Executive Magazine

Waking the sleepers

by Rayya Salem June 1, 2010

written by Rayya Salem

Grandiose visions of splendor have dissipated for Dubai’s developers after a sobering couple of years spent rethinking their payment schemes and trying to re-galvanize investor confidence. Now they are left with an array of unfinished projects, many of which are currently dormant.

“Not many projects have been restarted except the Nakheel ones,” says Charles Neil, chief executive officer of Landmark Advisory, a division of Landmark Properties. “Most of the ones that are stalled will remain stalled.”

Neil adds that it was the combination of the financial crisis and many developers’ lack of experience that led to the huge swaths of unfinished projects scattered throughout the emirate. Certain areas like Business Bay and Dubai Marina have a concentration of unfinished work, though some slow and cautious crane activity recently restarted. In June 2010, Proleads, a construction consultant, said $5 billion worth of Dubai projects were stalled, some of which had never physically started construction. More recent data published in The National suggests that more than a fifth of Dubai’s projects are postponed or have been cancelled completely.

According to Fadi Moussalli, regional director at Jones Lang LaSalle in Dubai: “Some projects went beyond the point of no return; depending on the project’s financing [or re-financing], how much was sold and how much of the down payment has been paid in cash, a developer may reach a conclusion that it would be less costly to re-launch building [work] rather than do nothing because of the liabilities on that building.”

Dubai World’s property arm, Nakheel, repaid $930 million to creditors as early as September of last year, announcing a mighty revival of construction on eight of their stalled projects (see chart). Though priority was given to Al Furjan and Jumeirah Park villas, Nakheel, in a November 12 announcement, only mentioned reactivating the first phases of construction. That means Arabtec, the construction company assigned to Al Furjan, is back on payroll but will complete only 800 units out of the 4,000 originally planned by the first quarter of 2012, after it had halted work in January 2010.

Pauling Middle East and Al Huda Contracting Company will both go back to stacking up villas in Jumeirah Park, but Al Huda will only deliver 289 out of the 2,764 villas originally planned by the fourth quarter of 2011. In response to investor frustration over Nakheel’s delivery delays, Chairman Ali Rashed Lootah said in February that about half of the company’s liabilities to buyers were swapped for these and other units to be completed in the next two years.

Landmark Advisory’s Neil believes most developers have opted to downsize their projects: “For people who put down payments on five villas, their deposits will all go towards one villa; that’s how they consolidate.”

The cost of stalled projects

A project’s revival will be driven by its uniqueness, its location and “the possibility of securing an anchor tenant, if that’s relevant” said Mark Fraser, partner at Dubai law firm Taylor Wessing, who believes that “it’s not just Nakheel that will be resuscitating projects.” Areas other than Business Bay, Dubai Marina (where Abyaar and Omniyat are trying to restart projects) and Jumeirah are seeing re-construction, such as the tourism mega-project in Dubailand, City of Arabia, which is being developed by Dubai Properties.

The biggest issue for developers is reeling in their contractors. “If you renegotiate with the appointed contractor, there are certain running costs in addition to remobilization costs for the stalled projects,” said Rizwan Shaikhani, managing director of Shaikhani Contracting. “If you appoint a new contractor, he’s got big liability concerns because he has no idea how it was built by the other contractor and has to go through complicated legal formalities and project details to ensure nothing has been overlooked.”

Any delays pose structural concerns, as exposed projects are subject to Dubai’s harsh environment. When slabs under the foundation are exposed to high temperatures for years it can cause a defect, posing a legal headache for the old and new contractor as well as safety concerns for the owner and future residents. The United Arab Emirates’ civil code does not specifically address who is at fault in such a situation, but, as Fraser asserts, “Given the potential liabilities that a contractor can face under the UAE civil code, he is going to implement exhaustive surveys to manage such risks.”

For example, exposure to salt and humidity in porous concrete can alter its composition after a year or two, depending on its quality, according to Tanmay Biswas, an engineer at Meinhardt Dubai who spoke at a June 2010 conference in Dubai about the risks of re-constructing stalled projects. Exposed pumps, electrical cablings, rebar and steel also need to be protected from the elements, but owners and consultants often spar over who should pay the maintenance fees when a project has been stalled, according to Biswas.

Anyone in business knows that time is money. But for Dubai’s half-built structures, time is more costly than elsewhere because the climate weighs heavily on the cost of re-starting construction. According to Taylor Wessing’s Fraser, when Thailand was finally bouncing back from the 1997 Asian financial crisis some five years ago, half-built developments that had been stalled for six or seven years were resuscitated. Contractors weren’t particularly concerned about degraded materials because of Thailand’s wet tropical climate.

“[Dubai] is obviously different because of salt and heat issues, but you could still resuscitate a building 3-5 years after, if a reputable survey company, either local or international, has carried out a comprehensive examination of the building,” said Fraser.

Oversupply

Given the oversupply across all sectors in Dubai and the resulting negotiating power of the tenant shopping around for the best deals, one of the prickliest thorns for developers is not reconstruction but rather trying to fill the units after they are finished.

Dubai Pearl shining up a treat

Pearl Dubai FZ Chief Executive Officer Santhosh Joseph seems to have weathered the financial storm better than most. In a February email to Executive, Joseph said that fundraising was underway for phase one of the Dubai Pearl – a 1.86 million square meter ‘city-within-a-city.’ “A total of 3 million man hours have been spent since work started and over 70,000 cubic-meters of concrete has been poured on what is one of the largest construction projects still being developed in the UAE,” he said.

It has been a long road for the project since it was conceived in 2003. Pearl Dubai FZ, a consortium headed by Abu Dhabi’s Al Fahim group, took control of the project in 2007 after its previous owners had to give up on it due to financial concerns. In November 2008, the UAE’s largest construction group, Al Habtoor-Leighton, bagged the $2.4 billion main construction contract, the largest deal in the region at the time.

The initial phase will cost $2.5 billion to build, but construction “[has] never stalled and remains on schedule” since starting in March 2010, though it was earlier announced that construction would begin in January 2009 after structures were demolished on-site during the enabling works phase in September of 2008. Most probably because of the change of ownership and drastic “revival plan” that called for a $6 billion project instead of the originally planned $800 million project on the cards, the project was “stalled” for years, according to various local and non-local media outlets.

