THE PRAGMATIC CAPITALIST A? A? RAIL DATA IMPROVES
Rail traffic was mixed this week as the Chinese New Year skewed some of the data according to the AAR. Carloads fell 1.6% year over year and were down 15.3% versus 2008. Intermodal traffic jumped 19% , but was down 11.1% versus 2008. The year over year data was skewed by a sharp jump in container volume due to the week of the Chinese New Year. As a result container volume rose 25% year over year.
Saturday, 27 February 2010
Thursday, 25 February 2010
Wednesday, 24 February 2010
Kuwaiti Investment Companies: Survival of the Fittest
The Financial Times published an article a few days ago about investment companies in Kuwait. In that article Mr. Jassim Al Sadoun of Al Shall Research and Consulting was quoted saying that in 2011 we won’t see half of the more than 100 investment firms in Kuwait. He basis his conclusion on the fact that most of the investment firms are highly leveraged and lack sufficient assets.
In my opinion, the crisis sent a wake-up call to us here in Kuwait, and it revealed some “dirty laundry”. It separated the men from the boys. What will happen is a healthy dose of survival of the fittest, and apparently according to Mr. Al Sadoun, the fittest are a lowly bunch of less than 50% of investment firms in Kuwait. I hope that what has happened will teach people that there is no such thing as easy money, and leverage is coupled with high risks. People should learn to always manage their risk, and never get too overly exposed.
For your reference, the link of the article discussed:
Dubai Index Leads Drop in Gulf Markets on Global Growth Concern
Dubai’s benchmark index dropped for a fifth day, leading a decline among Gulf markets, after a fall in U.S. consumer confidence to a 10-month low spurred concern that the global economic recovery will slow.
Shuaa Capital PSC, the United Arab Emirates’ biggest investment bank, fell to the lowest level since May in intraday trading and Emirates NBD PJSC, the nation’s largest bank, retreated to the lowest in three weeks. The Dubai Financial Market General Index declined 1.2 percent to 1,567.02 at 1:09 p.m. in the emirate, the lowest intraday level since Jan. 28. Qatar’s gauge dropped 1.2 percent and Saudi Arabia’s Tadawul All Share Index slid 0.4 percent.
“Dubai is more externally focused than some of the other countries in the Gulf,” said Paul Cooper, managing director at Sarasin-Alpen & Partners LTD. The worry is that “the strong economic recovery we have seen in the past six to nine months” globally is coming to an end.
Qatar’s RasGas Starts Producing LNG From Train 7
Qatar’s Ras Laffan Liquefied Natural Gas Co., a venture between state-controlled Qatar Petroleum and Exxon Mobil Corp., started output from its last production unit, Chief Executive Officer Hamad Rashid al-Mohannadi said.
“We are currently producing from” train 7, al-Mohannadi said at a press conference in Doha today. “We will ramp up production” and LNG trains typically take two to three months to reach full output capacity, he said.
Ras Laffan Liquefied Natural Gas, or RasGas, and Qatar Liquefied Gas Co. are scheduled to start three of the world’s largest LNG units this year, raising the Gulf emirate’s production capacity to 77 million tons from 54 million tons. Qatar is the world’s biggest producer of LNG, gas that’s been cooled to a liquid for transport by tanker to markets not connected by pipeline.
Revolving door: Fare thee well, Manal Shaheen
Photo caption: Manal Shaheen (right) with Chris O'Donnell, Naomi Watts, Donald Trump and Melania Trump at the New York launch of the Trump International Hotel & Tower.I first came across Manal Shaheen at Nakheel's multi-million dollar launch of the Trump International Hotel & Tower in New York City. She was an affable lady, with a penchant for standing next to celebrities like Heidi Klum and Demi Moore while a couple dozen photographers snapped away.
Today, the Financial Times reports that Ms Shaheen, who was serving as the chief commercial officer at Nakheel, has left the company. In an interview with the FT, she said she left for "personal reasons".
Her leaving Nakheel is a sign of an institutional change underway at Nakheel. Many of the top executives of the company - who were known for their brash and bold sales approach - have either been laid off or, in a few cases, arrested as part of Dubai's corruption probe. It was frequenly said behind closed doors that Nakheel was more of a marketing company than a developer (although it has built some pretty solid projects like Palm Jumeirah).
Ms Shaheen's departure is the most concrete sign yet that things are changing at Nakheel in a substantive way.END
Financial crisis a salutary lesson
Remember the halcyon days of August 2008, before the collapse of Lehman Brothers and the onset of the financial crisis?
Although there were already rumblings of problems ahead in global credit markets, it looked as though the world financial system was facing a gentle correction, rather than the vast destruction of value that occurred between September of that year and the following February.
In the Gulf, the buzzword as I remember was “insulated”. Even as signs of the growing crisis loomed ever larger, government and central banks across the region repeated that word like a lucky charm: because of its energy revenue and financial liquidity, the Gulf would be “insulated” from the global problems.
Profile: Prince Alwaleed bin Talal
Billionaire Prince Alwaleed bin Talal has long stood out from other Saudi princes, both in his social views and his investment philosophy.
In the conservative kingdom, where showing a woman’s face in a newspaper still causes a stir, he ignores such restrictions, receiving dignitaries accompanied by his unveiled wife, Princess Ameera, and instructs papers to publish their pictures. In his office in the sleek glass and steel 311-m Kingdom Tower, he flaunts the fact that women work alongside men without wearing the obligatory black cloak or abaya.
While Saudi clerics issue veiled threats against owners of satellite televisions and cinemas are outlawed, the prince, a nephew of Saudi Arabia’s King Abdullah, built Rotana entertainment group, which on Tuesday agreed to welcome Rupert Murdoch’s News Corp as a shareholder.
Saudi Arabia is fully committed to G20 initiatives: Al-Jasser
The creation of the G20 reflects the fact that the composition of world economic power is changing, according to the governor of the Saudi Arabian Monetary Agency (SAMA).
Muhammed Al-Jasser added that Asian nations and other developing countries now needed to be integrated into the world's financial and economic architecture.
