Executive Magazine

UAE – Realty reform

by Executive Staff January 1, 2009

written by Executive Staff

The UAE government has long been active in setting laws and regulations to improve the transparency of its real estate market and ensure long-term growth. Since the global financial crisis began, these attempts were further amplified by issuing new laws, intervening in the market by controlling future supply and by injecting liquidity into the banking sector to promote lending. “Every strong government provides its market with an ability to bounce back in difficult times and the UAE has shown over the last four decades its resilience and ambition in making [the country] one of the most buoyant economies in the world,” said Hayan Merchant, CEO of Ruwaad Holdings LLC.

On November 9, 2008, Dubai’s government formed a high- level committee consisting of a few private developers and Dubai-based master developers, including Emaar Properties, Nakheel and Dubai Properties, who jointly control around 70% of the property supply in Dubai. The committee aims to tackle the impact of the current financial crisis on the UAE’s real estate market, while looking into various options to restore confidence. Additionally, it was announced that no new projects can be launched without the committee’s approval, however, none of the already- launched projects will be called off.
The global financial crisis has hit the banking sector and rippled into the UAE real estate market. Some banks and mortgage lenders have considerably cut down or even stopped their real estate lending. For example, Amlak suspended new mortgage loans and NBD stopped lending to expat employees of real estate firms, fearing loan defaults. In response, the government in October began injecting $19 billion into UAE banks to overcome this liquidity squeeze. Additionally, the central bank has set up around $13.5 billion in an emergency credit fund for homeowners, investors and developers. It has also discussed proposals for introducing financial instruments to boost liquidity and insure the continuity of real estate loans.

New laws

Reforms of the real estate sector’s regulations started in July 2007, when a Real Estate Regulatory Authority (RERA) was established in Dubai to set policies and to create awareness of rights and responsibilities in the property sector.
The Strata Law was issued and came into effect on March 31, 2008. It defines the responsibility of property owners and developers in the management of common areas in multi- owner developments, like gated communities and apartment buildings.

The interim registration law came into effect on August 31, decreeing that any ownership change of off-plan properties in Dubai will be invalid if not registered in RERA’s Interim Register, with all registered sales transferred to the Land Department Register. Additionally, transactions made before the law came into effect will not be exempted, as they were to have been registered within 60 days of the law enactment. “While this may cause a slowdown for off-plan buying, it will be very beneficial in the long term to stabilize the market and put off flippers and speculators,” said Mohamed Al Zarah, CEO of Great Properties.
Moreover, the new Dubai Property Court was established in September. It is expected to reduce the workload of RERA, which since its establishment has been swamped by property cases, including for project delays and noncompliance with a property developer’s initial description.

The new mortgage law, which came into effect on October 30, states that mortgages will not be valid if they are not registered at the Dubai Land Department or the new Interim Real Estate Register, and it includes all procedures concerning a mortgage and its legal effects on stakeholders. Additionally, it includes execution procedures for the mortgaged property and proper conduct between the bank and the borrower.

Abu Dhabi is following suit by finalizing a new law to regulate its property market and to put an end to dangerous speculation. Also, there are plans in the Emirates’ capital to introduce similar real estate laws that Dubai has earlier issued — like the strata, broker and escrow laws — in order to assure investors that they are investing in a safe environment with a solid legal structure.

“Thanks to measures taken by the authorities and the initial strength of the market, I firmly believe that the UAE will overcome this crisis,” said Jean Pierre Nammour, managing director of Al Nahda Real Estate. With these regulations, the UAE in general and Dubai in specific, are trying to move from a speculative to a more mature property market, without facing a sharp real estate crash. Though progress has been made, the road is yet long: new laws are being drafted, such as the ‘company law,’ the new banking credit law and a new foreign investment law, to further improve the investment environment in the country.

January 1, 2009 0 comments

Financial Indicators

Regional equity markets

by Executive Staff December 8, 2008

written by Executive Staff

Beirut SE: BLOM (1 year)

Current Year High: 1,629.74 Current Year Low: 822.17

The Beirut Stock Exchange (BSE) is a relatively small market with only 26 listed stocks, 3 funds and a market cap of $8.7 billion as of November 25, 2007. Like any Arab market, the BSE is greatly affected by its surroundings and has been subject to many fluctuations. The BLOM Stock Index (BSI), BSE’s main indicator, began the year at a level of 1,488, following an upward trend. After the Doha agreement in May, the BSI rose significantly to peak on July 7th at an all-time high of 2,119. It then started to decline due to the political bickering and the worsening global economic climate. The BSI recorded a year-low on November 25, 2008, when it closed at 1,201. Solidere, the real estate giant, accounts for the bulk of traded value, in addition to the biggest banks in the country, such as BLOM, Audi and Byblos. On a year-to-date basis, the top performers were Bank of Beirut, RYMCO and Société Libanaise des Ciments Blancs (N), that grew by 41%, 37% and 35% respectively. Conversely, the worst performers were BLC (Bank Libanaise pour le Commerce), Holcim and Audi GDR with a reduction in price of 76%, 28% and 25%.

Amman SE (1 year)

Current Year High: 5,043.72 Current Year Low: 2,561.30

The Amman Stock Exchange, established in 1999, has been growing significantly in the past few years, mainly because of Gulf investments in the country, leading the market cap to reach $32.2 billion. Total volume traded during the period extending from January 2nd to November 25th surpassed 4.9 billion shares worth over $26.4 billion. The year 2008 started on a rise, increasing the ASE index from 3,764 on January 2, to reach its peak at 5,043 on June 19th. However, this did not last, as the ASE index began to decline and closed at 2,597.8 on November 25th, recording a year to date decrease of 30.99%. Of the 245 companies listed on the Amman Stock Exchange, the financial sector accounts for the majority of the volume traded, while the industrial and the services sectors follow. TIT, MEDI and Al Ahlia are the top three performers with a year-to-date growth of 316.67%, 238.77% and 140.23% respectively. On the other hand, the worst three performers were Comp. Transports, Beitna and Optimiza that witnessed a price drop of 76.52%, 66.97% and 65.67% respectively, compared to their prices recorded at the beginning of the year.