In 2011, Dubai’s total housing stock will see an increase of 25,000 new units, bringing the total number to around 335,000, according to Jones Lang LaSalle’s fourth quarter 2010 report released in January, adding that the value of transactions dropped 65 percent in the year leading up to the third quarter of 2010. Reports issued last month say properties such as Jumeirah Lakes Towers are still empty, as is half of Dubai Marina, where 36 crane sites are actively humming along.

Jones Lang LaSalle’s Moussalli said, “It’s very tough to fill a building with over 100 units when tenants are dictating [the market].”

Landmark Advisory’s Neil adds to the gloomy mix: “I think the investors don’t have a lot of confidence that these projects will be completed on schedule. For example, we [Landmark Properties] get some of these houses on the secondary market.

Buyers are not interested because there’s plenty of choice to buy something ready and functioning and because you have no idea when they will be completed.” There are also problems such as a lack of utilities connections and infrastructure in zones like Business Bay, meaning that even if homes are complete, they are still not immediately livable.

Next target… malls

Developers seem to be turning to Dubai’s greatest pastime, shopping, to grease the cash-flow wheel since it became rusty in the dry financial climate of the last two years. Emaar, the other Dubai-based construction giant often described as Nakheel’s rival, pulled in 24 percent of its 2010 revenue from its retail and hospitality sector, according to its 2010 earnings statement released on February 10. In 2009 it was about nine percent of revenue.

Perhaps that’s why Nakheel is set to expand its Dragon Mart and Ibn Battuta malls in Dubai as soon as the eight priorities it listed in September are brought to fruition, as a serious cash inflow would be more of a priority than finishing work on other stalled projects.

June 1, 2010 0 comments

Finance

Checking up

by Executive Staff June 1, 2010

written by Executive Staff

Lebanon saw a 38.7 percent rise in check clearing activity in the first quarter of 2010. According to figures released by the Association of Banks in Lebanon, total cleared checks came to $16.9 billion. The increase was attributed to a 43.1 percent surge in foreign currency denominated checks, 22.7 percent higher than in local currency.

Activity peaked in March, up by 56.6 percent on the same month last year, and 17.4 percent and 32.6 percent higher than January and February, respectively. The rise in foreign currency denominated checks has led to an increase in dollarization to some 80 percent in the first quarter versus 78.4 percent over the same period in 2009.

June 1, 2010 0 comments

Comment

Israel’s parting shot

by Nicholas Blanford June 1, 2010

written by Nicholas Blanford

At a sharp turn in the road between the villages of Meiss Al Jabal and Houla along the Lebanon-Israel border, a small patch of scarred asphalt still sparks my memory from a decade ago.

May 23, 2000 marked the third day of Israel’s headlong retreat from South Lebanon and the border zone it had occupied for 22 years. The western and central sectors of the zone had already collapsed, with militiamen from the Israeli-allied South Lebanon Army (SLA) fleeing across the border the night before.

At around noon, I was watching a procession of captured SLA armored vehicles grind through the nearby village of Aytaroun when I heard my name shouted and saw a familiar face emerge from a shop. It was Abed Taqqoush, a long-time driver for visiting BBC journalists.

Abed hurried over, grinning broadly, eyes bulging with excitement. He handed me a can of Pepsi and slapped me on the back.

“Isn’t this amazing?” he said, gazing at the chaotic scene around us.

We were joined by veteran BBC Middle East correspondent Jeremy Bowen and his cameraman Malek Kenaan. Bowen said he was going to Aadayseh where the SLA had blocked the road, denying access to Marjayoun and the eastern sector of the zone still held by the Israelis. Taqqoush and the BBC team departed and I followed a few minutes later. Along the way, at Meiss Al Jabal, I pulled over to call The Times newspaper.

As I spoke to one of the editors there was an explosion just to the north, loud enough to be heard down the phone line in Wapping, east London. A thin column of smoke rose gently into the sky ahead. Motorists heading south flagged me down and said Israeli tanks were shooting at cars. It was a little later that I learned Taqqoush had been killed in the explosion.

The BBC crew had stopped on a corner opposite the Israeli settlement of Manara. Bowen and Kanaan left the car and walked 100 meters back down the road to record a news piece, using as background Manara and the wreckage of a car in which a civilian had been killed by Israeli tank fire the day before.

Bowen, who was wearing a distinctly unmilitary pink shirt, saw what looked like a military observation position at Manara and waved to indicate his friendly intentions. Taqqoush remained in the car chatting on the phone to his son.

An Israeli tank positioned on the border beside Manara fired a single round into his Mercedes, engulfing the car in a ball of fire. Bowen was speaking to the camera when the blast occurred; wreckage from Taqqoush’s car flew into Kanaan’s camera shot.

The horrified pair ducked behind a wall and were pinned down for an hour by machine gun fire while the flames stripped Taqqoush’s car to its metal skeleton. It was not until four hours later that Taqqoush’s body was removed.

The Israeli army subsequently claimed that the tank crew at Manara had suspected Bowen and Kanaan of being Hezbollah men preparing to fire an anti-tank missile.

Pink shirts are not the customary garb of Hezbollah fighters, nor do their anti-tank teams fire from the middle of roads in broad daylight within clear view of their target and begin the operation by giving a cheery wave to their intended victims.

The Israelis killed several other civilians during the withdrawal, all of them by tank fire. But Taqqoush had the tragic distinction of being the very last Lebanese civilian to be killed during Israel’s occupation of South Lebanon.

The next day, the Israelis completed their withdrawal from Lebanon. The blackened carcass of Taqqoush’s car was towed away a few weeks later.

While, over time, long grass and thistles smothered all traces of the burnt earth, a melted patch of asphalt remains on the road where his Mercedes was engulfed with flames — a permanent cicatrix to jolt my memory and somber my mood every time I pass by.

NICHOLAS BLANFORD is the Beirut-based correspondent for The Christian Science Monitor and The Times of London

June 1, 2010 0 comments

Comment

Time to lay new tracks

by Paul Cochrane June 1, 2010

written by Paul Cochrane

The Middle East and the United States have a lot in common when it comes to transportation. Both places have a love affair with the automobile and both had long-distance train networks well over 100 years ago. Both now also have an over abundance of private vehicles clogging up the roads while railways and public transport systems are substandard, if they exist at all.