He was addressing a special conference organized by the global association for leading financial services firms, the Institute of International Finance (IIF).
Islamic Debt to Stay ‘Weaker’ Amid Failings, Deutsche Bank Says
Sales of bonds that comply with Islamic laws will remain “weaker” this year as investors shun riskier, higher-yielding assets on concern governments will struggle to repay debt.
Sales of the bonds known as sukuk have totalled $564 million so far this year, compared with $2.5 billion for the first quarter last year, according to data compiled by Bloomberg.
“Until we see risk sentiment improve globally it’s very difficult to see that the sukuk market will be as vibrant as it used to be,” Hussein Hassan, head of structuring for Middle East and Africa at Deutsche Bank AG, said at a conference in London today. “The industry failed to rise up to the occasion when looking for solutions. When Islamic finance was in the public eye, we were unable to provide solutions.”
Tuesday, 23 February 2010
Dubai Shares Drop Most in Week After Moody’s Dubai World Report
Dubai’s measure declined the most in more than a week after Moody’s Investors Service said United Arab Emirates banks are owed about 55 billion dirhams ($15 billion) by Dubai World.
Emirates NBD PJSC, the U.A.E.’s largest bank, dropped to the lowest level in almost two weeks. Dubai Islamic Bank, the nation’s biggest bank complying with Islamic banking rules, fell the most in more than a week. Emaar Properties PJSC retreated for a second day. The Dubai Financial Market General Index dropped 1.8 percent to 1,593.29 at 1:28 p.m. in the emirate, the lowest level since Feb. 1.
The possibility that U.A.E. banks will be forced to accept less than they are owed will hurt their ability to borrow money at attractive rates, the Moody’s report yesterday said, adding that they “are in a position to weather sizeable haircuts.” Gulf region banks are poised for “another difficult year,” Standard & Poor’s said, as they grapple with bad loans and the fall-out from the credit crisis.
Saudis to Keep Rates Low Until Lending Revives, Jadwa Says
Saudi Arabia will keep its reverse repurchase rate at a record low until there is an increase in bank lending in the Arab world’s biggest economy, Jadwa Investment Co. said.
“The reverse repo rate is at an all-time low of 0.25 percent in order to encourage banks to lend,” Riyadh-based Jadwa said. The Saudi central bank “is expected to maintain this rate at its present level until there is a sustainable pick-up in bank lending to the private sector.”
Saudi banks have tightened lending and increased provisions against bad loans in the world’s largest oil exporter, as the economy slowed and Saudi Saad Group and Ahmad Hamad Algosaibi Group defaulted. Bank lending to non-government companies fell by 14.5 billion riyals ($3.9 billion) in December, the largest decline since November 2004, Jadwa said in the report.
Dragon Oil Will Invest $870 Million to Boost Output
Dragon Oil Plc, the London-listed explorer focusing on projects in Turkmenistan, plans to invest as much as $870 million on oil and gas projects through 2012 to boost production.
Dragon targets annual output growth of 10 percent to 15 percent over the period, the Dubai-based company said today in a statement. It intends to spend $250 million on oil infrastructure to raise production by 15 percent this year.
“We have to be reasonable in our expectations because we don’t want to commit to a much higher growth rate and then we can’t make it,” Chief Executive Officer Abdul-Jaleel Al-Khalifa said today by telephone, citing reliance on rig availability. “Sometimes the progress with contractors there is not as pleasant as you want it to be, you have to be careful.”
Tough 2010 for banks in Dubai, Kuwait - Moody's, S&P
Banks in Dubai and Kuwait will endure a tougher 2010 than their Gulf peers as lenders in the region continue to take provisions against bad credit, which will curtail profits, ratings agencies said.
"We believe that 2010 will be another difficult year for Gulf banks as they continue to clean up their loan books -- an effort that will weigh on their financial performance," ratings agency Standard & Poor's (S&P) said late on Monday.
The United Arab Emirates banks' specific provisions for non-performing loans (NPL) stood at 33.4 billion dirhams ($9.09 billion) in January 2010, a 64 percent surge from a year earlier, according to Central Bank data released on Tuesday.
Limitless seeks to revise payments
Limitless, one of Dubai World’s property units, is renegotiating payment schedules with construction companies on three big Dubai developments ahead of a US$1.2 billion (Dh4.4bn) loan repayment due next month.
The property company’s liabilities are part of the $26bn debt that Dubai World is renegotiating with creditors.
Limitless is winding down contracts on the Downtown Jebel Ali development, a business and residential centre on Sheikh Zayed Road, as well as the Arabian Canal, a huge waterway and property project that is still in its early earthmoving stages. Talks on payment for Limitless’s headquarters on Emirates Road are also under way.
Dubai Won't Step to Front of Debt Line
Dubai's government said Monday it won't seek senior creditor status in restructuring talks now under way between Dubai World and lenders, a position that may help simplify negotiations with creditors over some $22 billion of the company's debt.
Dubai World shocked investors in early November saying it would ask for a six-month debt standstill. In December, neighboring Abu Dhabi, the capital of the United Arab Emirates, extended Dubai a $10 billion lifeline, following a separate $10 billion infusion by the federal government last February.
Since then, Dubai has pumped more than $6 billion into Dubai World, its flagship corporation, with businesses spanning ports, private equity and real estate. The government has paid off maturing debt and unpaid bills from contractors; serviced debt payments and paid advisory fees for both the company and its creditors during restructuring talks that began in December.
Moody's estimates UAE lenders have $15bn of exposure to Dubai World
Banks based in the United Arab Emirates have $15bn of exposure to Dubai World, Moody's estimated in a report yesterday, as the group prepares to present a restructuring proposal to creditors next month.
The rating agency said 12 rated UAE banks and the regional entity of HSBC could probably absorb losses of 40 per cent.
The government denies the likelihood of losses on this scale. Under such a scenario, the lenders would incur losses of about 9 per cent of their capitalisation at the end of 2009, affecting profits but not threatening solvency.
