exchange)
TUNINDEX (Tunisia Stock Exchange)
CB (Casablanca Stock Exchange)
PSE (Palestine Securities Exchange)
Market quotes delayed by 20 min.

DIFC dismisses case filed by UK architecture firm against DPG - Emirates24|7

Dubai International Financial Centre (DIFC) Courts has dismissed the case filed by Hopkins Architects, a British architectural company, against Dubai Properties Group (DPG) in unpaid fees and costs.

In an order passed recently, Justice Omar Almuhairi dismissed the case with “no order as to costs”.

The parties had agreed to have the proceedings stayed until November 21, 2010, to pursue justice by reconciliation through mediation. If settlement were reached, Hopkins’ (the claimant) legal representatives had to notify the Court by November 21.

Five Ways to Bring Investors Back to Egypt: John Sfakianakis - Bloomberg

What are investors to make of the transfer of power in Egypt?

Confidence and credibility are important hallmarks that international business needs to protect capital. The military can instill a sense of security and safeguard the state, but governments must create confidence in the system through deeds.

Although the U.S. has been Egypt’s ally, it failed to bring any meaningful economic change to the North African country since the 1980s. Decades of U.S. aid helped create a parasitic class of beneficiaries and an economy that urgently needs to discover new ways to revive its engines of growth.

S&P Lowers Bahrain Ratings to ’A-/A-2’; on Watch Negative - Bloomberg

Standard & Poor’s Ratings Services lowered its long- and short-term sovereign credit ratings on Bahrain to A-/A-2 from A/A-1 and placed them on CreditWatch with negative implications.

NYSE Euronext & Deutsch Boerse Merger Expected to Persuade UAE | Galaxy Stocks

Deutsch Boerse’s DBIGn.DE and NYSE Euronext (NYX) unification as well as the negotiations on a cord of other exchange deals depict how violent competition has burnt out among these firms to deal with political and regulatory obstacles that hindered mergers in the past.

Currently the UAE exchanges are combating each other to magnetize liquidity from foreign investors that still have to return in significant numbers since the global financial crisis.

A possible merger of the two main bourses would enhance volumes and will definitely overcome in competencies linked with trading in the UAE markets.

Abu Dhabi Shares Fall to 3-Week Low as Mideast Unrest Spreads; Oman Drops - Bloomberg

Abu Dhabi’s benchmark stock index dropped to the lowest level in almost three weeks as political unrest in the Middle East intensified with demonstrations in Libya, Bahrain, Yemen and Morocco.

Aldar Properties PJSC, Abu Dhabi’s biggest developer, declined for a fourth day. Abu Dhabi Commercial Bank PJSC, the United Arab Emirate’s third-biggest bank by assets, fell 2.2 percent. The ADX General Index retreated 0.5 percent to 2,619.08, the lowest intraday level since Feb. 2 at 12:17 p.m. in Abu Dhabi. Dubai’s DFM General Index lost 0.3 percent and Oman’s MSM30 Index fell 0.8 percent.

“Foreign investors are exiting the region as risk increases,” said Ziad Dabbas, a financial analyst at National Bank of Abu Dhabi PJSC, the U.A.E.’s second-largest lender by assets. “They are turning to markets with more political stability as the region faces this transitional period, from both a political and security perspective.”

[snap] Oil spikes on Libya strike report | beyondbrics –

Brent crude rose by almost $1.50 a barrel to a high of $104.60 on Monday after Reuters quoted Al Jazeera saying a strike at Libya’s Nafoora oilfield had halted production.

Brent crude for April delivery relaxed somewhat to $104.33 by 09:00 GMT after opening at $103.14.

The MSCI Asia Pacific index was off 0.42 per cent as concern spread over violent unrest in Libya.

Seif al-Islam Gaddafi, son of Libyan leader Muamamer Gaddafi, appeared on Libyan television to warn of civil war on Monday morning, asserting his father was in the country and had the support of the army. It followed unconfirmed reports that Gaddafi senior had fled the country, of a gunfight between his feuding sons and of an army split into pro- and anti-government factions.

MENA markets mid-morning 21 February, 2011

ExchangeStatus IndexChange  
 TASI (Saudi Stock Market)
 DFM (Dubai Financial Market)
 ADX (Abudhabi Securities Exchange)
 KSE (Kuwait Stock Exchange)
 BSE (Bahrain Stock Exchange)
 MSM (Muscat Securities Market)
 QE (Qatar Exchange)
 LSE (Beirut Stock Exchange)
 EGX 30 (Egypt Exchange)
 ASE (Amman Stock Exchange)
 TUNINDEX (Tunisia Stock Exchange)
 CB (Casablanca Stock Exchange)
 PSE (Palestine Securities Exchange)

Turkey to enjoy increased Gulf investments

Turkey is expected to attract more foreign direct investment (FDI) from the Gulf countries in 2011 than was invested from that area last year, Economy Minister Ali Babacan has told Today’s Zaman.