Abu Dhabi SM (1 year)

Current Year High: 5,148.49 Current Year Low: 2,701.65

The Abu Dhabi Stock Exchange lists 63 companies with a market capitalization of $68.35 billion. The market did not experience significant trades during the first two months of 2008. However, the market activity started to improve mid-March, boosting the ADSM Index to its year-to-date high of 5,158. Following the drop in oil prices, the market began to deteriorate leading the ADSM Index to reach its year-to-date low of 2,697 in mid-November, thus recording a year-to-date decline of 41%. Trades from the start of the year recorded a volume of 48.62 million shares and a value of $62.3 billion, with a daily average turnover of $271.9 million. Asmak and Methag Lil Takaful were top gainers during this period, recording price increases of 400% and 212% respectively. Gulf Medical Projects Company was also among the best performers with a 196% rise in its price. On the other hand, Ras el Khaimah Properties, Waha Capital and Dana Gas were the worst performers as they lost 73%, 69% and 69% of their respective values.

Dubai FM (1 year)

Current Year High: 6,391.87 Current Year Low: 1,814.90

The Dubai Financial Market (DFM) was launched in January 2004 and includes 54 listed companies with a market capitalization of $41.71 billion. The activity on the Dubai exchange maintained the norm throughout the first five months of 2008, recording a year-to-date high of 6,314 in the month of February. It then started to decline negatively as it was affected by the global financial crisis. The main factor behind the decrease in the market was the significant drop in prices of real estate and banking stocks. Consequently, the Dubai Financial Market Index slumped to reach its lowest value of 1,809 by mid-November, scoring a significant year-to-date drop of 69%. The total volume and value traded during this period reached 72.62 million shares and $81.07 billion, representing a daily average turnover of $355.8 million. GGICO was the best performer realizing an increase in price of 58%. NGI and Tameen followed recording an increase of 51% and 38% respectively. On the other hand, Tamweel, Emaar Group, DFM and Amlak Finance were the worst performers to date recording a major decrease in their prices by 85%, 82%, 81% and 80% respectively.

Kuwait SE (1 year)

Current Year High: 15,654.80 Current Year Low: 8,552.70

The Kuwaiti stock exchange index witnessed a 30% decline from 12,800 at the beginning of the year to close at 8,683 on November 25, 2008. The high of 15,667 was registered on 24 June during the peak of oil prices and the low of 8,459 was attained on 17 November in the midst of the current global financial and economical crisis that saw a weekly temporary trading freeze on the KSE. The total volume of stocks traded reached 75.711 billion with a value of $126.405 billion, thus recording a daily average value of $566.841 million. The KSE lists 97 companies in different sectors ranging from banking, investment, insurance and other industrial and service related companies. The total market capital of these companies is equivalent to $122.961 billion. Some of the best performers of the Kuwaiti index were Al Soor company, AREF Energy and Hits Telecom Holding company recording a 200%, 191%, and 129% respectively. Whereas Burgan Group, DAMAC, and IIG recorded 77%, 76%, and 76% losses on a year-to-date basis.

Saudi Arabia SE (1 year)

Current Year High: 11,895.47 Current Year Low: 4,264.52

The Saudi Arabian Stock Market (Saudi SE) is the largest market in the Arab world with 126 listed companies having a market cap of $229 billion. The Saudi SE has been the most affected by the global financial turmoil. Saudi Arabia is the biggest exporter of oil in the gulf region and its economy is predominantly affected by oil prices. Therefore, with the surge in oil prices by the end of June, the Saudi Arabian market remained at a peak level throughout the first half of the year recording 11,895. The Saudi SE began to plunge thereafter to record a year low of 4,223 on the 23rd of November. By the 25th of November, the Saudi SE index lost 58.58% of its value led by the SAICO Saudi company that saw a decline of 88% in its price. Anaam dropped 86% and Al Ahlia Insurance decreased 86%. Moreover, out of the 126 listed stocks, only 5 companies registered an increase in their prices, led by UCA that gained 80% and Development Bank that increased 12.5% from the beginning of the year.

Muscat SM (1 year)

Current Year High: 12,109.10 Current Year Low: 5,846.19

The Muscat Stock Market closed at 6,125 on November 25, down 33.27% from year start. The index registered a year-to-date high of 12,164 in mid-May when oil prices were equal to $147 per barrel. The index’s year to date low was 5,815 as a result of the global financial crisis. A volume of 4.014 billion stocks were traded with a total value of $8.487 billion and an average daily turnover of $36.896 million up to November 25. Some 128 companies in various sectors are listed with a total market cap of $16.366 billion. NDP, OMPC and Financial Corporation were among the best performers throughout the year recording an increase of 223%, 112% and 101% respectively, while Al Batinah International, AJS and OUIC registered 71%, 70% and 66% price reductions.

Bahrain SE (1 year)

Current Year High: 2,902.68 Current Year Low: 1,947.55

The Bahraini Market, similar to all oil-exporting countries, witnessed a stable performance in the first six months of 2008 and recorded a year-high 2,898 on the 16th of June. However, with the beginning of the global recession, and the drop in oil prices, the Bahraini index began a downward trend that reached a year to date low of 1,947 recorded on November 25, with a year to date decrease of 29%. Relative to the country’s small size, the Bahrain SE has a market capitalization of $22 billion and the Bahraini Stock market lists 42 companies, of which 15 stocks gained in price and 25 shrunk during this year. BFLC, Banader and NHC were the top gainers with growth rates of 55.6%, 40.8% and 36.6% respectively. On the other hand, the worst performers were ABC, GFH and Global with a year-to-date decrease of 66.64%, 52.06% and 50.81% respectively.

Doha SM: Qatar (1 year)

Current Year High: 12,627.32 Current Year Low: 5,504.53

The Doha Stock market that started trading in January 2000, holds 43 listed companies with a market capitalization of $63.92 billion. Trades on the Doha market witnessed slight fluctuations at the beginning of 2008 until March. Afterwards, the demand on stocks started to rise leading the DSM Index to peak at 12,636.24 by the end of May. The market began to decline later, realizing minor improvements in September to finish with a year-to-date low of 5,504 on the 25th of November and a year-to-date decrease of 42%. The total volume of trades during the year attained 3.5 million shares worth $44.867 billion with a daily average turnover of $193.39 million. Islamic Broker was the best performer to date with a rise in its price of 217%, followed by Mannai Corporation and Ezdan with an increase of 50% and 48.65%, respectively. As for worst performers, Makhazin came in first place with its price falling by 70.65%, whereas QIIC and Care Holding came in second and third places recording a decrease of 64.76% and 61.52%.

