Credit shortage blamed for slow growth

During the boom credit growth in the Gulf soared to unprecedented levels and there was much talk of banks having to adapt their lending practices. Financial institutions, analysts said, needed to focus more on risk management and shift away from “name lending”, which saw money flow into family businesses and government-affiliated entities with too little oversight. In many people’s eyes, the banks were partly culpable for the excesses that have made the Gulf’s downturn more painful.

Now as regional officials talk up prospects of recovery, it is a lack of lending that is acting as a constraint on the pace of growth, economists say.

“I’m concerned that at the moment many corporates I talk to, even rock solid ones, are saying ‘I still can’t get any working capital,’ ” says an analyst at an international bank. “It [the credit squeeze] has already lasted longer than I anticipated.”

Recession prompts bank staff shake-out

In the summer of 2006, oil prices were shooting through the roof and global banks rushed to set up offices in the Dubai International Financial Centre to win petrodollar business.

As the investment banks descended on the DIFC, established financial institutions would find entire Mideast teams poached by rivals. Recruiters offered multi-year guaranteed bonuses to lure stars from Asia and Europe.

Four years on and almost two years since the onset of the global financial crisis, banks are at a turning point. Some high-flyers are moving onto other, more enticing prospects and teams are being shuffled.

Kuwait Fund Studies Feasibility of Zain Stake Sale, Qabas Says - Bloomberg.com

Kuwait Investment Authority, the country’s sovereign wealth fund, is assessing the value of Zain shares for a possible sale of its stake in the company, Al-Qabas reported, citing unidentified sources.

The wealth fund selling its 24.6 percent in Kuwait’s biggest mobile-phone company to an investor or a strategic shareholder is not ruled out, the newspaper said. Kuwait Investment Authority would auction its stake once it decides to sell, Al-Qabas reported.

Al Rajhi, Samba Ratings Raised at S&P (Update1) - Bloomberg.com

Standard & Poor’s raised the credit ratings of Saudi Arabia’s two largest publically traded lenders Al Rajhi Bank and Samba Financial Group one grade to A+, citing strong liquidity and capitalization.

Al Rajhi’s upgrade was due to “its unique market position in the Saudi retail market, increasingly diversified loan book, strong and resilient profitability, and growth strategy with solid capital ratios,” S&P credit analyst Nicolas Hardy said in an e-mailed report.

“Samba’s financial profile has continued to strengthen on support from a resilient financial performance, solid capitalization, and strong funding and liquidity indicators,” hardy wrote in the report.

Kuwait, Dubai Shares Lead Gulf Markets Lower on Gaza Tension - Bloomberg.com

Kuwait shares fell for the first time in four days, leading Gulf markets lower, on concern tensions may escalate in the region after the Israeli army clashed with pro-Palestinian activists on ships carrying humanitarian aid.

Kuwait Portland Cement Co., the importer and exporter of cement, declined to the lowest in two months. Emaar Properties PJSC, developer of the world’s tallest skyscraper, fell and Aramex PJSC had the biggest loss since April 18. The Kuwait Stock Exchange Index fell 1.7 percent to 6,699.7, the lowest since Dec. 7. The gauge lost 8.2 percent this month. The Bloomberg GCC 200 Index, which tracks 200 equities, slipped 0.4 percent. The DFM General Index slid 1.4 percent.

More than 10 people were killed after Israeli commandos intercepted a flotilla of ships carrying aid supplies to the Gaza Strip, the Israeli army said. Turkey’s Foreign Ministry called the raid “inhuman” and said it “may cause damage to our relations that will be impossible to repair.” Turkey’s ISE National 100 Index lost 1.6 percent at 5:15 p.m. in Dubai and Israel’s benchmark index fell 1.3 percent.

Blog Archive - Traffic in the Gulf

This week I made the trip between Abu Dhabi and Dubai four times in as many days, shuttling between our regional hub in Abu Dhabi and hotels, conferences and interviews in Dubai.

On one occasion, I hitched a ride with a colleague, who goes back and forth every day, who bore witness to the challenges of Emirati high-speed travel. Drivers frequently flash their high-beam headlights to intimidate those not going “fast enough” in the fast lane and sometimes use the inside shoulder of the motorway to leave them behind.

The traffic between the two emirates is intense during morning and early evening rush hours, with the draw of the capital’s wealth creating more jobs in tourism, exhibitions, construction and development. But, it is not the road traffic that is most striking, but instead the shuttle diplomacy. The $3 billion Emirates Palace –- as seen in the new "Sex in the City" movie or earlier in action film "The Kingdom" - serves as a hotel, a meeting venue for the Abu Dhabi government and, lately, as a hub for world leaders.

GFH to sell stake in Bahrain Financial Harbour | Reuters

Gulf Finance House GFHB.BH (GFHK.KW) will sell its 50 percent stake in Bahrain Financial Harbour Holding to Emar Bahrain, GFH said in a statement on Monday.

The sale, which is part of the cash-strapped firm's strategy of divesting non-core assets, come as Gulf Finance House raises funds to repay the remaining $100 million of a $300 million loan.

Analysts have valued GFH's stake in Bahrain Financial Harbour at about $175 million.

ICBC to Give Financing, Export Credit for UAE Railway (Update1) - BusinessWeek

Industrial and Commercial Bank of China Ltd. will provide financing, export credit and advisory services to a railway project in the United Arab Emirates, said Yi Huiman, a bank executive vice president.

The world’s largest lender by market value will join China’s Ministry of Railways to provide “railroads plus finance” globally, Yu said at the Abu Dhabi and China Economic Forum in Shanghai today.

Abu Dhabi, capital of the U.A.E., and its companies borrowed about $14 billion last year for acquisitions and infrastructure development, Bloomberg data shows. The Union Railway, an Abu Dhabi initiative, is being expanded to cover all seven U.A.E. sheikhdoms, including Dubai, Chief Executive Officer Richard Bowker said May 11.

DIC offloads assets and ponders more sales - The National Newspaper

During the boom years, Dubai International Capital (DIC) was the standard bearer for the emirate’s global investment ambitions, buying billions of dollars worth of businesses and investments in a four-year burst of expansion.

As perhaps the highest profile part of Dubai Holding, it acquired interests in some of the world’s best-known brands, such as HSBC, Sony and EADS, the manufacturer of Airbus. At one stage, under its founder and chief executive Sameer al Ansari, it almost bought Liverpool FC, the famous English football club, with a suggested price tag of more than £300 million (Dh1.59 billion).

Last week, it emerged that most of its high-profile global acquisitions had been quietly sold since the boom turned bad in late 2008. How much DIC received has not been made public, but, given the fall in global asset prices, it is unlikely to have turned a profit on these deals.

Businessmen jailed over Dh44m property scam - The National Newspaper

The former heads of Tamweel and Dubai Islamic Bank (DIB) and the chief executive of the property developer Bonyan have been jailed and ordered to pay Dh51.7 million (US$14m) in fines and repayments after being convicted of bribery and embezzlement.

AS, 38, the former chief executive of Tamweel, the UAE’s largest mortgage lender, and his deputy AN, 44, were each sentenced to three years in prison by the Dubai Criminal Court of First Instance.

The former DIB chief executive and Tamweel executive manager, SA, 40, was sentenced to a year in jail along with Bonyan boss AA and FA, 28, a Jordanian who was a senior Tamweel executive and its chief investment officer.

Brazil's Vale to sell stake in Oman pellet plant | Reuters

Brazilian mining giant Vale on Saturday said it has agreed to sell a 30 percent stake in an iron pellet plant in Oman with 9 million tonne annual output to the Oman Oil Company (OOC) for $125 million.

Vale (VALE.N)(VALE5.SA), the world's largest iron ore miner, said the Vale Oman Pelletizing Company is slated to begin production in the second half of 2010.

The plant is part of an industrial logistics center located in the Sohar Industrial Port Complex in Oman, Vale said.

Qatar to launch riyal bonds

Qatar is set to issue its first local currency bond in an effort to diversify its funding away from the US dollar, foster a domestic bond market and widen its range of monetary policy tools, the country’s finance minister said on Sunday.

The central bank will announce the sale of Qatari riyal-denominated Islamic and conventional bonds to its domestic banks on either Monday or Tuesday, Yousef Kamal, Qatar’s finance minister, told the Financial Times. Bankers familiar with the plans estimated the size of the bond sale at QR4bn ($1.1bn, €895m, £760m).

Central bank officials have for some time been calling for a domestic bond programme to mop up excess liquidity in the banking system caused by government cash injections intended to shore up the sector as the global crisis struck.

Qatar Shares Rise on Optimism Drop Overdone; Orascom Soars - Bloomberg.com

Qatar stocks rose, leading Gulf Arab markets higher, on speculation this month’s decline may have been overdone as economic growth picks up and global markets rallied as concerns over Europe’s debt crisis eased.

Industries Qatar, the second-biggest petrochemicals maker in the Middle East, surged the most in more than two months. In Abu Dhabi, Emirates Telecommunications Corp., the phone company known as Etisalat, gained after its long-term corporate credit rating was raised by Standard & Poor’s. Qatar’s QE Index gained 2.1 percent, the biggest advance since May 10, to 6,825.89. The gauge slumped 9.2 percent this month. The Bloomberg GCC 200 Index, which tracks 200 equities in the region, climbed 0.2 percent. Egypt’s EGX 30 Index surged 3.3 percent at 1:19 p.m. in Cairo.