Nakheel executive joins the exodus
Manal Shaheen, Nakheel’s influential chief commercial officer, has left the Dubai-based developer as the emirate attempts to draw a line under its past real estate excesses.
The departure of Ms Shaheen comes amid large-scale redundancies at the troubled property company, which lies at the heart of the restructuring of a total of $22bn in debts by Dubai World, its parent.
The company confirmed that Ms Shaheen had left but declined to say when or under what circumstances she quit. Ms Shaheen herself said yesterday that she left for “personal reasons”.
Qatar learns lessons of Dubai property peril
Gulf state Qatar will have to endure at least another 12 months of falling property prices before a recovery in 2011, when the benefits of a prudent approach towards real estate development begin to pay off.
Industry experts said Qatar is learning lessons from Dubai's flawed speculative building model, which imploded during the global financial crisis and saw residential prices plunge some 60 percent from their 2008 peak.
Qatar escaped from that storm with minor injury and state moves to control development of new offices, shops and homes mean its fledgling market may heal up to a year before Dubai.
Monday, 22 February 2010
U.A.E. Banks Are Owed $15 Billion by Dubai World, Moody’s Says
United Arab Emirates banks, which are owed about 55 billion dirhams ($15 billion) by Dubai World, may be able to absorb losses if they are repaid 60 cents on the dollar, Moody’s Investors Service said.
“U.A.E. banks would incur losses amounting to only around 9 percent of their capitalization as of year-end 2009,” Moody’s wrote in a report e-mailed today. “This would hurt 2010 profits, but not jeopardize solvency.” The banks’ Tier 1 ratio, a measure of financial strength, is unlikely to drop below the required minimum of 8 percent even if they take a 40 percent “haircut,” according to the ratings firm.
Dubai World may offer its creditors 60 cents on the dollar after seven years, Zawya Dow Jones news service said Feb. 14, citing unidentified people familiar with the plan. A spokeswoman for the emirate said that day no such offer had been made. More than 90 banks worldwide, including Emirates NBD PJSC, the U.A.E’s biggest lender by assets, and third-ranked Abu Dhabi Commercial Bank PJSC, are owed money by Dubai World. The holding company announced plans to alter terms on about $26 billion of debt Dec. 1, roiling global financial markets.
Dubai World debt: to pay or not to pay?
Further developments in the Dubai World restructuring saga.
The Dubai government is no longer seeking preferred creditor status, according to Reuters. If true, that removes a key sticking point in the $22bn debt work-out discussions.
From Reuters.
“The government wants to show it’s handling this in the most equitable way, everyone gets a fair shot,” a source familiar with the matter said on Monday. “We are going to put forward a plan that shares the recoveries with the lenders.”
That is a concession from the government,” a source familiar with the matter said. “We haven’t let go of our want but we will continue to fund on an unsecured basis,” the source said, adding: “We’re not going to do this forever.”
All of which is rather different to the noises coming out of Dubai earlier this month. Its beleaguered conglomerate Dubai World was reportedly considering offering bank creditors 60 per cent of their money back over seven years, backed by a government guarantee but with no interest paid.
What seems clear here is that the negotiations are going to be played out in the press with the market having to decide what’s bluff and what’s not.
To wit, Reuters is also reporting that Dubai is unlikely to repay Nakheel’s 2011 $980m sukuk:
“It is very unlikely that the bond will be paid off,” the source. “Incredibly unlikely.” The person, who spoke on condition of anonymity, said all options are on the table for the issue which comes due May 13.That includes offering new paper for existing debt or, if needed, administration.
And here’s the price action in that bond on Monday.
Bahrain Stocks Gain Most This Year on AUB Dividend Speculation
Bahrain’s benchmark index advanced the most this year, led by Ahli United Bank BSC on investor speculation the country’s largest bank may propose a dividend similar in size to the one last year.
Ahli United, which has a weighting of 18 percent in the Gulf country’s benchmark, surged 9.7 percent, the most since November. Bahrain Commercial Facilities Co., a retail lender and car seller, jumped the most since October. The Bahrain All Share Index added 1.6 percent, the most since Dec. 14, to 1,537, bringing the gain for the year to 5.4 percent. Kuwait’smeasure added 0.3 percent and Qatar’s gauge 0.1 percent.
“Investors are anticipating a high dividend similar to last year’s, so they’re buying” Ahli United, said Essa Buheji, research analyst, TAIB Securities in Bahrain. He also pointed at the bank’s increase in Ahli United Egypt and the acquisition of a stake in United Commerce & Investment in Libya earlier.
Kuwait's KIPCO ekes out modest fourth quarter profit
Investment firm Kuwait Projects Co (KIPCO) (KPRO.KW) posted a net profit of 0.71 million dinars ($2.46 million) in the fourth-quarter, according to Reuters calculations on Monday.
FINANCIALS
Full year net profit came in at 46.32 million dinars, up from 24.1 million in net profit in 2008, the firm said in a statement on the Kuwaiti bourse website on Monday.
KIPCO had a net loss of 59.46 million dinars in the fourth quarter of 2008, according to previous financial data.END
Dubai World unlikely to pay off Nakheel debt
Dubai World which is in talks to restructure some $22 billion debt, is unlikely to pay off developer Nakheel's $980 million Islamic bond, a source familiar with the matter said on Monday, and all options are open.
"It is very unlikely that the bond will be paid off," the source. "Incredibly unlikely."
The person, who spoke on condition of anonymity, said all options are on the table for the issue which comes due May 13.
Al-Rajhi, Arcapita launch $500 mln Gulf property fund
Al Rajhi Capital, the investment arm of Saudi Arabia's Al Rajhi Bank 1120.SE and Bahrain's Arcapita Bank has launched a $500 million Gulf property income fund to capitalise on falling prices, the firms said on Monday.
The two companies will seed a joint investment of $50 million for the fund, which will focus on logistics warehouses, healthcare and education-related assets in Saudi Arabia and the Gulf Arab region, they said in a statement.