There is a clear correlation that can be drawn here, between the rise of the car and the demise of rail transportation. But what is more noticeable on a macro-level is how the Middle East and the US stand out from nearly everywhere else in neglecting and underfunding their respective railway networks. Around the world, from South America to South Korea, investment in railways, metros and high-speed trains has been ongoing for decades.

In recent years a growing web of tracks has enmeshed the globe, with China alone earmarking $300 billion over the next decade to build 25,000 kilometers of high-speed railroads. By comparison, the US has just 735 kilometers of high-speed track. The Middle East has, well, zero.

The tide seems to be turning in the US, which had long practiced a policy of “starving the beast” — underfund the railways then shut them down due to inefficiency — until the American Recovery and Reinvestment Act in 2009 allocated $13 billion to improve the railways over the next five years.

It’s been a long time coming but the Middle East is also finally undergoing a railway renaissance. Jordan and Syria are both reinvesting in train lines that were built in the early 1900s and once linked Damascus to Mecca, part of the famous Hijaz Railway.

Meanwhile, in the Gulf Cooperation Council investment in railways could reach $109 billion over the next decade, according to a report by the Kuwait Financial Center. Saudi Arabia is expanding its railway network, which will include a $1.8 billion high-speed railway between Mecca and Medina; Qatar is spending nearly $25 billion on railways and a metro; and the United Arab Emirates is mulling a railway network to compliment the Dubai and Abu Dhabi metros.

All three countries would then link to the 2,177 kilometer GCC rail network slated to open in 2017. With an estimated cost of $25 billion, the network will run from Kuwait through Saudi Arabia, Bahrain, Qatar and the UAE before the last stop in Oman, or possibly Yemen. This will be money well spent, as an effective railway will better connect the people and economies of the region and reduce the environmental impact of travel.

What is remarkable is how long it has taken the GCC to roll out a regional track, despite its obvious benefits, and to not have done so as a priority over other major infrastructure projects. The same incredulity can be applied to Lebanon, with the government squandering the opportunity in the early 1990s to implement a comprehensive railway network alongside all the other post-civil war reconstruction work. A train line running down the coast between Tyre, Beirut and Tripoli would be a dream; connecting Beirut to Damascus beyond a fantasy.

But Lebanon may yet take part in the Middle East’s railway revival. The French government announced in May that they plan to fund a study to rehabilitate Lebanon’s coastal railways, which would be a start. The traffic situation around Beirut is appalling, and is set to get even worse as more cars pile onto the roads. It is the same in pretty much every major city in the region.

The public will be hoping that for once, talk of improving Lebanon’s transport network goes beyond the planning stage. But judging by some of the discourse on transportation heard in Beirut of late, they shouldn’t hold their breath.

Earlier in the year Beirut’s muhafez (governor) came up with a creative idea to solve the city’s traffic problems: sidewalks should be no wider than one meter. And in 2005, during discussions of the national master plan, investment in public transport was dismissed with the claim: “Lebanese like their cars and don’t like public transport.”

Considering the problems that the region’s cities face in terms of congestion, pollution and infrastructure, governments need to get serious about public transport planning. Their citizens deserve better than smaller sidewalks and clapped-out old taxis: it’s time to wean people off their love affair with cars and start laying tracks.

PAUL COCHRANE is the Middle East correspondent for International News Services

June 1, 2010 0 comments

Comment

Ill placed pride

by Alice Fordham June 1, 2010

written by Alice Fordham

There was a tone of triumph after Iraq’s elections. Western diplomats crowed that the polls were as democratic as any in the Arab world, ever. An American military commander told me he even yelled “attaboy!” to the Iraqi troops who kept the country relatively secure as people cast their ballots on March 7.

World leaders paid tribute to Iraqis who had committed to democracy. Even as a post-election vortex swirled and bombings filled a political vacuum, people stressed that the elections had been an achievement. As one British politician put it, Iraq was on its way to becoming a “beacon of democracy” for the Middle East; the withdrawal of American troops, which depended on successful elections, is now set to begin at the end of August.

But this election was held up with the scaffolding of an American-led international presence, which bullied and wheedled a recalcitrant Iraq into holding a poll. Although the voting had a veneer of credibility, it was not exactly a model of democratic process, and without help, it would not have happened. For there to be any crowing, the diplomats would have to be able to look to the next parliamentary elections, to the Iraq of 2015, and say with some certainty that they would be as democratic as those held in March.

The chances of that are slim. Without American support, the Iraqi government as it now exists would struggle to hold an election. The March poll happened only after telephone calls from Washington to Kurdish leaders to persuade them to stop stalling electoral legislation. All political parties — except the Sadrists — came to the United States embassy for lessons in how Iraq’s convoluted election system worked. While US soldiers were not directly responsible for security in the cities, their training is still the backbone of the Iraqi security forces.

There is also little commitment to democracy among Iraq’s leaders. Politicians showed a strong tendency toward tactics that were more than dirty politics, from the exploitation of rules to disqualify candidates for links to the regime of former President Saddam Hussein, to Prime Minister Nouri al-Maliki’s threatening to invoke his powers as commander-in-chief in calling fraud on the results, in which his rival Ayad Allawi won a plurality of the parliament seats. Security may have held during the elections, but in the aftermath, coordinated bombings — which killed dozens — have sharply increased in frequency, as have assassinations, largely of Sunni leaders.

Allawi, who campaigned on a platform of secularism and was supported by most of Iraq’s Sunni Muslims, claimed 91 parliamentary seats out of 345, two more than Maliki’s State of Law party. But he will probably be sidelined; a grand Shiite coalition is being formed, whose power will likely leave Allawi’s voters feeling disillusioned with democracy, deepening sectarian rifts.

The electoral framework is also shaky, symptomatic of a country where institution building has taken second place. Laws have been contested throughout the electoral process and the judiciary, which rules on legal disputes, is corrupt, as is the government — the fourth most corrupt in the world, according to Transparency International. Also, ordinary Iraqis continue to live without reliable electricity or clean water. Basic infrastructure, let alone the regeneration of the roads, schools and banks that the country needs, is still lacking. The recent revelation of secret prisons for Sunni Arabs shows that brutal human rights abuses are still prevalent, and it seems likely they are used for political ends.