“We continue to focus on international markets and oil, which were generally higher over the Thursday to Friday period,” said Ali Khan, head of cash-equity trading at Dubai- based Arqaam Capital Ltd. “Qatar was the worst performing market in the region month-to-date.”

TIBC banker sues Bahrain after being held for 10 months - Telegraph

The former chief executive of a Bahrain-based bank is suing the Gulf island emirate at the International Court of Human Rights (ICHR) after being held in the country for the past 10 months.

Glenn Stewart, 55, who until last July ran The International Banking Corporation (TIBC), escaped from Bahrain last week and has filed a claim with the ICHR in Geneva, claiming that he was wrongfully banned from leaving the country after TIBC defaulted on its debts in May 2009.

TIBC is at the centre of the biggest financial scandal in the Middle East, with its owners, the billionaire Algosaibi family, launching a multi-billion pound lawsuit against Maan al-Sanea, a wealthy businessman who is related by marriage to the family, accusing him of fraud.

The New Age Of Natural Gas: New Record High Production In March For The World’s #1 Producer | Daily Markets

The Energy Information Administration released new data yesterday showing that natural gas production in the U.S. reached an all-time historical monthly high in March of 2.313 trillion cubic feet, breaking the previous record of 2.28 trillion cubic feet set in March of last year by almost 33 billion cubic feet (see graph).

As I have reported previously, the U.S. is now the world’s largest producer of natural gas, having surpassed Russia’s production last year to become the new “Saudi Arabia of natural gas.” It’s all because of a breakthrough in drilling technology, involving the use of three-dimensional seismic imaging and hydraulic fracturing of shale rock, so that huge amounts of natural gas are being produced in New York, Pennsylvania, Texas, Louisiana and other states. In 2000, shale gas accounted for only about 1% of our natural gas supply, but now about 20% of gas comes from advanced shale drilling, and has helped boost production to record high levels.

The abundance of natural gas in the U.S. was completely unexpected as recently as seven years ago when Alan Greenspan was worried in 2003 that shortages of natural gas would hurt the U.S. economy. We’re in a new age of natural gas, and it’s going to be a real game-changer.

Saudi Stocks Surge Most in 18 Months, Led By Petrochemicals - Bloomberg.com

Saudi Arabian shares climbed the most in 18 months, led by petrochemicals and helped by oil prices.

Saudi Basic Industries Corp., the world’s largest petrochemical maker, and Saudi International Petrochemical Co., or Sipchem, helped lift the Saudi Tadawul All Share Index 5.35 percent, the biggest gain since Nov. 2008, to 6175.96.

“After a substantial drop last week, some investors are re-entering the market as bargain hunters,” said John Sfakianakis, chief economist at Banque Saudi Fransi. “Oil prices have remained above $70, which is seen as good news for petrochemicals and the overall index.”

UAE Economy To Grow 3.2% In 2010 -Natl Statistics Bureau

The economy of the United Arab Emirates is expected to grow 3.2% this year due to an anticipated pickup in global oil demand, the National Bureau of Statistics said Saturday.

The economy expanded by 1.3% in 2009, a year in which the impact of the global financial crisis "emerged clearly", the report said.

"Despite the global financial crisis, and the accompanying drawback in economic activity and demand for workforce in various projects, expatriates continued coming to the country and searching for job opportunities across the emirates," the statistics bureau said in the report.

The U.A.E.'s population grew to 8.2 million in 2009, from 8.07 million in 2008, it said. At the end of 2009, about a quarter of the population was under the age of 15, with unemployment running at 4.2% across the emirates.

Minister of economy Sultan Al Mansouri said an oil price of $85 per barrel would support an economic growth forecast of 3.2% for this year, while he also remained "optimistic" that the country's economy was recovering from the global slowdown.

"The range [of economic growth] I wish to see is between 2% and 2.5%," which can be supported by an oil price of $75 a barrel, Al Mansouri said.

The National Bureau of Statistics, in a report which also provided an overview of the country's economic performance last year, said it expects oil demand to increase near the end of 2010, which will help absorb excess supply and maintain prices between $75 and $85 a barrel.

Light, sweet crude for July delivery settled 58 cents or 0.8% lower at $73.97 a barrel on the New York Mercantile Exchange Friday.

"I feel very comfortable with the figure of $80," Al Mansouri said. "Eventually, it should settle around $80 to $85, that's what I see."

The report said the U.A.E.'s economic fortunes remain contingent on oil prices and the ability to diversify its economic base, specifically by developing conversation industries and the non-oil sector. The oil sector contributed 29.4% to gross domestic product in the U.A.E. last year, while efforts continued to be made to boost the non-oil sector.

"The economy began to diversify into service sectors, most notably into trade, logistics, tourism, financial services, and high-value manufacturing," the report said.

Al Mansouri said he hopes to increase the GDP contribution of manufacturing and industry to between 20% and 25% over the next five to ten years. The sector's share of GDP stood at 16.2% in 2009.

OIL PRODUCTION

The U.A.E. also plans to increase oil production to meet growing demand from Asia, which is seen expanding by 4% in 2010 and 2011, according to the report.

Meanwhile, inflation in the country is forecast to slow to 1.1% by the end of 2010, compared with 1.6% in 2009. It is expected to rise again to between 2% and 2.5% in 2011, as the global economy recovers.

Saturday's report comes just days after the International Monetary Fund said it may revise up its growth forecast for the United Arab Emirates amid expectations that a settlement to Dubai World's $23.5 billion debt restructuring will boost the second-largest Arab economy.

According to the fund, the U.A.E.'s economy will grow 1.3% this year, after shrinking 0.7% in 2009 as the global financial crisis hit oil prices, the country's main source of foreign currency income.

Al Mansouri said the IMF figures are "not necessarily as accurate" as the country's own. "We would recommend that you take our figures," he said.

On debt restructuring at Dubai World, Al Mansouri said: "We were hoping, in a way, that this issue would be solved by the first quarter of this year. Now it's on the way."

The statistics bureau report said "the decline in Dubai can be described as a special case," mostly due to financial problems at Dubai World and a struggling real-estate sector.

A mismatch in Dubai's development plan, launched in 2005, between short-term debt obligations and projects planned for the long-term were only made evident by the onset of a global financial crisis, the report said.

"The imbalance is attributed to the debt repayment periods, and the global financial crisis revealed these dangers and the reality of the situation" in Dubai, according to the report.

Al Mansouri said Saturday that a decision to delay debt payments at private conglomerate Dubai Holding "is a normal decision", and that the federal government wasn't involved in talks with, or a restructuring process at the group.

"I do believe they will meet their requirements," Al Mansouri said. Asked if Dubai Holding may require a large scale restructuring like Dubai World, he said: "I don't expect that."

Treasury sells Citi shares for $6.2 bln - MarketWatch

The Treasury Department said Wednesday it sold 1.5 billion shares, or 19.5% of its stake, in Citigroup (C 3.96, -0.06, -1.49%) for about $6.2 billion. The Treasury had received Citi shares as part of the Capital Purchase Program which was aimed at boosting capital at financial institutions. "Treasury currently owns approximately 6.2 billion shares of Citigroup common stock and expects to continue selling its shares in the market in an orderly fashion," the Treasury said in a statement. It has entered into a second trading plan under which Morgan Stanley will have the discretionary authority to sell an additional 1.5 billion shares under certain parameters by June 30.

Energy Tribune- Qatar Holding on to Their Gas

On paper, it should be a perfect match. Qatar has huge amounts of gas to export and its neighbors are desperately prowling for reliable energy supplies to power their emerging economies.

But Qatar’s recent decision to rule out significant gas exports to its allies in the Gulf Cooperation Council from a huge gas project inaugurated earlier this month illustrates just how acute the gas needs are among some of the globe’s biggest oil producers.

The new Qatari jewel is the second phase of Al-Khaleej Gas, which is now producing about 1.25 billion cubic feet a day, equivalent to about 17% of the country’s production. Combined with AKG-1, the two projects account for more than a quarter of the country’s overall output. (Most of the remainder is liquefied and exported around the world.)

Justice Dept Seeks Halt to Civil Sojitz Suit - WSJ.com

The Justice Department asked a federal court to halt a civil lawsuit filed against Japanese commodities-trading giant Sojitz Group, citing the government's own criminal bribery probe.

The lawsuit was filed in December by Bahrain's state-owned aluminum producer, Aluminum Bahrain BSC, known as Alba. The lawsuit alleged Sojitz paid Alba employees nearly $15 million in bribes over 13 years to gain discounts on aluminum prices.

Justice Department lawyers, in a filing made in U.S. District Court in Houston, said the lawsuit should be stayed "pending resolution of a parallel criminal investigation and any resulting criminal prosecution against the defendants."

Middle East investors to ramp up emerging markets exposure

Investors in the Gulf countries are looking to significantly increase their exposure to emerging markets, according to a survey by UK investment company Invesco Perpetual.

Some 82% of respondents forecast they would invest in emerging markets over the next three to five years. This compared to just 30% for North America, 14% for Europe and 8% for Japan.

Invesco said Gulf investors were shunning developed markets because they expected emerging markets to yield higher returns.

Dubai International seeks debt extension - Business News, Business - The Independent

Dubai International Capital (DIC), the private equity unit of flagship conglomerate Dubai Holding, is seeking a three-month debt delay, in the latest blow to the emirate's financial image. The investment unit has a $1.25bn (£864m) loan maturing in June.

