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Friday, 4 March 2011

charlemagnecapital - #Egypt Update.pdf

Since events have been moving fast in Egypt since our last update we have thought it useful to summarise
our thoughts on recent key events and the political and economic outlook for the country.
The good news:
• Egypt is on the path to become a functioning democracy with a reasonably clear timetable:
Constitution is being re-written to set a maximum term limit for the president of two four-year terms
and also allowing independent candidates to run both for the presidency and for Parliament. Elections
are likely to take place in Sep/Oct 2011, followed by Parliamentary elections in 2012 under a new
• The worst geopolitical fears of the West and Israel are unlikely to materialise: Neither the Muslim
Brotherhood nor the Army will put forward candidates for the presidency. The Muslim Brotherhood
has also announced that they are only contesting 1/3 of the parliamentary seats. This makes it highly
unlikely that the Israeli-Egyptian Peace Treaty which is the cornerstone for the US financial support to
Egypt will be unilaterally cancelled.
• Strong consensus presidential candidate who has credibility both internationally and domestically is
emerging: Amr Moussa, the outgoing Egyptian Arab League secretary general, will seek election as
president. He is the only potential candidate with name recognition among the people who is also
tolerated by the army and world leaders can also coexist with him. Moussa is expected to set a
precedent by saying he'll only stand for one term; easily justified given his age (75).
• Central Bank and local banks have enough short term liquidity to withstand pressure on the currency
and interest rates. Nevertheless certain crowding out by increased government borrowing is likely.
• Gulf countries such as Saudi Arabia have also pledged financial support in case Egypt experiences
funding difficulties or loses US aid.

FT Alphaville » Navigating the Gaddafi asset freeze

Underlining the complexity of managing the Gaddafi financial asset freeze on Friday, HM Treasury has carved out an exception for any traders dealing with ‘non-Libyan financial institutions’:

(H/T Natsuko Waki of Reuters)

Effectively it’s a licence to continue trading with British-Arab Commercial Bank, a London-based name active in short-term financing (letters of credit and so on) of trade in Arab markets.

Fallout From 'Days of Rage' In Middle East -

The political situation throughout the Middle East and North Africa (MENA) is still in flux, with a rotating cast of countries experiencing "days of rage" and several regimes, including Libya's, teetering. The overthrow of the Egyptian and Tunisian leaders has energized populations and opposition groups--leaders will no longer be able to rely solely on the old playbook of repression and subsidies. Regardless of how the political developments play out, all the regimes in the region have been challenged, and the populations will not be content with business as usual. In fact, many members of Tunisia's caretaker government resigned this week as protesters demanded a government untainted by members of the old regime. In our latest MENA Focus, we consider what the recent political shake-up could mean for regional economies, their neighbors and their trading partners.

Protests have spread to oil-exporting nations, especially Libya, Oman and Bahrain but also Iraq, raising the risk of fuel-supply vulnerabilities. While we do not expect prolonged supply reductions, the escalation of violence could reduce output and impair energy and transport infrastructure, as it already has in Libya. Saudi Arabia's efforts to boost production and redirect OPEC crude to European refiners and the reopening of key Libyan ports have dampened oil prices for now, but risks to prices seem tilted to the upside in the near term, at least until Saudi Arabia's scheduled "day of rage" takes place.

Moreover, international oil companies are putting both current operations and further exploration on hold in Libya, fearing political risks, the sabotage of energy infrastructure and even changes in the royal regimes. If this occurs more broadly in the region, it could add to decades of underinvestment (only Saudi Arabia and Qatar have invested heavily in new infrastructure in the past decade). Continued underinvestment in MENA, which accounts for two-thirds of global oil reserves, could raise future supply risks.

Oil climbs higher on Libya conflict, Saudi protests | Reuters

Crude oil rose over $1 on Friday, with Brent pushing towards $116, as fighting in Libya intensified with fresh reports of air strikes, and on protests in Saudi Arabia's oil-producing Eastern Province.

By 0858 GMT, Brent crude futures for April delivery were up $1.16 to $115.95 a barrel. U.S. crude futures for April rose 86 cents to $102.77 a barrel, but earlier had rallied over $1 to touch $103.03 a barrel.

Investors and traders have been nervously tracking the progression of the civil unrest in North Africa and the Middle East for any sign that Saudi Arabia, OPEC's leading oil producer, would be affected.