Even with its current international presence, Iraq can only manage what John McCain called a “messy, but effective” democracy. As the country’s security forces grow in strength, it is unlikely to return to the sectarian bloodbath seen from 2005 to the end of 2007. But as oil revenues begin to pour into the country, the money will reinforce a government that tends toward autocracy, corruption and disinterest in the principles of democracy and human rights.

The US, the UN and the international community should spend less time trying to convince the world that democracy has landed in Iraq, and more time working on building law, the parliament and infrastructure, so the country does not backslide as they leave.

Perhaps then, Iraqis, who have suffered so much, might get something close to the country they deserve.

ALICE FORDHAM is a Baghdad correspondent for The Times of London

June 1, 2010 0 comments

Comment

Sex, lies and politics

by Peter Grimsditch June 1, 2010

written by Peter Grimsditch

While politicians caught with their trousers down are noted for inventiveness in deflecting blame, Deniz Baykal has elevated the practice to an art form. The 72-year-old Turkish opposition leader resigned last month after a video showing him in bed with his former secretary, now a member of parliament, was posted on the Internet.

To Baykal, the culprit was obvious. “This is not a sex tape, this is a conspiracy,” the leader of the Republican People’s Party (CHP) told reporters. Baykal pointed his podgy finger at the ruling Justice and Development Party (AKP), saying its leaders must have had prior knowledge of the tape.

In the murky world of politics in Ankara, anything is possible. But it makes little sense for the AKP to bring down a man who has not won an election for almost two decades. Some even argue that Baykal’s divisive and dictatorial stewardship of the CHP is more an asset to Prime Minister Recep Tayyip Erdogan than a threat to his political future.

Indeed, Baykal’s explanation of his affair with Ankara deputy Nesrin Baytok well illustrates how his eccentric logic continues to befuddle voters. “If this has a price, and that price is the resignation from the CHP leadership, I am ready to pay it,” he said. “My resignation does not mean running away or giving in,” added Baykal. “On the contrary, it means that I’m fighting it.”

Erdogan called his own press conference and denounced Baykal’s comments “as cheap and ugly as the video itself,” although he didn’t say whether he had actually seen it.

The nine-minute soundless tape, filmed with a camera that was hidden in a wardrobe in the bedroom of a private house, was first posted on Habervaktim, a radical Islamist website. It was then reposted on the comparatively benign YouTube, which, ironically, is banned in Turkey.

“Once my friends informed me about the incident,” said Erdogan, “I ordered the transportation minister to block Internet circulation of the video. We could not have remained silent in the face of such footage, which may damage society’s moral values.”

The prime minister has asked the head of military intelligence to investigate the video. Baykal is a stout defender of the army and is campaigning to disrupt the AKP’s proposed constitutional reforms. These include forbidding judges to close political parties without the say-so of a parliamentary commission, allowing military officers to be tried in civilian courts and lifting the amnesty that the 1980 military coup leaders granted themselves before leaving power.

The AKP narrowly escaped one closure attempt and fiercely secular judges are more likely to see off the Islamic-leaning party in court than Baykal is at an election.

There is another theory behind the bedroom movie, as well as a suggestion for how the affair started. Baykal has survived several attempts to oust him by stacking the delegates, who vote for leaders, with his own supporters. Some longtime CHP activists would like to see a democratic, secular and successful party, free of army influence. Since ‘fair’ means have failed to dislodge Baykal, the alternative was to indulge in the ‘foul’ variety. In this vein, it has been suggested that the tape could be one of a set, with release of the rest hinging on Baykal’s agreement not to stage a comeback.

Meanwhile, the junior partner in the Baykal-Baytok bedroom coalition has been talking to the press about the virtue of family values. She told the Aksam daily that her husband, Can Baytok, and the couple’s daughter have been very supportive. “This is a great test and I know that I have passed that test in the eyes of my family,” she said. Then, there was the little matter of her husband’s ailing and failing computer business.

Baytok said she had never used her political influence to get favors for her husband. “The allegations that he won contracts from CHP municipalities are lies,” she claimed. “In the past 20 years, he has applied for only one municipal tender… and Can sold a small number of computers at very low prices,” said Baytok.

At least she is displaying consistency, a rare trait in Turkish politics. The two men known to be in her life have both been failing at their jobs for the past 20 years.

PETER GRIMSDITCH is Executive’s Istanbul correspondent

June 1, 2010 0 comments

Economics & Policy

Regional equity markets

by Executive Editors May 27, 2010

written by Executive Editors

Beirut SE (One month)

Current year high: 1,200.49 Current year low: 737.84

> Review period: Closed: April 21 – 1,143.23 Period change: 2.74%

A cone-shaped rise and fall on the Beirut Stock Exchange kept the MSCI Lebanon index gains modest in the review period. BLOM Bank was the best gainer in April with 16.1%, followed by Byblos Bank (common shares) with 14.8%. Byblos shareholders approved a 66% rights issue on April 12, boosting interest in the scrip around that time. Other good news for banks came from ratings upgrades by Moody’s, in line with a sovereign upgrade, and by Fitch. Market cap leader and real estate stock Solidere weakened in the review period.

Amman SE (One month)

Current year high: 2,968.77 Current year low: 2,396.28

> Review period: Closed: April 21 – 2,561.04 Period change: 1.72%

Rather noticeable volatility reigned on the Amman Stock Exchange, where the ASE benchmark index could not sustain an intra-month rally and closed the review period only 1.72% up from the last close in March. Earlier in April, the index had risen to near 2,650 points, its highest level since last October. Although the Housing Bank for Trade and Finance moved 6.3% lower, other banking stocks showed resilience and their sector index ended the period 4% higher. Market cap leader Arab Bank gained 7.6%. The indices for industrial and insurance stocks dipped into negative territory.