Saudi Arabia has earmarked around $400 billion to boost infrastructure over the next five years and is looking to cater for growing demand for new housing from the young population in the world's largest oil exporter.
Oman bourse chief sees just two IPOs in 2010
Only two companies are expected to float on the Omani stockmarket this year, the bourse regulator said on Monday, naming Al-Khalili Group and Qatar Telecom's QTEL.QA local unit.
"So far only two IPO issues are expected to come out this year," Yahya Al-Jabri, executive president of the Capital Market Authority (CMA) told Reuters.
"The Al-Khalili Group's IPO is on finalisation and the Nawras (IPO) will soon come out," he added, without elaborating.
Banks may recoup 60 pct Saad, Gosaibi loans
Middle East banks are confident they'll recoup about 60% of funds lent to troubled Saudi business conglomerates Saad Group and Ahmad Hamad Al Gosaibi Bros. & Co., the chairman of the Union of Arab Banks told Zawya Dow Jones Monday.
"These companies (Saad and Al Gosaibi) have assets," Adnan Yousif told Zawya Dow Jones on the sidelines of a conference. "For Al Gosaibi, I anticipate that banks could recover 60% and for Saad it will be more or less the same."
Global exposure to Saad and AHAB is by some estimates as high as $20 billion with Middle East banks assumed to hold a large chunk of the share. The groups first defaulted on some debt obligations in the second-quarter of 2009 and no resolution has been achieved with creditors.
Qatar Exchange May Start Bond Trading Before Sept.
The Qatar Exchange may start bond trading before September as part of a program to broaden business it handles, said Chief Executive Officer Andre Went.
“We are looking to where we are internally with the exchange and where we are in progress readiness,” Went told reporters at the Beltone Financial MENA conference in Doha today. “It looks good.”
Bond trading may start before the NYSE Euronext Universal Trading Platform is introduced in September, Went said. The exchange also plans to offer trading in sukuks, exchange traded funds and derivatives in the future. Reorganization of the exchange will take 3 to 5 years, Went added.
NYSE Euronext last year acquired a 20 percent stake in the exchange in June for $200 million.
Dubai to take a hit on debt exposure
The Dubai Government “will take its share of any exposure” in the financial restructuring of Dubai World, said a person familiar with the talks between the conglomerate and its bank creditors.
In particular, the Dubai Financial Support Fund (DFSF) will not, for the time being, seek to enforce a claim to be top of the creditors’ queue in negotiations over Nakheel assets, he said yesterday.
In particular, the Dubai Financial Support Fund (DFSF) will not, for the time being, seek to enforce a claim to be top of the creditors’ queue in negotiations over Nakheel assets, he said yesterday.
That stance, which involved the DFSF assuming preferred creditor status in return for cash injections to keep Nakheel operating, had been seen as an obstacle to progress in the talks about Dubai World’s debts of US$26 billion (Dh95.98bn), including $4.1 bn owed to the DFSF for repayment of Nakheel’s sukuk last December.
Dubai World on verge of presenting debt proposal
Dubai World will present its banks with a restructuring proposal for its $22 billion (£13.5 billion) debts by the end of next month.
An insider close to the Dubai Government said that the struggling state-owned conglomerate will finalise a complete valuation of the group’s assets by the end of February and will have a restructuring offer on the table within the following four weeks.
“We are figuring out the best way to use the cash and assets to get the best result for all constituents,” the source said.
However, the Department of Finance said there would be no fire sale of assets to cover Dubai World’s debts and made it clear that banks may have to wait several years for the group’s portfolio to recover much of its value.
UAE Recovery Hinges On Dubai World Debt Restructuring
The International Monetary Fund said it estimates the total Dubai debt at around $86 billion, not including what it terms `bilateral bank loans.
`Bilateral lending is a bigger concern to us since the scale of lending could be very large and data is practically non-existent, the bank said in an annual report.
The IMF also repeated its stress on the importance of the operational restructuring of the Dubai Government owned entities at the heart of the debt problem, and said it thought the process would take `sometime.
The Airtel Example Delhi inadvertently provides a model for how to deregulate telecoms.
All eyes will be on India's finance minister Pranab Mukherjee this week as he unveils the Congress Party-led government's first budget of its second term in power. There is little hope for a "big bang" reform of the likes seen in the 1990s. Too bad, because as India's mobile-phone companies show, the private sector can work wonders, if Delhi would only unshackle it.
India's mobile market is a marvel compared to anywhere, and seems downright miraculous in a country where hundreds of millions of poor people still lack electricity. Indians pay among the lowest mobile calling rates in the world—less than one U.S. cent per minute. A handset goes for as little as $50. Competition is so fierce among the 13 providers that they're forced to invent new services, too. Farmers can now receive commodities-price data over their mobiles, and mobile-phone banking is shaping up to be the next big thing. No wonder each month up to 10 million additional customers start using mobile phones. Bharti Airtel's $10.7 bid for the Africa business of Kuwait's Zain suggests Indian companies may now be in a position to export these innovations profitably, too.
Policy makers jealously eyeing India's mobile successes—including perhaps some in Beijing—can note that the smartest thing New Delhi has done is to get out of the way. India in 1994 issued its first licenses for mobile services to two private-sector companies in four geographic areas. In the mid-90s Delhi expanded service to 18 additional areas, and in 2001 and 2002 it issued licenses for two more operators in each market. From there the number of licenses has only continued to expand.
At the same time, the government has cut its licensing fees for service providers. In 1999, Delhi switched from a fixed fee to a percentage-of-revenue model. That freed providers to charge lower calling rates by removing what amounted to a fixed per-user tax. Since then the tax rate has continued to fall, from as high as 12% in 1999 to as low as 6% today. Delhi also cut and then scrapped entirely the "Access Deficit Charge" mobile providers paid to support state-owned telecoms in providing fixed-line services.
Other regulatory improvements have also played a role. Delhi has steadily raised its cap on foreign investment in mobile service providers, to 74% from 26%, though the Indian partner must still have managerial control. Five of the top 10 providers by subscriber numbers enjoy some degree of foreign investment. Foreign investment has offered Indian companies a ready source of capital to fuel expansion and innovation. Notably, price controls have not factored into this success story although India has a form of them: Thanks to fierce competition, the market rate for a mobile call has been consistently less than Delhi's "recommendation" of a fair rate for at least the past decade.
