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Thursday, 9 June 2011

FT Alphaville » Sovereigns of fortune (a debtor’s prison break)

In 2008-2009, a sovereign crack commando unit was sent to debtor’s prison by a bond vigilante court for a crime they didn’t commit.
(Well, actually, private-sector balance sheet losses, exchange rate collapse, all sorts of dubious government decisions, that kind of thing — still hard to say who committed what, bit of a mess really.)
These sovereigns promptly escaped from a maximum-security stockade to the dollar bond issuance underground. Today, still wanted by the markets, they survive as sovereigns of fortune.
If you have a problem…
If no one else can help…
And if you can find them…
Maybe you can hire…
Iceland is poised to raise up to $1bn in its first bond issue since the country’s banking sector collapsed in 2008, marking a step towards normalisation of its relations with international capital markets…
(First bond issue since 2006)
A benchmark dollar bond planned by Latvia will carry a 10-year tenor and will be sold this week, market sources said on Tuesday…
(And the first one for Latvia since 2008)
Dubai, buoyed by tightening spreads and an oversubscribed bond last week by its flagship carrier, plans to come to the market itself, with a potential benchmark dollar bond, leads said on Thursday…
(Only the second bond here since the Dubai World crisis)

MENA stock markets close - June 9, 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)

UAE, Qatar indexes rebound ahead of MSCI

Gulf markets rebound on Thursday after recent weakness, tracking higher oil prices and as an MSCI upgrade play returns to the market.

Brent crude rose to $118 on Thursday after Saudi Arabia failed to convince OPEC to raise output targets, and data showed United States crude stocks fell sharply last week.

The United Arab Emirates and Qatar are under review for an index upgrade by compiler MSCI and will announce around June 21 whether it will upgrade the countries from the “frontier markets” category, a move that could open up the countries' bourses to multi-billion dollar liquidity and drive index fund investments.

Thor Asset Purchase (Cayman) Ltd. Notes Rating Raised To 'BBB' Reflecting Improvement In DEWA's Credit Quality - Financial Services - Zawya

-We are raising our ratings on the US$1.3 billion senior secured callable floating-rate notes issued by Thor Asset Purchase (Cayman) Ltd. (Thor) to 'BBB' from 'BBB-'.

-Thor provides funding to Dubai Electricity and Water Authority (DEWA), which has a monopoly in Dubai over generation, transmission, and distribution of power

-Our upgrade principally reflects improvements in our estimate of DEWA's stand-alone credit profile, which we factored into our assessment of Thor's stand-alone credit profile.

Dubai Said to Hire UBS, RBS, Emirates NBD for Benchmark Dollar Bond Sale - Bloomberg

Dubai hired Royal Bank of Scotland Group Plc (RBS), UBS AG and Emirates NBD PJSC (EMIRATES) for a benchmark dollar bond sale, three people familiar with the transaction said, as the emirate seeks to bridge its budget deficit.

Conference calls with investors will begin tomorrow, with one meeting scheduled in London next week, one of the bankers said, declining to be identified because the information is private. A benchmark bond is at least $500 million.

This “is positive news for the market,” Adnan Haider, head of fixed-income and equities at Abu Dhabi Commercial Bank PJSC, said in a phone interview. “I think they are taking advantage of market liquidity and the positive response to recent sales, such as the Emirates bond, and the Dubai World restructuring.” - Nakheel chief executive steps down

Nakheel, the troubled Dubai developer, has announced that Chris O’Donnell, its chief executive, has stepped down after finishing his five-year contract.

The government-controlled company behind Dubai’s offshore Palm islands is in talks to delay repayment on $11bn in loans as part of the emirate’s broader restructuring.

Dubai World, Nakheel’s parent, has restructured $25bn in debts after pushing the emirate to the brink of default in November 2009.

FT Alphaville » Re-inventing Opec

Wednesday’s Opec meeting may have resulted in a no-change decision on production targets, but as more and more people are noticing, its importance lay elsewhere — in signalling some significant turmoil within the organisation itself.

