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Wednesday, 2 March 2011

FT Alphaville » Bahrain’s strategic importance, graph du jour

Wondering why Saudi Arabia is so fussed about Bahrain?

JBC Energy encapsulates the reason in one helpful chart:

Most of Saudi Arabia’s chief producing fields are right around the corner.

As the analysts noted on Wednesday (our emphasis):

While stability in Libya is seemingly still far away, the market is now also eying countries like Iran, Iraq and Saudi Arabia more closely. With King Abdullah in the latter generously allocating financial aid, stability in OPEC’s largest oil exporter seems to be more bought than fundamentally established. It is true that the country has a high per capita GDP rate close to $18,000 (IMF) but the major problem is similar to other countries in the region: “the majority of the Arab population is under 25 and the unemployment rate for young adults is in most countries 20% or more” Prince Al-Waleed bin Talal Al Saud put in an article in New York Times last week.

The billionaire nephew of the Saudi King warns: “unless Arab governments adopt radically different policies, their countries will very likely experience more political and civil unrest”. The recent unrest in Bahrain is therefore of particular importance for Saudi Arabia as the small country is surrounded by the vast majority of Saudi oil production (see map). Consequently, unrest in this region can have fatal consequences for the world. If stock market sentiment can be taken as a sounding board for the region then the 7% plunge yesterday on the Saudi stock exchange can be interpreted as a sign of waning trust.

And it’s worth pointing out as Saudi Arabia’s benchmark index continues to slide.

As Reuters noted on Wednesday:

Saudi Arabia’s index <.TASI> plunges to a fresh 22-month low on renewed selling pressure as investors bet on increased political risk in the kingdom. Banks are hardest hit. Al-Rajhi Bank <> falls 6.3 percent, Samba Financial Group <> drops 7.7 percent, while Banque Saudi Fransi <> and Riyad Bank <> each drop 7.3 percent. Saudi Arabia’s index <.TASI> falls 4.4 percent to 5,293 points, taking its losses to 15.5 percent this week, with Wednesday the final day’s trading of the week.

So there you go.

Discount retailer Loehmann's emerges from Chap. 11 - BusinessWeek

Discount retailer Loehmann's said Monday it has emerged from bankruptcy protection, which it sought in November after its Dubai government-linked owner failed to reach a debt-extension deal with creditors.

New York-based Loehmann's said it secured $45 million in financing while saying its restructuring eliminated $110 million in long-term bond debt, $14 million in interests and included $23 million in other cost reductions.

With the restructuring done, CEO Jerald Politzer is leaving Loehmann's, the company said. Joe Melvin, the company's chief operating officer and chief financial officer, will serve as interim CEO.

Possible Saudi unrest and oil prices worry National Bank of Abu Dhabi forum « ArabianMoney

Concern over the possible spreading of unrest to the Eastern Province of Saudi Arabia, with days of protest now slated for 11th and 20th March dominated discussions at the 3rd Annual Financial Markets Forum held at The Yas Hotel in Abu Dhabi today, with soaring oil prices at the back of everybody’s mind.

Black Swan author Nassim Taleb took the stage alongside veteran investor Jim Rogers who famously called the bottom of the 20-year commodities bear market within a few months and has led the bull charge ever since.

FT Alphaville » Why you really can’t swap Libyan crude easily, at all

Meanwhile, back in MENA…

At the same time, when it comes to high-quality crude, there are political risks closer to Libya as well.

Such as Algeria – home of Algerian Condensate, Saharan Blend, and other excellent, light, low-sulphur products. Like Nigeria, Algeria is recovering from a long period ofpast conflict. While BarCap think it’s actually fairly middling in the risk stakes, protests bubble under the surface and Algerians are calling for freedom. Once again, the unrest comes at a critical juncture for foreign investment (chart via BarCap):

In fact, BarCap worry more about Iraq (again, an established area of conflict, plus a weak oil infrastructure) and Oman. On the latter — if you’ve not read the chilling dispatch from the FT’s Simeon Kerr, we’d suggest you do so. It’s a vivid reminder of the tensions underlying the Gulf monarchies at the moment.

