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Wednesday, 23 February 2011

The Demonstration Effect « Alpha Dinar- talking Gulf finance

What began in Tunisia and Egypt with long-term rulers ousted of office by the public has caused a hunger for revolution effect throughout the MENA region. In Morocco civilians marched in hopes of transforming the monarchy into a democracy, in Yemen, Ali Abdullah Saleh promised to undertake political and constitutional reforms, meanwhile in Bahrain peaceful protesters demand ouster of government. However, in Libya as violence escalates and becomes more widespread the aftershocks of the civil unrest are being felt across global financial markets.

Libya, the 12th largest exporter of oil pumps 1.8 million barrels of oil a day. That’s about 1.8 percent of the world supply at risk. As a short-term shock, with the ongoing violent uprising threatening to disrupt oil exports, oil prices have jumped to the highest levels in more than two years at $96.08 a barrel. However, the long-term effect of the ongoing violence might be detrimental to the global economic recovery as rising oil prices might accelerate inflation.

How important is Libya to the world economy? Well, according to BP Plc’s Statistical Review of World Energy, Libya currently holds the largest proven oil reserves in Africa, roughly 44.3 billion barrels followed by Nigeria and Algeria. Oil and Natural gas make up 50% of the vountry’s GDP and almost 95% of its exports. What is most interesting is Libya’s strong economic relationship to the highly indebted PIIGSter, Italy. Eighty percent of its crude exports are sold to EU countries such as France, Germany and particularly Italy.

Flushed with petrodollars, Libya’s money was invested in Italy while Italian companies have enjoyed ongoing contracts for energy and infrastructure projects in Libya. Some of Libya’s holdings include a stake in Eni, Unicredit, Fiat, Juventus, and many other companies. While Italy is already in its own debt troubles, the situation in Libya only makes it worse.

Going back to the global economy, an important question remains and it is that will Saudi Arabia come to the rescue? Looking at history, Saudis have come to the rescue after the Gulf War when they boosted oil output by 2 million barrels a day, but will they come again?

Exclusive: Aston Martin co-owner plans $1.7 bln in asset sales | Reuters

Kuwait's Investment Dar, owner of half of luxury carmaker Aston Martin, proposed asset sales of about $1.69 billion over three years to creditors to restructure its debt pile, banking sources said Wednesday.

Dar, as part of a $3.58 billion restructuring plan, will sell its stakes in Kuwait's Boubyan Bank and Bahrain Islamic Bank.

The 20 percent Boubyan stake, whose ownership is under dispute, is valued at $752 million while its 40 percent Bahrain Islamic stake is worth around $155 million, based on current market capitalization.

FT Alphaville » Nomura’s $220-a-barrel crisis oil call

Talk about an oil shock.

Nomura’s commodity analysts, led by Michael Lo, are calling for oil at $220 a barrel, ifboth Libya and Algeria were to stop oil production. Oil’s currently around $108.

Here’s the summary:

The closest comparison to the current MENA unrest is the 1990-91 Gulf War. If Libya and Algeria were to halt oil production together, prices could peak above US$220/bbl and OPEC spare capacity will be reduced to 2.1mmbbl/d, similar to levels seen during the Gulf war and when prices hit US$147/bbl in 2008. This could also result in a temporary demand destruction of some 2.0mmbbl/d globally.

UPDATE 1-Abu Dhabi's IPIC eyes bond sale after Cepsa buy | Reuters

Abu Dhabi's IPIC has appointed banks for a potential sterling and euro-denominated bond issue, a document showed on Wednesday, after the firm acquired Spain's Cepsa (CEP.MC) in a $5 billion deal earlier this month.

IPIC, or International Petroleum Investment Corporation, selected Goldman Sachs (GS.N) to coordinate the transaction, a document sent by arranging banks and seen by Reuters, said.

Roadshows will cover several European cities beginning in London on Feb 28.