Indeed, if ever proof was needed that Opec may be turning into an outdated institution for today’s commodity markets, Wednesday’s meeting could very possibly have been it.

Saudi oil minister Ali Naimi, was famously quoted calling it “one of the worst meetings we have ever had.”

Dubai Inc. In 2012 - FULL @alifarabia

2012 will be a crucial year for Dubai Inc. as a significant amount of debt matures in the year. Analysts expect the emirate to service these maturities, but they expect external support. Here's a look at Dubai's options. 2012 is going to be a major year for the emirate of Dubai as it will see a number of major redemptions in the bond market.

Investors have been closely watching the emirate's move ever since Dubai Worlddefaulted on that grim Eid weekend of November 25, 2009, and since then the emirate has no longer been the darling of bond investors.

Dubai would argue that much water has passed under the bridge since then. Dubai Worldhas made up with its creditors and put into place a robust debt plan. Meanwhile, other Dubai entities have been paying their dues or agreeing to rollover maturities in happy agreement with their creditors.

Exotix, a frontier market investment banking boutique, notes that 18 months after Dubai World's standstill request caused global shockwaves, the emirate has become the focal point of MENA's April rally, itself the strongest in a year.

"Dubai sovereign spreads have tightened over 133bp since 16 March, and over 188bp since the spike on 30 November 2010, itself induced by Dubai Holding seeking extensions on credit lines," wrote the bank in a report on Dubai a month ago. Since then spreads have tightened to around 384 bps, as the emirate rapidly declines from its ranking as one of the top five sovereigns most likely to default.

In addition, Abu Dhabi stepped in Dubai's hour of need and offered $20-billion - we believe there is more where that came from. Since the arrival of the Arab Spring, there is even more reason to believe that Abu Dhabi will not let a major default occur as it would be loathe to face any political fallout due - in short it will take on the moral hazard if need be.

Still, the markets have not forgiven Dubai. In the first quarter, Dubai remained among the 10 most likely countries (or city states) to default, according to CMA Datavision, which tracks credit default swaps (CDS) and bond pricing based on data data provider CMS.

(Read: Middle East Sovereign Debtors Seen As Among Riskiest By Global Investors)

Standard Chartered Bank sees 2012 as a crucial year for the emirate.

"Dubai faces an onerous debt redemption schedule over the next few years," notes the bank in a note. "While the restructuring at Dubai World has bought the emirate some time, it has done little to address the absolute size of its outstanding debt as there have been no meaningful haircuts and few (publicly disclosed) asset sales."

It is important to differentiate that most of these maturities are loans, which are easier to handle, than bonds which are more widely held.

The bank expects Dubai to service the 2012 maturity bonds as the emirate needs to frequently access international capital markets.

"We expect that Dubai will use the same template as that used for the Dubai World/Nakheel restructuring - i.e., servicing the bonds and restructuring the loans - in dealing with the 2012 bond maturities. However, we anticipate that external assistance could be required, particularly to deal with the larger maturities," says Standard Chartered Bank.

Standard Chartered Bank's point about it needs to regularly access capital markets is important.

Dubai has built up its excellent infrastructure of roads, railways and airport via debt, and given the emirate's ambition of being an unrivaled regional hub, it will need to continue to seek loans and raise bonds.

On June 2, Emirates airline, the city's ambitious plan successfully raised a five-year $1-billion bond with a coupon of 5.125%, implied Z-spread of around 355bps - which is inside the Dubai sovereign range and wide to DEWA and DP World.

"Emirates should eventually settle at a level between DP World and the sovereign (the spread differential between the two on the curve is currently about 50bps)," says Standard Chartered Bank.

"Given the current price whisper, we see some upside (20-25bps) for Emirates at these levels, particularly given the recent strong momentum behind GCC credit - spreads in Dubai have tightened about 80-100bps since the beginning of the year (Chart 1). However, unlike DP World and DEWA, Emirates is unrated (as is the Dubai sovereign), which could prevent some investors from getting involved in the deal."

