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Monday, 16 May 2011

Dubai Bank taken over – an isolated case? | beyondbrics – FT.com

“Extend and pretend”, a common if maligned banking tactic when important clients are unable to repay their loans, can only get you so far, as Dubai Bank, an Islamic bank majority-owned by the debt-laden emirate, has discovered.

The Dubai government has been forced to take over Dubai Bank – wiping out the shareholding of Emaar and Dubai Holding, two other state-owned entities – to protect depositors, and is now considering whether the bank can continue as a standalone entity.

Dubai Bank’s woes raise questions as to the quality of loan books at other local banks.


THE RECENT HISTORY OF OIL’S SEASONALITY | PRAGMATIC CAPITALISM


US Global Investors recently published a piece on “Why High Oil Prices Are Here To Stay” (certainly worth a read) with a very useful chart on oil’s seasonal tendencies. As regular readers are aware, I’ve been discussing the bullish seasonal trend in oil and gasoline prices for the entirety of the last 50% move in gas prices. The following chart puts that seasonal trend in perspective.
If we stay true to the trend we can expect oil and gas prices to remain buoyant into the July 4th holiday when the driving season officially ends. That is the point when risk in the oil markets becomes elevated – particularly given the recent surge in prices. If the 25 year trends holds true then prices could remain high into the late summer period and the hurricane season when storms can disrupt supplies. Either way, we’re nearing a point where the risk/reward in oil prices is deteriorating.


FT.com / Comment - Monarchies seek strength in unlikely alliance

Wild rumours about Gulf states’ plans to contain Arab uprisings have been circulating for weeks.

There was talk of the Gulf Co-operation Council becoming a proper federation of states. There were whispers that Saudi Arabia might even integrate Bahrain.

Last week, to the consternation of many in the region, the six-nation Gulf Co-operation Council revealed what it has been cooking: a broader royalty club that would, presumably, be better positioned to face the revolutionary zeal that has swept through the Arab republics.

UAE mulls reduction in telecoms taxes | Reuters

The United Arab Emirates will cut royalty charges or taxes for telecoms firm Etisalat (ETEL.AD), a top regulatory official said on Monday, that would provide an instant boost to sagging profits at the former monopoly.

No timescale was offered for the reduction by the telecoms regulator but analysts expect some cut on the royalty rate paid on 2011 profits.

"At one time, we will have to reduce Etisalat," said Majed Almesmar, deputy director general of the Telecommunications Regulatory Authority. "When? That depends on the market share for Etisalat and du."

Middle East: haves and have-nots | beyondbrics – FT.com

Middle Eastern economies have always run at two different speeds – oil versus no oil, the haves versus the have-nots – but the divergence is widening as high oil prices are boosting the Gulf but kicking Levantine and north African nations while they’re down.

For 2011, GCC oil exporters will see real GDP growth of 6.5 per cent but oil importers will see a contraction of 0.5 per cent, according to recent research by the Institute for International Finance.

Fiscal data tell a similar story. The GCC’s consolidated fiscal surplus will rise from 7.9 per cent of GDP in 2010 to 13.2 per cent in 2011, while oil importers will see deficits grow from 4.3 per cent of GDP to 5.7 per cent.


MENA stock markets close - May 16, 2011

ExchangeStatus IndexChange
TASI (Saudi Stock Market)
6634.03-0.85%
DFM (Dubai Financial Market)
1562.58-1.44%
ADX (Abudhabi Securities Exchange)
2641.23-0.52%
KSE (Kuwait Stock Exchange)
6468.50.43%
BSE (Bahrain Stock Exchange)
1377.41-0.40%
MSM (Muscat Securities Market)
6134.06-0.29%
QE (Qatar Exchange)
8680.550.16%
LSE (Beirut Stock Exchange)
1386.49-0.73%
EGX 30 (Egypt Exchange)
5126.691.28%
ASE (Amman Stock Exchange)
2201.17-0.01%
TUNINDEX (Tunisia Stock Exchange)
4144.80.97%
CB (Casablanca Stock Exchange)
11954.7-0.91%
PSE (Palestine Securities Exchange)
491.120.08%

FT Alphaville » Hello to bondholders, Dubai to banks

Or, what happens when an autocratic put and bad debts collide?