Speaking to Today’s Zaman following a G-20 meeting in Paris, Babacan said the government is happy to see more entrepreneurs from the Gulf countries willing to step into new investments in Turkish markets compared to the past. “People are interested in investing in media, real estate and tourism. It is encouraging to see the Gulf investors’ interest in Turkish markets turning further into real projects,” he noted.

Making mention of his talks during the G-20 meeting, Babacan said they realized the US government is preparing to take some steps to curb the budget deficit, similar to measures Turkey implemented in 2009. Babacan said US Federal Reserve Chairman Ben Bernanke had said they expect to take some precautions to reduce the government’s $1 trillion-plus deficits. Bernanke has earlier said failing to forge a plan in this regard could eventually hurt the US economy. “We already took these steps in 2009, and now the US thinks they are necessary, too,” Babacan said.

Is Bahrain’s loss going to be the UAE’s gain as a financial centre? « ArabianMoney

After the tragic events of 9/11 the Middle East was temporarily destabilized and Citibank withdrew more than $40 billion from Bahrain. In due course the money was put back but the bank quietly moved its headquarters to Dubai in the United Arab Emirates and its operations grew substantially in the oil and real estate boom of the 2000s.

That boom came to a sudden stop in late 2008, just after the $21 million party to open the Atlantis Hotel on Palm Island. But some local analysts are beginning to ask whether the violence and protests in Bahrain over the past week are going to mark another decisive phase in the decline of Bahrain as a financial centre and the rise of Dubai, albeit the 3.7 per cent fall at the Dubai Financial Market on Sunday showed the impact of Arab unrest on regional trade is more of a consideration at the moment.

FOCUS: Qatar Fine Tunes Banks Ahead Of World Cup Lending Spree - Zawya

Qatar's banks, bailed out a little more than two years ago, are being primed by the government to cope with the demands of soaring economic growth and a projected multi-billion-dollar lending spree on infrastructure projects that will rise as the 2022 World Cup approaches.

The latest boost for the Qatari banking system, which has received billions of dollars in aid since the onset of the financial crisis in 2008, came last month in the form of a capital injection from the Qatar Investment Authority, or QIA, the country's sovereign wealth fund, as part of plans to increase its stake in most domestic banks to 20%.

The QIA's move aims at giving local banks the extra firepower with which to lend as the Arab Gulf state's economy is expected to grow at close to 17% this year and a slew of large-scale infrastructure projects will require funding.

Bond market matures and broadens in Mena - The National

The UAE's bond market ended last year in very different and much better shape than 2009.

By the end of the year, 2010 saw a total of US$31 billion (Dh113.86bn) bonds issued from the Mena region - in many respects a complete turnaround.

Turning to this year, there are no signs of this trend abating and, indeed, signs point to total bond issuance in 2011 comfortably beating 2010.

Middle East turmoil doesn't deter the bankers - The National

With the global focus again on the Middle East political situation, the past few weeks have been a period of reassessment for the specialist investment bankers.

They have been building up their business in the Middle East in expectation of a wave of corporate mergers and acquisitions activity.

But the political convulsions in Tunisia and Egypt, and the possible repercussions in other Middle East countries, have caused some to pause for thought. Forecasts of amergers and acquisitions (M&A) boom have been reassessed and in some cases downgraded.

UAE Exchange plans float in Dubai - The National

An Abu Dhabi conglomerate is hoping to spin off the country's largest remittance house, UAE Exchange, into a separate company and sell its shares to the public.

New Medical Centre (NMC) Group plans to hold an initial public offering (IPO) for UAE Exchange within two years, said BR Shetty, the group's chief executive. If UAE Exchange sells shares, it would be the only publicly traded remittance company in the region.

Foreign workers in the UAE remitted an estimated Dh120 billion (US$32.67bn) last year.

Egypt investors demand bourse trades be cancelled | Reuters

Around 100 investors demonstrated in front of the Cairo stock exchange on Sunday to demand the cancellation of trades they made last month when political protests caused the market to plummet.

The exchange's chairman, Khaled Serry Seyam, told a group of the investors that no decision on the trades would be taken until the public prosecutor had investigated them, one of the investors said.

Seyam told 15 of the investors whom he invited to his office that a list of trades made during the two days when the market was open after the protests erupted had been sent to the public prosecutor, according to Mustafa Eisa, a former assessor at accounting firm KPMG Hazem Hassan, who was one of the investors to whom Seyam spoke.