Needless to say, foreign investment has been key to arresting Oman’s declining oil production rates over the last decade, too.

Pressure at the global margin of spare oil supplies, volatile foreign investment – and a lot of political risk that should never really have been forgotten in the first place.

Somehow, we doubt the (hopefully rapid) exit of Colonel Gaddafi will assuage the oil market.

Dubai Shares Slump to 7-Year Low, Lead Drop in Gulf on Saudi Risk Concern - Bloomberg

Persian Gulf shares fell, sending Dubai’s benchmark index to the lowest in almost seven years, as concern political unrest may spread to Saudi Arabia, the Arab world’s largest economy, sparked demand for safer assets.

Saudi Arabia’s Tadawul All Share Index slumped 5.2 percent at 1:35 p.m. in Riyadh, taking the 13-day plunge to 21 percent. It is the measure’s longest losing streak since 1996. The DFM General Index declined 3.5 percent to 1,374.43, the lowest level since June 2004, at the 2 p.m. close in Dubai. The gauge has lost 15 percent since Tunisia’s Zine El Abidine Ben Ali was ousted in January. Emaar Properties PJSC retreated to the lowest since 2009 and Dubai Financial Market PJSC slumped 4.9 percent.

Investors are shunning assets in the Middle East and North Africa as the political turmoil, which started in Tunisia more than two months ago, expanded to Oman, Bahrain, Yemen, Libya and Iran. Websites have called for a nationwide Saudi “Day of Rage” on March 11 and March 20, Human Rights Watch said in a statement on its website on Feb. 28.

MENA stock markets close - March 2, 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)

UPDATE 3-UAE's Tabreed get $844 mln lifeline from Mubadala | News by Country | Reuters

UAE's Tabreed (TABR.DU: Quote) has secured an extra 3.1 billion dirhams ($844.2 million) lifeline from state-owned fund Mubadala, helping the industrial cooling firm to tackle its massive debt pile.

Tabreed will issue 1.7 billion dirhams ($463 million) of subordinated mandatory convertible notes to Mubadala to refinance Tabreed's existing bridge loan with the fund of the same amount. These are priced at 1.13 dirhams and mature in 2019

Tabreed will also get a 1.4 billion dirhams loan facility from the investment fund that matures on December 2012.

UPDATE 1-UAE's Etisalat says still interested in Zain deal | Reuters

UAE telecoms firm Etisalat (ETEL.AD), whose $12 billion bid for a controlling stake in Zain has been hit by setbacks, on Wednesday said it was still interested in the Kuwaiti firm.

Etisalat said it had accumulated all the information required for due diligence on Zain (ZAIN.KW) and will now analyse it and discuss the results with the seller.

"(Etisalat's) stand towards Zain acquisition is not changed and Etisalat is still interested in the Zain deal," a spokesman said in a statement.

Gulf: no escape from contagion fears | beyondbrics –

The political contagion hitting Gulf stock markets is starting to look like a plague. There was no end to the selling on local bourses on Wednesday, with Dubai’s DFM index falling 3.5 per cent to its lowest level since 2004 and Saudi Arabia’s Tadawul index down 2.6 per cent.

Local investors are leading the way, fearful that the political uphevals seen in Tunisia, Egypt and Libya could be repeated in the oil-exporting Gulf. And with reports from Libya of government forces attacking opposition-held locations, those fears seem unlikely to subside any time soon.

“A lot of the selling has been from onshore, local and regional investors; the speed of the decline tells you it’s pure panic,” Dubai-based Ibrahim Masood, of Mashreqbank PSC, told Bloomberg. “On balance, I suspect that a few months down the road these levels would look like a steal.”

MENA stock markets 1.30 p.m. GMT+4 - 2 March, 2011

Credit Suisse Sees Oil Prices Falling on Saudi Arabia’s Supply - Businessweek

Global oil prices will probably decline to below $100 a barrel as Saudi Arabia releases supply from its reserves and demand drops from elevated December levels, Credit Suisse Group AG said.

