CGI Gulf Insights of the Week

  • ByCGI Gulf Insights of the Week
  • Monday, 30 September 2019
  • Published inSeptember 2019
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Country Risk Update 
United Arab Emirates

Risk Indicator- DB3b
Risk Level      - Slight
Rating 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.
Market Overview
Family businesses in Kuwait should join stock market, minister says
Family businesses in Kuwait should be encouraged to sell shares on the country’s fledgling stock market, which is also trying to attract foreign investments in an effort to expand, according to a key minister. “We think we have the muscles, the know-how, and all the opportunity to become a commercial hub,” Minister of Commerce and Industry Khaled Al-Roudhan said in an interview. “We’re trying to improve our business environment not only for foreigners but Kuwaitis too.” Kuwait is working to help the exchange grow, Al-Roudhan said, touting upcoming IPOs, a “very ambitious” development program by the Capital Markets Authority focused on accessibility for foreign investors, as well as the lack of foreign ownership limits.  The Capital Markets Authority will start a public offering of its 50% stake in Boursa Kuwait next month, making it the second publicly traded exchange in the Gulf after Dubai. “This will enhance its profile further and increase its competitiveness,” according to Al-Roudhan. MSCI will add Kuwait to its main index tracking stocks in emerging markets in June 2020, once some trading mechanisms are improved, in an upgrade that has been priced in by investors anticipating billions of dollars of inflows.
FDI into Dubai surges 135% to $12.69bn
Foreign direct investment (FDI) into Dubai rose to AED46.6 billion ($12.69bn) in the first half of 2019, 135 percent more than in the same time period in 2018, Dubai Crown Prince Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum announced on September 29, 2019. The enormous growth in FDI, Sheikh Hamdan said, is a “testament to global confidence in Dubai’s economy”. Dubai now ranks third globally when it comes to attracting FDI, in terms of both capital flows and the number of greenfield projects.  “Dubai is among the top three global FDI locations thanks to the vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, who created a global investment environment in Dubai that keeps pace with the aspirations of investors, entrepreneurs and technology shifts in the region and the world,” Sheikh Hamdan said. The FDI flows and rankings were revealed by the Dubai Investment Development Agency – Dubai FDI – based on the Financial Times’ fDi markets, a global online platform that monitors data on capital flows and greenfield FDI projects around the world and the ‘Dubai FDI Monitor’ data. Sheikh Hamdan added that Dubai was particularly successful in H1 when it came to attracting technology and specialized talent. According to Dubai FDI Monitor, FDI projects with high and medium-technology totaled 47 percent of the total FDI projects in H1 2019, based on OECD classification criteria. A total of 24,294 jobs were created by FDI projects, 48 percent had a high and medium technology component.
Dubai signs key deal to grow green sukuk sector
Dubai Islamic Economy Development Centre (DIEDC) on 23 September, 2019 signed a memorandum of understanding (MoU) to collaborate on growing the green sukuk sector. The agreement was signed with the Dubai International Financial Centre (DIFC), the Dubai Financial Market (DFM), and Climate Bonds Initiative (CBI), a statement said. It aims to promote the issuance of green sukuk in the UAE and across the world, in addition to developing the standards of certification for green sukuk along the lines of the Climate Bonds Standard and Certification Scheme, the statement added. According to rating agency Moody’s, green bond issuance rose by 40 percent to $47.2 billion globally in the first quarter of 2019, backed by strong corporate issuers. CBI developed the Climate Bonds Standard, a set of eligibility criteria to determine whether a relevant bond can be categorised as ‘green’, thereby enabling investors to make informed decisions about the bond’s environmental credentials. Earlier this year, DFM and DIFC launched the Dubai Sustainable Finance Working Group, which is mandated to work towards achieving the UAE’s nationally determined contributions to the UN’s Sustainable Development Goals and the strategic objectives of Dubai Plan 2021.
Saudi Arabia's credit rating affirmed by S&P after oil attacks
Saudi Arabia’s credit ranking was affirmed by S&P Global Ratings as the kingdom recovers faster than expected from the biggest attack ever on its oil industry. S&P kept the sovereign assessment at A-, four levels above junk and on par with Malaysia and Malta. The outlook remains stable, according to a statement on September 27, 2019. “We expect Saudi Arabia to redouble its efforts to secure key oil production and processing facilities, increase storage capacity, and enhance attempts to develop Red Sea export routes that would help avoid the volatile Arabian Gulf," S&P said. Shaken by the worst disruption of crude output in history, the kingdom is quickly reviving production, with top officials suggesting the strikes had “zero” impact on the economy and revenue. Still, the attacks this month threw into doubt Saudi Arabia’s role as an anchor of stability in global energy markets. Since then, Aramco has been working flat out to restore capacity, while maintaining normal supplies to customers by tapping inventories and ramping up other fields. Saudi Arabia’s real GDP will contract by about 0.4 percent this year, driven mainly by a fall in oil production tied to the OPEC deal and the attacks, S&P said. The rating company expects real GDP to rebound to 2.3 percent on average over 2020-2022.
Goldman is cutting its loan exposure to SoftBank's Vision Fund
Goldman Sachs Group is seeking to offload a portion of its stake in a $3.1 billion credit line it helped arrange for SoftBank Group’s Vision Fund, according to people with knowledge of the matter. The New York lender has approached other financial institutions to take on some of its lending commitment to decrease its risk, said one of the people, who asked not to be identified because the talks are private. Goldman has been looking to cut its exposure to the facility for the last few months, one of the people said. The bridge facility, which Goldman and Mizuho International began arranging last year, enables the behemoth investment vehicle to more quickly pounce on transactions. The loan was syndicated to other banks including Standard Chartered, Citigroup, Barclays and Royal Bank of Canada, according to a SoftBank presentation in May. Goldman is offering the debt at prices slightly below par, the people said. While it’s not uncommon for lead banks to syndicate their share of loans, Goldman already reduced its exposure in May by bringing in additional lenders.  Now, the firm is looking beyond the existing group, and at least one of the original 10 lenders isn’t interested in boosting its exposure, one of the people said. Goldman is offering to sell the credit line in pieces as small as $50 million, one of the people said. Goldman indicated to the Vision Fund when it committed to the loan that it would look to reduce its exposure over time, said a person close to the fund. Representatives for Goldman Sachs and SoftBank Vision Fund declined to comment.
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