FACTBOX-Main economic challenges for Saudi Arabia By Reuters

Saudi Arabia, the world's biggest oil exporter, is facing challenges as it tries to diversify its economy and integrate its fast-rising young population.

Saudi Arabia's King Abdullah, the sixth king to rule one of the world's most conservative nations, returned home on Wednesday after three months abroad for medical treatment.

He is returning to a region that has undergone momentous change since he left, with the rulers of Egypt and Tunisia toppled, a revolt in Libya and stirring unrest in some of the other Arab countries.

The spike in Saudi debt insurance | beyondbrics –

The cost of insuring against a default on Saudi Arabian debt spiked sharply as Egypt’s Jasmine Revolution got underway in late January and has since climbed even higher (see chart after the break). Does this suggest investors believe trouble could spread to the world’s biggest oil-producing nation?

Probably not. As Marios Maratheftis, head of research at Standard Chartered in Dubai, told beyondbrics, it suggests instead that they are expressing concern over recent events in one of the few ways open to them – and this fails to reflect Saudi moves to address some of the structural problems fuelling unrest elsewhere.

The cost of insuring $10m of Saudi debt for five years jumped from $75,000 at the end of January to about $138,600 on Wednesday (having peaked at about $142,800 on February 21).

Nasdaq mulls NYSE bid in exchange deal dash - Maktoob News

Nasdaq OMX Group Inc could launch a rival bid for NYSE Euronext to avoid being left on the sidelines, a source said, as traditional exchanges race to merge to see off upstart electronic rivals.

This is one option Nasdaq, valued at $5.7 billion, is considering as a spate of deals shakes up an industry under intense cost pressure from new entrants such as BATS Global Markets, which last week snapped up rival Chi-X.

Nasdaq's alternatives include tying up with IntercontinentalExchange Inc or the Chicago Mercantile Exchange (CME) to wrest NYSE from its planned $10.2 billion takeover by Deutsche Boerse, the source familiar with the matter said.

FT Tilt - Contrarian take on Bahrain(Registration)

Political tightening meets quantitative fiscal easing. That's how Bahrain's economic and political outlook can be roughly described.

Rating agencies have cried foul as the monarchy tightens security -- as protests ravage the MENA region -- and uncaps the fiscal hose.

On Wednesday, Moody's said it was placing Bahrain's A3 sovereign rating on negative watch, citing fiscal deterioration and the ongoing political risks.

Libya's oil infrastructure - Blog - The Arabist

From the always useful Oil Drum blog, which has this on Libya and its impact on oil markets:

Moody’s Places Bahrain’s Sovereign Ratings on Review - Bloomberg

Moody’s Investors Service said it placed Bahrain’s credit ratings on review for a possible downgrade as it assesses the impact of anti-government protests in the Persian Gulf country.

The review of the A3 government bond rating, the fourth- lowest investment grade, will be concluded within three months, Moody’s said today in an e-mailed statement. Moody’s downgraded the government’s bond ratings one level, to A3, on Aug. 23.

“The review will focus on the degree to which political risk has structurally increased and how significantly the credit fundamentals of Bahrain are threatened relative to rating peers,” Moody’s said.

MENA stock markets - February 23, 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)

Qatar banks agree to move accounts to Islamic banks, Sharq says -

A number of commercial banks in Qatar have agreed to transfer governance of assets and accounts to Islamic banks after the central bank ordered them to shut their Islamic branches by year end, Al Sharq reported, citing an unidentified bank official.

The central bank’s circular to banks on February 1 said that non-Shariah compliant banks must close Islamic branches by year end and stop taking deposits in those units immediately.

Qatari banks including Qatar National Bank, Commercial Bank of Qatar, Doha Bank and International Bank of Qatar have Islamic banking divisions.

Dubai Can't Kick Its Building Habit as Glut Lowers Prices - Bloomberg

Dubai just can’t kick its building habit.

