CGI Gulf Insights of the Week (164)

ByCGI Gulf Insights of the Week
Monday, 05 August 2019
Published inAugust 2019

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CRIF GULF WEEKLY INSIGHTS

Country Risk Update - Egypt

Risk Indicator - DB5d
Risk Level - High

Ratings Trend - Stable

Egypt's prime location as a base for exports to the Middle East, Asia and Africa creates a potential for long-term economic growth, as does its large population of almost 100m. Economic reforms enacted since late 2016 provide an opportunity to resolve deep-seated weaknesses and create the basis for sustainable high rates of growth over the medium term.

Market Overview

More regulatory oversight needed in the UAE’s capital markets – Daman Investments chairman
The UAE’s Securities and Commodities Authority (ESCA) must intensify efforts to improve board governance and cut down on corporate manipulation in the capital markets, a senior UAE executive has said. Shehab Gargash, the chairman of Daman Investments, has urged the regulator to hold the boards of listed companies more accountable to ensure that trust is revived in the system. His remarks come after Abraaj, the biggest buyout fund in the Middle East and North Africa, collapsed last year following a row with investors over the use of money in a $1bn healthcare fund. Last week, the Dubai Financial Services Authority (DFSA) also announced that it had imposed a penalty of around $300m on Abraaj Investment Management (AIML) and $15.3m on Abraaj Capital. The fines were imposed for “serious wrongdoing by two Abraaj group companies included carrying out unauthorized activities in the DIFC and misusing investors’ monies,” the regulator said. In a presentation to journalists on Sunday, Daman Investments said the UAE capital markets have suffered “major blows to their corporate governance framework” over the past two years.

Abu Dhabi Financial Group and Shuaa Capital complete merger
Abu Dhabi Financial Group (ADFG) said Sunday it has completed its merger with Shuaa Capital and increased its authorized capital to $692m. The deal is the latest in the ongoing financial sector consolidation in the United Arab Emirates, which has also seen the completion of two large bank mergers since 2017. The capital increase follows admission of 1.47 billion new shares on the Dubai Financial Market in favor of ADFG’s parent company, Abu Dhabi Capital Management LLC, a joint statement from the companies said. The new Shuaa shares will be subject to a 12-month lock-up period from the date of admission, the statement said. In June, ADFG and Shuaa agreed on terms of their merger that will create an entity with $12.8bn in assets under management. ADFG’s shareholders will own 58 percent of the enlarged entity while Shuaa’s existing shareholders will own 42 percent. ADFG already owned 48.36 percent of Dubai-listed Shuaa, according to Refinitiv data. Shares of Shuaa Capital were flat in early trade.

MENA fund managers to boost UAE investments, bearish on Saudi
Middle Eastern funds plan to increase their investments in the UAE and decrease their investments in Saudi Arabia, while keeping their exposure to other countries in the region at current levels, according to a Reuters poll. Seven of the 10 fund managers polled said they would increase their investments in the UAE, building on a trend over recent months. Dubai was one of the worst-performing markets globally last year but has rebounded with its benchmark index up almost 15 percent so far. On Monday, it had its best day in almost a year, rising 1.2 percent, buoyed by rising real estate shares. In neighboring Abu Dhabi, the index is up 8.77 percent this year. In the UAE, “stable oil prices, a wide range of structural reforms and government-led spending initiatives,” as well as underlying earnings growth should lead to accelerating economic growth into next year, said Mohamed Eljamal, head of public markets at Abu Dhabi’s Waha Capital. However, economists polled by Reuters have revised their growth expectations down by 0.8 percentage points to 2.2 percent for the UAE through to 2021. “We believe the macro picture is not as rosy as stock prices look,” said Talal Samhouri, head of asset management at Amwal LLC in Doha. “The recent upward trend in UAE stocks can be attributed to look-back effect, where multiples are viewed on a trailing basis and not forward-looking, which poses downward risks when coming periods’ earnings hit the wire,” he said. Sixty percent of fund managers said they would decrease their investments in Saudi Arabia. On Monday, the kingdom’s stock index suffered its biggest single-day loss in a month amid poor earnings reports. Economists polled by Reuters expected Saudi GDP to grow by 1.7 percent this year.

Dubai lender Emirates NBD to support Denizbank if capital increase needed
Emirates NBD Group CEO Shayne Nelson said the bank would support Turkey’s Denizbank if it needed a capital increase, as the Dubai-based lender completed the purchase of Denizbank on Wednesday. Speaking at the signing ceremony for Sberbank’s sale of its shares in Denizbank to Emirates NBD, Nelson said NBD was a long-term investor in Turkey. The deal will help diversify Emirates NBD’s business, the bulk of which comes from the United Arab Emirates. After the deal, 30 percent of NBD’s assets will be outside the UAE, the bank said. “The Turkey business could account for 8 percent to 10 percent of group earnings,” said Malik Shabbir, a banking analyst at EFG Hermes. Emirates NBD now owns 99.85 percent of the Turkish lender. “While there Rconsiderable cross-border trade and business activity across the MENAT (Middle East, North Africa and Turkey) region, few banks can claim to have a strong pan-regional presence,” said Hesham Abdulla al-Qassim, NBD vice-chairman and managing director. “Emirates NBD is now looking to change this with Denizbank, and we are pleased to have found a partner that has built a strong franchise and reputation as a leading banking group.” In April, NBD said it was buying Denizbank from Sberbank for 15.48bn lira ($2.8bn), lower than a previously agreed price. Turkey’s BDDK banking watchdog approved the transaction in June and the sale was completed on Wednesday.

UAE, Saudi, Bahrain cut interest rates following US Fed
Central banks in Saudi Arabia, the United Arab Emirates and Bahrain cut their benchmark interest rates on Wednesday by 25 basis points following a similar decision by the Fed. It was the first time in more than a decade that the US Federal Reserve cut interest rates. Kuwait kept its discount rate unchanged at 3 percent. Gulf central banks largely move in lockstep with the US to protect their currencies’ peg to the dollar. But as the Fed raised rates nine times since 2015, they were unable to lower borrowing costs to help weather the effect of lower oil prices on their economies. “Monetary easing, although small, is timely and will give the region’s economies a helpful boost as growth has yet to recover from the 2014 oil price decline,” Ziad Daoud, chief Middle East economist at Bloomberg Economics, said in a report before the announcement. Kuwait’s central bank, which maintains a peg to a basket of currencies, said it skipped lowering rates to balance between the need to promote economic growth and ensure the dinar remains attractive for savings. Kuwait raised its key rate only four times since 2015. Trevor McFarlane, CEO, Emerging Marketing Intelligence & Research (EMIR), told Arabian Business: “The fed sent a message that this cut was not the beginning of an aggressive easing program but at the same time left the door open for future cuts.

Commodity Tracker

Business Events this Week In UAE

Business and Financial Modelling Training

@ Dubai, UAE
Date: 11-15 August 2019

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