Tunis SE (1 year)

Current Year High: 3,418.13 Current Year Low: 2,579.60

The Tunisian market, launched in 1998, has been the most resilient market against the financial crisis, as the Tunis Stock Exchange (Tunindex) was one of the few markets in the world and the only one in the Arab world to register a positive year-to-date change of 14.20%. The Tunis SE kept an upward sloping trend throughout the first 9 months of the year to register a yearly high of 3,418 on September 9 and gradually decreased to close at 2,994 on November 25. Out of the 51 listed shares on Tunindex with market weighted capitalization of $6 billion, 27 went down and 24 went up. The best performers have been Astree Assurances that went up by 168%, STAR was up by 156% and ASSAD by 143%. On the other hand, the worst performers were the pipeline company SOTRAPIL that went down by 55% and the two Tunisian telecom companies SOTETEL and SPDIT-SICAP both dropping 46% and 34% respectively.

Casablanca SE All Shares (1 year)

Current Year High: 14,925.99 Current Year Low: 10,969.06

The Casablanca Stock Exchange (Casa All) recorded a year-to-date level of -14.26% on November 25, a percentage that is regarded as fair given the heavy losses on other exchanges. To date, the Casablanca SE has been relatively able to withstand against the global financial crisis in comparison with other countries in the region. The market maintained a constant level until mid-August, after which it decreased towards its year low of 10,742 in the last week of October. From year’s start, the Casablanca SE underwent a volume of 124.8 million shares with a total value of $9.4 billion. Out of the 77 listed companies with a market capitalization of $62 billion, 11 went up, led by Cosumar with an increase of 32%, and Afriquia Gaz, that also rose by 29%. On the other hand, 66 stocks went down, lead by the IT company Microdata with a decrease of 59%, followed by the electronic banking provider HPS that fell 58.90% and the Insurance firm La Maroccaine Vie, that dropped 55%.

Cairo SE: Hermes (1 year)

Current Year High: 11,935.67 Current Year Low: 3,686.35

The CASE 30, one of the major indexes in Egypt that started in 1998, has by the 25th of November lost more than 63% of its value. The index registered a year high of 11,935 on May 4 2008 and since then took a downward trend to record a year low 3,686 on the 24th of November. In the 224 days of trading to date, 19.96 billion shares exchanged hands at a value of $70.41 billion. Out of the 185 listed shares that have a market capitalization of $53 billion, 146 have decreased, 28 increased and 11 were steady. The real estate sector was the most influenced by the current global financial crisis where SODIC Co. lost the most with 82.25%, the Canal Shipping Agencies Company and Alexandria Containers & Goods also retreated 81.63% and 81.40% respectively. Among the best performers, the entertainment sector grew the most; Semiramis Intercontinental Cairo, grew 1,016.25% followed by the industrial sector with UEFM increasing by 172% and Egypt poultry increased by 122.23%.

December 8, 2008 0 comments

Banking

Running realty’s gauntlet

by Executive Staff December 8, 2008

written by Executive Staff

Before the global financial crisis hit home, the main priority for banks in the UAE was how to decrease inflation rates. Another top concern in 2008 was dealing with the flood of liquidity streaming into the market, as well as currency speculation. But then, at the end of the second quarter, liquidity started to dry up, and immediately after the financial crisis climaxed in September banks became reluctant to give out loans as liquidity was so scarce. By the end of 2008, banks across the United Arab Emirates will have borrowed a minimum of AED70 billion ($19 billion) from the government. As of the beginning of November, banks had already received 80% of this liquidity package. Such a move aims to — most importantly — provide liquidity to the sector, in addition to easing tight lending requirements amid the continuing global financial crisis. Raj Madha, director of equity research at EFG-Hermes, thinks that the government “has been doing quite a good job” via pumping liquidity into the banking system and thus has been “very successful in bringing down interest rates.” Standard & Poor’s (S&P’s) announced in a recent report that the tightening liquidity conditions in the UAE are “only tangentially related to the global credit crunch and are being driven mainly by a host of country-specific factors, including speculative investor activity surrounding the UAE dirham’s peg to the US dollar, rapid domestic growth in recent years and concerns over the real estate sector.” Even though banks in the UAE have been growing at 40-50% per annum in the last two to three years, this will “inevitably slow,” said Eirvin Knox, chief executive officer of the Abu Dhabi Commercial Bank, to Bloomberg newswire.

With the country’s economy heavily based on development projects, the market will inescapably witness a slow down as projects will be more difficult to finance and loans harder — and more expensive — to acquire. And if liquidity dries up again, “funding future projects will, however, become more difficult, thereby affecting the UAE economy’s hitherto extraordinary growth,” according to S&P’s. But, a simmering in growth “would not necessarily be a bad thing,” argued S&P’s, “as it could alleviate infrastructure and resource bottlenecks that had been stoking inflationary pressures, as well as reduce the risk of a significant oversupply in the real estate market.”

As the UAE real estate index had declined by 46% in July 2008, banks have also been affected by some of the property market’s concerns. S&P’s stated that by the middle of this year, the UAE’s direct exposure held somewhere between 15-20% of their total loans and 80% of their adjusted total equity. Overall, a colossal decline in real estate prices would, undoubtedly, negatively affect the banking sector, via direct exposures and indirectly through the depleted value of the collateral taken.

Solid vaults

All in all, domestic banks in the UAE show robust financial profiles distinguished by high profitability, good asset quality and strong capitalization. Third quarter results have been, in general, “strong” according to Madha. Despite the significant write-downs that took place, they were not as big as expected. “They are having to change their lending criteria, but that is what you would expect in a rescue environment,” he said. Regarding short-term stability in the immediate aftermath of the global financial crisis, UAE banks have stabilized thus far.

Since year-on-year growth has been rather remarkable in the UAE, “the thirst for credit has been substantial,” noted S&P’s. But while a part of this has been quenched by external borrowing, the local banking sector has satisfied most of the credit needs. S&P’s contended that loans granted by UAE banks have expanded annually by an average of 35% in the past four years. Following Qatar, “this is the fastest rate of loan growth observed in the Gulf.” The pace of growth, underlined S&P’s, “even accelerated in the first half of 2008 (to about 50% annual increase), boosted by massive borrowings from government and government-related entities to expand their business domestically and internationally.” Although customer deposits also grew rather briskly, they could not keep up with the excessive growth in lending. Thus, by the end of June 2008, the loan-to-deposit ratio exceeded 100% for the entire banking sector. Now, with an ongoing era of uncertainty, banks must keep their eyes open to any and all possible solutions to these new long-term problems.

