Lebanon’s finances struggle to keep afloat
Lebanon will issue $500 million dollars in Eurobonds in the coming weeks in order to service its existing debt, according to Finance Minister Mohammad Chatah. In regards to public debt, the minster also stated that, “If we are at 150 to 152 percent by the end of the year, we should aim at a continued drop in that ratio… it should be possible to aim at yet another significant drop.”
According to figures from the Ministry of Finance, the country’s public debt in June stood at 153 percent of GDP, representing a monetary value of $47.3 billion. This, however, stands in contrast to a European Union Commission report — issued as part of the EU’s “Neighborhood Policy” — which stated that mismanagement of government spending has caused Lebanon’s debt to climb to 160 percent of GDP, with interest on that debt amounting to two thirds of government spending in the last 17 years. While acknowledging that the Lebanese government has made some progress in consolidating its debts, the EU also stated that the country’s current fiscal situation is “unsustainable,” and that without reform, the high debt-to-GDP ration could cause Lebanon’s economy to “stop.”
In the year to September Lebanon’s budget deficit reached 24.47 percent, according to figures released last month by the finance ministry. The deficit amounted to $1.84 billion, up from $1.70 billion over the same period last year — the increase is mostly due to the allocation to Électricité du Liban, which rose some $176 million. The silver lining is that when the cost of debt servicing is subtracted, a surplus of 59.8 percent of total spending, or $650 million dollars, was recorded, an increase of around $85 million. Other positive signs are that revenues have climbed by $1.3 billion (26.47 percent) to reach $5.7 billion, and Lebanon registered its highest balance of payments surplus ever at $4.8 billion in the first nine months of 2009.
Power supply to receive extra charge
Caretaker minister of Energy and Water Alain Tabournian has stated that he has received an initial approval from caretaker Prime Minister Fouad Siniora to initiative the purchase of power generators to produce 300 megawatts of electricity to help alleviate improve power rationing in Lebanon. The move comes after months of opposition between the two ministers who disagreed over the manner in which to reform the electricity sector. The new generators are slated to become operational next summer and cost between $250 and $350 million. The electricity sector alone is expected to cost the government $1.4 billion next year, according to statements made by the finance ministry.
Dubai fund “insufficient”
The support fund created by Dubai to help pay off its public debt is “insufficient,” according to an analyst at the credit ratings firm Standard and Poor’s (S&P). Speaking to the Associated Press, Farouk Soussa, S&P’s head of Middle East government ratings, said some $50 billion in debt would have to be covered over the next three years.
Bank of America Merrill Lynch has estimated the United Arab Emirate’s total debt at some $142 billion — $80 billion of which is foreign owned — while also estimating that $24 billion of the total debt is due by the end of 2009.
A large part of the debt is held by government-owned companies, such as Nakheel, which paid off a $1.2 billion securitized bond one month in advance, according to the London based Middle East Economic Digest.
Dubai will need to restructure at least $4.5 billion in the next two months, including a $1 billion Islamic bond from Dubai’s civil aviation department and Nakheel’s total issue of $3.5 billion.
According to S&P, no more than $4 billion is currently present in the Dubai support fund. “The notion that the government will be able and/or willing to stand 100 percent behind all that debt on an equal basis is wrong,” said Soussa.
Damas CEO resigns
Damas, the regional family-controlled jewelry giant, said that it would resume trading its stock after its chief executive, Tawhid Mohammed Taher Abdulla, stepped down. Abdulla’s resignation came subsequent to “what is understood to be unauthorized transactions conducted by him,” said the company in a statement.
The statement also noted that the full extent of these transactions were not yet clear as of October 11, but are believed to amount to some $165 million. The company’s share price dipped to $0.37 per share at the time of the announcement, compared to the $1 per share Damas enjoyed when it was listed last year. Damas appointed Hisham Ashour as its new chief executive and said it will appoint an “independent global accountancy firm to conduct an independent review and an international law firm to assist in analysis of the transactions,” conducted by the previous CEO. Since then, the global auditing firm PricewaterhouseCoopers has been commissioned to look into the allegedly dubious transactions.
GCC SWFs in the black
The Gulf’s Sovereign Wealth Funds (SWFs) are expected to bring in a total of nearly $134 billion this year after suffering losses of some $90 billion in 2008, according to the International Institute of Finance (IIF). The institute also estimated that the Abu Dhabi Investment Authority (ADIA), the Kuwait Investment Authority (KIA), the Qatar Investment Authority (QIA) and the Oman Reserve Fund will collectively constitute $768 billion in wealth. ADIA is expected to gain the most with a total growth of almost $81 billion. The IIF identified the improvement in oil prices as the main element of the turnaround.
The 10 largest SWFs in the world hold $2.2 trillion in assets and invest around half that figure in international equity markets, according to an Investor Responsibility Research Center Institute (IRRCI) and RiskMetrics Group (RMG) survey published last month. The study estimated that ADIA, considered the world’s largest SWF with assets of $500 billion to $700 billion, invests 60 percent of these in global stock markets. The joint RMG/IRRCI survey also revealed that the QIA is the least compliant with the Santiago principles, a global set of principles aimed at increasing the transparency of SWFs, with a “no compliance” rate of 58 percent, followed by the ADIA’s 52.6 percent.
Moreover, The KIA has also said that it is open to selling off its share of the regional telecom company Zain where it holds 24.6 percent. KIA chairman Badr al-Saad made the statement during an interview where he said the current valuation of the company’s stock ($6.98 at the time) was attractive to the fund.
Qatar sells off Barclays stock
On October 20 Qatar Holdings, the investment arm of Qatar’s sovereign wealth fund, sold more than 379 million of its shares in Barclays at $5.91 per share, according to Credit Suisse. Qatar Holdings exercised warrants to buy the shares at $3.23 per share, trimming its stake in the British bank from 7.40 percent to 7.13 percent. The move garnered around $1 billion in profit and caused Barclays stock to drop five percent to $5.96. The bank had seen substantial rises in its share price in recent months resulting from a restructuring plan and capital investments from Abu Dhabi and Qatar. Qatar Holdings still maintains some 379 million additional warrants in Barclay’s stock while Abu Dhabi also owns $1.5 billion of warrants, all exercisable at $3.23 apiece.