In which FT Alphaville wonders if one of 2011′s greatest stunts in defying credit gravity (charts via Exotix)…

…is on the verge of running into trouble. Dubai – ‘Switzerland of the East’ in these days of Arab instability – abruptly announced its first ever bank failure on Monday (via Bloomberg):

Dubai Bank PJSC, an Islamic lender owned by Dubai Holding LLC and Emaar Properties PJSC (EMAAR), was rescued by Dubai’s government after loan losses increased. “The intervention is designed to ensure that Dubai Bank’s business continues uninterrupted,” the Dubai government’s Media Office said in an e-mailed statement today. “Options for the bank’s future, whether to be run on a stand-alone basis or be potentially merged with another bank in which the government has ownership, are being assessed.”

The fairly small, Islamic finance specialist has finally succumbed to restructuring by its debtors, and Dubai has executed its first overt banking rescue in style. It’s a 100 per cent capital injection burning out the property empires that were the bank’s major shareholders, and to a great extent, its destroyers.

Quite a milestone, this.

Abrupt… mysterious… but an assurance that things will be OK — FT Alphaville is also getting a few memories of Dubai World’s November 2009 blow-up here, which is appropriate.

Readers will remember that DW’s shock plea for a debt standstill eventually involved a huge ($20bn) UAE bailout. However, it also triggered a vast restructuring of debt run up by government-related enterprises during the property boom, including the ex-owner of Dubai Bank, Dubai Holding.

However, it was the nature of Dubai’s great restructuring that was especially striking, but which has conversely blown up Dubai Bank. From an Exotix note in April:

Restructurings have favoured bondholders over bankers – since the Dubai World (DW) standstill announcement in November 2009, all ensuing debt restructurings have involved rescheduling the bank debt, while the bonds have all remained performing (and in the case of DW, the Nakheel’s sukuks were all paid off in full and on time). We believe this theme of “restructure the bank debt, payoff the public bonds” will remain the case for Dubai’s GREs… Bondholders are typically a more vocal group, with the potential to threaten a storm of litigation and the desire for seizure of assets (as we witnessed during the DW standstill). Bank debt holders, on the other hand, place a high priority on maintaining amicable relations with the local government and its entities in order to foster an ongoing regional presence. Further, the majority of the bank loans to Dubai’s GREs were provided by local banks. In our opinion, these banks were likely pressured by the government into cooperating and restructuring their facilities to GREs. Not only does the government own large stakes in most local banks, but government authorities are often represented on the board of directors of these institutions.

It’s like a reverse Greece. Domestic banks were exactly the ones who would take losses for foreign bondholder capital to be saved.

Around $10bn of Dubai World’s $22bn debt was held by regional banks, for instance. The restructuring has mostly involved the extension (often doubling) of maturities, hence banks would have taken haircuts to net present value if not principal.

Moreover, banks are doubly exposed via the property market that Dubai Holding et al. abandoned from 2009 to 2010. Property prices have halved in the emirate since 2008. Whereas non-performing loan ratios have been considerably lower than price declines would suggest (on the order of 11-12 per cent versus 16 per cent), that in itself indicates an unhealthy degree of kicking the can down the road in Dubai’s banking system.

Of course, Dubai Bank was especially exposed through Dubai Holding throughout the restructuring and property collapse. Plus, the will to take banks over in itself suggests that the government remains minded to protect bondholders and thus its reputation, whatever the cost.

However — the question is this: How much further can you push restructuring onto banks over bondholders, without banks going under themselves?

There’s been a lot of faith in the autocratic put option Dubai and UAE rulers effectively placed underneath the emirate’s bonds, since Dubai World imploded. After all, the faith paid off in 2011.

What’s perhaps been less clear is that it was, at the time, a cheap put benefiting from banks’ willingness to be subordinated. But when they can’t support losses any more — well, we wonder what happens.

Related links:
Emaar’s smaller future - FT Tilt
Dubai seen as a refuge amid turbulence – FT


Dubai Bank nationalized to protect the UAE banking sector from a crash « ArabianMoney

The Dubai Bank has been taken over by the Dubai Government to protect depositors and the UAE banking sector from a crash.