The rise in prices is “manageable” and central banks are unlikely to raise interest rates “on account of oil alone,” Andrew Garthwaite, an analyst at Credit Suisse, wrote in a note dated today. Still, any rally driving Brent crude 100 percent higher year-on-year to between $140 and $155 a barrel may be a “trigger point” that has historically led to equities “correcting” by 34 percent, he wrote.

Countries that are significant energy importers and where energy accounts for a large part of the consumer price index such as India, Thailand, the Philippines, Czech Republic and Poland are among the potential losers, according to the report.

AFP: Gulf states to aid unrest-hit Bahrain, Oman

Energy rich Gulf states plan to launch a massive Marshall-style plan to assist Bahrain and Oman which have been hit by unrest, Kuwait's Al-Qabas newspaper reported.

Citing unnamed senior sources, the daily said the six-nation Gulf Cooperation Council states were holding discussions that may culminate in a summit to launch the aid package.

Besides Oman and Bahrain, the GCC groups Kuwait, Qatar, Saudi Arabia and United Arab Emirates, which together are estimated to have $1.35 trillion in surplus assets amassed in the past few years from oil revenues.

Hong Kong Offers Citizens Cash Handout

Hong Kong has followed Kuwait’s footsteps and is offering cash handouts to adult citizens. According to the Wall Street Journal, the Finance Minsiter has stated that Hong Kong is offering HK$ 6,000 ( US$ 770) to every adult citizen, as well as waiving 75% of salaries tax.

“HONG KONG—Bowing to intense public pressure, Hong Kong Financial Secretary John Tsang on Wednesday announced major changes to the relief measures presented in his budget speech last week, offering to give 6,000 Hong Kong dollars (US$770) in cash to every adult permanent resident as well as salaries tax cuts following a huge fiscal surplus for this financial year ending March 31.”

Dubai: A Mirage of Wealth?

Of the myriad statistics that demonstrate just how badly the global financial markets had lost their minds in the late 2000s, this one, to me, is the most mind-boggling.

In 2007, you could buy credit default protection on Dubai for four basis points.

(crickets chirping)

OK, let me break this down another way. Let's say you owned $10 million in debt guaranteed by the government of Dubai and wanted to insure it against the risk that the government wouldn't have enough money to pay you back. If you decided to buy a swap that would pay you $10 million should Dubai default, the cost would have been $4,000. Four grand to get 10 million in protection!

Oil Supply Disruption Poses a Threat to Asian Economies

[Image from][Image from]

Why should Singapore – and Asia, more broadly – care about the astonishing upheavals rippling across the Middle East and northern Africa?

While seemingly far away, there is much at stake in this troubled region. The current turmoil should be a wake-up call for Asia to realize that what happens there has a growing impact on its economies and even on security issues.

The Middle East is increasingly significant to the Singapore economy, given its growing business interests. An increasing number of Singapore companies, including SembCorp, Keppel and Hyflux, have established a presence in its markets.


It certainly seems that the market is strongly discounting any large disruption in the Saudi oil supply, but I doubt the top 40 stocks in the Saudi Arabian market dropped 11.2% for no reason.
So why exactly do we freak out when Greece, the 31st economy of the world by GDP, could potentially miss a few debt payments whereas we seem almost numb to the idea that the citizens could overthrow the government of the 23rd largest country and producer of 10% of the world’s oil?
Do you remember when we had our little Eurozone “crisis”? The VIX shot up to 45 in a heart beat.
This crisis might take a little while to come to a complete boil, but I actually am much more fearful of the potential outcomes today than I was when the Euro was tanking. You can always print more Euro’s, but I do not know how you settle down millions of rioting middle eastern citizens who effectively control the global economy’s life blood.

MIDEAST DAYBOOK: Libya Ratings Cut; Saudi Housing; Qatar Telecom - Bloomberg

Fitch Ratings said it downgraded Libya’s long-term foreign and local currency issuer default ratings to BB from BBB. The ratings remain on rating watch negative, Fitch said.