This isn't to suggest that India's mobile-services regulation is flawless. Delhi still doesn't offer nation-wide licenses; providers must obtain approval for each geographic area they want to enter. Auctions for licenses to provide next-generation mobile data services have been marred by delays and allegations of corruption. Nor does Delhi deserve credit for having this liberal model in mind all along. Liberalization has been a messy process, often fueled by the total collapse of earlier regulatory models (as when a botched license auction in the 1990s threatened to bankrupt key providers) or roundabout litigation (with the expansion of licenses in the middle of last decade).
Still, whether deliberately or by accident, India has stumbled its way into a pro-competition model that works. Nor is mobile telephony the only example; automobiles are another. First in 1983 and then in a bigger way a decade later, Delhi opened up its auto sector to foreign competition and investment. It also cut tariffs on imported autos and parts, though they're still high. Despite the strictures that remain on the industry, this opening has been enough to spur investment and production. And competition and innovation. Note that the Tata Nano, billed as the world's cheapest car with an expected price of only $2,500, was developed in India to suit that market.
We recount all this at length to make a simple point: Economic freedom works. Policy makers who want their countries' companies to become world leaders can take a lesson from India's mobile-phone market. Competition at home, not protection, is the surest path to success.END
Debt threat to Kuwait investment houses
Most of Kuwait’s multibillion-dollar investment company industry could be wiped out by debt repayments on the finance houses’ leveraged investments made before the recession, senior bankers have warned.
Spurred by cheap credit, abundant liquidity and few other opportunities in the government-dominated economy, Kuwaitis have set up scores of investment houses to bet on international and regional real estate, private equity and stocks. At its peak, the industry had assets of more than $50bn.
However, much of the spree was financed by short-term loans, and the financial crisis hit the local investment houses like a tsunami, said one analyst.
Kuwaiti investment model feels strain
Buoyed by inflows of petrodollars and cheap credit, Kuwait’s finance houses have been aggressive investors in regional and international markets in the past decade, snapping up trophy assets in everything from luxury car brand Aston Martin to property and stocks.
But the financial crisis has starkly exposed a toxic mismatch between short-term loans and often illiquid assets whilst also highlighting a reliance on paper investment gains rather than asset management or brokerage fees, or recurring revenue from portfolio companies.
The sector’s woes are not new. Problems first emerged towards the end of 2008 and two of the largest finance houses are now tentatively emerging from restructuring after defaulting in the wake of the collapse of Lehman Brothers.
Investments made by the emirate
● Aston Martin (UK luxury sports cars) – Investment Dar (almost 50 per cent).
● Halcore Group (US ambulance maker) – Gulf Investment House.
● Stronghaven Inc (US corrugated packaging maker) – Gulf Investment House.
● Orbit Showtime (Middle East pay-TV service) – Kuwait Projects Company.
● Meezan Bank (Pakistan) – Noor Financial Investment Company (45 per cent).
● Asian Finance Bank(Malaysia) – Global Investment House.
● Courts Mammoth(furniture/electricals in Malaysia and Singapore) – The International Investor (about 50 per cent in both Malaysia and Singapore).
Oil geopolitics shifts as China taps Saudi crude
Saudi Arabia's oil exports to the US last year sank below 1m barrels a day for the first time in two decades just as China's purchases climbed above that level, highlighting a shift in the geopolitics of oil from west to east.
The drop in US demand for oil from the kingdom, traditionally one of its primary sources, is the result of lower energy consumption overall but also greater reliance on imports from Canada and Africa.
China's buoyant economic growth, meanwhile, is prompting Beijing to buy more Saudi oil, a trend Riyadh has encouraged through refinery joint ventures.
Saudi oil flows east as demand in Asia grows
When world oil producers and consumers convened in Jeddah for an emergency summit in June 2008, Samuel Bodman, then US energy secretary, had a simple message for Saudi Arabia: pump more oil now.
As Steven Chu, his successor, flies to the kingdom this week, the agenda instead has a heavy focus on research and technology.
The different messages underscore the fact that crude prices have fallen from $130 a barrel in June 2008 to $80 a barrel. They also reflect a further tilt in the balance of demand growth from west to east.
Sunday, 21 February 2010
Kuwait Stocks Gain for 2nd Day on Credit Suisse Upgrade, Zain
Kuwait benchmark index advanced for a second day as Credit Suisse Group AG raised the country’s shares and Al-Rai reported Zainmay sign a letter of intent for the sale of most of its African assets by the end of this week.
Zain, the country’s biggest phone company, rose to the highest since October. Al-Rai didn’t say where it got the information. Kuwait Cement Co., the nation’s largest cement maker, climbed 4.2 percent. The Kuwait Stock Exchange Indexincreased 0.3 percent to 7,418.9, bringing the gain for the month to 5.6 percent.
Credit Suisse on Feb. 19 lifted Kuwait’s stocks to “neutral” from “underweight,” citing the government’s spending plan for economic development, and “undemanding” valuations and lower borrowing costs. The country plans to increase spending by about 34 percent in the fiscal year starting April 1, according to a copy of the draft budget sent to parliament earlier this month.
Saudi Central Bank Says Inflationary Pressures ‘Slight’ in Q1
Saudi Arabia, the Arab world’s largest economy, may see inflation pressures ease in the first quarter as the prices of food and beverages stabilize, the central bank said.
“Inflationary pressure in the kingdom is expected to continue during the first quarter of 2010 but at a lesser level than in the fourth quarter of 2009,” the central bank wrote today in its quarterly inflation report. Some pressures will persist due to housing costs, the central bank said.
Inflation in the kingdom slowed to 5.1 percent in 2009 compared with 9.9 percent in 2008 as crude prices fell from a peak of $147 and the global economic crisis crimped consumer demand. Since July, inflation has held at around 4 percent. Central bank governor Muhammad al-Jasser said last month conditions were still not ripe for interest rate increases.
