Financial News                                                                                         Sunday November 21,  2010















Capital spending peaks in 2009

Emirates 24|7


Abu Dhabi more than doubled capital spending to a record high level in 2009 as part of massive fiscal expansion measures taken by the emirate to mitigate the impact of the 2008 global fiscal crisis, official data showed on Monday. Total expenditure also soared by around 33 per cent despite a staggering 53 per cent decline in the emirate’s revenue because of lower crude prices and production, the Abu Dhabi Department of Economic Development (ADDED) said in a new part of its annual economic report. “The year 2009 witnessed high growth rate in expenditures by nearly 33 per cent, compared to the public expenditure in 2008,” the report said. It said capital spending rocketed by around 102.8 per cent while there was a similar increase in expenditure on government projects and around 31.3 per cent growth in capital transfers by the Abu Dhabi government. The report said spending sharply increased although oil export earnings plummeted by nearly 53 per cent mainly because of a drop of more than $30 a barrel in crude prices and a cut of about 200,000 in Abu Dhabi’s oil output. 


 Surprise, surprise… banks, realty firms are most profitable in UAE


Emirates 24|7


Financial services firms, including banks, insurance and investment companies, and real estate/construction companies are among the most profitable companies in the UAE, dominating the list of the Top 25 profitable entities in the country. An Emirates 24|7 analysis of the results of the 87 firms that have announced their Q3 financials so far reveals 20 of the Top 25 most profitable listed companies in the country belong to the two sectors that have been the most impacted by the global economic slowdown. This website analysed 101 listed companied on the Abu Dhabi (60 firms) and Dubai (41 firms) bourses and found that net profits at the 87 firms that have so far announced third-quarter results are down 15.55 per cent. Combined nine-month net profits at the UAE’s listed firms amount to over Dh24.5 billion compared with the Dh29.02b that the same companies recorded during the first nine months of 2009. However, as the famous proverb goes, what statistics reveal is suggestive, but what they conceal is vital. Although profits are down year-on-year, some of the most profitable companies in the country belong to sectors that have been the most impacted by the global economic slowdown, viz. real estate and financial services.


Abu Dhabi a key Gulf player


Khaleej Times


DUBAI — The Abu Dhabi economy plays a pivotal role in the Gulf region as the emirate provides multiple investment opportunities, an official report said.  The UAE capital attracts investors in the fields of industry, real estate, infrastructure and alternative energy sources. A close observation of the economic development indicators in the region during the last few years, confirms that the emirate is working on to be a focal economic centre, and a model for development and economic openness, according to the latest Annual Economic Report of the Emirate of Abu Dhabi 2010. Released by the Studies Directorate at the Department of Economic Development, the study also said that the emirate is experiencing a historical phase characterised by economic expansion, which is based on the leadership’s vision and ambitions. It also aims at embarking its economic potential, through the adoption of new policies and legislation, conducive to investment and development. This encompasses the implementation of a new wave of investments in various economic sectors and giving the private sector a greater role in economic activity, as well as accentuating openness to foreign investments. 


Abu Dhabi will raise foreign investment to 23% of GDP


Gulf News


Abu Dhabi: Abu Dhabi plans to raise foreign direct investment to 23 per cent of gross domestic product (GDP) by 2030 and to increase direct investment growth by 9 per cent per year, according to the Annual Economic Report for the Emirate of Abu Dhabi 2010, released Saturday by the Department of Econ-omic Development (DED). "Abu Dhabi as well aims at increasing non-oil exports to 11 per cent of GDP, which will support the diversification of the production structure and reduce the volatility of GDP," the report said. The Department of Economic Development is currently working to establish an export development and support centre which will contribute to the promotion of exports, and provide necessary information, and enhance the business environment to help investors in the domestic market to locate external partners and have access to foreign markets and importers," the report added. Energy sector "The centre will provide the necessary studies and render advice and guidance in addition to drawing the attention of investors towards potential investment sectors, particularly small- and medium-sized investors," said the report. It noted that the energy sector is an important source of income in the UAE in general, and Abu Dhabi in particular. 