Fragilities Exist

The support from Abu Dhabi and the UAE's renewed status as a safe haven in the political shamal that is blowing across the region has helped tighten Dubai's spreads.

"But fragilities still exist, so the rally has, in our opinion, nearly drained the oasis," notes Exotix.

These outstanding risks include:
The property overhang;
(ii) lack of clarity on GRE finances;
(iii) international sanctions on Iran, a traditional source of demand for Dubai real estate;
(iv) regional instability;
(v) increased regional vulnerabilities to an oil price decline - given increased spending commitments;
(vi) general underprovisioning by Dubai's banks, and;
(vii) a challenging bond refinancing cycle in 2011 and 2012.

As Standard Chartered Bank hinted, Dubai may still need "external support". The Dubai Financial Support Fund (DFSF) may need another injection of funds and Abu Dhabi may have to step in.

"This will depend on the GREs' - government-related entities - ability to further restructure bank debt, refinance upcoming bond maturities with new bond issues or secured bank debt, and their continued willingness and ability to sell down assets," noted Exotix in its report.

"As of 27 September 2010, the Government of Dubai stated that there is US$2.7bn remaining to be drawn from the DFSF from the loans provided by Abu Dhabi and its banks in December 2009."

The GREs have shown a willingness to sell assets. For example, in August 2010, Dubai World told creditors that potential asset sales over the next eight years may generate as much as US$19.4bn. In December 2010 DP World sold 75% of its stake in its Australian unit (US$1.5bn value) and Borse Dubai sold 50% of its stake in Nasdaq OMX for US$672 million, notes Exotix.

"We continue to believe that, although it has been mentioned as a last resort, the Government of Dubai and its GREs would even be willing to sell partial stakes in their prized assets (e.g. Emirates Airline, Jumeirah Group, Dubai Maritime City, and Jebel Ali Free Zone) to avoid defaulting on their bonds, the possibility of which led to great public embarrassment and financial repercussions experienced during the Dubai Worldstandstill."

What's Due In 2012

Standard Chartered bank examines the likely path to debt servicing for the three main Dubai entities - Jebel Ali Free Zone, DIFC Investments (DIFCI) and Dubai Holding COG (DHCOG), that will collectively see around $3.75-billion combination of bonds and loans coming to maturity in 2012.


"JAFZA clearly does not have the ability to repay the AED 7.5bn sukuk from internal sources. Monetisable assets are few, as the company does not own the land forming part of its facilities in Jebel Ali. Refinancing the entire sukuk at current yields would likely push the company into a loss. With sustainable debt in the range of AED 4.7bn, we believe JAFZ will ultimately have to rely on an external equity infusion in order to make its capital structure more sustainable. With a stronger balance sheet, the company could explore various refinancing options given its stable revenue stream."

DIFCI: "DIFCI's ability to service its debt depends on the success of its ambitious USD 1bn asset-disposal programme and ongoing government assistance. Given fairly low earnings from its core operations, the company is constrained with respect to the total debt it can support on a sustainable basis. Sovereign support for the credit is strong with the government having already provided the company with two USD 500mn loans (whose maturities have already been extended and we expect they will ultimately be converted to equity)."


"Of the three 2012 maturities, Dubai Holding is relatively better placed to service its debt from internal sources given the smaller bond maturity (USD 500mn) and some monetisable assets. Assuming external sources of funding are not called upon, the company's telecoms portfolio is a potential source of raising cash. Its investments in listed telecoms companies (du, Forthnet and GO) are worth close to USD 1bn. This is in addition to its largest telecoms investment - 35% of the unlisted Tunisie Telecom, which it purchased in 2006 for USD 2.25bn."

These are the most high-profile maturities, but they are by no means the only one. Total Dubai debt in 2012 - including government-related entities, or GREs - stand at $15.2 billion, according to IMF data.