Egypt’s bourse, home to the world’s worst performing benchmark index this year, risks losing international investment after failing to resume trading amid protests from local investors who fear deeper losses.

Libyan rebels dug in for battle after repulsing attacks by forces loyal to Muammar Qaddafi that fueled talk of a civil war, as the full membership of the United Nations rebuked the regime.

Saudi stocks crash into bear market on protest fears « ArabianMoney

Saudi stocks officially entered bear market territory with investors running for cash in advance of two rumored days of protest on March 11th and 20th, despite a surge in oil prices back to $100 a barrel.

Brokers said investors were fearful about what might happen and going into cash for safety. The main Tadawul index is more than 20 per cent off its 2010 high and thus in bear market territory.

Any yet as the ArabianMoney March newsletter pointed out today (click here) this bear market crash might soon be viewed as a contrarian investment opportunity, particularly in countries like the United Arab Emirates which has been free of protests so far.

A Super Quick And Dirty Overview Of The Saudi Economy

All you might know about Saudi Arabia is that it's swimming in oil, and that it's got a hardline Islamic regime that's been allied with the US.

In light of the crash in the Tadawul All Shares index, let's just do a quick and dirty look at the Saudi economy courtesy of a recent BofA/ML rreport.

First, the political scene:

The modern Saudi state was founded in 1932 by Abd Al-Aziz bin Abd al-Rahman Al SAUD after a 30-year campaign that began with the captured Riyadh, the ancestral home of his family, the Al Saud. His male descendents rule the country today, as required by the Basic Law of 1992. The ulema, clerical leadership, are led by the Al ash-Sheikh, descendants of the founder of the Wahhabi form of Sunni Islam, and are influential in the judicial and educational system in an informal "power-sharing" arrangement with the house of al-Saud. There are no recognized political parties or national elections, except for one partial municipal election, which was held in 2005. Islamic militancy (Al Qaeda), political succession and potential Shiaa unrest in the East South have been prominent domestic issues. Saudi Arabia's next succession is crucial to regional geopolitical interests and it will be important to monitor whether reformist or more conservative figures, perhaps among the Sudairi princes, come to power.

As for some hard numbers? Glad you asked:

  • Unemployment (latest): 10.5%
  • Youth unemployment (latest): 28.2%
  • Inflation (%yoy, 2010 avg): 5.4%
  • Food inflation (%yoy, 2010 avg): 6.3%
  • Population (mn inhabitants): 26.1
  • GDP per capita (US$, 2010): 16,641.4
  • World Economic Forum competitiveness ranking: 21 (out of 139)

Read more:

gulfnews : UAE to invest in Spanish bank

The United Arab Emirates will invest €150 million (Dh761.28 million) in a Spanish savings bank, a Spanish government spokesman said yesterday, the second Middle Eastern country to back Spain's regional banks.

The government official, did not name the bank. The Spanish savings bank association, Ceca, declined to comment.

Qatar said on Monday it would invest €300 million in Spanish banks, during the visit of Spanish Prime Minister Jose Luis Rodriguez Zapatero to Doha.

Saudi King's $15 Billion Housing Grant Won't Eliminate Shortage - Bloomberg

Saudi King Abdullah’s pledge to increase spending on housing by 55 billion riyals ($15 billion) probably will do little to relieve the country’s home shortage unless it’s coupled with long-delayed changes in mortgage financing laws.

“This is largely symbolic,” said Jarmo Kotilaine, chief economist at National Commercial Bank, Saudi Arabia’s largest lender by assets. “We have a significant structural issue that can never be solved through government spending alone.”

Saudi Arabia, the world’s largest oil exporter, needs 2 million homes by 2014 to keep up with the demands of a population that quadrupled over 40 years, Credit Suisse Group AG estimates. A planned mortgage law aimed at bringing private lenders into the market by creating a clearer set of rules is still being debated a decade after it was proposed.

