CGI Gulf Insights of the Week

  • ByCGI Gulf Insights of the Week
  • Monday, 18 November 2019
  • Published inNovember 2019
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Country Risk Update 
United Arab Emirates

Risk Indicator  - DB3b
Risk Level        - Slight
Ratings Trend  - Deteriorating

The UAE continues to strengthen its position as a regional safe-haven and business hub. Access to global markets from Dubai will be among the best in the world. Regional tensions around Iran are set to disrupt supply chains and investment flows into the medium term. Government policy favors local firms and can change arbitrarily and without warning.

Market Overview
Saudi Aramco at $1.7 trillion gives stock room to rise, analysts say
Demand for what could be the world’s biggest initial public offering will probably be high, and the price range announced by Saudi Aramco shows there’s room for the shares to rally when they start trading, according to analysts. The company will sell shares at a range of 30 riyals to 32 riyals each, for a valuation of as much as $1.71 trillion. That’s spurred speculation the dividend yield may range from 4.4% and 4.8%, say analysts and money managers in the six-nation Gulf Cooperation Council. There’s potential for the yield to rise “if the price of oil rebounds,” said Malik Zahir, a senior money manager at Securities & Investment Co. in Bahrain who sees dividends at about 4.5% if the offering is priced at the high end of the range. Aramco is regarded as “a very unique asset” and a “well-run company with transparent cash flows,” he added. Saudi Aramco is seeking to raise between $24 billion and $25.6 billion by selling a 1.5% stake, putting it close to Alibaba Group Holding Ltd.’s $25 billion deal - currently the world’s largest IPO. While the company’s valuation is below Crown Prince Mohammed bin Salman‘s $2 trillion target set about three years ago, it’s higher than the company’s fair range estimated by a majority of money managers polled by Bloomberg News. Aramco will probably rely heavily on local investors after receiving a tepid response from international money managers. The shares won’t be marketed in the U.S., Canada, Japan and Australia. The final price and valuation will be published on Dec, 5. No listing date has been announced.
US 'late to the table' to begin work on Expo 2020 Dubai pavilion
The United States is “woefully late to the table” in starting work on its pavilion at Expo 2020 Dubai, which is yet to be fully funded, according to Danny Sebright, the president of the Washington-DC based US-UAE Business Council. For several months, US expo officials have been warning that time is of the essence to secure funding for the pavilion to ensure it is built on time for the event. Pavilion USA 2020 announced its official partnership with California-based Virgin Hyperloop One, which will premiere its Hyperloop ride experience at the US pavilion. This first experience reveal marks the beginning of a multi-year global engagement campaign that will spotlight the innovations showcased at the US pavilion in preparation for its opening in October 2020. Currently, the US State Department and other government entities are legally prohibited from providing funding for capital expenditures or operational expenses associated with US pavilions or exhibits at world expos.  In a bid to secure funding, American lawmakers have introduced a motion requesting that the government waive those regulations and provide emergency funding for the 2020 event. While the bill has been approved by the House of Representatives, it still needs to be approved by the Senate before being sent to be signed by President Donald Trump. Speaking at a gathering of US and UAE government officials and business leaders on 17 November,2019 night – which included Reem bint Ibrahim Al Hashemy, director-general of the Expo 2020 Dubai Office – Sebright said that a failure to secure funding would represent “failings in America’s ability to promote and deploy its soft power abroad.
UAE Cabinet passes law decriminalizing insolvency
The UAE Cabinet has passed a federal law to decriminalize insolvency and protect those who are unable to pay their debts from going bankrupt. The new law, to be implemented at the start of next year, will support those struggling with financial difficulties, help them reschedule their debts and give them the chance to receive new concessional loans. In protecting them from legal prosecution, it will also offer an opportunity to work and provide for their families. A statement on the Emirates News Agency (WAM) website, said: “The law, which will enter into force in January 2020, will assist debtors in settling their financial obligations through one or more experts, to be appointed by the court. The experts will coordinate with the debtor and creditors to come up with a plan, lasting no longer than three years, to settle the financial liabilities and fulfill all obligations stipulated in the plan. “During this period, the debtor will be prevented from taking any loans until the court decides, upon the request of the expert, the debtor or any of the creditors, that the implementation of the plan has been accomplished.”  The law also contains special provisions that contribute to the swift completion of legal procedures and reduces the fees charged for rescheduling and restructuring the debts, with a view towards finding a fair compromise for both creditors and debtors. The move, which works hand in hand with existing financial laws, is designed to strengthen the economy by promoting investment, improving competitiveness and encouraging entrepreneurship.
UAE end of service benefits changes on the cards, according to Zurich report
End of service benefits in the UAE could soon be replaced by more conventional workplace savings plans employed by companies throughout the world. According to the latest 2019 End of Service Benefits report by Zurich in the Middle East and Insight Discovery, 75 percent of companies do not set aside ‘ring-fenced’ assets to cover their end of service benefits liabilities and make these payments from their operating cashflow. And of those that do set assets aside, 78 percent do not make these visible to employees. Earlier this year, Dubai International Financial Centre (DIFC) launched its Employee Workplace Savings (DEWS) plan, offering a low-cost investment platform for receiving and managing mandatory end-of-service contributions on behalf of employees - similar to the pension system operated in the United Kingdom. Employees can also add any voluntary savings, including cash or cash equivalent options, for those who do not want to take investment risks with their contributions. Through the report, 81 percent of companies revealed they would be open to change, believing that a mandatory funding requirement would be positive. “2019 is predicted to be the dawn of a new era for end of service benefits in the UAE. We should expect to see greater disclosure about the size of the end of service benefits liabilities and an increase in employee education about the benefits of workplace savings.
New $190m fund to offer financing to UAE defence sector SMEs
Tawazun Strategic Development Fund (TSDF) has announced the launch of an AED700 million ($190.5 million) Venture Debt Programme to provide local SMEs in the defence and security sector of the UAE with financial options to support the expansion of their operations. TSDF, previously known as the Defence and Security Development Fund, the investment arm of Tawazun Economic Council, said the programme has been set up in partnership with First Abu Dhabi Bank, Commercial Bank of Dubai and National Bank of Fujairah. Abdullah Nasser Al Jaabari, head of TSDF said: "The signing of these agreements reaffirms our dedication to empowering industries of strategic importance and driving economic value and diversification, in line with the UAE leaderships directive  "Through the newly established Venture Debt Programme and these partnerships, we will have the opportunity to further support SMEs in the private sector to build industrial capabilities and innovative solutions, as well as contribute to enhancing self-reliance of the sector’s ecosystem in meeting the current and future challenges of the UAE’s strategic requirements." He added: "As a start, we have an initial amount of AED700 million allocated for the program... In addition, SMEs will also have access to supply chain finance for confirmed projects in the UAE, further empowering other pioneering local entities with local products, and thereby creating a more holistic manufacturing ecosystem." The value of funding on offer to SMEs is between AED10-60 million, depending on the nature of the project.
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