The temptation for mergers and acquisitions has thus never been more appetizing for those banks suffering from the crisis. Mashreqbank, the UAE’s largest private bank, has said it is only open to a merger if “one plus one equals three” — i.e. if both parties involved will benefit from the activity — said the bank’s chairman, Abdul Aziz Al-Ghurair. The CEO of the National Bank of Abu Dhabi, Michael Tomlin, has also said the bank would welcome a merger, emphasizing that “we need to be bigger to compete effectively on the global stage.” With over 50 banks throughout the Emirates, financial institutions have had little impetus to merge until the recent global crisis. Right now, the majority of bankers are keeping mum about the possible need for mergers and acquisitions. No one wants to be kicked while they are down and voicing a desire to merge or be acquired is viewed as a sign of weakness. In November, Sultan bin Nasser Al Suwaidi, governor of the UAE Central Bank, said the bank would support any mergers and acquisitions if that would help soften the blow of the international financial crisis on the local economy. Madha, however, does not see any advantages to mergers and acquisitions, feeling that it “would take up a lot of airtime and a lot of management time. You want management to be focused on liquidity issues and managing risk, not busy with M&A activity.” For the time being, banks are displaying more interest in expanding abroad than integrating domestically, but in the long run, integration could be something to consider.

Forecasts

In the medium term, the UAE banking sector faces a few challenges in terms of future growth and profitability. In the coming period wholesale funding will be harder to attract, and cost more. S&P’s forecasted “a potential moderate deterioration in asset quality in the medium term. On the liabilities side, banks are expected to step up their competition to attract additional customer deposits to fund their growth and keep their liquidity at satisfactory levels.” The ratings agency expects UAE banks “to continue to re-price lending risk, which should act as a significant buffer to overall profitability.” Madha highlighted that loans for share purchases — potentially a derivative exposure — will be a chief concern for Emirati banks in 2009. Another major issue will obviously be provisioning, said Madha, “and that will depend on how the labor markets do, and again, the labor markets are not as solid as they have been in the past. We’re certainly seeing a reality check in the labor markets at the moment.” A further principal obstacle, asserted Madha, is the continuing lack of visibility in the system. “The fact that there is effectively no communication between the government and analysts — I see it as significant risks,” he said.

For the future, Madha is concerned with long-term stability in the banking sector. He feels this will heavily depend on the performance of the real estate market in the UAE: “if the property sector holds up, then the banking sector should be fine.” Al Suwaidi, however, firmly holds that the UAE’s banking sector is strong enough to deal with any corrections in the real estate market. Keep your fingers crossed for the banking sector, because the real estate market seems to be facing some serious downturns in 2009. Overall, next year banks in the UAE will continue to try to stabilize whilst facing numerous challenges.

December 8, 2008 0 comments

Real estate

Gains wane

by Executive Staff December 8, 2008

written by Executive Staff

While the boom in North African real estate continued through most of 2008, a downturn in global financial markets could put the brakes on the burgeoning sector in 2009. Algeria’s unstable security situation and fickle political climate continued to scare off investors and any significant growth in the sector over the past year, but Tunisia and Morocco pushed forward with ambitious state-sponsored public housing projects, as foreign investment flows helped finance the development of tourism projects, upscale properties and numerous mega resorts.

Analysts have predicted that the financial crisis will have little direct influence over the Tunisian and Moroccan economies. However, as the crisis worsens, regional real estate insiders are calculating the indirect influence they may see in the coming years, as these countries’ economic dependence on affected economies like those in Western Europe becomes a greater liability.

For instance, Tunisia and Morocco, like so many other developing economies in the globalized world, have come to rely heavily on the economic boost that remittances from workers living abroad send home. Out of the estimated $5 billion that is sent to Morocco in remittances, as much as 86% is invested in real estate. Now, as layoffs increase in developed economies and consumption trends dip to dangerous new lows, remittances to developing economies will sharply decline as the Moroccans and Tunisians living abroad tighten their belts.

Land of the second home

In addition, Tunisia and Morocco have had great success in marketing to second-home buyers in Western Europe and other regions. Offering lower real estate prices than the northern Mediterranean countries, year-round sunshine and hundreds of miles of undeveloped Atlantic and Mediterranean coastlines, both countries have became seductive destinations for Europeans interested in a vacation home or secondary residence. The region’s real estate boom, which most agree began in 2006, was further reinforced by the recent arrival of new low-cost airline carriers like Ryanair and Jet4You, which increased routes between exotic North African cities and European capitals and offered more competitive prices on fares. Analysts expect a sharp decline in demand for second-homes and vacation properties in these countries as financial conditions abroad grow worse.

As for the domestic real estate market, Tunisia’s outlook is bright for the following year with local demand largely met. Though many locals may complain of rising prices, the government implemented a strategy to promote national home ownership by preventing foreigners from participating in the property market until national ownership reached approximately 80%. Tunisia currently has the highest home ownership rate in Africa and one of the highest in the world. Morocco, on the other hand, with its much larger territory and whose population is nearly three times that of Tunisia, suffers from an ongoing housing deficit for which Housing Minister Taoufiq Hejira is finding no easy solutions. The development of the kingdom’s upscale market and tourism industry have by all means proved an economic windfall, but climbing prices of residential real estate in many areas have now reached peaks that are well beyond the reach of most Moroccans.

Due to a somewhat late entry on the international property market scene, Tunisia remains much less well-known than Morocco as a real estate investment destination, with an up-and-coming property market that is just beginning to attract a great deal of attention from investors in Europe, Asia, and the Gulf. In 2005, new legislation made it easier for foreigners to purchase property in areas designated for “economic and tourist activities.” Prices in Tunisia are still low, especially compared to some regions of Morocco (namely the much hyped Marrakech, a longstanding staple on the jet-set scene), where thirty years of foreigners buying villas have raised real estate prices to European levels. If prices continue to rise and they begin to lose their competitiveness with areas like southern Spain, buyers will choose properties in markets north of the Mediterranean, which have vastly superior infrastructures and identical climactic conditions.

The Moroccan administration is firmly in favor of economic liberalization and Hejira has proclaimed the state’s intention to completely withdraw from real estate development within five or ten years, entrusting the industry entirely to the private sector. But the administration continues to demonstrate a willingness to step in when necessary, making new land available at strategic moments in order to combat real estate speculation and sponsoring the development of 170 new urban zones. The proliferation of shantytowns is a painful and highly visible reminder that a healthy rate of economic growth and low inflation are not changing the kingdom’s high rates of poverty and unemployment as quickly as many would hope.

Social housing is currently a top priority for the public sector, which it is trying to pass on to the private sector. The Ministry’s ambitious plan to provide 130,000 social housing units by 2012 seemed like the ideal way to resolve the housing deficit (annual demand is officially estimated at 30,000 – 40,000 units). But while private-public partnerships formed the backbone of the state’s strategy to meet demand, the private sector has become more reluctant recently to invest in this bracket of housing, in spite of tax breaks and land incentives offered by the state. Social housing units, which must be priced at around 200,000 MAD ($23,000) to meet buyers’ capacity, are less and less economically feasible, since rises in construction and land costs over the past year have practically erased the profit margin for private developers.