 Heads up for GCC credit growth: IIF


Khaleej Times


DUBAI - The medium-term outlook for GCC bank lending to the private sector should improve, and both the supply and demand for credit are expected to recover in the backdrop of a gradual economic recovery in the GCC, the Institute of International Finance, or IIF, said.  In its Regional Overview, the IIF said empirical evidence shows that on average, recessions end two quarters before the credit crunch ends and nine quarters before housing prices bottom out; equity prices tend to bottom out just as the associated recession ends. In the short term, however, private credit growth in all the GCC countries will likely remain subdued as banks remain cautious in light of the recent deterioration in asset quality, Garbis Iradian, deputy director of IIF said. “In the first three quarters of 2010, the effect of both supply and demand factors on private sector credit continued to be felt. Bank deleveraging continues. However, credit to nonfinancial public enterprises, particularly in Abu Dhabi and Qatar, increased significantly, reflecting some rebalancing of banks’ portfolios towards safer assets,” he said. According to IIF, in Dubai, supply-side factors, in particular higher costs of funds and the need to deleverage, were the most important factors holding back loan growth, although the contraction of GDP also played a role.


Globalfoundries may add billions to capital's economy


The National


Abu Dhabi's semiconductor industry is expected to contribute up to US$4 billion (Dh14.69bn) to the capital's economy and create as many as 6,000 jobs over the next 10 years, industry officials say. The capital has targeted the high-tech sector as one of the pillars of a strategy to diversify outside the energy industry. Abu Dhabi will emerge as an important link in the global microchip supply chain by 2015, when Globalfoundries expects to build a $6bn plant near Masdar City. The state-of-the-art foundry will be the "centre of gravity" for Abu Dhabi's semiconductor ecosystem, said Ibrahim Ajami, the chief executive of Advanced Technology Investment Company (ATIC), the government concern that controls Globalfoundries. That ecosystem, composed of equipment supply, design and service companies, is projected to contribute between $3bn and $4bn to Abu Dhabi's GDP and create between 3,000 and 6,000 jobs. "How our strategy has [been] shaped over the past 12 months is to have both the Globalfoundries ecosystem and the Abu Dhabi ecosystem," Mr Ajami said. "These two ecosystems will talk to each other and work together because Globalfoundries is ultimately going to be the centre of gravity of the Abu Dhabi ecosystem … From Abu Dhabi's side, it's not just about how do we create that excitement or hosting conferences and events or sending students on scholarships, but how you do really get real substance out of it." 


Government injects $2bn into loss-making Dubai Holding


Arabian Business

The Dubai government has pumped $2bn into Dubai Holding, taking control of the conglomerate's financial restructuring, the Financial Times said on Tuesday. The newspaper quoted Mohammed Al Shaibani, director of the Ruler's Court, the body that coordinates the activities of government departments, as saying the government has already injected $2bn into Dubai Holding and is willing to put more capital into the loss-making conglomerate. "I don't want to put any more money in as the government, but I will do it as and when it's required," he said. The government also expects banks to accept some of the pain, as was the case in the Dubai World restructuring, Shaibani told the newspaper in an interview. He said banks could expect to win advisory deals as the government considered future asset sales and privatisations. "Priority will definitely go to banks that have been very supportive - we are very loyal customers," he said.


