CGI Gulf Insights of the Week (153)

ByCGI Gulf Insights of the Week
Monday, 28 October 2019
Published inOctober 2019

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CRIF GULF WEEKLY INSIGHTS

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

Abu Dhabi wealth fund to invest in operator of Mumbai Int'l
Abu Dhabi Investment Authority (ADIA), along with Canada’s PSP Investments and India’s infrastructure sovereign fund National Investment and Infrastructure Fund (NIIF), will invest $1.07 billion in India’s GVK group, operator of Mumbai’s Chhatrapati Shivaji Maharaj International Airport. The investment will be partly used to fund the acquisition of stakes of its two South Arica-based partners in Mumbai International Airport Ltd (MIAL) - Bidvest and ACSA. Bidwest and ACSA together hold 23.5 stake in MIAL. The exact investment by ADIA in the Indian infrastructure major is unclear. “GVK Airport Developers Limited (GVKADL) and GVK Airport Holdings Limited (GVKAHL) have entered into definitive agreements with subsidiaries of the Abu Dhabi Investment Authority, Public Sector Pension Investment Board (PSP Investments) and with National Investment & Infrastructure Fund, whereby the Investors will make an aggregate investment of INR 7,614 Crore into GVKAHL,” GVK Power & Infrastructure said in a statement. “Proceeds from the above transaction will be used by GVK to primarily retire debt obligations of its holding companies significantly and fund the purchase of additional shares in MIAL by GVKAHL from Bidvest and ACSA in accordance with the Right of First Offer already exercised by GVKAHL,” the statement added. The transaction closure is subject to the satisfactory completion of closing conditions, including regulatory and third party approvals and lender consents. Investments from ADIA and other funds will help the GVK group to fend off efforts by Adani Group – another India infra major - to acquire Bidwest and ACSA’s stakes in MIAL.

Saudi Arabia's BinDawood picks JPMorgan, Goldman for IPO
Saudi Arabia’s BinDawood Group is working with Goldman Sachs Group Inc. and JPMorgan Chase & Co. to sell shares of its supermarket business as early as next year, according to people with knowledge of the matter. The company also picked GIB Capital for the deal, which could value the business at more than 7 billion riyals ($1.87 billion), the people said, asking not to be identified as the information is private. Moelis & Co. is working as a financial adviser. The group started preparations earlier this year to list the company that operates the BinDawood and Danube supermarkets and hypermarkets. The deal would allow Investcorp Bank BSC to exit its minority stake in the retailer, marking the buyout firm’s third exit from Saudi investments via an IPO in five years. Share sales in the kingdom are picking up after a five-year slump. Oil giant Saudi Aramco is planning what’s set to be the biggest ever IPO, which could raise as much as $40 billion. Saudi Arabia’s Tadawul is drawing interest from global emerging-market investors after it was added to benchmarks compiled by MSCI Inc. and FTSE Russell. Saudi retailer Fawaz Alhokair Group raised about 2.47 billion riyals earlier this year from the IPO of its malls unit. Representatives for Investcorp and JPMorgan declined to comment. Representatives for BinDawood, Goldman Sachs and GIB Capital didn’t respond to requests to comment.

HSBC to embark on job cuts across Middle East, North Africa
HSBC Holdings Plc is embarking on a fresh round of job cuts, targeting hundreds of employees in the Middle East, North Africa, and Turkey as the latest part of the lender’s ongoing cost-reduction programme. The global banking and markets and commercial banking units may bear the brunt of the reductions, which are due to start in November, according to people with knowledge of the firm’s plans. HSBC employs 4% of its total workforce in the region, according to its 2018 annual report, or about 9,600 full-time staff. Noel Quinn, who took over as acting chief executive officer in August after the ouster of former CEO John Flint, has planned a series of retrenchments as he’s signalled he wants the top job on a permanent basis. The bank may partially exit stock trading in some developed Western markets and will attempt to sell its French retail bank, a move that could remove as many as 8,000 staff from the payroll. The emphasis on cost cuts has been reinforced by Chairman Mark Tucker, who recently told some employees the bank needs to improve its return on capital, according to an internal briefing note seen by Bloomberg. In a recent meeting, Tucker highlighted the need for more cuts, according to the briefing note. A spokeswoman for Europe’s largest lender declined to comment on the cost cuts or the account of Tucker’s meeting.

India central bank denies reports of selling gold from reserves
India’s central bank hasn’t sold any gold recently nor is trading in the metal, the monetary authority said in a tweet on October 27, 2019. The Economic Times had reported on October 25, 2019 that the Reserve Bank of India started trading in gold actively since July, buying gold worth $5.1 billion and selling $1.15 billion worth. The newspaper cited data from the RBI’s Weekly Statistical Supplement. “The fluctuation in value depicted in Weekly Statistical Supplement is due to change in frequency of revaluation from monthly to weekly basis and is based on international prices of gold and exchange rates,” the RBI said in the tweet. The central bank’s gold reserves are valued at about $27 billion as of October 18, the latest data showed.

UAE Central Bank confirms the move to control real estate exposures
The Central Bank of the UAE has released for consultation proposed new regulations to better control real estate exposures in the banking industry. It said in a statement that the primary objective of the proposed framework is to enhance financial stability by redesigning regulatory measures. The refined measures are expected to improve flexibility for bank lending to the real estate sector while ensuring that banks with higher real estate exposures, above a set threshold, will be subject to supplemental regulatory requirements. In addition, through the application of a backstop, the proposed measures avoid excessive real estate exposures and encourage banks to maintain diversified assets, the statement added. Lending to the residential real estate sector stood at AED243.5 billion ($66.3 billion) in 2018 while the total domestic credit extended by banks was just over AED1.5 trillion. The Central Bank said it has invited banks to provide comments on the proposed framework through the UAE Banks Federation by October 31. Earlier this week, Reuters quoted Abdul Aziz al-Ghurair, head of the UAE Banks Federation, as saying the move is to protect the whole economy, as "you can't have all your lending in one sector".

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