Samir Benmakhlouf, President of Century 21 Morocco, thinks that domestic demand could carry the real estate market through the turbulence of the crisis period. When asked if the real estate boom could be over, he replied: “The demand is still there and the demand is much bigger than the supply. There is a readjustment period that we have to go through, but we still have a lot to build. We still have a more than one million housing unit deficit. The demand is very big and the opportunity is still very big. However there is a stagnation that is causing a lot of people to think twice about coming to the sector.” As he pointed out, a period of stagnation could actually prove beneficial to the market over time: the sector’s rapid growth and the promise of huge profits led to a great deal of speculation and under-the-table deals that have plagued the sector’s development and inflated prices. A period of calm will allow professionals to regain control of the sector and weed out some of the greed and corruption. Also, a stagnation of property prices is already boosting the rental market, which is sorely in need of a transition from the informal to the formal economy and whose development would help address the country’s massive housing deficit.

The rise of the rental

Benmakhlouf pointed to rising interest and profitability in the overlooked and underdeveloped rental market saying, “Our network has been receiving a lot of people throughout this crisis; we’re actually making record revenue throughout this stagnation period — record transactions, because a lot of them are rental, when people cannot afford to buy, they rent, there is a trend now to go towards rental.” Reports indicate that the state will soon pass legislation protecting owners rights and extending their control over property, which will boost the rental market, as owners currently cannot evict tenants who fail to pay rent. Benmakhlouf added, “If you look at cosmopolitan cities around the world, you find that two-thirds are rented and one-third is owned by the person who is living there. In Morocco it is the opposite, right now its one-third renters and two-thirds owners, but we are moving towards the rental market.”

Mega-projects in the course of development by Gulf companies Emaar, Al Qudra Holding, Sama Dubai, Qatar Real Estate Partners and others will also support the sector’s sustained growth in Morocco and Tunisia in 2009. Since 2003, climbing oil prices created an excess liquidity in the Middle East that oil-fueled investors, mainly sovereign funds and wealthy families, have used to make record levels of global investments. Pursuing a forward-thinking strategy of diversifying their economies away from dependence on oil exports, these regional investors, equipped with a petrodollar windfall in excess of $2 trillion, invested heavily in the North African region. Tunisia and Morocco, thanks to sustained political stability, solid economic outlook and carefully crafted investor-friendly environment, received the bulk of the region’s megaprojects, most of which have been channeled into tourism-related developments and luxury residential real estate.

These projects also have a modernizing influence that will pay off over the next decade in terms of job creation, urban renewal and the transformation of unused plots of land into hubs of tourism and industry. Projects in Tunisia such as Tunis Sports City and Mediterranean Gate ‘Century’ City, both funded by Dubai investment at $25 billion and $5 billion, will feature golf courses, state-of-the-art sports academies, marinas, luxury hotels and thousands of residential units.

In Morocco, the renovation of the Rabat-Sale Bouregreg River, currently nearing completion, is considered an axis of the kingdom’s strategy to update its social and economic conditions, starting with the capital city. The project, which is being carried out in partnership with the United Arab Emirates, includes a tramway, a port on the Atlantic, a marina and a facelift to monuments and historical features of Morocco’s administrative center. And while Casablanca, the economic capital of Morocco, is still waiting for a comprehensive urban renewal program, it is at least experiencing a boom in commercial real estate. Two thousand and eight saw the breaking of ground on the Morocco Mall project, which will be the largest mall in Africa, featuring an Imax theater and over 200 name-brand stores.

Several large-scale infrastructural works are underway in Tunisia and Morocco, as both countries update their airports to increase capacity for tourism and modernize their train transport system. Tunisia awarded a contract to build its seventh international airport at Enfidha to the Turkish holding company Tepe Aksen Ventisres (TAV) in 2007 and plans to award a contract to build a deep water port in the same region. In November 2008, Morocco received a 625 million euro ($804.6 million) loan from France to fund a high-speed TGV route between Casablanca and Tangiers. Although much remains to be done, particularly in the areas of public transport and urban planning, investments in national infrastructure prove that Morocco and Tunisia, often known for corruption and misuse of public funds, are very serious about achieving a goal-oriented long-term sustainable economic development.

December 8, 2008 0 comments

Real estate

Realty reform

by Executive Staff December 8, 2008

written by Executive Staff

The global financial crisis has hit the banking sector and rippled into the UAE real estate market. Some banks and mortgage lenders have considerably cut down or even stopped their real estate lending. For example, Amlak suspended new mortgage loans and NBD stopped lending to expat employees of real estate firms, fearing loan defaults. In response, the government in October began injecting $19 billion into UAE banks to overcome this liquidity squeeze. Additionally, the central bank has set up around $13.5 billion in an emergency credit fund for homeowners, investors and developers. It has also discussed proposals for introducing financial instruments to boost liquidity and insure the continuity of real estate loans.

New laws

The Strata Law was issued and came into effect on March 31, 2008. It defines the responsibility of property owners and developers in the management of common areas in multi-owner developments, like gated communities and apartment buildings.

Moreover, the new Dubai Property Court was established in September. It is expected to reduce the workload of RERA, which since its establishment has been swamped by property cases, including for project delays and noncompliance with a property developer’s initial description.

December 8, 2008 0 comments

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All roads lead to India

by Norbert Schiller December 8, 2008

written by Norbert Schiller

Many years ago, an Indian friend of mine living in Dubai said to me, “If you want to send a plane to anywhere in the world, including the North Pole, and are worried that you won’t have enough passengers, land in Delhi and I promise you that the plane will take off without one empty seat.” He was correct. There are very few places in this world where there is not a large thriving Indian community. From the South Seas to Africa, Indians have this uncanny ability to adapt to just about any situation and succeed. At the same time, they are one of the few communities that, no matter where they go, manage to keep their cultural identity and ultimately aspire to return home.

This past month I covered the India Economic Summit 2008 in New Delhi. The summit has been an annual event for the past 24 years and brings together the country’s brightest and most influential political and business leaders from all strata of society — from the multi-billionaire entrepreneur Vijay Mallay, whose portfolio includes everything from air transport to beer and tourism developments, to J. Vasudev, sadhguru and founder of the Isha Foundation. The summit also attracted a few influential foreign personalities, most notably former US Secretary of State, Henry Kissinger and former US Secretary of Defense, William Cohen.