"Dubai International Capital and a co-ordinating committee of banks today presented to lenders a request for a three-month extension to 30 September 2010 of certain maturities," the company said in a statement.

Earlier in May, Dubai World, another state-owned conglomerate, reached a deal to restructure $23.5bn in debt with its core lenders, addressing the most immediate of a string of problems facing investors in Dubai.

"DIC is a little opaque. There's a lot of need for more capital in the system, and Dubai World was not the end of the game," said Robert McKinnon, ASAS Capital chief investment officer. "We will probably see more restructuring of Dubai entities, but on a smaller scale than Dubai World, and I don't think this announcement will be a catalyst for a new market crash."

Dubai Shares Rally a Second Day; Oman Climbs Most This Year - Bloomberg.com

Dubai stocks rose for a second day as oil climbed above $73 a barrel and China said it remained a long-term investor in Europe, boosting appetite for riskier assets. Oman’s benchmark jumped the most since December.

Emaar Properties PJSC, developer of the world’s tallest skyscraper, rose 1.8 percent. Emirates NBD PJSC had the biggest gain since April 11. The DFM General Index advanced 0.9 percent to 1,605.22, paring the drop for the week to 5.1 percent. Oman International Development & Investment Co. led that country’s gauge higher as EFG-Hermes Holding SAE initiated coverage with a “buy” recommendation. Egypt’s EGX 30 gained 2.2 percent.

European stocks rallied and the euro advanced as China’s foreign exchange regulator said reports it was reviewing its euro holdings are “groundless.” Asian shares rose on bets corporate profits can withstand any slowdown caused by the European debt crisis. Crude climbed as high as $73.67 a barrel.

The Real Estate Bust Hits Oman's Blue City - BusinessWeek

Blue City, a $20 billion real estate development, was supposed to help transform Oman, the Persian Gulf nation of about 3 million people. Government officials extolled the project as an important step in its plan to diversify the economy and prepare for the depletion of oil reserves. But Blue City, envisioned as a community for more than 200,000 people, missed sales targets as real estate speculators left Middle Eastern markets and a legal battle between the project's owners made potential buyers wary. Now it may face liquidation.

Oman, bordered by the United Arab Emirates, Saudi Arabia, and Yemen, has been ruled by Sultan Qaboos bin Said since he overthrew his father in 1970. Heavily dependent on dwindling oil reserves, it managed to boost production in 2009, according to the CIA World Factbook. It's not an OPEC member.

Blue City, an hour's drive from the capital, Muscat, was to be "a whole new city for the present and future generations," according to its website. The first phase would include more than 200 villas, 5,000 apartments, 4 hotels, 2 golf courses, and a clubhouse, according to the prospectus. A total of $925 million was raised from bondholders, and construction started in 2006. Blue City turned down requests for interviews with its executives.

Tabreed in Talks to Restructure $1 Billion in Loans (Update1) - BusinessWeek

National Central Cooling Co., the refrigeration company that delayed payments on an Islamic bond, is in talks with banks to restructure about 3.7 billion dirhams ($1 billion) in loans, the chief financial officer said.

“We are in discussions with about a dozen banks,” Stephen Ridlington said in a phone interview from Abu Dhabi today. “We don’t have a proposal on the table yet. Banks need to see the business plan we are developing.”

Tabreed is among Gulf Arab companies seeking to restructure debt after the global economic crisis dried up financing and brought a property boom to a halt. Dubai World, one of the emirate’s three main state-owned holding companies, said on May 20 it reached an agreement with its main creditor group to restructure $23.5 billion of liabilities. Dubai International Capital LLC, a unit of Dubai Holding LLC, today sought a three- month extension on some of its loan payments.

Can Europe learn from Dubai? | beyondbrics | FT.com

Dubai World’s chairman has declared victory. At the opening of a Mars confectionary factory yesterday, Sultan bin Sulayem said Europe could learn from the emirate’s experience in restructuring its debts, estimated by the IMF to total $109bn.

“From experience, I know we should be confident that the worst is over,” he said. “Not a single bank is in danger, not a single company is going to be losing.”

But companies owed billions of dollars by Nakheel, the troubled development arm of Dubai World, may raise their eyebrows at the optimistic outlook.

Dubai Intl Capital Asks For 3-Month Debt Extension - WSJ.com

Dubai International Capital, the investment arm of conglomerate Dubai Holding, said Thursday it has asked lenders for a three-month extension on some of its debts, indicating the financial challenges still facing the city-state.

The news comes six months after Dubai's much larger conglomerate Dubai World shocked markets by announcing the need for a standstill on its debt pile. Last week, Dubai World said it has agreed in principle with its main creditors to restructure $23.5 billion of debt and that it will now seek a final deal with all its creditors by end June.

DIC said in a statement Thursday that the debt extension to Sep. 30 would allow it to implement a "consensual longer term plan" that would allow it to "maximise the value of its business for the benefit of all its stakeholders".

DIC has $2.6 billion of debt maturing by 2011, with $1.25 billion falling due next month, a banker familiar with the matter said Thursday.

DIC said it made the debt extension presentation to its lenders alongside a coordinating committee of banks.

The coordinating committee is co-chaired by HSBC Holdings PLC (HBC) and Emirates NBD PJSC (EMIRATES.DFM), the banker said.

Financial services firm Deloitte is advising DIC's lenders, another person familiar with the matter said.

Dubai Holding, which has overall debt of around $12 billion, is controlled by the emirate's ruler Sheikh Mohammed bin Rashid Al Maktoum.

Earlier in May, Dubai Holding's subsidiaries--Dubai Holding Commercial Operations, which oversees Dubai Holding's property, business-park and hospitality investments, including hotel operator Jumeirah; Dubai Group, which is one of Dubai Holding's investment arms; and DIC--all appointed financial advisers ahead of a potential debt restructuring, people familiar with the matter told Dow Jones Newswires at the time.

In April, German aluminium company Almatis--one of DIC's portfolio companies--filed for U.S. Chapter 11 bankruptcy protection.

The Chapter 11 process will be used to bring about a debt-for-equity swap that will lower Almatis' $1 billion debt to around $422 million and will see distressed debt investor, Oaktree Capital, take control of the company.

Under Oaktree's plan, DIC, subordinated-mezzanine and second-lien lenders would all see their investments wiped-out.

DIC has said it will "vigorously dispute" Oaktree's plan and is pursuing its refinancing plans of its own.

GCC Members Suspend Free-Trade Talks With Europe (Update1) - Bloomberg.com

The six-member states of the Gulf Cooperation Council suspended free-trade negotiations with the European Union that have been going on for about two decades after failing to overcome obstacles to an agreement.

“In view of the fact that there was no progress as the European side held its previous position, the council countries have suspended the negotiations,” GCC Secretary-General Abdul Rahman al-Attiyah said in a speech posted on the Gulf bloc’s website today. It didn’t provide further information.

Free-trade negotiations between the 27-nation EU and the GCC, which includes Saudi Arabia, the world’s largest oil producer, and the United Arab Emirates, have faltered over disagreements on tariffs, petrochemical subsidies and foreign companies holding majority stakes in GCC companies. Attiyah’s statement dated May 25 was made as German Chancellor Angela Merkel tours the Persian Gulf.

Sabic, Malaysia Delay Bonds on Yields at 8-Month High (Update2) - Bloomberg.com

Saudi Basic Industries Corp., the world’s biggest petrochemicals maker, and Malaysia are among issuers delaying bond sales as Europe’s debt crisis sent emerging market borrowing costs to near their highest since September.

Sabic Capital, a unit of Sabic, delayed its offer because the spreads were “not what we wanted,” Chief Financial Officer Mutlaq Al-Morished said in a telephone interview today. Malaysia postponed making a decision on the size and timing of its first sale of Islamic bonds in eight years due to unstable market conditions, said two people with direct knowledge of the plan. Bahrain-based retail lender BBK also delayed a bond sale, said a banker familiar with the plan.

Emerging-market assets have slumped this month as the debt crisis in the European Union fueled concern the global economic recovery will stall. The extra yield investors demand to hold debt of developing nations over U.S. Treasuries widened 71 basis points in May to 336 basis points today, according to JPMorgan Chase & Co.’s EMBI+ Index. The spread reached 354.7 basis points yesterday, the highest since Sept. 11.

Jordan Dubai Islamic Bank trades on Amman bourse | Reuters

Jordan Dubai Islamic Bank INDV.AM made its market debut on the Amman stock exchange on Wednesday, nearly 18 months after UAE-based investors bought a majority stake in a local Jordanian bank and rebranded it.

The UAE's Dubai Islamic Bank had bought a 52 percent stake in Industrial Development Bank of Jordan and shares in the predecessor of Jordan Dubai Islamic Bank were then suspended on Dec. 30 2008.

The newly branded bank began commercial operations several months later. Its shares closed at 2.09 dinars ($3) on Wednesday, or 11.4 percent lower than its forerunner's last close.

Will Citigroup Find a White Knight in Qatar? - Deal Journal - WSJ

The Citigroup bandwagon may have a new passenger.

The Financial Times reports that the Qatar Investment Authority is mulling whether to buy a big slug of the Treasury Department’s 7.7 billion-share stake in the New York financial-services company.

University of Louisiana Finance Professor Linus Wilson would argue that the Treasury should run–not walk–to Qatar to do a deal. Wilson has been watching with trepidation as Citigroup’s shares have fallen to as a low of $3.65 last week from a six month high of $4.97 on April 20, amid the broader swoon in the stock market.

