CGI Gulf Insights of the Week (152)

ByCGI Gulf Insights of the Week
Monday, 04 November 2019
Published inNovember 2019

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CRIF GULF WEEKLY INSIGHTS

Country Risk Update - Saudi Arabia

Risk Indicator - DB3c
Risk Level - Slight
Ratings Trend - Deteriorating

Falling oil prices in Saudi Arabia over the next five years will see the government forced to liberalize the economy, opening up opportunities for cross-border investment and trade. Government policy favors local firms and can change arbitrarily and without warning. The loss of oil output, alongside the continuing weak oil price outlook, has resulted in us cutting the growth forecast for 2019 and 2020.

Market Overview

UAE plans to loosen the cap on bank lending to the property industry
The United Arab Emirates’ central bank is working on new rules that will loosen the cap on bank lending to the struggling real estate industry. UAE banks can currently lend as much as 20% of customer deposits to the property industry. That will be raised to a still-undecided figure but lenders that exceed 20% would incur a capital charge, central bank Governor Mubarak Rashed Al Mansoori said in Abu Dhabi on Nov 03, 2019. “We need to be flexible,” Al Mansoori said at a conference. But banks would “need to assess the risk-return profile of this investment. Is it worthwhile, do I want more capital?” Banks in the second-biggest Arab economy have called on policymakers to loosen the limit amid a property slump that has affected lending. Al Mansoori also said: The UAE economy is expected to expand by 2.4% in 2019 and accelerate at a faster pace next year. UAE banks’ third-quarter non-performing loans stood at 6.4%, compared with 5.7% in the year-ago period.

Saudi regulator approves IPO of the world's most profitable company
Saudi Arabia finally kicked off what could be the world’s biggest initial public offering. More than three years after Crown Prince Mohammed bin Salman first raised the idea -- and just three weeks after a plan to launch the share sale was abruptly shelved - oil giant Saudi Aramco announced its intention on Nov 03,2019 to list shares on the local stock exchange in Riyadh. That came shortly after the Capital Market Authority approved the offering. The number and percentage of Aramco shares to be sold will be determined at the end of the book-building period, according to the company’s announcement of its intention to list. Trading is likely to start in December. Aramco, which pumps about 10% of the world’s oil, generated the most profit of any corporation last year with net income of $111 billion -- more than Apple Inc., Google’s parent Alphabet Inc. and Exxon Mobil Corp. combined. The company was targeting a $2 trillion valuation -- more than double that of Apple - but the kingdom is now ready to accept a valuation of $1.6 trillion to $1.8 trillion to ensure the IPO is a success, according to people briefed on the matter. Grabbing a role in the deal has been one of the most hotly contested mandates for global banks. More than 20 have been mandated, with the top roles going to firms including Citigroup Inc., Goldman Sachs Group Inc., and JPMorgan Chase & Co.

New draft law calls for a rent freeze for the first three years in Dubai
A new draft rental law has proposed that apartment rents should be fixed for a period of three years, according to local media reports. According to the Arabic-language Emarat Al Youm newspaper, a newly proposed draft rental law also stipulates that a residence’s owner and his representatives cannot receive commissions or other fees to be used for administrative costs associated with signing or renewing a contract. The draft law – which has yet to be approved by Dubai’s supreme legislation committee – also clarifies that the rent cannot be increased for the first three years, under any circumstances. The Emarat Al Youm story noted that “the increase in the rental allowance, if any, after the expiry of the [three year] period shall be at the average wage.”

Middle East Banking Forum to open in Abu Dhabi on Sunday
UAE Banks Federation (UBF) is set to host the 7th edition of the Middle East Banking Forum on Sunday, 03 Nov, 2019 bringing together high-profile speakers and global industry experts to share insights on key banking and financial topics. The event, which is supported by the Central Bank of the UAE, will be held at Fairmont Bab Al Bahr in Abu Dhabi on November 3 and is expected to be attended by over 500 delegates, including governors, c-executives from official banks, financial regulators and private sector entities. In light of a period of unprecedented change in the banking industry, UBF said the flagship event will explore the most prevalent trends affecting the sector including digitization, global volatility, cybersecurity, and FinTech. Abdulaziz Al Ghurair, chairman of UAE Banks Federation, and Mubarak Rashed Al Mansoori, Governor of Central Bank of the UAE, will deliver opening remarks at the beginning of the forum. Other confirmed speakers include Greg Cross, artificial intelligence pioneer and co-founder and chief business officer of Soul Machines, and Jamie Woodruff, Europe’s top ethical hacker, who will conduct interactive sessions. Al Ghurair said: “As we witness dramatic transformation across the banking sector, it has never been more important for us to share our experiences so we can manage this change and achieve greater success.

Bahrain's Investcorp set to invest at least $500m into Saudi Arabia
Bahrain-based Investcorp plans to invest at least 50 percent of its $1 billion GCC Infrastructure fund in Saudi Arabia, according to co-chief executive Hazem Ben-Gacem. “It will focus on healthcare, education, social housing, infrastructure, roads, utilities,” he was quoted as saying by Reuters. He added that the rest of the fund will be spent in other parts of the GCC or wider MENA region. Among the potential projects are ports in Oman, utilities in the UAE and road infrastructure in Bahrain, Ben-Gacem said at the Future Investment Initiative forum in Riyadh. Investcorp is one of the most prominent private equity investors in the kingdom, where it has invested $700 million in the last decade, including in Leejam Sports Co car rental company Theeb, Saudi Fitness Centre and gold jewelry maker L’azurde. “We have been able to find attractive investments, manage them and exit them,” he said, adding that a second, $400 million PE-MENA fund will be launched soon. The fund invests in private firms in the MENA region. Arabian Business has reached out to Investcorp for more details on its future plans in Saudi Arabia and the wider region. In a separate announcement, Investcorp announced that it invested $11.3 million in Intergrow Brands Private Ltd., a subsidiary of Synthite Group, the world’s largest producer of value-added spices with operations in India, the US and China.

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