Unfortunately, the timing of the summit this year could not have been worse. Instead of focusing on ways to improve the lives of India’s billion-plus population, most of whom live at or below the poverty line, business and political leaders spent the better part of four days discussing the world’s financial crisis and how to minimize its impact on the region. There were, however, a few local Indian politicians who wanted to distance themselves from the ‘global agenda’ and to use the summit as a political platform, possibly because of the upcoming parliamentary elections, to focus on the plight of India’s poor.

There is no country in the world where the rich and poor are so diametrically opposed and where the divisions in society run so deep. The caste system was officially abolished years ago, but the imprint it has left will most likely last for generations to come. For the average Indian, the solution is not in finding ways to bail out the financial system. Their priorities are more basic: having enough food on the table, educating the children and obtaining proper healthcare. One Indian politician at the summit so rightly put it that, “they had nothing to do with creating the financial crisis in the first place, so why should they be burdened by it?”

After spending almost a week with India’s rich and famous, I set out to discover the other side of the country. While traveling along the road, it’s not difficult to see why some of India’s local parliamentarians attending the summit were keen on using the event as a platform for their campaigns. Everywhere you turn there is grinding poverty. It’s also not difficult to understand why so many Indians have left their country to settle elsewhere. In the past, Indians began settling in Africa and parts of Asia because that was where the trade routes took them. Today, many end up in the Arab Gulf countries as laborers working long hours for a little more pay than they would receive at home.

While staying at a small hotel in Agra, I got to talking with an elderly waiter about travel and where I had grown up. It turned out that the waiter had been quite the entrepreneurial traveler of his time. When I spoke about my time growing up in California and Europe he began to reminisce about his years in the States and how he ended up there after being invited by one of his students, who had been a Peace Corps volunteer in India back in the 1960s. He told me how he moved from job to job until he opened his first travel agency. After the first year he sold the agency and then with the money started another travel agency. Over the course of 15 years he opened and sold 15 travel agencies and then, after having had enough of being an entrepreneur, set out into the world, a traveler once again.

I asked him why he was working now as a waiter in the hotel; he told me that there was really nothing for him to do in India and the one thing he liked to do was be among travelers and reminisce. “Besides,” he said, “ultimately you go home.”

Norbert schiller is a Dubai-based photo-journalist and writer

December 8, 2008 0 comments

Tourism

Lebanon – Vacation of the state

by Executive Staff December 3, 2008

written by Executive Staff

Lebanese officials are the kings of temporary fixes. For years now government employees have turned a blind eye on infrastructural problems plaguing the country’s various economic sectors. The Lebanese tourism sector is no exception.

According to Mohamad Chamsedine of Information International, before the civil war Lebanon boasted some 362 hotels with 28,000 beds. Today only 124 hotels with 8,000 beds remain. Figures vary, however, from one source to another. Pierre Achkar, head of the Lebanese Hotel Association, puts the number of rooms available in Lebanon at about 20,000 with 6,000 rooms in the Beirut region alone, of which 3,000 are in five-star hotels.
Inaccurate hotel classification is also a problem for industry players in a country where international norms are often not met by establishments, especially ones located outside Beirut. “We have requested a review of the norms and regulations adopted by the hotel industry,” Achkar said, explaining that many of the establishments that had obtained their classification before the civil war do not exist anymore, while others have not been renovated in years. As he pointed out, “This type of information is impossible to gather in the absence of proper inspections by the Ministry of Tourism, which unfortunately has neither the budget nor the technical staff necessary for such a task.” Inspectors usually develop their knowledge about international standards by training in international hotels, a process that is long and costly.

Standardized criteria
According to Norms 2000, published by the Swiss Society of Hotel Keepers and the Stanford Research Institute, norms are granted according to the infrastructure, the service and level of specialization. Among the characteristics featured for hotel infrastructure requirements are size of rooms, polyglot reception, breakfast buffet, mini-bar and room service. “The condition of the building, room equipment and décor definitely affect ratings,” said Achkar.
In luxury hotels around the world, quality of service remains the linchpin of the industry. As Achkar explained, “As an example, one can usually compare quality of service by taking a look at the number of employees a hotel has. Some hotels in Lebanon run 100 rooms with a staff of 150, while a 72-room hotel might be managed with 220 employees. The number of employees, reflecting in its turn on the quality of service rendered, makes the difference between a five-star hotel and others.”
Achkar added that over the last few years the hotel sector has evolved with the emergence of boutique hotels, which may only have 30 bedrooms and a small pool but are providing a five-star service. “The focus today is on quality instead of the actual facility,” insisted the hotelier. For Chamsedine, Lebanese hotels certainly have a competitive advantage relative to neighboring countries, despite the lower investments poured into the sector.
So how does this affect the hotel landscape in the country? There are more three and four-star hotels than five-star facilities in Beirut, but the latter have more capacity in terms of number of rooms than three and four- star hotels combined. Compared to neighboring Syria, five- star hotels are also more numerous. According to Chamsedine, over the last five years, a number of five- star hotels opened in Lebanon, while only one set up shop in Syria.
Achkar pointed out, however, that the three and four- star hotels outside the Beirut region do not generally correspond to international standards. Around the capital, the biggest concentration of hotels is in the Kesrouan and Metn regions of Mount Lebanon.
Many underlying problems related to infrastructure, electricity, social security and obtaining permits also plague the hotel industry. Often, regions far from the capital may not offer sufficient sources of entertainment for tourists who look for shopping areas, restaurants and pubs. Other problems pinpointed by Nada Sardouk, general director at the Ministry of Tourism, is the underdevelopment of certain areas in terms of road infrastructure, which she said is usually the responsibility of the local administration or municipality.
For Chamsedine, another difficulty faced by the tourism industry resides in the frequent power cuts, which reflect on hotel expenses. Soaring oil prices have weighed heavily on hotel balance sheets with establishments having to buy fuel for their electrical generators. High expenses are also tied to social security, accounting for up to 23.5% of employees’ salaries paid directly by the employer, according to Chamsedine.