Peaceful port tests deeper waters

Fujairah has always been one of the more tranquil members of the United Arab Emirates, famed more for its scenery, its natural attractions and status as a holiday venue than the ambition and relentless development of some of its peers. But of late it has undergone something of a transformation.

The city centre is still less metropolitan than most other emirates, but a smattering of high-rise towers has shot up in recent years, and the streets are noticeably busier, residents say.

For many years, the emirate has been a leading provider of ground rock aggregate for cement – mined from the craggy Hatta mountains that surround and dominate the city – but the recent increase in its prominence is attributable to its strategic location on the coast of the Indian Ocean.

Thanks to the deep and relatively calm seas off its coastline, Fujairah has emerged as the world’s second-largest bunkering hub for refuelling tankers and ships, after Singapore. The emirate is also expanding into trading and storage, mostly based by the port and in three free zones.

Fujairah can also thank its location for being chosen as the site of a potentially transformative project. Abu Dhabi is building a 360km pipeline stretching from Habshan, south-west of the UAE capital, to the port which, on completion next year, will funnel up to 1.8m barrels of oil a day directly to the Indian Ocean.

This will shave time off the oil’s journey to world markets, and allow shippers to avoid the higher insurance premiums that come with traversing the risky Gulf waters close to Iran.

Perhaps more importantly, it should also allow the UAE to keep exporting a large part of its oil in the event that a conflict involving Iran closes the main Gulf trading artery.

Fujairah’s new crude oil terminal, and many of the fuel storage tanks, will be placed on reclaimed land immediately to the north of the port, costing about Dh900m ($245m), according to Salem Khalil, a government adviser. “We are doing it just to keep up with demand,” he says.

Other significant projects are also underway. A $2.3bn integrated water and power plant is expected to come online later this year, solving an electricity shortage. The federal government is building a 78km highway between Dubai and Fujairah to slash the travel time between the two cities.

Officials hope the road, due to open early next year, will bring even more visitors, and entice some Dubai residents to relocate to the calmer, more picturesque emirate.

“The highway will bring a lot of flow to Fujairah. It’s a lot cheaper here than in other emirates – schooling, housing, offices, everything costs less really,” says Khalid al-Jassim, director general of the Fujairah Chamber of Commerce and Industry.

Abu Dhabi’s International Petroleum Investment Company, which is behind the oil pipeline, also plans to construct a 200,000 barrel per day oil refinery in Fujairah, which is pencilled in for completion in 2014.

These investments and a relatively buoyant local economy caused Fujairah’s population to jump by more than 10,000 in both 2008 and 2009 to about 165,000.

Since many newly constructed buildings have no electricity due to power constraints, a housing shortage has caused property prices and rents to continue to climb in spite of the UAE’s recession, residents say.

However, the economic downturn has not left Fujairah entirely unscathed.

Demand for aggregate, the main export, has slumped, and Fujairah’s main selling point to business – its relative cheapness – has been blunted by Dubai’s falling office rents. Moreover, the quickening pace of development has also brought unwanted problems. Oil spills frequently wash up onshore, hurting the important tourism industry.

Some say the spills are no accident. It costs tankers time and money to moor and wash out their hulls properly, so many simply dump oil slops in the sea under cover of darkness, safe in the knowledge that the industry is too important for Fujairah to act, one resident claims.

“Hotels and tourism are important, but oil has clearly been the priority. Some of the natural beauty on land and marine life has been trashed so ongoing vigilance is essential,” the resident says.

Other locals say the government is too cautious, and lacks a long-term plan for the development of the emirate. The port and the quarries make some money, but Fujairah’s economy and industry remains relatively undeveloped, one claims.

Nonetheless, locals are enthused by the emirate’s recent progress and near-term prospects.

“Give us five years and the city will be transformed,” says Mohamed al-Afkham, general manager of the Fujairah municipality. “It will be gradual and we won’t get carried away, but the next five years will be exciting for Fujairah.”

Cheaper solution for media operations

Inside a trendy, purple-lit bar, a mixed gaggle of media executives is reclining on leather couches, alternating between their rare beef steaks and industry chatter.

Yet this is not Dubai Media City, nor more recent pretenders such as Abu Dhabi’s TwoFour54 media zone, but a bar in Fujairah, separated from the rest of the United Arab Emirates by the imposing Hatta mountain range.

The media executives are in town to hear more about Fujairah’s “Creative City”, a 40,000 sq m free zone for media – where foreign news operations can set up without a local partner – slated for completion in stages this year and next. Officials hope a modest media industry will add another strand to its economy, currently based on tourism and rock aggregate export.

The recession has hammered many UAE media companies, triggering significant job losses and increased cost-consciousness. While there are empty offices in DMC, the region’s leading media hub, rents have remained high, and companies are not allowed to set up elsewhere.

Danish Farhan, chairman of Xische, a boutique design operation based at the DMC, estimates that even a hot desk in Dubai costs about Dh50,000 ($13,600) a year, while a small one-person office costs Dh70,000 or more. Service charges and registration fees add thousands more to the annual bill.

Meanwhile, a hot desk at one of Creative City’s outlets will cost about Dh15,000 a year, and a larger office about twice that, according to Fujairah Media, the free zone manager.

“I know companies that are moving over to Fujairah simply because of costs,” Mr Farhan says. “The DMC rents are astronomical for what you get, and a lot of smaller companies, especially start-ups, can’t afford it.”

Mohammed, general manager of the Fujairah Municipality, insists that Creative City will “complement, not compete” with Dubai and Abu Dhabi’s media zones, but the emirate is clearly targeting smaller operations in Dubai in particular, executives say.

Ras Al Khaimah, another mountainous emirate, has also set up a media free zone that has managed to attract smaller companies.

“The Leo Burnetts and Saatchis will continue to be based in Dubai, as it’s still more fashionable and a hub to service the entire region but, for cost-conscious companies, Ras Al Khaimah and Fujairah are becoming more interesting,” Mr Farhan says.

So far, 250 companies have registered with Creative City, according to Mekki Abdullah, chief executive of Fujairah Media. They range from medium-sized companies with about 70 employees to one-man shops, with the bulk being businesses employing three to eight people, he adds.

The first three buildings of Creative City are scheduled for completion by the end of the year, with the last four buildings set to be finished by the end of 2011. “It’s a typical green but simple business park, and not expensive, so if it ends up empty it won’t be a financial disaster,” Mr Abdullah says.

Fujairah officials hope the attraction of opening an office in Creative City will be enhanced when a federally-funded highway from Dubai to Fujairah is finished late next year, reducing the commute between the two emirates.

Dubai’s infrastructure, size, commercial vim and entrenched media industry still makes the DMC the place to be in the UAE and the wider Gulf, executives say.

However, in the future, its pre-eminence may be eroded by smaller companies moving to Fujairah and Ras Al Khaimah, and the emergence of Abu Dhabi’s TwoFour54. Experts also question the sustainability of so many competing media free zones in one country.

“At the end of the day, there’s one cake and everyone wants a piece of it. The big boys will still go to Abu Dhabi or Dubai to be close to their main markets, but we want to attract the people that serve those larger companies,” Mr Abdullah argues. “We will bend over backwards for people, which they appreciate these days.”

FT.com / Middle East / Economy - Portfolio shift hits region’s exchanges

They may have limped back a little on Wednesday but there is no disguising that regional stock markets have had a bad year, and a bad May in particular. Nor is the outlook good, analysts say.

The MSCI Barra GCC countries index is down 3 per cent in the year to date, and has fallen a whopping 14.3 per cent in the month to date.

The only consolation is that the wider emerging markets pantheon has fared significantly worse this year.

“It’s been a bloodbath . . . May has been an extremely bad month through and through,” says Mandagolathur Raghu, head of research at Markaz, a Kuwait investment bank.

The culprit behind this week’s turmoil in local markets, analysts say, is the contagion effect of a flight to safety into US dollar assets by international investors concerned by the prospect of prolonged weakness in the eurozone. First it was Greece; now Spain finds itself at the centre of world attention.

As a result, yields on the benchmark 10-year US treasury bonds have tightened significantly and fell to a year-low on Tuesday.

The concern in the Gulf is that prolonged dollar strength in turn is bad for the price of oil. Oil also strengthened on Wednesday, to trade above $70 a barrel following Tuesday’s turmoil but it has fallen from highs of nearly $87 a barrel only last month.

Oil, of course, is the critical determinant of the performance of GCC stock markets and of the economies that underlie them.

“A lot of bearish calls have been made about oil,” says Mr Raghu. “When the dollar continues to strengthen you have this inverse relationship between the dollar and commodities. There is no logic behind this relationship but the dollar moves in the opposite direction to commodities.”

Mr Raghu points to gold, another traditional haven for those caught in a storm, as also indicating that the outlook for commodities generally is not good. Gold prices have risen markedly this year, but they have not picked up as much as anticipated.

Giyas Gokkent, chief economist at National Bank of Abu Dhabi, agrees that there is a portfolio shift going on as investors move out of euro assets and into the dollar and that this impacts on the GCC markets. He says Gulf investors have also been spooked by news emanating from China.

Since mid-April, Beijing has introduced a series of policies designed to cool an overheating property market and to dampen speculation. The fear is that these policies will hit demand for oil.

“China had been the first in terms of recovery – they are very important in terms of incremental demand for oil,” Mr Gokkent says. “Anything that indicates that China might slow down is bad for the oil price.”