This will result in another significant write-down for Emaar Properties which owns a 30 per cent stake. The balance is owned by Dubai Holdings in turn owned by the Ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum.

A statement from the Dubai Media office said the takeover was to ‘ensure that Dubai Bank’s business continues uninterrupted while options for the bank’s future, whether to be run on a stand-alone basis or be potentially merged with another bank in which the government has ownership are being assessed’, adding that the government had decided to ‘act swiftly’ to protect the interest of depositors.

UAE bourses in need of a catalyst - The National

How the ADX closed on May 16, 2011.
How the DFM closed on May 16, 2011.

    Dubai shares dropped to the lowest level in more than a month as investors booked profits amid a lack of catalysts.

    The Dubai Financial Market General Index declined 1.4 per cent to 1562.58 points, the lowest since April 10.

    Emaar Properties, the region's biggest developer, lost 2.2 per cent to Dh3.10. Aramex, the largest courier company in the region, fell the most in a week.

    Dubai's Government Rescues Dubai Bank; Injects Capital - WSJ.com

    DUBAI (Zawya Dow Jones)--Dubai's government said Monday it will take full control of Dubai Bank, a local lender owned by an investment vehicle linked to the emirate's ruler, in order to keep the bank afloat and protect deposit holders.

    The government said it will inject capital into Dubai Bank, without providing more details, which is expected to dilute current shareholders and allow for a complete takeover. Before the announcement, Dubai Bank was 70% owned by Dubai Holding and 30% by real estate firm Emaar Properties (EMAAR.DFM), it added. Emaar wasn't immediately available to comment.

    "The intervention is designed to ensure that Dubai Bank's business continues uninterrupted while options for the bank's future, whether to be run on a stand-alone basis or be potentially merged with another bank in which the government has ownership, are being assessed," the Dubai government said.

    Dubai Holding is directly linked to Dubai's ruler Sheikh Mohammed Bin Rashid Al Maktoum and spans the financial, hospitality and real estate sectors. It is one of Dubai's three main investment groups, alongside Dubai World, which in March signed a final deal with all its creditors to restructure about $25 billion worth of debt.

    "This seemingly takes care of one of the areas of systemic risk that we have been worrying about," said Raj Madha, a banking analyst at Rasmala.

    Dubai Bank in 2010 carried out a strategic review of its business after it made a net loss of AED291 million in 2009. Its total assets stood at AED17.4 billion as on Dec. 31, 2009. Total liabilities stood at AED15.7 billion, including customer deposits of AED14.9 billion.

    "This has been in the works for some time, it is the Dubai government rearranging its holdings," Dubai Bank's Chief Financial Officer Ahmed Elshall later told Zawya Dow Jones.

    Dubai Bank several years ago put itself up for sale but potential suitors lost interest because of the high sale price and the risk of looming loan losses as a result of the regional property downturn. One banker familiar with the situation said that the bank may require "a couple of hundreds of millions of dollars" worth of capital to repair its balance sheet.

    "Capitalization may be required for other reasons," said Dubai Bank's Elshall. "You may need capital to pursue new strategies for the future," he said.

    MERGER

    Dubai's government said it may consider merging the bank with another entity in which it has a stake.

    "From a realistic point of view, there a number of banks owned by governments, that is the case for Abu Dhabi for example, and it is likely in view of the period we've gone through there will be some consolidation," Elshall said.

    Analysts at AlembicHC said a possible scenario could involve Emirates NBD (EMIRATES.DFM), one of the region's biggest banks by assets.

    "ENBD always stressed it would only do an acquisition on commercial terms, which is only possible after a capital injection and proper cleansing of Dubai bank's loan book," said Jaap Meijer, head of the banking team at AlembicHC.

    "Even if ENBD (56% owned by Investment Corp of Dubai) would get Dubai Bank for free, it would reduce its Tier-1 by 90bps (although less negative than a take-over of Amlak), taking into account a 12.5% write off of Dubai Bank's loan book, as its loan loss provision needs would exceed Dubai bank's capital base," he added.

    Ratings agency Fitch in March downgraded Dubai Bank's rating to D/E from D and kept it on rating watch negative, as it expected full-year results for 2010 to be "negatively affected by its significant exposure to certain Dubai entities that are being restructured."