Abu Dhabi SM (One month)

Current year high: 3,239.74 Current year low: 2,441.28

> Review period: Closed: April 21 – 2,820.45 Period change: -3%

There was no fun and gains for equities in Abu Dhabi this April, but for the year to date the index was still up 2.8%. The general trend was downward across all sectors on the exchange and the best performing stock in the review period was out-of-towner Qtel, which advanced 22.6%. Aldar Properties lost 9.1%. The worst performing sub-indices were consumers, down 9.7%, followed by real estate and telecommunications, which lost 6.7% and 6.3%, respectively. Pundits have it, however, that the investor confidence in Abu Dhabi and across GCC markets is on a positive track.

Dubai FM (One month)

Current year high: 2,373.37 Current year low: 1,533.36

> Review period: Closed: April 21 – 1,730.51 Period change: -6.1%

Book and run was the motto of Dubai investors, who apparently hurried to cash in gains achieved in March and reacted nervously to any hint of unfavorable news on the DFM. Investor behavior sent the index tumbling in the review period and pushed it back into negative territory for the year to date – the region’s only index to be in the red by that measure. For the three weeks in April, only six stocks on the DFM could show gains. Losers included well-known names across all sectors, such as Aramex, Oman Insurance, du, Arabtec, Emirates NBD, and Emaar.

Kuwait SE (One month)

Current year high: 8,371.10 Current year low: 6,650.80

> Review period: Closed: April 21 – 7,244.30 Period change: -3.84%

Being far south of Iceland’s ash cloud didn’t do much for equities in Kuwait in April. The KSE index was the GCC markets’ second worst performer in the review period, dropping below 7,300 points for the first time in two months. The downward push at the end of the review period uniformly affected the major sectors whose indices all entered the red. Banking, down by 0.43%, was the least affected. Market champion Zain Group shed 5.9%.

Saudi Arabia SE (One month)

Current year high: 6,894.55 Current year low: 5,407.31

> Review period: Closed: April 21 – 6,730.12 Period change: 1%

The petrochemicals sub-index had the best performance, up 3.63%, whereas energy and utilities fared worst at minus 11%. Losers outnumbered gainers and included the largest bank by market cap, Al Rajhi, which dropped 6.4%. Market-heavy manufacturers SABIC advanced half a percent. Optimistic voices on the year’s equity performances remained dominant but — except for volcanic emissions in unpronounceable Nordic locales — April, on the whole, was a steam-less month in GCC equity markets.

Muscat SM (One month)

Current year high: 6,933.75 Current year low: 5,049.03

> Review period: Closed: April 21 – 6,906.66 Period change: 3.21%

The Muscat Securities Market index close represented the best GCC performance in the review period. Poultry farming company A’Saffa Food doubled its share price as the MSM’s top gainer in April after the company undertook a 10 for one stock split at the end of March. The banking sector index led the market’s upward performance sector-wise and the banking index outperformed the general index by almost 3%. Market cap leader BankMuscat ended the review period 5.1% higher; telecommunications operator Omantel was in the balance with a 0.1% drop.

Bahrain SE (One month)

Current year high: 1,656.43 Current year low: 1,413.28

> Review period: Closed: April 21 – 1,540.52 Period change: – 0.42%

Significant fluctuations rocked the Bahrain index, which closed down 65 points from its intra-month high but still up 5.64% for the year to date. The banking index, in a rough ride, outperformed the market but the investment sector underperformed. Market cap leader Ahli United Bank was among the top gainers, up 2.94%; the scrip has appreciated 61% in the year to date. At the other end of the scale was Gulf Finance House which could not stem its price slide and closed the April 21

session 19.2% down on the month.

Doha SM (One month)

Current year high: 7,801.33 Current year low: 5,426.04

> Review period: Closed: April 21 – 7,617.62 Period change: 2.1%

The Qatar Exchange was the second best GCC performer from April 1 thru 21. The close on April 21 represented a gain of 9.5% for the year to date, almost on par with the Saudi Tadawul’s y-t-d gain of 9.9%. Like several other regional exchanges, the QSE index reached new 18-month highs in April but couldn’t sustain them. There were more gainers than losers on the QSE and Al Khaleej Insurance and Doha Insurance topped the gainers’ list with respective share price increases of 17.3% and 16.8%. Insurance was the best sector index in the review period, followed by banking.

Tunis SE (One month)

Current year high: 4,772.39 Current year low: 3,337.48

> Review period: Closed: April 21 – 4,738.92 Period change: 1.53%

The Tunindex of the Tunisian Stock Exchange stayed its course with little volatility compared with the last session in March. The index closed a five-point whisper below its year high from February 9. Insurance company Assurances Salim, which debuted on April 1, gained 42% from its issue price but any stock performance in the review period was incomparable to that of telecommunications infrastructure firm Servicom, whose price reportedly rose nine fold on a trade of three shares.

Casablanca SE (One month)

Current year high: 12,137.95 Current year low: 9,997.56

> Review period: Closed: April 21 – 12,038.45 Period change: 5.4%

The Casablanca Exchange was the number 2 upward outlier among MENA securities markets in April, with a rise of 5.4% during the review period. Dropping in the first week of the month, the MASI benchmark index rose strongly from April 12, scaling a new 17-month high with 12,137.95 on April 20. The majority of stocks showed gains, including the market heavies Maroc Telecom (up 1.26%) and Attijariwafa Bank, which ended the period 4% higher after profit taking on April 21.

Egypt CASE (One month)

Current year high: 7,591.37 Current year low: 4,953.53

> Review period: Closed: April 21 – 7,581.71 Period change: 11.4%

The Egyptian Stock Exchange raced to the top of the regional charts in the April review period, heaving the EGX 30 index to a 22.1% rally from the start of 2010. Index readings reached in mid-April have been the highest since mid September 2008. Orascom Telecom Holding, the number two by market cap on the EGX, was top dog in share price appreciation during the review period and rallied 33%. Telecom Egypt gained 8.9% and Orascom Construction, 3.3%.

May 27, 2010 0 comments

Economics & Policy

IPO Watch

by Executive Editors May 27, 2010

written by Executive Editors

Insatiable” was not the word to describe the behavior of actors in Middle Eastern primary markets in April 2010. While it appears credible that investors have been hungering after opportunities, the dearth of initial public offerings (IPOs) and secondary offerings in April 2010 was so complete that no actual primary market performance numbers were available from the Gulf or the Levant.