On May 24, we focused on Dubai's debt burden and the IMF warning that the emirate's debt will rise to 53% of GDP by 2016 if it does not act.

The Standard Chartered Bank and Exotix reports and the Emirates airline bond issue suggests Dubai is climbing over its debt mountain.

"Barring any more nasty GRE surprises or globally exogenous shocks, we expect Dubai's refinancing environment to remain favorable over 2011 and 2012," notes Exotix.

© 2011

Airline Stocks in Kuwait « Alpha Dinar

2011 has been an eventful year for Kuwaiti airlines. Wataniya Airlines announced that they are stopping their operations due to the financial difficulties they were facing. On the flip side of the coin is Jazeera Airways, who announced record profits for Q1. Two airlines operating in the same market are facing two opposing circumstances. Jazeera’s low fare business model is clearly better than Wataniya’s luxury-model. The key issue, in my point of view, is that consumers are willing to relinquish some luxuries in order to save money on short-haul flights.
The stocks of both companies moved in ways that mirrored their companies’ performances. While Wataniya has shed 63% of its value from late April (the day the stock was reinstated after the company’s announcement of ceasing operation) to date. On the other hand, Jazeera has gained 78% during the same period.

Ailing British care home group to axe 3,000 jobs - Maktoob News

Southern Cross, Britain's biggest private retirement home operator and which is struggling to meet its rent payments, said on Wednesday that it plans to cut up to 3,000 jobs.

"Southern Cross ... has today announced plans to address levels of staff effectiveness across its homes, proposing a reduction of up to 3,000 jobs," the company said in a statement.

The group is cutting roughly seven percent of its 44,000-strong workforce.

FEATURE-Tough road ahead for Middle East investment banks | Reuters

For investment banks operating in the Middle East, the wounds inflicted by the global financial crisis have yet to heal. In fact, they are only getting worse.

Investment banking league tables, already dominated by foreign players, show fees slumped to $48.8 million in the first three months of the year, less than half of the $116.3 million seen a year earlier, data from Thomson Reuters showed, hurt by the political unrest that engulfed the region. [ID:nLDE739015]

With minimal deal activity, depressed stock markets and appetite for fresh capital at its lowest, the future of most banks remains bleak, and there is a lack of fresh ideas to navigate the downturn. Their survival is now at stake.

Waterfront sale to have day in court - Pretoria News

The R9.7-billion sale of the Victoria & Alfred (V&A) Waterfront, the crown jewel of the South African property market, appears set to have a multimillion rand sequel in the high court. The Reserve Bank will be cited as a respondent if the planned high court action proceeds.

Neill Bernstein, the founder and president of New York-based property company Devland Holdings, and Swiss-based trust Bayliss, have sent a letter of demand to former V&A Waterfront joint owner Dubai World for advisory, consulting and broking fees.

The fees are allegedly owed by Dubai World and the new joint owners of the V&A Waterfront, listed property company Growthpoint and the Public Investment Corporation (PIC), which manages the Government Employees Pension Fund.

Analysis: If Saudi hikes, OPEC spare capacity to be in focus | Reuters

Saudi Arabia must perform a high-stakes tightrope act in the second half of this year: pump just enough extra oil to meet a seasonal rise in demand, but not so much that it calls attention to a thinning cushion of spare capacity.

Following an extraordinary failure of the Organization of the Petroleum Exporting Countries to agree to raise output, the world will now rely on Saudi Arabia to meet a more than 2 million barrels per day (bpd) rise in oil demand between the low-demand second quarter and the peak summer third quarter.

The kingdom has thus far managed to bear the strain of filling a gap left by Libya, but with raging civil war likely to keep Libya's oil wells idle for months longer, the world's top exporter will be put to the test in the next few months.

Why OPEC Is Dying - International Business Times

OPEC just had a meeting that failed to produce any agreement. Saudi Arabia, the biggest producer of the cartel, admitted it was one of the worst meetings in OPEC history.