    Dubai Bank was turned into an Islamic bank in 2007 and last year appointed Giel-Jan Van Der Tol, a former ABN Amro banker, as its new chief executive.

    Emaar, in its 2010 annual report, said the group provided an impairment of AED176.6 million (for the year) based on the estimate of the carrying value of its investment in Dubai Banking Group. "This estimate of the impairment is based on the management estimates of the provision required in respect of the loan and advances that may be required to be made by DBG for the year ended 31 December 2010," it said.

    -By Nicolas Parasie, Dow Jones Newswires; +9714 446-1681; nicolas.parasie@dowjones.com

    Copyright (c) 2011 Dow Jones & Co.

    FT.com - Dubai government takes over Islamic bank

    In a further step to clean up its financial sector following a real estate crash, the Dubai government has taken over Dubai Bank, an Islamic bank majority-owned by the emirate’s ruler.

    The government will inject cash into the troubled bank, taking over complete ownership, while assessing whether it should carry on as a standalone entity or whether it should merge with another institution, a statement said.

    Dubai Bank, which last year said it was reorganising itself to focus on premium customers and midsized companies, was previously owned 70 per cent by Dubai Holding, which is in turn owned by Sheikh Mohammed bin Rashid al-Maktoum, the ruler. Thirty per cent was held by Emaar Properties, a property developer in which the government has a roughly one-third stake.

    Dubai stocks fall after Dubai Bank takeover - ArabianBusiness.com

    UAE bourses tumbled to a five-week low after the Dubai government's announcement that it will take over Dubai Bank.

    Dubai's government took control of troubled Islamic lender Dubai Bank on Monday to stave off a potential collapse that would undermine the emirate's banking sector.

    Dubai's benchmark ended 1.4 percent lower at 1,563 points, its lowest closing since April 7.

    FUND VIEW-Qatar fund at ease with regional strife | Reuters

    The managers of a fund investing in Qatari companies insist it is safe from a falling oil price, shaky world economy and Middle Eastern political unrest as it moves from a London AIM listing to the main market.

    David von Simson, chairman of the Qatar Investment Fund, said recent pressure on the Qatari market in response to Arab revolutions made little impact on the robust gains seen through the second half of last year.

    The fund's shares increased by about 30 percent in the last two quarters of 2010 and are little changed since the start of 2011 despite a volatile first three months of the year.

    Dubai takes over Islamic lender Dubai Bank | Alrroya

    Dubai's government has taken control of troubled Dubai Bank, an Islamic lender owned by the ruler of the Gulf Arab emirate, in a move it said was aimed at protecting depositers interests.

    Dubai, which is struggling to emerge from a debt crisis, said on Monday it will inject capital into the bank, which reorganized its operations last year, and the central bank and finance ministry support the takeover.

    "Options for the bank's future, whether to be run on a stand-alone basis or be potentially merged with another bank in which the government has ownership, are being assessed," the government said in a statement.

    Business Line : Industry & Economy / Banking : Pakistani billionaire eyes big stake in Dubai bank

    Pakistan’s richest man, Mian Muhammed Mansha, is hoping to buy a majority stake in a Dubai-based bank, a news report has said.

    Mr Mansha is the Chairman of Muslim Commercial Bank (MCB), Pakistan’s largest lender by market value.

    The Nishat Group, of which he is the Chairman, has assets valued at $5 billion and has operated an insurance company in the UAE under the Adamjee Insurance brand for 40 years. Nishat Group also holds a majority stake in MCB.

    Kuwait's Agility Q1 profit falls 56 pct - Maktoob News

    Kuwait's Agility , the logistics firm facing U.S. fraud charges, reported a 56 percent fall in first-quarter net profit, but expressed optimism about growth in its core business and customer base.

    The net profit of the Gulf's biggest logistics provider by market value in the three months to March 31 fell to 7.7 million dinars ($27.93 million) from 17.59 million dinars a year earlier, Agility said in a statement on Sunday.

    The company made a one-off gain of 7.9 million dinars in the quarter from a merger in Qatar, the statement said.

    Emaar Q1 profits fall 44% as chairman turns to commodities business « ArabianMoney

    Shares in the Dubai real estate giant Emaar fell sharply yesterday on news of a 44 per cent slump in first quarter profits to $114 million with delivery of apartments and villas crashing from 1,300 in the same period a year ago to 270.