Mr Gokkent says local markets may have got ahead of themselves and that the falls seen earlier this week were also a function of over-priced assets.

“I think we are not out of the woods yet. We’ll have to see how this eurozone crisis pans out. I think the key to watch is the euro-dollar relationship,” Mr Gokkent says.

Qatar ready to start shopping abroad again | beyondbrics | FT.com

Qatar may be about to head off on another high-profile shopping spree.

As the FT reported this morning, the Qatar Investment Authority has expressed interest in buying part of the US Treasury’s stake in Citi, which was bailed out in 2008 after it lost $50bn during the credit crunch.

If concluded, the deal would signal a return to a steady rhythm of overseas investments for the gas-rich Gulf state, which has made no secret of its desire to invest its abundant energy revenues into global assets as the government seeks to secure wealth for future generations with its roughly $75bn fund.Financial assets have long been at the top of the target list drawn up by the emirate’s powerful prime minister, who directs the strategy behind the QIA and its direct investment arm, Qatar Holding.

Record $850m Indian deal may be a bargain | beyondbrics | FT.com

India’s luxury real estate developer Lodha set a new record in the country’s coveted battle for land when It paid more than twice the asking price in an open auction for a plot in the centre of Mumbai, India’s financial hub.

The Rs40.5bn ($850m) transaction is the biggest in India’s history for a plot of land and several analysts have dubbed risky and too expensive. But, is it really a ‘ridiculous’ buy, as one to Mumbai banker claimed? Perhaps not, when you look into the details.

The amount Lodha plans to pay , Rs81,818 ($1,729) per square metre for 25,000 sqm, clearly takes the cost of land in Mumbai into a new territory. But then, a glance at the other bids shows they weren’t much below the winning offer.

FRONTIERS-Gulf stocks offer alpha, if you know who to ask | Reuters

When Kuwait investors received anonymous text messages in the dead of night urging them to buy shares in telecoms operator Zain, they did something not many people in developed markets do. They paid attention.

Their demand helped the company's stock soar 23 percent in five February trading days, before the firm announced it would sell African assets in a $9 billion deal.

It's just one example of the risks an investor expects in any "frontier" market, but particularly the Middle East.

Qatar Interested in Part of U.S.’s Stake in Citigroup, FT Says - BusinessWeek

Qatar Investment Authority has expressed interest in buying some of the shares held by the U.S. government in Citigroup Inc., the Financial Times reported, citing people familiar with the matter.

A deal would depend on price, market conditions and the government’s willingness to sell its shares to a sovereign wealth fund at a discount, the newspaper said.

The first portion of shares to be sold by the government may be completed within days, the FT said.

Dubai’s Drydocks Sues Singapore Tycoon Tan for Takeover Breach - Bloomberg.com

Drydocks World LLC, Dubai World’s ship-repair unit, has sued Singaporean tycoon Tan Boy Tee for breaching an agreement tied to a S$2.4 billion ($1.7 billion) takeover deal.

Tan agreed not to compete with Drydocks in ship repair and related industries when he sold Labroy Marine Ltd., a Singapore- based shipyard operator he founded, to the unit of the Dubai state holding company in January 2008, according to filings with the Singapore High Court this month.

Tan bought a stake in Singapore shipbuilder Otto Marine Ltd. earlier this year, according to a Feb. 4 statement from the company. The shares were bought in the name of Tan’s son, and were sold by March 10, according to the court documents.

Dubai Financial Market Pays Two Thirds of Nasdaq Dubai Purchase - Bloomberg.com

Dubai Financial Market PJSC paid two thirds of its acquisition of Nasdaq Dubai and transferred 80 million of its shares to NASDAQ OMX Group Inc.

The company will pay the remaining third to Borse Dubai Ltd. concurrently with the completion of the consolidation between Dubai Financial Market and Nasdaq Dubai in due course, it said in a statement on its website.

Gulf markets hammered by global sell-off and lower oil price | beyondbrics | FT.com

Back in 2008 in the lead up to the collapse of Lehman Brothers, there was much talk in the oil-rich Gulf - then enjoying an over-hyped petrodollar fuelled boom - of the region being able to decouple from the world’s travails and avoid the storm clouds of the global financial crisis.

How times have changed. As concerns about Europe’s sovereign debt crisis and the threat of a Korean conflict sent world markets tumbling, the Gulf’s bourses took their worst hammering for months.

Saudi Arabia, the Arab’s world largest economy and home to it biggest stock market, led the way, diving 6.8 per cent - its largest loss in 18 months. Dubai’s benchmark stock index declined 4.6 per cent, while Qatar’s market fell 4.2 per cent.

Saudi Shares Slide Most in 18-Months on Oil, Europe Debt Crisis - Bloomberg.com

Saudi shares lost the most in 18 months, leading a drop in the oil-rich Gulf, as crude and global stock markets slumped on concern Europe’s debt crisis will spread and as tensions grew in the Korean peninsula.

Saudi Basic Industries Corp., the world’s largest petrochemical maker known as Sabic, sank 10 percent, the most since October 2008. National Industrialization Co. slid to the lowest in seven months. The Tadawul All Share Index plunged 6.8 percent, the biggest drop since November 2008, to 5,760.33. The region’s Bloomberg GCC 200 Index fell 5.5 percent. Dubai’s index lost 4.6 percent as the International Monetary Fund said the emirate’s economy will contract this year.

“Investors are reacting to the drop in oil prices, coupled with the global slump and the European crisis,” said Kifah Maharmeh, general manager of Al Dar Shares & Bonds in Abu Dhabi. “The sharp decline in the Saudi market was unexpected.”

Saudi's Arriyadh eyes new $3.5 bln city project | Reuters

Saudi Arabia's Arriyadh Development Company expects to receive government approval for a project worth more than 13 billion riyals ($3.47 billion) in the country's capital Riyadh, its chief executive said on Tuesday.

The project, part of the redevelopment plan for downtown Riyadh, will be funded largely by the government and members of a consortium, Khalid al-Dughaither told reporters on the sidelines of a MEED conference.

The project, called Duhairah District, will be constructed in nine stages over 15 years, and includes residential, retail and tourism components, he said.

Dubai’s Economy Will Contract 0.5% in 2010, IMF Says (Update1) - BusinessWeek

Dubai’s economy will shrink about 0.5 percent this year, the International Monetary Fund said, marking the second year of contraction for the debt-laden emirate.

Abu Dhabi, the largest of the United Arab Emirates and owner of more than 90 percent of the country’s oil reserves, will grow 3.7 percent in 2010, Masood Ahmed, the IMF’s director for Middle East and Central Asia, told reporters in Dubai today.

Real-estate prices in Dubai, the second-largest emirate in the U.A.E., have plummeted about 50 percent from their peak in late 2008. The emirate had to seek a $20 billion bailout from Abu Dhabi last year after borrowing $109 billion, according to IMF estimates, to build itself into a tourism and financial center.

Dubai’s Dunkirk Moment - The Source - WSJ

The tantalizingly close restructuring of Dubai World’s $23.5 billion debt has provided the United Arab Emirates with a rare Dunkirk moment.

In 1940, the British snatched victory from the jaws of defeat and certain invasion by evacuating 300,000 troops from the beaches of northern France. As we all know, Britain with the help of its allies recovered from the near disaster to eventually defeat Hitler’s Germany and the Axis powers. The rest is history.

Officials in the U.A.E. are now claiming a similar turning point in Dubai’s battle to defeat the all out assault on its economy by the dark forces of the global financial crisis. The scale of the estimated $100 billion of debt racked up by Dubai, and its so-called government related entities, has presented the biggest challenge to the U.A.E.’s hereditary rulers since the nation emerged from its colonial past into an uncertain future in 1971.

Securitisation a perfect fit for sharia

Amid the debt turmoil and resulting series of credit rating downgrades to have hit Dubai in the past year, one unusual and exotic instrument has retained its high standing throughout.

While private and government companies in the Gulf have been downgraded, rating agencies have left Tamweel’s $210m Islamic residential mortgage-backed security – structured by Morgan Stanley and Standard Chartered in 2007 – untouched.

Likewise, tranches of a $1.1bn Islamic asset-backed security called Sun Finance, issued by Sorouh Real Estate of Abu Dhabi in August 2008, have also kept their high ratings.

FT.com / Dubai World rebalancing provides blueprint for emirate

If Dubai sought proof of its connectivity with the global economy it received ample evidence last November when it released a now infamous statement requesting a standstill with creditors of Dubai World.

Fragile markets around the world were thrown into a tailspin, gold hit a record peak and fears about sovereign debt were heightened, propelling Greece to the forefront of investors’ minds.

Six months later and many of those fears have materialised in the wake of Europe’s sovereign debt crisis. Greece is centre stage and there is much nervous chatter about a double-dip recession. Yet, amid the gloom Dubai has delivered a positive message. After weeks of talks Dubai World has reached an agreement with its main creditors about its restructuring proposal.

Oman’s Blue City Teeters as Bondholders Try to Fix Financing - BusinessWeek

Oman’s Blue City, a $20 billion real estate project central to the country’s economic transformation, is on the brink of liquidation and its fate may hinge on talks between bondholders trying to salvage their investment.

Owners of $661.5 million worth of Blue City bonds are discussing measures to push the project ahead, including trying to reduce the number of bondholders involved, a person familiar with the talks said. A vote on liquidating the project, proposed by holding company Al Sawadi Investment & Tourism LLC, has been put on hold, the person said.