The only market to report any securities market entrant and any new offering in April was Tunisia, where two insurance companies took listing steps. Tunis Re, the reinsurance company, carried out the subscription period for its IPO from April 5 to 16, offering 22 percent equity for $10 million. The results of subscription were not published at the time of this writing.

Assurances SALIM started trading at the beginning of April following its $7 million subscription offer for 25 percent equity in March, which was over-subscribed almost 30 times. The company’s share price, $10.62 at issue, started trading at $15.22 on its first day and closed at $15.20 on April 20.

The underperformance of Middle Eastern IPO activity this year is noteable when compared with international markets. According to Zawya, the count of eight IPOs between January 1 and April 20, 2010, represented a slight increase from seven in the same period a year ago, but the cumulative value of the eight recent IPOs was less than $440 million, down 60 percent from $1.1 billion a year ago.

By contrast, global IPO activity in the first quarter of 2010 increased fivefold to 267 public offerings, the aggregate value of which skyrocketed to $53.2 billion from only $1.4 billion in the first quarter of 2009, said a report by financial auditor Ernst & Young.

The value of issues ballooned in part due to venerable Japanese life insurer Dai-ichi’s $11 billion conversion from a mutual company owned by policy holders to a public listing.

Beyond this mega issue — the world’s largest IPO in two years — and two large insurance IPOs in South Korea, the usual emerging markets champs China, India and Brazil were named as the prime grazing grounds for IPO investors so far this year. Proving them right, the state-owned Agricultural Bank of China said in April that it wants to stage the world’s largest IPO ever, to raise $30 billion in the third quarter of 2010.

Reinforcing the image of a pale Middle Eastern IPO ice princess, companies in the region that recently announced planned offerings promised long-term marvels while keeping the veil tight on timing and details. Lebanon’s Middle East Airlines wants to privatize about 25 percent through an IPO in 2011, the airline’s chairman Mohammed Hout said in a replay of listing plans that were shelved due to the upheavals of 2006. In the Gulf, officials of retailer Landmark and building materials firm Danube each hinted at IPO plans, but with time frames ranging from two to four years.

More tangible investment opportunities, albeit with eligibility limits, came from two companies with rights issues on their agenda. Saudi Stock Exchange-listed insurer Saudi Fransi Cooperative in early April obtained shareholder approval to double its number of outstanding shares to 20 million through a $33.3 million rights issue. Shares were issued at $3.33 apiece between April 10 and April 19. The company’s share price, which had risen sharply at the beginning of April, dropped back in the course of the month to close at $11.47 on April 20.

In a new rights issue announcement on April 19, United Arab Emirates telecommunications firm du revealed that it was seeking a billion-dirham capital infusion from shareholders, through a 25 percent rights issue which will increase the company’s total number of outstanding shares to 5 billion.

Officials at du said the new capital will be used for network expansion and new tech capacities. Pending shareholder approval in May, the issue will be carried out in May/June as the second sizeable rights issue in the UAE in nine months.

As far as full initial public offerings with pizzazz and a powerful Middle Eastern corporate ingredient, regional investors may look to India where Emaar MGF, the property joint venture led by Emaar Group, has announced its intent to raise $770 million through an IPO before the end of the summer. That offering will considerably spice up the Indian IPO market, which boasts so far 20 IPOs with cumulative worth of $1.2 billion from January through March 2010.

May 27, 2010 0 comments

Economics & Policy

For your information

by Executive Editors May 27, 2010

written by Executive Editors

IMF estimates for Lebanon

According to International Monetary Fund estimates, Lebanon registered the second highest growth rate in the Middle East and North Africa behind Qatar last year. The Fund estimated that Lebanon’s economy grew 9 percent in 2009, which placed the country in fourth place globally in terms of real gross domestic product growth. This year the IMF estimated that Lebanon will grow 6 percent, 2.5 percent higher than the MENA region average, and by 4.5 percent in 2011, 0.3 percent below the MENA average. In parallel, the fund estimated that inflation during 2010 would average 5 percent, 1.5 percent below the MENA average. The IMF also forecast Lebanon’s current account deficit at 12.8 percent of GDP, 2.06 percentage points above the finance ministry’s proposed budget deficit for the year. In conclusion, however, the Fund noted that forecast accuracy is mitigated due to Lebanon’s weak statistics regime and stressed that real sector statistics should be provided on a more timely basis.

SME’s lap up loans

Kafalat, the publicly-sponsored financial institution offering loan guarantees for small and medium-sized enterprises in value added sectors, has reported that the value of loans extended to these businesses in the first quarter of 2010 has grown by 57.5 percent year-on-year. The total value of the loans guaranteed by the institution totaled $46.3 million in the first three months of the year. The number of loans also grew by 83 percent, from 214 in the first three months of 2009 to 392 during the same period in 2010. That said, the year-on-year average value per loan decreased 24 percent, to $118,173 per loan. The largest portion of loan guarantees were extended to projects in the agricultural sector, which captured 49.2 percent of total guarantees in the first quarter of the year. The region with the most guarantees was Mount Lebanon, accounting for 39.8 percent of the total number of guarantees over the covered period.

At last – 2008 figures announced

Almost a year and a half after the fact, the government of Lebanon has released official figures for real sector growth in 2008. The figures were compiled by the National Accounts Unit with the aid of the French research firm L’Institut National de la Statistique et des Etudes Economiques (INSEE). The report states that gross domestic product in 2008 reached $29.9 billion, reflecting a real GDP growth of 9.3 percent during the year. The real negative trade balance came in at $8.7 billion in 2008, compared to $6.3 billion in 2007. The figures confirm that commercial services were still the dominant sector in 2008, comprising 33 percent of the economic output, followed by trade (27 percent), construction (13 percent), industry (9 percent), government (9 percent), transport and communications (7 percent), and then agriculture and livestock (6 percent). The only sector that contracted in 2008 was the energy and water sector, with 4 percent sliding down the drain.