 New cash to restructure Dubai Holding


Khaleej Times


The restructuring of Dubai Holding is under way and will include a haircut for creditors and injections of fresh government funds. The vice-chairman of Dubai’s top fiscal body told the Financial Times Mohammed Al Shaibani, who is also director of the Dubai Ruler’s Court, told the FT in an interview that the government had so far pumped $2 billion into the conglomerate. A year ago, Dubai’s other flagship state-owned conglomerate, Dubai World, shocked global markets when it asked for a standstill agreement on $26 billion worth of debt. The group reached a restructuring agreement in September, but investors are still worried about debt troubles at other firms. Seventy per cent of the banks involved were the same as those in the Dubai World restructuring process, Shaibani said. Dubai World’s bank creditors included HSBC, Lloyds, Standard Chartered and Abu Dhabi Commercial Bank. Shaibani said Dubai Holding’s problems were “not the size” of Dubai World’s, but that its restructuring process was under way, led by Dubai’s supreme finance committee.


This time, let's keep the banking rules in place


The National


After the global financial crisis, regional monetary authorities focused their attention on loopholes and failures of domestic banking systems and their practices. Most GCC financial regulators toughened their provisioning requirements, sometimes forcing banks to strengthen their capitalisation ratios. New credit policies and procedures have been formulated requiring banks to improve their customer knowledge and profiling, as well as adhering to more cautious lending rules. Central bank auditors are now stimulated to roll up their sleeves and gear up their oversight of asset quality in the system, looking for cracks and early alerts for potentially large problems. This is a good exercise anyway. Strict provisioning requirements and proper assessment of credit portfolios is good practice and preparation for Basel III, the result of which is obviously positive for banks' long-term fundamentals. In the meantime, banks have retrenched significantly from the credit market and the continued sluggishness of bank credit could become counter-productive. As the credit market is constrained from the supply side, corporate organisations and households dependent on bank financing must look for alternative sources of financing or cut back their consumption and investment plans. The absence of wholesale funding creates a drag on the economic recovery. 


 GCC firms continue to recover


Emirates 24|7


An economic recovery driven by a surge in crude prices in Gulf oil producers boosted the income of many listed companies in the first nine months of 2010 as they continued their march towards a full post-crisis recovery. According to a Kuwaiti financial institution, the combined profits of nearly 44 per cent of the listed firms, accounting for 80 per cent of their capitalization, swelled by about 16 per cent year-on-year in the third quarter and around three per cent compared with the second quarter of this year. The earnings also soared by nearly 24 per cent in the first nine months of 2010 compared with the same period of last year, Markaz Financial Centre said in a study on corporate earnings in the six-nation Gulf Cooperation Council (GCC). The figures showed the net income of those companies swelled to around $8.7 billion in the third quarter and to nearly $25.4 billion in the first nine months. “Growth was driven mainly by a surge in the region’s commodities and banking segments’ earnings. The commodities segment’s impressive performance aided the nine-month growth as well.…consequently, the GCC’s overall earnings for the first nine months soared by 24 per cent,” it said. It showed there was an increase of 18 per cent in the income of Saudi Arabia’s companies to nearly $5.4 billion in the third quarter.


Gulf bankers eye options to boost liquidity


Gulf News


Abu Dhabi : Tentatively improving investor sentiment has delivered a mild rally on most Gulf stock markets recently, but trading volumes remain woefully low. The average daily turnover in the Gulf markets so far this year has been $980 million (Dh3.5 billion), almost half that in the same period last year, and almost a third of the $2.55 billion daily average in 2008, according to Zawya, a local data provider. The primary victims have been brokerages, but many company executives also argue that the trading slump has hindered effective "price discovery" and their shares trade below their true worth. DP World, Dubai's ports operator, has signalled plans to list shares on the London Stock Exchange to boost its shares. Some bankers argue that Gulf companies should also consider listing depositary receipts, or DRs, on international exchanges to counter low trading volumes and boost foreign institutional interest. Depositary receipts are financial instruments that represent the economic value of a company's underlying shares, or occasionally bonds, and are often used by local companies to list and trade on international exchanges, such as the LSE or the New York Stock Exchange. "The [local] liquidity is really horrendous, and DRs could have to come back due to the low local listing liquidity," says the head of capital markets at a leading investment bank. 
















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