“If it’s not handled appropriately and transparently, it could tarnish Oman’s image as an investment destination at a time when Oman is trying to diversify and develop its tourism sector,” said John Sfakianakis, Riyadh-based chief economist at Banque Saudi Fransi.

Dubai Should Coordinate With U.A.E. Over Future Debt, S&P Says - Bloomberg.com

* username: rupertbu

Dubai should consult with the United Arab Emirates’ authorities before its government-owned companies issue debt, Standard & Poor’s said.

Dubai triggered a debt crisis last year after amassing more than $100 billion in borrowings. The emirate plans to centralize the debt strategy of its state-run companies, Sheikh Ahmed Bin Saeed Al Maktoum, chairman of the Supreme Fiscal Committee, said yesterday. Debt management offices will be set up at both, a federal U.A.E. and Dubai level, he said.

“There needs to be coordination taking place at a federal level,” Jan Plantagie, Dubai-based regional head of S&P in the Middle East, said in a phone interview today. “Recent experience shows that one market impacts the other.”

Dubai's Shuaa Capital sees first UAE IPO early June | Reuters

Investment bank Shuaa Capital SHUA.DU is the lead manager on what could be the first initial public offering in the UAE this year, expected to raise over 1 billion dirhams ($272.3 million), its chief executive said.

Sameer al Ansari said the Dubai-based investment bank was working with an Abu Dhabi-based company for the share sale expected in early June, speaking to reporters on the sidelines of a conference in Dubai on Monday.

Ansari said the IPO would list in Abu Dhabi. However, he did not reveal the name of the company planning the share sale.

Dubai Shares Slide to 2-Month Low on Moody’s Property Report - Bloomberg.com

Dubai shares fell to the lowest level since March, leading a decline in Gulf markets, as Moody’s Investors Service said the outlook for the region’s real-estate industry is negative because of excess supply. Oman’s benchmark index rose.

Emaar Properties PJSC, the developer of the world’s tallest skyscraper, and Aldar Properties PJSC dropped to the lowest level in more than two months. National Central Cooling Co., the Abu-Dhabi based refrigeration company, decreased the most in two weeks. The DFM General Index lost 2 percent to 1,646.73, the lowest since March 7. Abu Dhabi’s measure retreated 0.8 percent and the Bloomberg GCC 200 Index, of 200 companies in the Gulf, fell 1.3 percent at 2:27 p.m. in Dubai.

“The report’s findings are nothing new, but they reaffirm any negative sentiment investors had about the real estate market,” said Saud Masud, a Dubai-based analyst at UBS AG.

Persian Gulf Property Likely to Worsen on Supply, Moody’s Says - Bloomberg.com

Persian Gulf real-estate markets will probably worsen in the coming months as a “vast” supply of properties becomes available and lending remains scarce, Moody’s Investors Service said.

Moody’s gave the industry a negative outlook for the next 12 months to 18 months and has downgraded the ratings of all Gulf Cooperation Council-based companies affected by real estate, analyst Martin Kohlhase said in a report today.

“The supply-demand imbalance in commercial property, and to some degree in residential units, is likely to grow worse as vast supply meets slack demand,” he said.

UAE Banks Could Face $1B In Impairments From Dubai World Debt

Banks in the United Arab Emirates may need to take as much as $1 billion in total impairment provisions for their Dubai World exposure to account for the difference between market lending rates and the sub commercial rate offered in the conglomerate's restructuring deal, bankers said Monday.

"The difference between the rates that banks lent to Dubai World and the rate they are offered (in the restructuring proposal) is around 3%," one local banker who declined to be named told Zawya Dow Jones on the sidelines of a conference in Dubai.

"If you multiply this by the number of years of restructuring, 5 or 8 years, banks will have to take losses between 15% and 24% of their loan book. This amounts to more than $1 billion," he added.

After months of talks, Dubai World late last week said it has agreed in principle with its main creditors to restructure $23.5 billion of debt.

Thematic investing superceeds the sectorapproach, robeco.com/themeinvesting
Under one of the options put forward in the debt proposal, U.A.E banks could opt for a cash interest payment of 1% plus the difference between the emirates interbank offered rate, or EIBOR, and the London interbank offered rate, or LIBOR, up to a cap of 1%. This also includes payment in kind of up to 1.5%.

"Banks (U.A.E.) will have to take provisions for the difference between the two rates," Edward Quinian, U.A.E. country partner at Ernst & Young told Zawya Dow Jones at the same conference in Dubai.

IFRS STANDARDS

"Banks will have to abide by the International Financial Reporting Standards (IFRS) rules. It's a full conformity with the IFRS," Quinian said, adding that a U.A.E. central bank meeting with lenders is expected very soon.

The banker who declined to be named said "the worst part is that according to IFRS, banks have to take these provisions before the end of this year."

Ernst & Young, which audits the finances of some of the U.A.E.'s leading banks, expects lenders to make large provisions for their Dubai World exposure over the coming 12 months.

Mohammad Ali Yasin, managing director of U.A.E.-based Shuaa Securities, said the country's central bank should act in the interests of the financial sector and instruct local banks to not take impairment provisions for Dubai World's restructured loans.

"In such critical times regulators can and do take extraordinary steps similar to what the European central bank did in buying bonds to protect banks in the euro-zone and as the U.S. Fed did when they bailed out certain financial institutions and took toxic assets in their books," he added.

Investment Dar in restructure talks

The Investment Dar (TID) will meet its main creditors in Dubai today to hammer out details of a plan to restructure its US$3.5 billion (Dh12.85bn) of debts.

The proposals, which have been the subject of negotiations since the Kuwaiti company defaulted on a $100 million sukuk last year, are intended to put its obligations on a five-year repayment schedule.

So far the company, which owns half of the British car maker Aston Martin, has received the support of 80 per cent of creditors.

Gulf money union pause

GULF Arab countries planning a monetary union should take some time to draw lessons from the troubles in the euro zone and give fiscal policies equal importance in the process, Kuwait's foreign minister said on Sunday.

'There are a lot of lessons' to be drawn from the euro zone problems, the foreign minister, Mohammad Sabah al-Salem al-Sabah, said. 'We should pause a little bit and try to learn from what happened with the European monetary union. It would be irresponsible to proceed 'business as usual' without minding or... (learning) from the euro problem,' he said.

Sabah spoke to reporters in the Saudi Red Sea port city of Jeddah after a meeting of Gulf Cooperation Council (GCC) foreign ministers. In addition to Kuwait, which currently holds GCC's rotating presidency, the bloc includes Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

Saudi mortgage law: Potential model for GCC

The Middle East is waiting with bated breath for the adoption of Saudi Arabia's mortgage law. Mortgage providers stress that the Saudi law would be a precedent and a potential model for the other Gulf Cooperation Council (GCC) countries to follow.

The GCC mortgage market is potentially tens of billions of dollars in size, and according to several mortgage providers more customers in the GCC are opting for Islamic mortgages. For instance, Sakana Holistic Housing Solutions, the Bahrain-based dedicated Islamic mortgage provider, which was established some four years ago, reports that 40 percent of its customers are non-Muslims. One of the most experienced mortgage bankers in the GCC is Raman Lakhsmanan. He pioneered mortgages in the region, first in Oman where he was involved in the first mortgage bank, Alliance Housing Bank, there in 1998 and then as a senior manager at Amlak Finance, the Islamic mortgage finance entity of Emaar Properties, in Dubai in 2003.

Since then has been at the helm of Sakana driving its business through both the boom years of yesteryear and the tough market of today in the aftermath of the global financial crisis. Here Raman Lakhsmanan, CEO, Sakana Holistic Housing Solutions, discusses the current state of the mortgage market in Bahrain and the GCC; the potential impact of the pending Saudi mortgage law on the regional market; the regulatory and legal issues that still need to be resolved; and the challenges and prospects for the mortgage market going forward.

Urgent financial reforms for Dubai, UAE

The governments of both Dubai and the United Arab Emirates are to implement urgent reforms to address weaknesses in their financial systems, Sheikh Ahmed bin Saeed Al-Maktoum says.

Dubai's "Supreme Fiscal Committee... is establishing a comprehensive program to address vulnerabilities in our financial system," Sheikh Ahmed, who chairs the committee and is head of the Emirates Group, said on Sunday.

"At a federal level, urgent steps are being taken to address the gaps in the UAE's legal and regulatory infrastructure," he said at the opening in Dubai of the two-day MENASA economic form.

Russia dominance under threat as UAE makes plan for Caspian gas

The UAE is tapping its $328bn sovereign wealth fund to invest in gas-rich Turkmenistan, seeking fuel for its own use while potentially challenging Russia’s dominance as a supplier to Europe.
“We want to invest and we’ve been conducting negotiations for a long time,” UAE Oil Minister Mohamed al-Hamli said in an interview this month in the Turkmen capital, Ashgabat. “We have a special relationship with Turkmenistan. There is a genuine interest and a genuine determination with both countries to exploit this possibility.”

Access to Turkmen gas reserves, the world’s fourth-largest, would help the UAE curb imports of the fuel as growing demand from power stations outstrips supply. At the same time, the Arab country has a stake in a planned pipeline to Europe, which gets a quarter of its gas from Russia and suffered shortages last year as exporter Gazprom and transit nation Ukraine bickered over prices.