Bond boost from ratings firm

The global ratings agency Moody’s has upgraded Lebanon’s government bond ratings from B2 to B1. Last December the agency rated Lebanon as having a positive outlook because of “sustained improvement in external liquidity, the strengthened ability of the country’s resilient banking system to finance fiscal deficits and an amelioration of the domestic political situation following the formation of a consensus government last November.” Moody’s also upgraded the country’s foreign currency bank deposits to B1 from B2 and its country ceiling for foreign currency bonds to Ba3 from B1, while maintaining a stable outlook on sovereign ratings. The agency also stated that increased foreign assets at Banque du Liban, Lebanon’s central bank, “[placed] the country in a more favorable position to absorb financial shocks (including any potential rise in deposit dollarization), while also providing ample cover for the government’s maturing foreign currency debt.” However, Tristan Cooper, vice president and senior credit officer at Moody’s Sovereign Risk Group, cautioned that “despite the recent improving trends, Moody’s notes Lebanon’s significant political and economic vulnerabilities. These include wide twin deficits, a very high public debt overhang, a tense domestic political environment, and the persistent threat of an escalation with Israel.”

Broadband lumbers forward

Telecommunications Minister Charbel Nahas said last month that the project to develop a national fiber-optic network to increase Internet speeds in Lebanon will cost $92.9 million. The announcement was made at a conference on April 12, after the minister had announced in January that the project would cost some $166 million. In March, Executive cited telecommunications experts at the International Telecommunications Union, the United Nations agency for telecommunications, as stating that the project should cost no more than $40 million. Speaking at the conference, Nahas said that $66.3 million had been requested from the Council of Ministers, Lebanon’s cabinet, to start funding the project. The figure is close to the previous minister’s estimate of $64 million to implement the project. Lebanon is still in the process of passing a budget for the year, before which new projects cannot be funded from government coffers. According to Naji Andraos, director general of construction and maintenance, the project requires some 4,000 kilometers of fiber optic cable, most of which will be laid in two “super rings” that will carry the bulk of the data around Lebanon to be transferred to “metro rings” in population areas. The “access layer,” the final crucial link between telecommunications infrastructure and the user, is still being studied by the ministry, which hopes to finish its assessment by mid-2011, according to Abdulmenaim Youssef, the head of Lebanon’s incumbent public operator, Ogero. Youssef also heads the Directorate of Operations and Maintenance at the Ministry of Telecommunications, whose job it is to oversee Ogero’s operations. Without defining the access layer, an accurate financial estimate of how much the project will cost is near impossible. “The tender for the optical backbone and the metro backbone is still in the planning phase,” said Anders Lindblad, president of Ericsson in the Middle East. “Sure there is a budgetary estimate, but the competition [in the vendor market] will determine the price.” He added that the project will likely take 10 to 15 years to complete. In related telecom news, Kamal Shehadi, the chairman of Lebanon’s Telecommunications Regulatory Authority (TRA), has resigned, according to a TRA press release dated April 26.

The LNG alternative

A study by Poten & Partners commissioned by the World Bank has found that liquefied natural gas (LNG) could prove to be an effective solution to Lebanon’s current energy problems. The study stated that Lebanon could relieve itself of its high oil bills by switching the Zahrani combined cycle gas turbine (CCGT) power station to LNG, saving the country between $75 million and $80 million a year. The study also stated that while the Beddawi plant in the north of the country was being supplied by the Gasyle 1 pipeline, it would be too expensive to transport gas to the south of the country from the station. Poten & Partners estimated that Lebanon needs 1.5 million to 2 million tons of LNG per year, which could be procured from the expected 80 million extra tons coming online in the global market between 2009 and 2013. If Lebanon acts fast and takes advantage of current market surplus, the firm believes that the country would not have to pay an additional country-specific risk premium and could acquire gas at a price of $7 per million British Thermal Units.

growth for First quarter tourism

The number of tourists who visited Lebanon in the first quarter of this year has grown by 32.1 percent when compared to the same period in 2009, according to Byblos Bank. The total number of tourists who visited the country between January and March came in at 393,212. The lion’s share of tourists came from Arab countries, which accounted for 43.2 percent of total visitors, followed by Europeans (22.5 percent), Asians (21.6 percent), then travelers from the Americas (8.8 percent), Oceania (2.2 percent) and Africa (1.6 percent). Just over 40 percent of the total number of tourists entering Lebanon in the first quarter came in March, which registered 158,411 tourist visits. According to Global Refund, the VAT refund operator, visitors from Saudi Arabia spent the most in Lebanon during the first quarter of this year, comprising 21 percent of all tourist spending. Spending by visitors from Syria also rose by 57 percent year-on-year during the first quarter. The highest product category for tourist spending was fashion and clothing, at 67 percent of the total. Speaking to the press last month, Fadi Abboud, Lebanon’s tourism minister, stated that Arab visitors account for 70 percent of tourism revenue. According to Abboud, the total amount granted to the ministry to promote Lebanon abroad in the proposed budget is just $4 million. He added that he hopes to raise an equal amount from the private sector and to establish a promotional board for Lebanon between the private and public sectors to promote tourism.

May 27, 2010 0 comments

Real estate

For your information

by Executive Editors May 27, 2010

written by Executive Editors

Ras Beirut’s rampant real estate

A recent study by Al Iktissad wal Aamal magazine on the Ras Beirut area said that 41 residential real estate projects, valued at more than $800 million, are currently under construction. These include 695 high-end apartments, totaling 252,820 square meters. Fifty-three percent of the apartments have already sold for a total of $570 million. The report states that five of these projects are private and not for sale, while six other buildings are not priced, since developers are waiting to see how the market will fare. The study also states that 20 projects will be finished this year, with the others handed over in 2011 and 2012. Some 35 percent of the apartments are between 200 and 300 square meters, while 30 percent are between 300 and 400 square meters, 12 percent are between 400 and 500 square meters, 17 percent are below 200 square meters and 6 percent are above 500 square meters. In terms of prices, apartments that have a sea view are averaging more than $9,000 per square meter, with prices decreasing further up Hamra Street, reaching $3,800 per square meter. Most apartments (57 percent) are priced at between $4,000 and $5,000 per square meter.