    The news came a week after Emaar chairman Mohamed Alabbar revealed that he has been spending most of his time creating a privately-owned commodities conglomerate, largely in Africa. Emaar shareholders are hardly going to be impressed.

    $1.6T Projects In Limbo - Zawya

    Close to $1.6-trillion worth of projects are cancelled or are on hold in the Middle East and East North African market, with $800-billion in the UAE alone, according to Citibank.

    The statistics are a reflection of the hangover of the leveraged days in the region when billion dollar projects were announced virtually every other day.

    The excessive number of projects ruined many real estate markets in the region after the global financial crisis, as funding evaporated leading to defaults and pain for investors. Many regional banks and developers still carry the scars of that era's unbridled enthusiasm.

    gulfnews : Saudi stocks lack close link to crude oil

    While shares of Saudi Arabian petrochemical companies have a very strong correlation to oil prices, the overall stock market's relation with crude isn't that clear-cut, even given the dependence of the kingdom's economy on oil prices, Riyadh-based investment bank Jadwa Investment said.

    "Although Saudi Arabia is predominantly an oil-based economy, the stock market does not have a close relationship to the global oil market. None of the companies listed on the stock market give direct access to the oil industry, which is dominated by state-owned Saudi Aramco," Jadwa's head of research Paul Gamble wrote in a recent research report.

    The correlation of the benchmark Tadawul All Share Index (Tasi) to oil prices over the past three years is 0.68, while that of the petrochemicals sector is 0.89. "There has been a clear divergence between the Tasi and oil prices for much of the recent past," Gamble said.

    DFM trading hits doldrums - The National

    Trading was concentrated on two property-related stocks on the Dubai Financial Market yesterday as the markets hit the doldrums ahead of the summer holidays.

    "Its lacklustre trading," said Saleem Khokhar, a fund manager at National Bank of Abu Dhabi. "There is no overriding sentiment at the moment, with a little bit of profit taking going into the summer."

    Emaar Properties, the developer behind the Burj Khalifa, declined 1.5 per cent after it said revenue from apartment sales fell 81 per cent and villa sales lost 50 per cent in the first quarter amid weak property demand.

    Bahrain moves to repair the damage - The National

    Bahrain's move to lift its state of emergency two weeks earlier than planned may provide some relief for the kingdom's business community, but outside investors are now reassessing the risks associated with doing business there.

    King Hamad last week called for an end to the state of emergency from June 1 from its original proposed date of June 15. It was declared in mid-March following month-long protests demanding political reforms. The kingdom called in troops from neighbouring Gulf states to help control the demonstrations.

    This latest move appears in line with an attempt to showcase the kingdom as stable, but market commentators have said some economic repercussions following the unrest could be irreparable.

    Qatar Islamic plans up to $1 bln sukuk sale-sources | Reuters

    Qatar Islamic Bank QISB.QA (QIB), the Gulf state's second-largest lender by market value, aims to raise as much as $1 billion through sale of an Islamic bond by the end of this year, two sources familiar with the matter said.

    The sources, who did not want to be named, said the bank is planning to raise between $500 million to $1 billion from the sukuk sale, but did not say whether the Islamic lender had mandated banks for the proposed issue.

    QIB invested 1.25 billion riyals ($343.6 million) in a sukuk in June issued by the Qatar Central Bank on behalf of the government to boost the domestic bond market.

    FT.com - Iraq set to miss oil output goals

    Iraq will miss its target to quadruple its oil production by 2017, say senior industry executives and western officials, dealing a blow to hopes that surging output from the country would lower global oil prices by the middle of the decade.

    Baghdad last year outlined its ambition to produce more than 12m barrels a day within six years, up from 2.6m b/d currently with the help of oil companies, including ExxonMobil of the US, Lukoil of Russia, the UK’s BP and Royal Dutch Shell, CNPC of China, Petronas of Malaysia and Eni of Italy.

    But the executives and officials have told the Financial Times that they are now firmly convinced that the target is beyond reach because of mounting constraints in pipelines and export terminals. They believe that Iraq will soon scale down the target.