The Gulf Arab state is currently finalizing a mortgage law that is expected to kick-start lending in the country and boost the real-estate sector.END
There is No Easy Way Into Africa (Re-post)
Why would Bharti Airtel pay USD10.7 billion to acquire a loss making entity?
Bharti Airtel (BHARTI IN), plans to add 45 million to its 120 million subscribers by their recent acquisition plans. Bharti believes that they can successfully run a company with small ARPUs (Average Revenue Per User) in a low margin industry by using the same strategy they use in India, the “Indian Model”. This model is applied by outsourcing most of the operating activities, including IT, network operations and more. They see that this model can be applied in Africa as well, hence turning the losses into profits.
Bharti sees itself as a “minute factory”; where they can extract high revenues, even though the ARPUs are low, by producing more minutes. To better understand this model, imagine telecom networks as factories producing minutes, whereby they try to maximize network utilization by maximizing the minute of usage per subscriber (MOUs). MOUs are a function of tariffs, so by gradually reducing the tariffs the consumption of minutes increase.
The USD10.7 billion offer disappointed Bharti’s shareholders and the share price fell after the announcement. Bharti defended their decision by stating that they are seeking less competitive markets than India, higher ARPUs and lower penetrations.
Although the penetration rate in India is 45% and the penetration in Africa is 36%, there is more room for growth in India as 650 million Indians are non-mobile users, as compares to 300 million in Africa only.
Given the profile and track record of Bharti, they me be able to do a better job than Zain; but is it worth USD10.7 billion? We just have to wait and see…
Mashreq confident of cases against Ahab and Saad
Dubai-based Mashreq Bank, which has lodged cases with the Dubai Courts' Commercial Court against Saudi family-owned firm Ahmad Hamad Algosaibi and Brothers Company (Ahab), and billionaire Maan Al Sanea and his Saad Trading for a combined Dh2 billion, is confident of its cases here as well in the US, a bank official toldEmirates Business.
"We are very confident of our case both here and in the US," the official said, adding the bank had filed the lawsuits "to recover the funds owed to Mashreq".
The bank, the largest in Dubai by market capitalisation (as of February 17, 2010), made provisions of Dh2.1bn for bad loans, including those to the Saudi family groups, in 2009, 480 per cent more than the Dh362 million it provisioned in 2008.
Most firms here are transparent (Interview)
All in all the worst is over. We are unlikely to see the magnitude of rating action of 2009, Philipp Lotter, Senior Vice-President, Moody's Middle East, told Emirates Business. "In fact, most of the companies that we rate are good as regards transparency," he said. However, transparency still needs to be improved but that is not a Gulf-specific issue. Parts of Europe were not transparent some years back. That comes with the gradual development in the market, he added.
So there are chances that some ratings may face downgrades in the near term because of the economic circumstances. Abu Dhabi government-related entities are also under review for downgrades. "There is a chance that some or all those ratings may face downgrades over the near term," he said. "What we are looking in Abu Dhabi is the willingness and not the ability to support."
Further explaining the aim of a credit rating exercise, Lotter said: "The objective is fairly unemotional. If you have a couple of 'AA' and 'A' ratings, you are not giving investors a choice as to how they want to structure their portfolio."
Saudi Shares Extend Longest Winning Streak Since September
Saudi Arabian shares extended the longest winning streak since September, led by Banque Saudi Fransi and Al Rajhi Bank, as oil gained for a fourth day and profits at European banks hinting at economic recovery.
Al Rajhi Bank, the largest bank in Saudi Arabia by market value, and Banque Saudi Fransi each advanced to the highest level since October. The Tadawul All Share Index gained for a seventh day, adding 1 percent to 6,474.66, the highest level since Oct. 27.
“General risk sentiment is better,” said Phon Vilayoune, senior manager of credits and emerging markets at Samba Financial Group in Riyadh. “The lack of any bad news from Dubai also helps.”
Bahrain 'hub for Islamic finance'
Leading global companies are selecting Bahrain over the other financial centres is a sign of the stride the kingdom has made over the last four decades.
News that consulting giant Deloitte has opted to base its new Islamic Finance Knowledge Centre (IFKC) in Bahrain reflects the kingdom's track record as the most established financial centre in the Gulf and a global hub for Islamic finance, Economic Development Board (EDB) chief operating officer Kamal Ahmed said.
"As the first country in the region to establish a finance industry more than 40 years ago and a pioneer of Islamic finance, Bahrain is the ideal location for Deloitte to base IFKC.
RAIL TRAFFIC EASES AS RECOVERY REMAINS TEPID
Rail traffic eased a bit last week as the weak recovery and winter storms slowed rail traffic to a halt. The AAR reports that carloads declined 8.1% year over year and were down 19.2% versus 2008. Intermodal traffic was a bit stronger and saw a 0.5% rise year over year. Intermodal was down 12.5% versus 2008. Breadth was a bit weaker when compared with last week as just 10 of the 19 carloads were up year over year. The AAR has the details:
“Ten of the 19 carload freight commodity groups were up in comparison with the same week last year, led by a 24.9 percent jump in loadings of metals and products. Other commodities registering double digit gains were motor vehicles and equipment, up 15.0 percent, and primary forest products, up 13.8 percent. Commodities showing sharp declines included coal, down 16.3 percent; crushed stone, sand and gravel, down 18.9 percent; and pulp, paper and allied products, down 13.2 percent.”
Source: AAR
Saturday, 20 February 2010
Why revelation is more valuable than transparency
I cannot remember which illustrious journalist said it, but it went like this: “News is what somebody, somewhere does not want you to publish. All the rest is public relations.”
I remembered this aphorism last week during the growing calls for greater transparency in the affairs of Dubai World, the emirate’s former flagship company now locked in negotiations with its bankers over US$22 billion (Dh80.8bn) of outstanding loans.