Qtel net profit rises to QR2.9bn

Qatar Telecom (Qtel) has posted full-year net profits of QR2.9bn with the revenue of the Group soaring to a whopping QR27.2bn in 2010.

Qtel’s net profits totalled QR2.8bn in 2009. The group’s customer base soared to an incredible 74.1 million last year with operations in as many as 17 countries around the world.

The group proposes to distribute 50 percent cash dividend (QR5 per share) and 20 percent stock dividend (bonus shares at the rate of one share for every five shares held) to its shareholders for 2010.

Gulf States ETF falls on political unrest - MarketWatch

The Market Vectors Gulf States Index ETF was off 3% in early U.S. trading Tuesday on news of rising violence in Iran and Libya amid anti-government protests. The regional exchange-traded fund is down 13% year to date. As of Dec. 31, the top index country allocations were Kuwait at 44.8%, Qatar at 24.6%, United Arab Emirates at 20.1%, Oman at 5%, Bahrain at 3.8% and Yemen at 1.7%, according to the portfolio manager, Van Eck Global. - Autocratic leaders miss the point

A day after a wave of Arab protests washed up on the shores of the sleepy Gulf state of Oman, Sultan Qaboos bin Said al-Said rushed in a raft of pledges.

As protesters flowed into a central roundabout in the northern city of Sohar, in an attempt to emulate their Bahraini neighbours’ in Manama and Cairo’s protest centre of Tahrir Square, the sultan promised 50,000 new jobs and $400 a month in unemployment benefits.

The Omani sultan of 40 years thus joined the growing group of anxious Arab leaders scrambling to placate a frustrated youth with financial handouts and economic promises. He was following Kuwait and, most dramatically, Saudi Arabia, which last week announced a $36bn package of housing loans, unemployment benefits and pay rises. - Sit with dictators but sup with a long spoon

Britain rightly took credit for persuading Libya to give up its weapons programme. As a result, and not least because of its reserves of oil and gas, we forged a closer relationship to create opportunities for business. America did the same: Exxon’s interests played a part in removing sanctions on the regime. Now such actions look unfortunate, and there is a strong case for the west supping with a much longer spoon with regimes that deny their peoples freedom and individual rights.

Most advanced democracies are trading nations and have hit a period when their economies need all the help they can get. This explains why David Cameron, the UK prime minister, has given a high priority to business in foreign policy. Even so the corpus of norms and standards in international law and human rights must be upheld as a fortress against greed, abuse and self-interest. So while remaining hard-headed about our push for competitiveness, we must be clear about its limits – and reframe policy with a greater focus on the long-term consequences of equivocal relationships.

So which dictators should we deal with? Those that blatantly deny rights are not only morally unacceptable but will eventually generate a political explosion. North Korea is therefore manifestly out of bounds, as were Iraq under Saddam Hussein and Liberia under Charles Taylor. Iran, Burma and Zimbabwe have all rightly earned pariah status.

Patience runs out in Egypt market | beyondbrics –

The latest delay to the reopening of Cairo’s stock exchange has tipped the impatience that some market players were feeling with the authorities into downright anger.

“They are just looking for excuses,” said one broker from a major firm. “They have no real reason for this. They are just afraid to take a hit. It is like someone who faces an exam, but he is not prepared and his book has been burnt, so he is avoiding it because he doesn’t want to fail.”

The broker said the real reason for the continued closure was that the authorities were afraid there would be a huge outcry from retail investors once the bourse has opened and stocks tumble, as they are expected to.

FT Tilt - Saudi tumbles in broad Mideast freakout

The market capitalisation of Saudi Arabia's Tadawul All Share Index declined by almost $50bn in February as Gulf markets - dominated by local retail investors - enter a hectic selling spree.

Foreigners are forbidden from owning shares on the Saudi exchange, which is the largest and most liquid in the Middle East. Outside investors can get exposure to the market through swap agreements with local Saudi middle-men, but have yet to buy into the market in a big way.

On Tuesday, the Saudi market fell by almost 7 per cent to a 10-month low. Those declines came just one day after the Dubai exchange hit a seven-year low.