Palestine re-builds

For the first time in three years Israel allowed a shipment of construction materials to enter the Gaza Strip last month via the Kerem Shalom crossing in the south, according to Agence France Presse. Palestinian customs official Raed Fattuh told AFP that the shipment carrying wood and aluminum belongs to Palestinian tradesmen and had been stored at the port of Ashdod since mid-2007. Fattuh added that Israel decided to allow shipments of wood and aluminum to enter Gaza every day except Friday and Saturday. Forbidding construction material to enter Gaza has created substantial problems as foreign agencies stopped funding construction projects, causing a housing crisis. “Now foreign donors don’t want to get involved in any project with smuggled concrete brought in — along with a multitude of other goods — through a network of tunnels between Gaza and Egypt,” Mahmud Abed, treasurer at the Palestinian contractors union told AFP. Although Israel also agreed to permit the deliveries of concrete to the UN-mini projects, AFP quoted an Israeli military official saying, “Israel will not allow the reconstruction of Gaza, which we regard as a terrorist entity because it is controlled by Hamas.”

Kuwait gives homes and farms

The Kuwait Fund for Arab Economic Development (KFAED) recently handed over eight newly constructed buildings in Beirut’s southern suburbs, as part of its contribution to the reconstitution of the capital after the July 2006 war, reported Kuwait News Agency (KUNA). Five more buildings are yet to be handed over as part of the $22 million project. Meanwhile, Zakat House Kuwait, a governmental organization, launched an initiative to build a $300,000 livestock farm in the village of Al Sammouniya in northern Lebanon, under sponsorship of the Kuwaiti Ministry of Justice, Awqaf (endowments) and Islamic Affairs. The project will be built in coordination with the Lebanese Alms House for Orphan Care. The farm will be constructed on a 40,000 square meter plot of land and would accommodate 200 head of cattle. Its proceeds will be used for helping orphans, widows and the poor, reported KUNA.

Work may recommence after Nakheel offers 40 percent deal

After a meeting held between the debt-laden developer Nakheel and its trade creditors last month, the company announced that it is offering a portion of repayment in cash (40 percent) and the rest in tradable securities with a 10 percent annual interest. The construction company Arabtec, one of Nakheel’s creditors, told Emirates Business 24|7 that as a result of negotiations work may recommence on the Al Furjan project, which was halted at the beginning of the year after Nakheel’s missed payment; contracting firms like Khansaheb and Six Construct are also in talks with the company to discuss payment schedules. The Dubai government announced in March it was injecting $8 billion into Nakheel to enable it to pay contractors and finish projects.

Egyptian edifices attract investment

According to the organizers of Next Move, the largest real estate investment and finance exhibition in Egypt, the building and construction sector in the country is expected to attract some $7.3 billion worth of investment by 2015. The event’s organizers also said the construction sector and related industries employ some 8 percent of Egypt’s labor force. Moreover, non-residential projects are expected to comprise the largest share of the investment ($6.7 billion). Arab News quoted an Egyptian tourism ministry report stating that since visa regulations tightened for Saudis traveling to the United States and Europe, they have started purchasing properties in Egypt and currently own more than 600,000 flats, mostly in Cairo and around Alexandria.

Deyaar does the senior shuffle

In the first week of April, the Dubai-based developer Deyaar Development announced the dismissal of chief executive officer Markus Giebel, and his replacement with Saeed Al Qatami, who has been working at the company since 2007 as president of business development. “The appointment is part of an ongoing management restructuring being undertaken in line with the company’s long-term strategic objective,” said the company in an email statement, according to Dow Jones. Maktoob News Business revealed that Giebel was not the only one to leave Deyaar. The company’s Chief Financial Officer Krishnamurthy Sundaresan and Vice President of Strategic Planning Dimitre Michev also left last month. Giebel, who was CEO of Deyaar since August 2008, told Maktoob Business that his departure was not related to that of the other executives. “I am leaving on 100 percent good terms,” he said. “Deyaar was my home for one and a half years and I wish the company all the best.”

Summerland hotels swing investment sweetener

In line with its role in promoting and facilitating investment opportunities in different sectors of the Lebanese economy, the Investment Development Authority in Lebanon (IDAL) has granted Summerland hotels a contract deal for a new $155 million project, according to Bank Audi. The package consists of exemptions from real estate registration and the reduction of work permit fees, as well as full tax exemptions on income and distribution of dividends for the next 10 years. The project will include a five-star hotel, a club, a cabin, a gym, as well as a marina for yachts and boats.

Damascus preserves its past

According to Syrian Arab news agency, 11 heritage hotels were inaugurated in the Old City of Damascus last month after being renovated, with no alteration to their original architecture. The restoration of the old hotels cost $22 million and is part of the overall framework to conserve the Old City, known as a tourist hotspot as one of the world’s oldest inhabited cities, said the news agency. The Syrian Minister of Tourism Saadallah Agha al-Qalaa announced that additional hotel projects will be inaugurated by the end of the year to increase the city’s capacity to host visitors. “Tourist utilities would make it possible for millions of tourists to get acquainted with Damascus’ heritage,” he said.

Emaar profits soar in first quarter

Dubai’s largest property developer Emaar Properties issued its first quarter 2010 results last month, recording a 221 percent increase in profits and an 87 percent increase in revenues compared to the same period last year. Total profit for the first quarter amounted to $207 million, while revenues amounted to $786 million. In the company’s statement, Emaar’s Chairman Mohamed Alabbar said that the company’s growth strategy this year would focus on the Middle East, North Africa and South Asian regions, which are home to more than 30 percent of the world’s population. “Our strategy is to develop integrated lifestyle communities in these markets that meet the growing demand for affordable luxury,” said the chairman. Despite the positive numbers, Moody’s Investors Service announced in late April that it has assigned a corporate family rating (CFR) and a probability of default rating (PDR) of B1 to Emaar with a negative outlook. Moody’s said that this rating is issued to conclude the review that was initiated on December 8 of last year, in which, pending the conclusion of the appraisal, Emaar was downgraded to B1 and put under review due to decreased government support. “The B1 rating reflects execution risks that Moody’s has identified and that largely relate to the sale of unsold units in Dubai and in international markets, the cash collection of presold property and refinancing,” said Martin Kohlhase, Moody’s Dubai-based assistant vice president.

May 27, 2010 0 comments