Suddenly everybody, it seemed, was clamouring for greater disclosure by Dubai World of the progress of those talks. Lord Mandelson, the British business minister, was joined by Neal Wolin, the deputy secretary of the US treasury, in demanding more openness. The Financial Times added to the crescendo with a thundering leader entitled “The Murky Gulf”. Even the usually-restrained IMF got in on the act towards the end of the week. Surely, if such eminent people and organisations are demanding it, it must be a good thing.
Vegas venture a good bet despite losses, MGM says
MGM Mirage, Dubai World’s joint venture partner in the US$8.5 billion (Dh31.22bn) CityCenter complex in Las Vegas, is anticipating that the resort will provide a much needed boost to the company’s bottom line.
Jim Murren, the chief executive of MGM Mirage, made the comments after the gaming operator on Thursday reported a fourth quarter loss of $433.9 million, worse than analysts had expected.
Dubai World, through its subsidiary Infinity World, owns 50 per cent of CityCenter, which opened in December amid slumping revenues, soaring unemployment and foreclosures in the US desert city. Dubai World, which is working on restructuring $22bn of debt, also took a 9.5 per cent stake in MGM Mirage in 2007.
Kuwaiti family suing Bank Sarasin for $225m
Three members of a prominent Kuwaiti family are suing Bank Sarasin, a Swiss financier, for US$225 million (Dh826.4m) in Dubai after bankers allegedly provided them with “negligent investment advice” that led to losses, court documents show.
The case is part of a growing number of disputes in the region where wealthy families and investors are taking action against banks that handled their investments.
Credit Suisse filed a claim against the private bank Ansbacher & Co in London this week for allegedly misleading a client into investing in a Dubai property development that had “yielded no positive result”. Ansbacher is part of Qatar National Bank.
Friday, 19 February 2010
Zain deal motives under scrutiny
The decision that was announced this week by Zain, the Kuwait telecoms company, to sell its prized African assets to Bharti Airtel, is a volte-face by the company which not long ago yearned to be a global player.
The proposed sale ends Zain’s dream, outlined in 2007, to have 150m subscribers, annual earnings of $6bn and be among the 10 largest telecoms companies in the world by market capitalisation by 2011. It has also fired speculation about the motives of one of its main shareholders, the Kuwaiti Kharafi family.
The Kharafis have been attempting to engineer a sale for some time, to the consternation of the company’s management, people familiar with the matter say. Saad Al Barrak, Zain’s long-standing chief executive, eventually resigned, shortly before the Bharti Airtel sale was announced.
GLG Partners endures $318.9m net loss
Assets under management at GLG Partners, one of the world’s largest hedge fund managers, edged up in the final quarter of last year to near pre-crisis levels – but the group still suffered a loss.
| Sales | Net loss | Loss per share | Dividend |
|---|---|---|---|
| $114.8m | $91.1m | $0.33 | N/A |
| ↓57.9% | ↓35.6% | ↓50.7% | N/A |
The London-based and New York-listed group attracted $723m of net client inflows in the three months to December, lifting its total to $22.2bn.
However, GLG’s shift towards traditional, lower-fee funds means the company is garnering less revenue from the assets it manages than it had previously.
Oman’s Blue City project falters
Blue City, Oman’s largest property development, appears to be facing serious challenges after an insurance company announced it had increased its loss provisions to cover the project’s possible collapse.
Axis Capital, an insurer and reinsurer, said in its fourth-quarter earnings last week that it had increased its provisions for the project to an extent the company believes “will be sufficient to bring finality to our involvement”.
Axis Capital, an insurer and reinsurer, said in its fourth-quarter earnings last week that it had increased its provisions for the project to an extent the company believes “will be sufficient to bring finality to our involvement”.
A subsidiary of Axis provided a 100 per cent credit insurance policy for US$399 million (Dh1.46 billion) worth of bonds that Blue City issued to finance construction. A total of $925m worth of bonds were issued.
Dubai woes scapegoat Islamic finance: experts
Dubai's debt crisis has stifled sukuk issuance and unfairly put a damper on the Islamic finance industry, experts said, noting that an unstable credit environment and poor due diligence was to blame for the debacle.
The state-owned conglomerate Dubai World DBWLD.UL rocked global markets in November when it unveiled plans to delay repayment of $26 billion in debt as it restructures.
The company staved off default on a $4.1 billion Islamic bond linked to its property unit Nakheel after a last-minute bailout from Abu Dhabi.
Dubai announces that an announcement about the Dubai World restructuring plan is imminent. And they mean it this time, not like those other times... (Re-post)
When is suspense not suspense? Dubai World has announced that they will have a restructuring plan to present to creditors sometime in March. I have already written on delays in the negotiations and I don’t really want to focus on them too much. This is a lot of smoke and mirrors and the passage of time will bring it all to light because the debts must be paid and the next repayments are only weeks away.
The delays of the restructuring plan have been blamed by the Dubai World on its complex legal structure. Apparently there are over 1,000 legal entities inside Dubai World and the relationship between them and what they are worth it seems is quite a mystery. So much so that the DMCC, was able to walk out of the group altogether apparently with no compensation to the parent for any funds invested or services rendered, at least none that has been disclosed. Personally if I were in the process of walking my company out from its parent company which was at the edge of default I would probably not write a letter to a US judge urging leniency for my mentor who has been convicted of running a ponzi scheme, but then I’m not the CEO of the DMCC. I suppose it helps that the Chairman of the DMCC is the son of the Chairman of Dubai World. Thanks Dad. Creditors? Drop dead.
Dubai is no longer asking for a standstill agreement because they have been able to make interest payments so far. Whether this would be possible without the $800 million or so left over from the last infusion from Abu Dhabi after the Nakheel Sukuk was paid off is left to the imagination of the creditors. So, for that matter, have the eventual terms of the restructuring. There seem to be a lot of options on the table from haircuts to sliding scales of principal payment depending on term structure. Perhaps a debt for equity swap for the Nakheel Sukuk holders, or maybe a general conversion to zero coupon debt at a haircut but with a sovereign guarantee. Interestingly Dubai World says there will be no asset sales until a restructuring has been agreed. The asset sales by Istithmar and DPW don’t count because they’re not part of the restructuring. I don’t know how that can be true, if the creditors of the parent are going to be asked to participate in a restructuring then all the subsidiaries are part of it. Except the ones chaired by the son of the Chairman.