Other challenges
Major cities such as Saida and Tripoli also have an insufficient number of venues relative to their population and are not properly promoted by tour operators. Other problems reside in slow permit procedures, which may require up to a year due to red tape caused by the involvement of multiple parties whether the municipality, or the ministries of tourism and development.
How does the restaurant industry, one of the backbones of Lebanon’s tourism sector, fare in the presence of so many challenges? Paul Ariss, president of the Syndicate of Restaurant and Café Owners, believes it is very difficult to estimate the number of restaurants in Lebanon as the last serious national survey performed by the Ministry of Tourism was done in 1997 and has not been updated since. “We believe that there are more than 6,000 restaurants, cafés, pubs, night clubs, discotheques of all types, in all of the Lebanese mohafazats. This figure excludes, however, catering companies and snack vendors, which do not offer seating arrangements,” he said. Some 60- 70% of such venues are operational all year long, while the rest are run seasonally. Greater Beirut (including Antelias and Dbayeh) boasts 55% of all Lebanese restaurants, the rest being divided into 15% each for Mount Lebanon (Kesrouan, Metn, Aley and Chouf), northern and southern Lebanon, while the Bekaa has the remaining 5%.
Ratings applied to the restaurant industry are, as with hotels, quite blurry since most have not been revamped since the 1960s. “The number of stars provided to every institution traditionally depends on various criteria such as the size of the space, the operational space, the décor, the furniture and equipment, etc. This rating is purely administrative and no ‘gastronomy’ ratings, such as the Guide Michelin or Gault & Millaut, adopted in France, are available in Lebanon,” Ariss added.
The restaurant industry currently employs about 50,000 people, of which 35-40,000 are permanent staff. The percentage of Lebanese nationals employed hovers over 90%, which is much higher than in others sectors such as industry and agriculture. This should give food for thought to state officials, in order to find new ways to further develop such a vital sector.

December 3, 2008 0 comments

Private Equity

Financial crisis survival guide

by Imad Ghandour December 3, 2008

written by Imad Ghandour

It was another sunny day as I climbed towards the base camp of the majestic Mount Everest on September 15, with a few distant clouds lingering on the horizon. I never expected that this date, when Lehmann Brothers fell in bankruptcy, would mark one of the sharpest economic turning points in history and the commencement of an economic tumble never before experienced in our lifetime.

It would be foolhardy to try to assess the impact of the financial crisis on our region or on our business of private equity. Doing projections and predictions is a fruitless intellectual exercise at this point. Prophecies of yesterday are proven by tomorrow.
Private equity players are reacting to the crisis in various ways and styles. Some have sized-up the crisis incorrectly and invested in what turned to be bottomless financial companies like Washington Mutual, where a private equity house saw $2 billion wiped out in no time. But most players are being very cautious, while recognizing that good deals done in the next year or two may yield exceptionally high returns.
Yet the immediate focus is on the health of existing portfolio companies. As an active shareholder, PE teams are monitoring their portfolio companies very closely and are more focused on the health of their existing companies than on closing new deals. Liquidity in particular is monitored very closely, sometimes on a weekly basis.
The three priorities that have made the most sense to me so far are the following:
1. Increase productivity: It is the best positive reaction to survive the crisis. Corporations need to strive to make optimum use of their resources, both human and capital. Staff productivity has to be pushed even further, without necessarily meaning layoffs. If 1,000 employees are needed to carry $100 million of sales, then management should be focusing on how to sell $150 million with the same workforce. In some sectors where the pie has shrunk considerably, like construction, layoffs are necessary.
2. Preserve liquidity: Cash has proven to be one of the scarcest resources today and it is expected to remain so in the future. Preserving liquidity is a priority over growth. One company in our portfolio, for example, is only accepting projects that are cash flow positive and is turning down projects from clients that do not have acceptable credit worthiness.
3.Survival is a priority: Major corporations around the globe are focusing on survival — just witness the freefall of the world’s largest bank Citigroup — and that should be the focus of portfolio companies. Burdening the company with additional obligations needs to be avoided as much as possible.
Over the medium-term, deal valuation will decrease substantially. It may take owners of private companies some time to adjust to the new realities. But in the next few months, owners of such companies will realize that they are competing for a very limited pool of capital and as such they will have to value their companies accordingly.
More importantly, new investments and valuations have to take into account the scenario of declining earnings and revenues. The nice graphs that have all revenues and profits pointing upward will be seriously challenged by investment committees, as well as real life.
The light at the end of the tunnel is that the survivors will be stronger when the world begins doing business again. Private equity players that weather this storm and invest prudently will see their portfolio value grow substantially as the world economy emerges from its long, cold winter.

Imad Ghandour is chairman of the Information & Statistics Committee – Gulf Venture Capital Association.

December 3, 2008 0 comments

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Mr. Iran sinks with oil’s prices

by Gareth Smith December 3, 2008

written by Gareth Smith

Change in the White House looms as Washington’s political class senses that the old adversary Iran is more open to pressure. There is a tempting parallel with the collapse of the Soviet Union, when a period of high oil prices encouraged the Communist state to overextend fiscally and politically, making it vulnerable when prices fell.

A timely IMF Regional Economic Outlook, released in October, calculated Iran needs an average annual oil price above $90 per barrel (on the fund’s own benchmark) to avoid a budget deficit in 2008. Ramin Pashaifam, an Iranian central bank vice governor, said last month the economy faced “big problems” if Iranian oil — typically selling 10% under the main benchmarks — remained below $60 per barrel for the rest of the Iranian year.
The falling price of oil — remember it was near $150 in July — is a serious challenge for President Mahmoud Ahmadinejad, who faces re-election in June 2009. Critics charge that Ahmadinejad has squandered oil revenue during the good years and left the state coffers bare.
Quite how bare is hard to tell. Iran still has a cushion, with foreign reserves held at the central bank estimated at just under $82 billion in March 2008.
But the Oil Stabilization Fund (OSF), designed to collect and store windfall oil revenues for difficult times, looks threadbare. Even before Ahmadinejad, it was customary for the president or parliament to raid the OSF for pet projects, but Ahmadinejad has used the fund to finance a welter of commitments made largely on his high- profile tours around the country.
The president is hardly the man to lead Iran towards belt-tightening. From his election in 2005, Ahmadinejad encouraged popular expectation with his slogan of putting “oil money on the people’s sofreh [dining cloth].”
But what remains in the OSF has become a mystery, with the president warning that speculation equals treason. Shamseddin Hosseini, the economy minister, claimed in early November that the fund contained $25 billion, a figure doubted by economists both in Iran and internationally who put the OSF as low as $5 billion. In any case, the lines between the OSF and the budget have become very blurred.
Declining oil revenue is also reducing banking liquidity. Facing a government-imposed lending rate well below inflation of 30%, the country’s 17 state and private banks are struggling to raise capital, and the largest — Melli, Saderat and Sepah – have been hit by UN sanctions over their alleged links with Iran’s nuclear and missile programs.
Ahmadinejad has admitted there has been abuse of loans and promised a crackdown. But banks simply lack the capacity to assess or monitor subsidized lending, while their resources are drained by lending rates of 12% — only 2% of which is covered by the government.
Not only the bankers are restive. A strike by bazaar merchants had led the government to postpone introducing VAT, and an increasingly assertive parliament in October impeached the interior minister for falsely claiming a degree from Oxford University.
As far as re-election goes, Ahmadinejad has history on his side. Every president of the Islamic Republic with the exception of the first, Abolhassan Banisadr, has won a second term.
With six months left to go, he is the only clear candidate. Former president Mohammad Khatami is pondering standing just four years after he left office with his reputation in tatters. Many of Khatami’s allies believe he is the reformist best placed to defeat Ahmadinejad, which in itself betrays the reformists’ weakness. Mehdi Karrubi, leader of the reformist National Trust party, has said he will not run against Khatami.
Moderate conservatives also await Khatami’s decision. Akbar Hashemi Rafsanjani, former president and current head of the Experts Assembly, is privately encouraging Khatami to run — which means Hassan Rouhani, the former top security official close to Rafsanjani, is delaying his own decision.
Another contender may be Mohammad Bagher Ghalibaf, the mayor of Tehran, who attracted over 4 million votes in the 2005 election running as a conservative modernizer.
While the economy will dominate the election, the international situation is a secondary factor. Ahmadinejad has helped elevate Iran’s nuclear program into a matter of national pride, and there is widespread hope in the country that Barack Obama may be open to reconciliation.
Ahmadinejad wrote to Obama on his victory, but a warmer reaction has come from the reformists, with Khatami saying, days before the US poll, that it might open the way for “new efforts to establish relations.”
Controlling any dialogue with the US, and gaining credit for any success in improving relations, is as much a matter for factional conflict as the economy. Ayatollah Ali Khamenei has already signaled his fear of infighting, warning that “some candidates have launched their [presidential] campaigns hastily, distracting … attention from the country’s main issues.”
For Ayatollah Ali Khamenei, custodian-in-chief of the 1979 Islamic Revolution, things may be moving just a little too fast.

