CGI Gulf Insights of the Week (169)

ByCGI Gulf Insights of the Week
Monday, 24 June 2019
Published inJune 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

Saudi Arabia offers permanent residency to expats for $213,000
Saudi Arabia has opened applications for a permanent residency program designed to attract foreign investment to the kingdom, but it will cost a hefty 800,000 riyals ($213,000). There’s also a cheaper option, with a one-year renewable residency costing 100,000 riyals. The so-called premium residencies will allow foreigners to buy a property and do business without a Saudi sponsor, switch jobs and exit the kingdom easily and sponsor visas for family members, according to the website for registrations. As well as the paying the high fee, applicants must be at least 21 years old, prove financial solvency and have a clean criminal record and bill of health. The program approved in May is the latest sign of how the quest for non-oil revenue is prompting Gulf nations to rethink the role of foreigners in their societies. It’s a landmark move in a region where many overseas workers are subject to some of the world’s most restrictive residency rules. The United Arab Emirates approved a plan this year to allow wealthy foreigners to apply for a 10-year stay. The idea for a long-term Saudi residency program was first floated in 2016 by Crown Prince Mohammed bin Salman, as a part of his plan to reduce the economy’s reliance on oil and boost foreign direct investment.

US rate cuts set to impact Saudi and UAE bank revenues
Saudi Arabia and United Arab Emirates banks may have their annual revenue estimates cut by one or two percentage points as US interest rates are expected to decline, according to Bloomberg Intelligence. A 25 basis point cut in US rates will pull down the net interest margin at banks by about 6 basis points, analyst Edmond Christou said in a report on 23 June,2019. The margin is the difference between what a bank earns on assets such as loans and what it pays out on liabilities such as deposits. Currencies in Saudi Arabia and the UAE are pegged to the dollar, and the two countries usually follow interest rate changes made by the US Federal Reserve. The market is pricing in about a 75 basis point reduction in US rates by year-end, data compiled by Bloomberg show. Loans make up more than 70% of Gulf banks’ earnings assets that are largely floating-rate corporate facilities, and changes in interest rates have a huge impact on income from lending, according to the Bloomberg Intelligence report. The net interest margin at Emirates NBD, the UAE’s second-biggest bank, may fall by 12 basis points for every 25 basis points cut in rates, the most among the top four UAE lenders, according to the report. The net interest margin at Dubai Islamic Bank and Saudi lenders Al Rajhi Bank and Riyad Bank may hold up better.

Saudi Arabia becomes a full member of the money-laundering watchdog
Saudi Arabia was accepted as the 39th - and first Arab - as a member of the Financial Action Task Force, the Paris-based global watchdog that makes recommendations to governments on combating money laundering and terrorism-financing. The kingdom was approved as a full member after almost four years as an observer, the Saudi Arabian Monetary Authority said in a statement. Joining FATF will help Saudi Arabia showcase “its efforts in the field of combating money laundering, financing of terrorism and proliferation,” SAMA said. Saudi Arabia’s elevation in FATF follows its escape in March from being included in a planned European Union money-laundering blacklist. The proposed EU measure stalled after objections by all but one of the bloc’s 28 governments, which lowered the risk of additional regulatory hurdles for banks doing business with the kingdom.

Dubai FDI set to embark on China investment mission
Dubai FDI, the investment development agency of Dubai Economy (DED), is set to embark on its latest investment mission to China. The mission to Shanghai and Shenzhen from June 24-29 will include government and business leaders. The delegation will include representatives from Dubai FDI, Dubai South, Dubai Healthcare City Authority, Expo 2020 Dubai, Emirates Skycargo. They will engage in an interactive platform to discuss Dubai’s initiatives in facilitating foreign direct investments (FDI) through Dubai Advantage Forum 2019 in Shanghai on June 24 as well as take part in several business meetings in China on June 25. A roundtable discussion will be held in Shenzhen on June 27 followed by direct visits to major Chinese companies and business meetings on June 28. Fahad Al Gergawi, CEO, Dubai FDI, said: “Dubai has always played an important economic hub for Asia and this role continues to evolve towards greater heights following China’s launch of the Belt and Road initiative, the new global trading highway designed to link Asia to Africa and Latin America directly through the Middle East. The mission takes place as China maintains its position as Dubai’s biggest trading partner with its market value reaching AED139 billion in 2018. The wider UAE has been a strong bilateral trade partner of China, which is its second largest trading partner, valued at over AED194,000 billion which is expected to soar up to AED257 billion by 2020.

Zain KSA agrees $600m Murabaha facility
Zain KSA has signed a SAR 2.25 billion Murabaha facility with a consortium of local and regional banks to refinance its existing $600 million facility with Commercial and Industrial Bank China. Zain KSA disclosed that the facility was oversubscribed and is fully secured by a corporate guarantee from Mobile Telecommunications Company KSCP (Zain Group). Prince Naif bin Sultan bin Mohammed, chairman of Zain KSA, said: “The closing of the Murabah Facility, which saw the transaction being oversubscribed, reflects the confidence of the financial institutions in the successful digital transformation strategy being executed by Zain KSA.” Banque Saudi Fransi (BSF) acted as the documentation bank of the facility. Al Rajhi Banking and Investment Corporation, Arab National Bank, BSF, First Abu Dhabi Bank PJSC (Saudi Branch), and SAMBA Financial Group were the bookrunners and mandated lead arrangers for the facility. BSF was also appointed the investment agent on the transaction. Zain KSA raised its Q1 net profit to around SAR 129 million, compared to SAR 77 million for the same period of 2018, while total revenues rose to SAR 2.1 billion in the first quarter, a growth of 24 percent over the same period of 2018. During the period, Zain KSA maintained Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) of SAR 955 million in the first quarter, up 67 percent compared to SAR 571 million in the first quarter of 2018, reflecting an EBITDA margin of 46 percent.CIBC).

Commodity Tracker

Business Events this Week In UAE

Middle East Future of ATMs & Payments Middle East & Beyond
@ Shangri-la Hotel, Dubai
Date: 25 June To 26 June 2019

Business Updates

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