There seems to me to be only one sure thing among all of the various options on the table: losses. Big ones.
My guess is that a big factor in the delay has been the very disturbing realization within Dubai World that the assets that are inside the company are vastly less than the amount of money that is owed. More disturbing still is that it is probably not at all clear where the money went. I can’t really print all the theories about this that people are sending in to my blog email address but it seems that a truly colossal amount of money went into decorating offices and into marketing. Those things do not have great resale value. I’m sure some of it was taken fraudulently but my guess is that the vast majority of it was just spent on the things that gave the illusion of prosperity at the subsidiary companies. Now the investors will have to take the hit.
I realize that I have largely been critical of the powers that be in Dubai but only half the blame for this is theirs. As far as I am concerned there are no innocents in this tale. The creditors bear just as much responsibility. Not for the frauds and the losses but for a lack of diligence. How is it possible that you lend $6 billion to an organization that has over 1000 subsidiaries and when the music stops takes three months just to count them let alone value them. How do you lend money do a company whose structure is so complex that a major subsidiary walks away from the group altogether and you are unsure of your legal right to challenge it? How do you buy the bonds of a company that is carrying a non-existent crescent shaped island on its balance sheet at a valuation of $3.5 billion?
Easy, because it’s only money and its not yours. It belongs to the shareholders and the depositors and for some of the banks, to the taxpayers. But you, the guy making the loan, you get business class trips to Dubai. You get to stay in five star hotels, maybe you get a helicopter tour of the Jebel Ali Port. You get a big orgination fee and you can pay yourself out of that. The last thing you want is real scrutiny of how this all works, the first thing you want is to do it again.
And if you are the end investor why did you invest your money here in the first place? Because you wanted higher returns. How do you get higher returns? You take more risks by lending to organizations where you don’t fully understand what precisely the risks are. What are the risks? The risks are that if the Chairman takes your money and sets his son up in business with it or that your money is spent on office decorations and London billboards praising the company or is spent buying trophy assets at the top of the credit cycle, you’re probably not going to get all your money back. How much will you lose? That’s what we’re going to find out.
The short answer is “A lot.” END
The delays of the restructuring plan have been blamed by the Dubai World on its complex legal structure. Apparently there are over 1,000 legal entities inside Dubai World and the relationship between them and what they are worth it seems is quite a mystery. So much so that the DMCC, was able to walk out of the group altogether apparently with no compensation to the parent for any funds invested or services rendered, at least none that has been disclosed. Personally if I were in the process of walking my company out from its parent company which was at the edge of default I would probably not write a letter to a US judge urging leniency for my mentor who has been convicted of running a ponzi scheme, but then I’m not the CEO of the DMCC. I suppose it helps that the Chairman of the DMCC is the son of the Chairman of Dubai World. Thanks Dad. Creditors? Drop dead.
Dubai is no longer asking for a standstill agreement because they have been able to make interest payments so far. Whether this would be possible without the $800 million or so left over from the last infusion from Abu Dhabi after the Nakheel Sukuk was paid off is left to the imagination of the creditors. So, for that matter, have the eventual terms of the restructuring. There seem to be a lot of options on the table from haircuts to sliding scales of principal payment depending on term structure. Perhaps a debt for equity swap for the Nakheel Sukuk holders, or maybe a general conversion to zero coupon debt at a haircut but with a sovereign guarantee. Interestingly Dubai World says there will be no asset sales until a restructuring has been agreed. The asset sales by Istithmar and DPW don’t count because they’re not part of the restructuring. I don’t know how that can be true, if the creditors of the parent are going to be asked to participate in a restructuring then all the subsidiaries are part of it. Except the ones chaired by the son of the Chairman.
There seems to me to be only one sure thing among all of the various options on the table: losses. Big ones.
My guess is that a big factor in the delay has been the very disturbing realization within Dubai World that the assets that are inside the company are vastly less than the amount of money that is owed. More disturbing still is that it is probably not at all clear where the money went. I can’t really print all the theories about this that people are sending in to my blog email address but it seems that a truly colossal amount of money went into decorating offices and into marketing. Those things do not have great resale value. I’m sure some of it was taken fraudulently but my guess is that the vast majority of it was just spent on the things that gave the illusion of prosperity at the subsidiary companies. Now the investors will have to take the hit.
I realize that I have largely been critical of the powers that be in Dubai but only half the blame for this is theirs. As far as I am concerned there are no innocents in this tale. The creditors bear just as much responsibility. Not for the frauds and the losses but for a lack of diligence. How is it possible that you lend $6 billion to an organization that has over 1000 subsidiaries and when the music stops takes three months just to count them let alone value them. How do you lend money do a company whose structure is so complex that a major subsidiary walks away from the group altogether and you are unsure of your legal right to challenge it? How do you buy the bonds of a company that is carrying a non-existent crescent shaped island on its balance sheet at a valuation of $3.5 billion?
Easy, because it’s only money and its not yours. It belongs to the shareholders and the depositors and for some of the banks, to the taxpayers. But you, the guy making the loan, you get business class trips to Dubai. You get to stay in five star hotels, maybe you get a helicopter tour of the Jebel Ali Port. You get a big orgination fee and you can pay yourself out of that. The last thing you want is real scrutiny of how this all works, the first thing you want is to do it again.
And if you are the end investor why did you invest your money here in the first place? Because you wanted higher returns. How do you get higher returns? You take more risks by lending to organizations where you don’t fully understand what precisely the risks are. What are the risks? The risks are that if the Chairman takes your money and sets his son up in business with it or that your money is spent on office decorations and London billboards praising the company or is spent buying trophy assets at the top of the credit cycle, you’re probably not going to get all your money back. How much will you lose? That’s what we’re going to find out.
The short answer is “A lot.” END
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