Furthermore, Saudi Arabia, the leading member to push for more production, has essentially indicated that it is willing to ignore OPEC quotas and supply buyers with whatever they want. By doing so, it has dealt a death blow to the integrity of the cartel.

And no one is going to stop Saudi Arabia. What’s OPEC and its hawkish members going to do, sanction Saudi Arabia? Slap on fines? Invade it?

gulfnews : Agreement delay has damaged trade

Until recently, the European Union (EU) was ranked as the top trading partner of the Gulf Cooperation Council (GCC), but the EU's delay in signing a free trade agreement after 20 years of negotiations has led to a decline in trade between the two.

We had earlier warned that this delay would negatively impact commercial ties between the EU and the GCC, especially as alternatives emerged as a result from major changes in international economic relations.

However, the EU is foc-using more on minor details than on expanding its interests in the region, which has one of the highest growth rates in the world.

gulfnews : On the road to economic integration in the Gulf

With the Eurozone running up against new challenges and protectionist tendencies on the rise worldwide, the merits of economic integration, in which several national economies agree to coalesce into a larger single entity, have recently been called into question.

But this context unfairly overshadows the substantial economic and strategic benefits that integration has brought about in many parts of the world — including the EU.

Integration in the EU has seen the creation of 2.75 million new jobs and 2.2 per cent of additional GDP as a direct result of integration efforts that facilitated the movement of goods, services and labour between countries.

Fresh start revives Tamweel's fortunes - The National

Tamweel's improved liquidity position should allow the Dubai mortgage firm to capitalise on expected growth in the UAE's property market, according to an analyst at Alembic HC Securities.

The firm "has extended the duration of its obligations to five years. This has led to a solid matching of cash flows, fixing the mismatch position that existed before last year", said Jaap Meijer.

He initiated coverage with an "overweight rating" and a target price of Dh1.42 a share. The stock lost 2.1 per cent yesterday to close at Dh0.94.

Tribunal hears Drydocks fraud case - The National

Dubai's Drydocks World, which operates the largest ship repair and construction port in the Middle East, has filed a court claim alleging it was defrauded by a local company.

The case before the Dubai World Tribunal came in response to an earlier charge brought against Drydocks World by Auld Alliance Trading. That company had claimed Drydocks World owed it Dh3.6 million (US$980,072) in unpaid bills for the services of four of its employees.

Drydocks World alleges a project management team seconded by Auld Alliance "had no added value whether in terms of profitability or in terms of productivity".

Al Gosaibi set for court showdown - The National

A courtroom showdown is looming in Britain between international banks and the al Gosaibi family of Saudi Arabia.

A case brought by six banking groups opens in London's high court today against Ahmad Hamad Al Gosaibi and Brothers, the family partnership that runs the conglomerate's trading empire in Saudi Arabia.

The banks are seeking the repayment of US$250 million (Dh918.2m) in loans and interest they claim is owed by Al Gosaibi since the company defaulted on liabilities in 2009.

OPEC Can’t Find Consensus on Oil Output - Bloomberg

OPEC failed to agree on crude production for the first time in at least 20 years after six countries opposed a Saudi Arabian push to increase supply as oil trades above $100 a barrel.

“It was one of the worst meetings we’ve ever had,” Saudi Oil Minister Ali al-Naimi said as representatives of the 12- member Organization of Petroleum Exporting Countries left the meeting in Vienna after five hours of talks. “We were unable to reach an agreement.”

Crude in New York jumped 2.7 percent in the 20 minutes after the meeting ended with a split underscoring growing divisions within the group that accounts for about 40 percent of the world’s crude. Saudi Arabia, OPEC’s largest producer, together with Kuwait, Qatar and the United Arab Emirates, proposed increasing group output by 1.5 million barrels a day to 30.3 million barrels. They were blocked by members including Iran and Venezuela, which warned of a “collapse” in prices.