FT Alphaville » Why Libya’s sovereign fund is being frozen

Austria was the latest country to freeze assets linked to the Libyan Investment Authority on Friday. Or more specifically — assets tied to Mustafa Zarti, who is the LIA’s deputy chief.

And a close friend of Saif Gaddafi.

Which tells you exactly why an asset freeze initially targeted at the Gaddafi family has now also brought down a sovereign wealth fund.

Kuwait’s Zain 2010 Profit Surges on Sale of African Holdings - Bloomberg

Mobile Telecommunications Co., Kuwait’s biggest phone operator known as Zain, posted a fivefold rise in full-year profit on gains from selling most of its African operations and adding customers.

Net income climbed to 1.06 billion dinars ($3.8 billion), or 275 fils a share, from 195 million dinars a year earlier, Zain said today in an e-mailed statement.

Profit included a 770.3 million-dinar capital gain from the sale of Zain’s African assets, excluding Morocco and Sudan, to Bharti Airtel Ltd. (BHARTI), India’s largest wireless carrier, for $9 billion in June. Customer numbers rose 23 percent to 37.2 million, Zain said.

COMMENT: Middle East & Oil Price

Unrest in the middle east has caused oil prices to soar but risk appetite to fade. At the first glance, it certainly is tempting to say that what is good for the oil price is good for Russia. That certainly is the first order effect, but there are other consequences as well.

The rise in the oil price is not induced by a shortage of oil in the world. Indeed, if we ignore rumors of uncertain reliability in Saudi spare production capacity, there is substantial unused global capacity in oil production. It seems that the oil price reflects expectations of a very significant supply disruption – something more than a temporary decline in oil supplies from Libya, Egypt, Tunisia and Yemen. The current oil price thus includes a risk premium for a spread of middle east unrest to Saudi Arabia, Iran, Iraq or some combination of one of more of these nations. Granted, such as spread
could have significant negative influence on oil supply.

This sense of overall increased risk has a number of side-effects aside from an increase in the oil price. Increased risk perception causes increased risk aversion followed by a decrease in investment in riskier assets, such as stocks, which then decrease in price. This increased risk perception has caused some weakness in international equity markets ex energy sector, although a strengthening of the oil price and the ruble has muted this effect in Russia.

With oil, it’s all about supply Howard Gold's No-Nonsense Investing - MarketWatch

Since popular revolutions started breaking out across North Africa and the Middle East early this year, crude-oil prices have taken off.

Entrenched despots in Tunisia and Egypt bit the dust. Libya faces civil war as madman Moammar Gadhafi clings to power, while regimes in Bahrain and Yemen feel the heat from populations demanding change.

And uneasy lies the head that wears a crown in the House of Saud, the biggest oil producer of all. Worries about Saudi Arabia’s stability have spilled over into the Saudi stock exchange, which lost almost 7% of its value Tuesday and is off 16% for the year.

Qatar’s political motivations a challenge to fund | Investing | Financial Post

Qatar, once content to attach its name to trophy assets, may use its investments to garner political goodwill as foreign leaders fly in to woo the fund, arguably now the world’s most aggressive.

Consecutive visits by the prime ministers of Britain and Spain and president of Germany to Doha over the past week highlight the Qatar Investment Authority’s (QIA) growing global profile.

Flush with cash thanks to abundant natural gas resources, the QIA has cannily mixed smart investing with goodwill generation.

CBI to probe if Raja armtwisted Swan Telecom - The Economic Times

The Supreme Court has asked the Central Bureau of Investigation to probe if the Government armtwisted telecom company S Tel to give up its claim for a pan-India mobile permit. The court also directed CBI to examine the investment made by UAE's Etisalat into Swan Telecom despite certain ministries objecting to the deal on security grounds. Both the Home and Finance ministries had opposed the deal and had asked the Foreign Investment Promotion Board to reject the investment by UAE-based telco into Swan.

A bench comprising Justice GS Singhvi and Justice AK Ganguly had on Thursday directed the agency to probe these matters and report to it by March 15. Advocate Prashant Bhushan appearing on behalf of NGO petitioner Centre for Public Interest Litigation alleged that the Telecom Department's directive on March 5, 2010, cancelling STel mobile permits, had forced the company to drop its case against the Government . He alleged this resulted in S Tel telling the Supreme Court that it was willing to wait for the Government to award it a pan-India permit and airwaves. Bhushan's allegations had led to Additional Solicitor General Indira Jaising furnishing documents related to the S Tel case earlier this week. "File placed by the Additional Solicitor General says something more.