The UAE has money to spend after amassing a $328bn fund from oil sales, according to a valuation by the US Council on Foreign Relations at the end of 2008. Having explored for crude in Turkmenistan for 10 years through Dubai-based Dragon Oil, it’s now seeking to tap Turkmen gas as the Central Asian country opens up to more foreign investment.

Saudi Stocks Fall to Lowest Since February on Oil, Global Drop - BusinessWeek

Saudi Arabian stocks fell to the lowest level in three months, led by petrochemical companies, as oil closed near the lowest this year and European shares declined on concern economic growth may slow.

Saudi Basic Industries Corp., the world’s largest petrochemical maker known as Sabic, sank to the lowest since March 2. National Industrialization Co. lost as much as 4.8 percent and National Shipping Co. retreated to the lowest since January after cancelling an order for two vessels. The Saudi Tadawul All Share Index fell 2 percent to 6,266.62, the lowest level since Feb. 13, at 1 p.m. in Riyadh. The measure has lost 8.8 percent this month.

“The markets are taking cue from global markets,” said Murad Ansari, a Riyadh-based equities analyst at EFG-Hermes Holding SAE. “The biggest concern from the domestic point of view are oil prices and that is driving negative sentiment, particularly in petrochemicals.”

Nakheel Faces Canceled Projects After Debt Agreement

Nakheel PJSC, the Dubai World construction unit that received state cash to pay contractors and suppliers, may face an even greater challenge in deciding which of its planned projects to cancel.

In March, the company said it was evaluating its portfolio to identify “essential projects.” Nakheel will decide what buildings will be completed at the end of the restructuring process, a spokeswoman who declined to be named said by telephone yesterday.

Nakheel, the builder of palm-shaped islands off Dubai’s coast, is restructuring $10.5 billion of debt and has asked trade creditors to wait five years to receive full payment after falling behind on its bills. The Dubai government in March pledged to pump $8 billion in cash into Nakheel to help it pay contractors and suppliers and complete developments. Its unrealized plans include residential islands shaped like a world map and a coastal development that would be twice the size of Hong Kong Island.

Dubai International Financial Center Cuts Jobs Amid ‘Review’

Dubai International Financial Center, the Gulf emirate’s state-owned tax-free business park, has cut jobs as part of a business “review” and to lower costs.

The DIFC declined to specify how many jobs it reduced in an e-mailed response to questions from Bloomberg News, saying it is “reviewing its strategic focus” that will “result in an optimum utilization of resources.”

DIFC opened in 2004 to attract international banks, asset managers and insurers and is home to the regional offices of Goldman Sachs Group Inc., Citigroup Inc. and HSBC Holdings Plc. Property prices in Dubai, the second-biggest of seven states that make up the United Arab Emirates, have fallen more than 50 percent from their peak in 2008 as the credit crisis led to a cut in mortgage lending and pushed companies to scale back.

Sovereign-Wealth Funds Tightened Spigot in 2009 - WSJ.com

The global financial slowdown prompted a sharp reduction in investment by sovereign-wealth funds in 2009, though their pace of spending picked up at the end of year, said a report by two research groups.

Monitor Group, a consultant in Cambridge, Mass., and Fondazione Eni Enrico Mattei in Venice, Italy, track publicly disclosed investments by sovereign-wealth funds, recognizing that many of the funds' transactions may not be publicly reported. According to the report, the funds made $69 billion in equity investments in 2009, a 37% decline from 2008's $109 billion.

Sovereign-wealth funds are government-owned investment vehicles that are generally funded by natural-resources revenues or, in the case of Asia, export revenue.

The biggest-spending fund last year was Qatar Investment Authority, which invested more than $32 billion, the report said. That included a $13.3 billion investment in a Qatari railroad network, a $10 billion stake in Porsche Automobil Holding SE and a $4.7 billion investment in Volkswagen AG. China Investment Corp. was also a heavy spender in natural resources, investing in firms in Indonesia, Canada and elsewhere.

Before the global financial crisis, investments by sovereign-wealth funds ran into political opposition in the U.S. and Europe amid concern that the funds, some of the largest of which are owned by Russia, China and oil-rich countries in the Middle East, would invest for political purposes, not commercial ones. That fear faded as the economy worsened.

In 2007, funds in China, Abu Dhabi and Singapore made investments in some of the biggest names on Wall Street, including Morgan Stanley, Citigroup Inc. and Merrill Lynch & Co., and were seen as saviors, though the investments didn't stave off disaster for the firms and produced big losses for the investors.

In 2008, the International Monetary Fund also stepped in, getting the sovereign-wealth funds to agree to invest solely for commercial purposes. While a few of the funds have improved their disclosures since then, the report said, many others haven't made much progress. That is because the IMF agreement has no enforcement mechanism and because political pressure in recipient countries faded.

In addition, the funds are being "criticized at home for investing abroad, often with poor results, rather than supporting domestic economies through the crisis," the report said. As a result, "many funds are finding disclosure of portfolio allocations and performances to be embarrassing on the home front."

At the height of concerns about sovereign-wealth funds in 2007, a number of analysts expected them to grow rapidly, to about $10 trillion in assets within a decade, but that now seems unlikely. The report estimates that the funds have $2.4 trillion in assets, about the same amount most analysts estimated in 2007.

One article in the report offered a larger estimate of the funds' assets—$3.8 trillion—and forecast they would grow to $6 trillion by 2012. The author of that article used a broader definition of sovereign-wealth funds than did the main part of the report.

Early in 2009, the funds cut back sharply their investments in financial services and real estate, as those sectors took heavy losses. By the fourth quarter, however, they started investing again in those sectors.

Overwhelmingly, sovereign-wealth funds invest overseas to diversify their portfolios. They frequently take controlling stakes in companies in developing markets, where there is less chance of political backlash, but take minority stakes in high-profile companies in the U.S. and Europe.

Qatari Diar Abandoned Chelsea Deal, CPC Says at Trial (Update2) - BusinessWeek

Qatari Diar Real Estate Investment Co., a unit of the emirate’s sovereign-wealth fund, should pay as much as 81 million pounds ($117 million) for abandoning a deal to build luxury apartments at London’s Chelsea Barracks, U.K. developer CPC Group Ltd. said at a trial today.

Qatari had no reason to back out of the project and is now refusing to pay so-called deferred compensation it owes after buying CPC’s share of the development, lawyer Anthony Stephen Grabiner said in opening arguments at a London trial over the contract dispute.

Qatari’s employees made personal allegations against real- estate entrepreneur Christian Candy, who controls CPC, in a “desperate throw of the dice to divert attention from its own actions,” Grabiner said.

Gulf feels chill from Europe’s debt storm

The Gulf may be eyeing a strengthening economic recovery, boosted by heavy, oil-fuelled government spending, but the region is not immune to the turmoil in Europe, economists and bankers say.

In spite of company earnings showing signs of recovery from the lows of 2009, Gulf bourses remain affected by global sentiment, which has been spooked by fears over the indebtedness of several European Union countries – Greece in particular.

Shuaa Capital says its Gulf investor sentiment index fell in April, partially over worries about Greece’s sovereign debt crisis. And MSCI Barra’s main Gulf index has shed more than 5 per cent since hitting a 19-month high on April 12.

Dubai is heading for another year of recession … | beyondbrics | FT.com

… unless it introduces more reforms and completes the $25bn restructuring of troubled government-owned holding company Dubai World quickly.

That’s according to a report published by the Institute for International Finance’s Gulf Cooperation Council, issued in Dubai today. The report presents a forecast of 0.5 per cent economic contraction this year after 3 per cent decline in GDP last year.

Elsewhere in the region, the outlook is brighter: the GCC is forecast to grow 4.4 per cent this year on revived oil revenues and continuing reforms, and 4.7 per cent next year.

Gulf Shares Drop for Fourth Day as Oil, Euro Slide; Oman Falls - Bloomberg.com

Gulf shares dropped for a fourth day, led by declines in Oman and Saudi Arabia, as crude oil slid to a three-month low and the euro fell to a four-year low on concern Europe’s sovereign-debt crisis may derail a global recovery.

Oman Telecommunications Co., the biggest telephone company in the sultanate, declined to the lowest in more than a year and National Bank of Abu Dhabi PJSC retreated to the lowest in almost a month. The Bloomberg GCC 200 Index of stocks in the Gulf region decreased 0.2 percent. Oman’s MSM30 Index slumped 1.3 percent, the most since Dec. 9, to 6,570.71. Saudi Arabia’s Tadawul All Share Index fell 0.5 percent.

“The Greek crisis and the fall in oil prices are scaring investors off,” said Haissam Arabi, chief executive officer of Gulfmena Alternative Investments in Dubai. “If the euro continues to plummet and oil prices continue to fall and more people continue to talk about how bad the situation in Europe is, then we should expect the hemorrhaging to continue.”

Palestine Bourse to Sell as Much as 30% Stake in 2010 (Update1) - Bloomberg.com

The Palestine Securities Exchange, where 40 companies from the West Bank and Gaza Strip trade, plans to sell as much as 30 percent to the public this year, the exchange’s chief executive officer said.

The stake sale of between 20 percent and 30 percent had been planned for 2008 and was delayed because of legal reasons which have been dealt with, Ahmad Aweidah told reporters in Abu Dhabi today.

“We are interested in speaking to other exchanges because they will not just bring in capital, they will bring in know- how,” Aweidah said. “Depending on how well that goes, 25 percent or so will be offered to the Palestinian public.”