Rupee trading rises 16 times in Dubai

Bets on the Indian rupee are growing in Dubai. Exchange-traded rupee-dollar contracts have become the fastest growing derivative instruments on the Dubai Gold and Commodity Exchange (DGCX) since the beginning of this year, with a rise of over 16 times in 2011 (year to date), compared to last year.

Last month saw DGCX record the highest volumes, as trades in futures contracts across the bourse crossed one million contracts. Also, other currency pairs and precious metals are traded on the exchange.

The rupee-dollar trades accounted for 60 per cent of these volumes and 90 per cent of the overall currency futures segment. Apart from the rupee, DGCX also trades euro, yen, sterling, Australian dollar, Swiss franc and Canadian dollar in combination with the US dollar. This year so far, currency futures have accounted for almost 70 per cent of the volumes on DGCX.

Dubai's Nakheel CEO leaves, CFO takes over for now | Reuters

The chief executive officer of Dubai developer Nakheel [NAKHD.UL] is leaving his post after completing his five-year contract, a statement said on Wednesday.

Chief financial officer Sanjay Manchanda will be acting CEO until further notice, it said.

"Sanjay Manchanda will be replacing Mr. O'Donnell as acting CEO until further notice... Mr. Manchanda is currently the Chief Finance Officer of the company," the statement said, adding O'Donnell "has decided to leave Nakheel following five years spent with the company".

‘One of the Worst Meetings We Have Ever Had’ | Arabianomics

These are the words of OPEC’s de facto leader, Ali Al Naimi of Saudi Arabia, following a highly caustic and dramatic meeting in Vienna today. The meeting was predicted here and elsewhere to be a very tumultuous session for the 12-member body, and it did not disappoint. Little was agreed upon, and the uncertainty as a result sent both the Brent and WTI indices higher.

But the lack of any agreement from the meeting does not mean that Saudi Arabia, by far the largest oil producer in both OPEC and the world, will do nothing to curb soaring prices. In a go-it-alone move, discussed on this website last evening and in detail today in the WSJ’s MarketBeat blog, Saudi Arabia is taking matters into its own hands by producing more oil unilaterally. This should allay any concerns that demand is outpacing supply, and theoretically send prices lower.

Yet again, the world is presented with evidence that Saudi Arabia is a reasonable and responsible producer of petroleum. In order to keep oil prices consistently lower than what they are now, the other two key actors in the petroleum trade, the consumers and the traders, must also do their part. However, failure on the part of consumers to reduce demand and irresponsibility (at best) from speculators are contributing to a wild market and a price that is, arguably, too high. - Egypt’s labour unions take shape

Hisham Abdel Kerim, the driver of a servis, or shared taxi, says it is his father’s plight as an impoverished elderly man with no source of income that is motivating him to lead efforts to start an independent trade union for Egyptian transport workers.

“My father worked for 45 years as a driver. But when he got old, he had no pension and had to sell his car and ask his children for help in order to be able to eat,” says Mr Abdel Kerim who drives his own Peugeot plying the route between the Delta town of Tanta and Alexandria on the Mediterranean coast.

There is already a trade union for transport workers, inherited from the days of the regime of Hosni Mubarak, the president toppled by a popular uprising earlier this year. - Breakdown points to power shift in cartel

The “old” politics of Opec, which split the cartel and marred its influence in the oil market of the 1990s, have made an unexpected return after a decade-long absence.

The acrimony that derailed Wednesday’s meeting has wider implications than the short-term failure to agree a production rise wanted by Saudi Arabia but opposed by price hawks Iran and Venezuela. It signals that Riyadh’s moderate views on what should be the prevailing oil price carry less weight in a group now more influenced by Tehran and Caracas.

“This is the worst division in Opec in more than a decade,” says David Kirsch, director of market intelligence at consultants PFC Energy and a veteran Opec watcher. “But the differences are not as wide as they were in the 1990s.”