Interpreting Middle East Economic News and Analyzing Market Trends

Archive for February, 2013

Cheap debt leads to a rush to issue Sukuk

Record low interest rates around the world has fueled a rush to issue more and more debt.  Emerging markets have been key beneficiaries of this cheap debt (see older post on Sukuk and Emerging Market Debt).  The sukuk market has also been one of the key beneficiaries of cheap debt.  Here’s a recent article from The National:

Dubai Electricity and Water Authority (Dewa) will probably pay almost 50 per cent less to sell debt than it did almost three years ago after borrowing costs plunged four times more than global peers amid a pick up in power demand.

The state-owned company hired six banks to raise as much as US$1 billion from the sale of Islamic bonds, a banker familiar with the deal said January 31. Dewa, which has investment-grade ratings at Moody’s Investors Service and Standard & Poor’s, will probably pay about 4 per cent on 10-year bonds, according to Commerzbank and Mashreq Capital DIFC, which are not involved in the sale. It sold similar-maturity notes in October 2010 at 7.375 per cent.

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Saudi Tadawul set to open up to foreign investors… in time!

The Middle East’s largest stock exchange, with a market capitalization of $387 billion according to Bloomberg, is planning on opening up to foreign investors.  Currently, foreigners are only allowed to invest through equity swaps and exchange-traded funds.  This is not ideal if for foreign institutional investors and international money managers.  The Saudi stock market, known as Tadawul, is dominated by local retail investors and some local institutional investors.  Bringing international investors into the Saudi market will greatly improve the market’s liquidity.  Some institutional investors have become optimistic lately that Tadawul will soon open up to them.  Here’s more from Bloomberg BusinessWeek:

Deutsche Bank AG, Europe’s biggest bank by assets, expects Saudi Arabia will soon allow foreigners to invest directly in local company shares, joining hedge fund Passport Capital LLC in predicting the market is set to open.

“I am convinced that the market will open up to foreign investors and part of me is very optimistic it’s going to be soon,” Jamal Alkishi, chief executive officer of Deutsche Securities Saudi Arabia, said in an interview in his Riyadh office Feb. 11. “I think the leadership sees the benefits of doing so, but they just want to make sure that every facet is examined and thoroughly understood before plunging into this.”

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Egypt’s shrinking foreign currency reserves, devaluation is inevitable

Two years since the revolution in Egypt threw out Hosni Mubarak, the Egyptian economy is still attempting to recover.  Recovery has a long way to go.  Recent news of a run on the Egyptian pound sheds some light on the predicament the country faces:

 

A run on Egypt’s pound has left foreign currency in short supply and driven some dealers into the streets in search of people with U.S. dollars to sell, spawning a new black market.

The currency’s decline was triggered by a political uprising that swept Hosni Mubarak from power in 2011 and it has officially lost 8 percent of its value since Dec. 30.

Black market rates are even weaker, a sign that although the central bank managed to stem the slide in official trade last week, Egyptians are nervous about holding on to pounds.

Some dealers tout discreetly outside regulated foreign exchange bureaux and banks in Cairo, illegally offering a better rate to those looking to sell hard currency.

“There are no dollars. Everyone that walks in asks for dollars but supply is scarce,” said one of the dealers.

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UAE government moves to decriminalize bounced checks, HSBC cries foul

The UAE government is moving closer to international standards for bank checks with a move to decriminalize the bouncing of checks.  It is currently a criminal offense to bounce checks in the country, which can lead to a prison sentence.  During the height of the financial crisis, many Emiratis and expatriates were thrown in jail for bouncing checks, which were used as security deposits on properties and to guarantee loans.  Emiratis, however, were given immunity from serving jail time for bouncing security checks last October. The move comes as the number of bounced checks has been falling, yet not all banks are willing to give up this practice.  Here’s more from a recent article in The National newspaper:

A new move to decriminalise bounced security cheques could backfire without a federal credit bureau in place, a top banker has warned.

It comes as other banks point to a rise in Emiratis missing payments on unsecured lending, which includes credit cards and personal loans, ever since a presidential decree immunised Emirati borrowers from going to jail over bounced security cheques.

If they are barred from using cheques as a security measure, banks may become unwilling to lend to individuals, said Rick Crossman, the head of retail banking and wealth management at HSBC Middle East.

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“Kuwait, ‘the back office of logistical support’ for Syria’s rebels”

This was the headline of a recent article in The National newspaper of the UAE.  Kuwait has stayed out of the spotlight for much of the Arab Spring, unlike its neighbours Qatar and Saudi Arabia.  Both Qatar and Saudi Arabia have been very vocal and very active in the uprisings across the Middle East, and especially involved in Libya and Syria.  Kuwait, on the other hand, has kept a low profile until recently.  It seems to have taken a much more active role in Syria as The National reports:

To many observers, Kuwait’s decision to host a United Nations meeting last week to raise humanitarian aid for Syrians – and its pledge of US$300 million to the effort – were the most overt steps that the country has yet taken to get involved in the crisis.

Until then, Kuwait had appeared largely absent from regional diplomacy on the crisis, while Qatar has funded and hosted the political opposition to Mr Al Assad and Saudi Arabia has reportedly sent arms to anti-regime fighters.

Yet interviews with aid organisations and officials suggest Kuwait has played a no less pivotal role than its Gulf Arab neighbours during the 22-month uprising. This country of 2.6 million people has emerged as a central fund-raising hub for direct financial support to insurgents fighting the Assad regime and for humanitarian aid to rebel-controlled areas, which are said to encompass slightly more than half of the country.

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