Gareth Smyth recently returned to London after seven years in Lebanon and four in Iran. He has worked mainly for the Financial Times in 15 years reporting on the Middle East.

December 3, 2008 0 comments

Banking

Kuwait – A sinking ship in the fleet

by Executive Staff December 3, 2008

written by Executive Staff

The Kuwaiti banking sector has learned a great lesson in the immediate aftermath of the global crisis. Financial challenges began in the third quarter, when the central bank decided to increase banks’ reserve requirements. This stipulation limited liquidity and curbed inflation, which had reached an approximate 10.7% by July 2008 — almost 100% higher than 12 months before, when it stood at 5.6%. Global Investment House (GIH) reported that in the first nine months of 2008 profitability of the listed banking sector grew by 14% year-on-year. This was somewhat lower than GIH’s expectations of 16% but, with limited exposure to the infectious subprime crisis, Kuwaiti banks have stayed “relatively immune to the worst that the sub-prime mortgage crisis and what the ensuing debacle had to offer,” GIH said. Aftershocks of the sinking global markets took quite a toll on the Kuwaiti bourse, “which has lost substantial ground as yet,” noted GIH, “with little hope for any sudden respite.” Unfortunately, local banks that procure significant amounts of their bottom- lines from capital gains on investment securities are the ones who have been most affected by the circumstances.

Health in question
In October 2008, Moody’s credit rating agency registered doubt about the health of the Kuwaiti banking sector, due to fears of exposure to dwindling house prices as well as local equity markets. But the surpluses generated by record high oil prices earlier this year have kept the sector going. Kuwait’s economy is undiversified as more than half of its GDP hails from oil-related activities. This high dependency on oil and Kuwaiti banks’ high exposure to a shrinking property market are the main reasons why Moody’s gave the Kuwaiti banking sector a “stable to negative rating” in the fall. However, the credit rating agency’s recent report underlined that the overall operating climate within the banking system was “strong” because oil prices with net interest margins were also vigorous. Lending opportunities, however, are poor, leaving banks subject to real estate and construction sectors. For 2008, most of Kuwait’s top banks performed quite well, with the exception of Gulf Bank.
National Bank of Kuwait made up the highest contribution to the banking sector’s profitability, reporting a rise of 11% year-on-year by the end of the third quarter. Having the second largest contribution to the sector’s profitability, Kuwait Financial House exhibited results of 25% year-on-year growth. The Commercial Bank of Kuwait, the last of the three contributing musketeers, reported an earnings growth of 14% year-on-year in the first nine months of 2008. Gulf Bank regrettably reported negative earnings of 18% year-on-year for the same period, being the only bank in the country to do so. While most of the sector’s banks have not incurred unsustainable losses, they all witnessed one of its largest lenders, Gulf Bank, lose $1.4 billion as of October 2008.

That sinking feeling
Initially, the bank insisted it had only lost a few million dollars, but after an in-depth investigation by auditors and the central bank, the truth came out. This momentous loss has practically eliminated the bank’s Tier 1 capital. The worst development in this episode occurred on October 26 when the central bank was forced to step in and indefinitely suspend the bank’s trading on the Kuwait Stock Exchange (KSE). The lender explained that the losses were made up of “financial derivatives for its customers’ account, trading in financial instruments, as well as the provisions of loan and investment portfolios.” The money will now be recovered via an emergency capital subscription — the bank will issue 1,250 shares at a premium value of 200 fils ($0.73), permitting current shareholders first pick. The remaining unsold shares will be bought by the country’s sovereign wealth fund, the Kuwait Investment Authority. The bank’s old board has resigned and a new board will be elected on December 2, 2008. After the bailout of the bank, the Kuwaiti government ensured all deposits, while cautioning that concerns prevail over the well-being of the country’s banking sector. Such comments have not boosted customers’ confidence levels, as many have panicked and withdrawn large amounts of cash from their Gulf Bank accounts. While the bank’s operations have continued, its shares on the KSE have remained suspended until its restructuring is stabilized. However, Saleem Abdelaziz Al-Sabah, governor of the central bank, believes the Gulf Bank chaos is “under control.” But such obscurity has done next to nothing to restore investor confidence levels in the bourse. Around one quarter of the 200 listed companies on the KSE have dropped below 100 fils ($0.37) per share, driving confidence levels down across all sectors, including the country’s banking sector. Many feel that a lack of confidence — backed by a lack of transparency — is at the root of the crisis. Kuwait’s banks will need to tighten regulations and know when and where to invest better. While the Kuwaiti economy gets back on track in the next few months, banks are hoping to continue to perform relatively well, given the insipid financial conditions.

December 3, 2008 0 comments