Founded in 1996, the Palestinian Securities Exchange has sought to encourage investments among local investors as well as from foreigners, particularly Palestinians living abroad, in an effort to boost economic growth in the territories. The Palestine Al Quds Index has added 1.1 percent this year, while the MSCI Emerging Markets Index lost 4.9 percent.

Alliance Medical’s Lenders Ask Dubai for Cash to Meet Covenants - Bloomberg.com

Alliance Medical Ltd.’s lenders are demanding owner Dubai International Capital LLC inject about $145 million of cash to help the company meet loan conditions, two people familiar with the situation said.

Junior lenders, who rank behind senior creditors for repayment, have also hired debt restructuring specialist Houlihan Lokey, said the people, who declined to be identified because the talks are private. Loan holders have agreed to not enforce debt covenants until the end of September while the company renegotiates its debt, the people said.

Dubai International, the investment fund controlled by the emirate’s ruling sheikh, raised the money in May 2008 to fund its leveraged buyout of the Warwickshire, England-based maker of MRI and CAT scans. Alliance Medical owes a total 555 million pounds ($802 million), including 140 million pounds to junior- ranking mezzanine lenders.

GCC economies return to solid growth

The economies of the member states of the Gulf Cooperation Council (GCC) - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE) - are now recovering and growth this year is likely to average 4.4% and then rise to 4.7% in 2011, following just 0.3% growth in 2009, forecast the Institute of International Finance (IIF). It noted that prospects vary considerably across the region.

A Sleeping Giant in the Process of Waking, The Saudi stock exchange

On March 29, the first Saudi exchange-traded fund open to foreigners was launched by local brokerage Falcom Financial Services with great fanfare and public relations razzamatazz. It was heralded as a way for international investors to gain access to one of the most tantalizing emerging markets. But, soon after the launch, it emerged that foreigners could only buy the product if they had a Saudi bank account.

The incident more or less sums up the slow liberalization of Saudi Arabia’s Tadawul stock market over the last three years. “It has often been a case of two steps forward and one step back,” says one local banker. “But at least we’re moving in the right direction.”

Despite being one of the largest economies in the world, and the largest stock market in the Middle East and North Africa region, Saudi Arabia still forbids foreign investors from directly owning Saudi stocks. The authorities worry that opening the doors to foreigners will lead to floods of hot money that could destabilize the economy.

Free Dr Omar

I have to begin this article by saying that I have no love for Dr. Omar bin Suleiman the former governor of the DIFC. The photo above was taken at the moment of the DIFX launch on September 26th, 2005. Pictured are the Governor, the CEO and the Chairman of the exchange touching the magic globes which launched the exchange. What you can’t see in the photo is me in the back of that room. I’m there with cell phone ear pieces in each ear communicating with my trading desk and with that of another firm engineering what would become the first trade on the exchange. It was kind of like the Wizard of Oz. There was Dr. Omar the Great and Powerful and I and my colleagues were the men behind the curtain. It was as a man behind the curtain that I got to know Dr. Omar. 

Not that Dr. Omar would have any idea who I am. The few times I met Dr. Omar he gave me a handshake and a cold smile which said “kindly disintegrate” as if someone had obliged him to shake hands with a garbage man at the end of a long day of work. Dr. Omar had no desire whatsoever to shake the hands of the people who were actually doing the work that was keeping him in the spotlight. That’s what we were paid to do, we should get on with it. He has a point there. But I think it we also made him a little uneasy. The reason for this was that those of us down in the engine room of the DIFC Technocracy had much insight into what Dr. Omar was, and what he was not. 

What he was, was a seducer. 

Yes, Dr. Omar was a hit with the ladies, the stories of his hijinx made the rounds of the DIFC. I’m sure they were enhanced with the retelling, but the grains of truth from which they grew however are pretty believable. After all, it’s not difficult to be a success with the ladies when you can decide your own compensation and, in Dubai, the ladies take cash. As interesting as that is, far more important than cutting a swath through Dubai and Moscow’s female populations was the ease with which he penetrated the very masculine world of The City of London. 

Dr. Omar’s gilded tongue lured virtually the entire London banking community to Dubai and enabled it to eclipse Bahrain as the regions financial center. It was not a hard sell. Oil was on its way from $50 a barrel to over $150. Most of that money was going to Saudi Arabia and a fair amount to Kuwait, Qatar, and Abu Dhabi. These people were piling up money faster than even the Chinese. They were going to be in desperate need of some serious banking. Who better to do it than the London Banking community? But who wanted to live in those crazy places? Surely not Londoners. 

What about the DIFC in Dubai? Well, in Dubai you have nightclubs which have liquor in them as well as a healthy complement of young ladies from Eastern Europe and Southeast Asia. Heck, it’s practically the East End. And what is this DIFC business anyway? Oh, it’s a legal zone with UK Law as opposed to Sharia? Now that’s an even easier sell. What’s that? Zero percent tax for the next 50 years? Outstanding! Our non-US nationals can relocate there and pay zero percent tax (Sorry Americans, you’re globally taxed. The war on terror is not going to pay for itself as it turns out.) Wow, the DIFC/Dubai is like The City, plus the East End, times the reciprocal of your tax rate!! Sign me up Dr. O. And just like that Dr. O built the DIFC into what is: the largest concentration of international financial expertise in the Middle East. By miles. As a seducer Dr. Omar did his job well and in spades. 

What Omar was not was a technocrat. 

He’s described this way in both the local and the international press. The story seems to be that during the crisis Sheikh Mohammed removed the “technocrats” to replace them with “loyalists.” Dr. Omar was neither of these. Dr. Omar may be guilty of having expensive tastes in cars. He may be guilty of some spectacularly poor investments. He may be guilty of being a bit haughty toward us unter-menschen down in the DIFC engine room. But, and I can say this from my interactions with him and his staff, he was totally innocent of any knowledge whatsoever of what it would take to make the DIFC a successful center other than as a real estate venture to which he was able to lure international banks as tenants. 

He did not concern himself with the minutia of what precisely was necessary for the credibility of the legal system. He did not busy himself with what it would take to ensure the success of the DIFX or how it should interact with other exchanges in Dubai or the region. He also did not consider the possibility of locking in the commitment of the international banks to either the center or the DIFX by parting with equity in them. Rather he had the DIFC take a large equity position in one of the main supporters of the DIFC. This and other investments that Dr. Omar made ultimately came to grief to the great embarrassment of himself and Dubai. 

But was he a criminal? 

As I write this Dr. Omar is languishing in jail in Dubai. He has been arrested on the charge that he appropriated public funds for his own use. In their article the Abu Dhabi newspaper The National says that he disguised this misappropriation as “annual performance bonuses.” I’m troubled by this for several reasons. First of all it was not a big secret that Dr. Omar was paying himself a kings ransom for doing his work in the DIFC. I’ve written an earlier article on this and my chief source was an article that was published in Bloomberg in 2005 about Dr. Omar’s Ferrari collection. 

Second Dr. Omar worked for the state. Therefore any funds derived from his work were therefore “state funds.” It seems to me that “annual performance bonuses” that you spend on yourself are not therefore “misappropriations” they’re “appropriations.” You’re supposed to spend your bonus on yourself. That’s what it’s there for. You can’t criminalize something simply by putting quotation marks around it. If he spent a bunch of money on himself personally and called it “real estate investments” or he pulled an Abdullah Brothers and engaged in some “unauthorized transactions” then I could see it. But it seems to me that the transactions that Dr. Omar engaged in were all “authorized” if not entirely successful. The question to ask is “Did Dr. Omar put Dubai on the map as a financial center in the Gulf?” Yes he did. Is it reasonable to believe that Dubai would pay him based on his performance which was a success? Sure as you’re born. 

So one of two things must be true: either Dr. Omar paid himself performance bonuses which were approved by people higher up in the Dubai hierarchy in which case they should be faulted not him, or there was no oversight of the DIFC compensation regime whatsoever in which case Dr. Omar was perfectly justified in paying himself whatever he saw fit and if Dubai is unhappy with this they have no one to blame but themselves. In either case, Dr. Omar should not be in prison. Unless there is something the Dubai authorities are not telling us about the deeds of Dr. Omar he should be freed. 

I think the more likely explanation is that Dr. Omar’s investments lost a ton of money and he may not have fully understood some of the more complicated transactions into which he entered. He therefore may have not been totally candid with the Ruler with regard to the financial position in which the DIFC found itself. This is bad but if it is a crime there are any number of other people in Dubai who should be standing tall before the man. Chief among them Sultan Ahmed bin Sulayem the Chairman of Dubai World and the former Chairman of Nakheel who has set his son up in business with the creditors funds only to spin him out with no compensation, obliterated tens of billions of dollars of investor funds, and given Dubai it’s largest black eye so far. 

But I am not advocating jail time for either Dr. O or bin Sulayem. Dubai has serious governance issues but this is more a lack of oversight than criminal activities on the part of the managers. In order to recover Dubai needs risk takers and entrepreneurs who operate within a predictable and well governed system. Throwing people in prison for overpaying themselves for doing what you asked them to do and using powers that you gave them is not the way forward. The way forward is to make it clear to the people who are the Stewards of Dubai in what incentive structure they operate then let them go without having to fear prison in the event that Dubai changes its mind. It would be an important step for Dubai to either better explain why Dr. Omar is in prison, or to free him. 

Though I dislike him both personally and professionally I suggest the latter.

* username: rupertbu