It tells about a new dimension which is all together different" , the bench had said on Wednesday. S Tel' had applied for pan-India mobile permits but was given the nod to launch services in only 6 circles , This was because, former telecoms minister A Raja had arbitrarily announced that the first-come , firstserved basis for allocating telecom licences — which come bundled with 2G spectrum — will only apply to companies that applied before September 25, 2007. This was despite Raja and DoT announcing earlier that the cutoff date for filing applications was October 1, 2007. The Delhi HC had in 2009 ruled in S Tel's favour, in what turned out to be a major embarrassment for the Communications Ministry. The court also set aside September 25, 2007, as the cut-off date for granting telecom licences and opened up a Pandora's box for the government , exposing Raja's move to award licenses selectively to a handful of companies.

Moody's downgrades Jafz to B2; negative outlook (UAE) - Money - Zawya

Moody's Investors Service has today downgraded by one notch to B2 from B1 the long-term foreign and local currency issuer ratings of Jebel Ali Free Zone FZE ("Jafz") and converted them into a corporate family rating (CFR) and a probability of default rating (PDR), in line with Moody's policy for non-investment-grade corporate issuers. The downgrade to B2 also applies to the AED7.5 billion trust certificates that are due in November 2012 and issued by JAFZ Sukuk Limited. The outlook on all ratings is negative.

FACTBOX-Key political risks to watch in United Arab Emirates - AlertNet

As political upheaval sweeps through the Arab world, the rich federation of seven emirates remains one of the two Gulf Arab states so far untouched by unrest that has spread to nearby Oman and Bahrain.

The per capita incomes of the UAE, along with Qatar, remain among the highest in the world -- eighth and third, respectively -- thanks to their relatively small populations and oil and gas wealth.

Emboldened by popular protests sweeping across the Arab world, intellectuals and political activists in the UAE have become more vocal in calling for political reform and less censorship, but there has been little sign so far of any call for organised demonstrations that would trigger unrest - S&P says turmoil could still spread

No country in the Middle East and north Africa is immune to contagion from the political unrest that has hit countries such as Libya, Tunisia and Egypt, according to Standard & Poor’s, the credit rating agency.

The fact that the protests have spread from oil importers such as Tunisia, Egypt and Jordan to oil exporters such as Bahrain, Libya and Oman was a sign that the wealth earned from natural resources was not enough on its own to contain the intense political pressure, S&P analysts said. The analysts also underlined the danger that Iran continued to pose to stability in the region.

“We consider that the possibility of political unrest can’t be excluded for the remaining Mena [Middle East and north Africa] sovereigns where political upheaval has as so far been modest or absent. Still, in our view, the likelihood of such events decreases with levels of wealth and fiscal resources.”

Will Dubai weather the storm? | beyondbrics –

The global financial crisis was bad enough for Dubai, with its real estate exposure and heavy debt burden. The regional political crisis is proving equally troubling.

Dubai’s stock market fell another 1.6 per cent on Thursday, ending the week at seven-year lows amid growing turmoil in the Arab world. The index has fallen 16 per cent since unrest reached the oil-rich Gulf two-and-a-half weeks ago. But Dubai has a history of coming out of crises relatively unscathed.

In fact, problems for its neighbours prove to be a boon for the outward-looking emirate. Certainly, Dubai is unlikely to face protests of any significance.

FT Tilt - Mideast unrest boosts Malaysian sukuk market(Registration)

The unrest in the Middle East is unwittingly boosting the Islamic finance market in Malaysia, with companies in the GCC already tapping the country's established sukuk market.

Kuwait's Gulf Investment Corp (GIC) just issued its maiden local currency sukuk, becoming the first GCC issuer in the Malaysian sukuk market. The 600m Malaysian ringgit ($164m) sukuk is an inaugural issue from GIC’s $1.1bn sukuk Medium-Term Note programme, and is GIC’s third bond offering in Malaysia. There are bound to be more as issuers - and some investors - seek the stability of the Malysian Islamic market.

"GCC issuers have to look elsewhere, and Malaysia’s is the most established sukuk market. I'm not sure GCC investors would come so soon, as they are yield-driven and our yields are quite tight," said Raja Teh Maimunah, global head of Islamic Markets at Bursa Malaysia.