Construction sites are buzzing with work across the Persian Gulf sheikdom more than two years after the financial crisis set off a real-estate slump that caused values to fall by more than 60 percent. In the next two years, tens of thousands of new properties will come onto a market where about 40 percent of homes and offices are empty.

Developers have chosen to complete projects started before Dubai’s property market collapsed rather than canceling them and facing a legal obligation to return all advance payments to customers. Falling construction costs and low interest rates also provide an incentive to build now rather than waiting for property values to increase.

Abu Dhabi-based broker soars to $2bn daily trading - The National

A new brokerage company quietly founded in Abu Dhabi four months ago is already trading more than US$2 billion (Dh7.34bn) a day of financial instruments and commodities, says its top executive.

ADS Securities, the brokerage arm of the newly formed ADS Holding, has hired traders from across the world to take advantage of the four-hour "time-zone gap" between the time when Asian markets close and European markets open, said Mahmood al Mahmood, the chairman and chief executive of ADS Securities and the chief executive of the holding company.

"Historically capital has left from here to other markets because we see that most of the capabilities are in other markets," said Mr al Mahmood, a former Abu Dhabi Investment Authority executive who has also held positions at Al Qudra Holding and the Emirates Securities and Commodities Authority.

Talent quest for new Dubai International Capital directors - The National

There was a time when you couldn't keep Dubai International Capital (DIC) out of the headlines.

In the boom years, it seemed barely a week passed without a multibillion-dirham equity deal (Sony, Airbus), or the purchase of a glamorous foreign brand (Madame Tussauds), or a move into glitzy sports businesses (the ultimately fruitless pursuit of Liverpool football club).

I can think of no other private equity group that has had its name chanted by a crowd of football fans.

Bahrain more of a worry to oil markets than Libyan violence « ArabianMoney

The hastily abandoned crackdown in Bahrain and the renewed mass protests are more of a worry to oil analysts than the horrific violence in Libya, according to a report in The Daily Telegraph today.

The cold logic of the market analysts is that Libya is a minor player in the oil market, while the unrest in Bahrain is a potential catalyst for a breakdown in law and order in Saudi Arabia.

Libya’s threat to oil supplies | beyondbrics –

On Tuesday afternoon Colonel Muammer Gaddafi said he would hold on to power and “die a martyr in the end” rather than leave the country, in a speech given as opposition groups took control of eastern regions near the city of Benghazi.
His defiance suggests an increasingly violent conflict and continuing swings in the oil price. As Libya’s anguish reverberates around the world, one consequence is the threat to the country’s output of 1.8m barrels of oil per day. Which countries are most exposed?
Stratfor, a US-based risk analysis firm, notes that Libya’s oilfields lie in two distinct power bases – one in the west, one in the east (see map). The report says:
This effectively gives the country two political factions, two energy-producing basins, two oil output infrastructures. Economically at least, the seeds of protracted conflict — regardless of what happens with Gadhafi or any political changes after he departs — have already been sown. If Libya veers towards civil war, each side will have its own source of income to feed on, as well as a similar income source on the other side to target.
Stratfor writes that over the last 24 hours, output has fallen by 100,000 bpd.
Italy is the most vulnerable to a protracted conflict, with its ENI producing 250,000 bpd, 15 per cent of the Italian company’s global output. Some 24 per cent of Italian oil consumption comes from Libya. France is second – it got 117,797 bpd of oil from Libya in 2010.
Here is Stratfor’s chart:

Nasdaq mulls competing NYSE bid - Maktoob News

Nasdaq OMX Group Inc is weighing a bid for NYSE Euronext and will consider selling itself or buying another competitor if it is unable to compete with Deutsche Boerse's NYSE deal, the Wall Street Journal reported on Tuesday.

Citing people familiar with the matter, the Journal said the Nasdaq is scrambling to find another exchange to partner with for a competing bid.

Barring that, the newspaper said the Nasdaq is looking to buy another exchange or sell itself to "avoid marginalization."