Sovereign Wealth Funds and the Global Economic Crisis

Sovereign Wealth Funds and the Global Economic Crisis

The global economic crisis has left many sophisticated institutional investors reeling. Most are yet to fully recover even though markets have clawed back some of their early losses. Worst hit are the hedge funds with exposure to financials and commodities. For instance, New York based Ospraie Fund that was worth some $2.8 billion at the start of August 2008 wound up later in the year as its holdings took a massive hit due to falling commodity prices. London based RAB Capital, which invests in small cap mining stocks, had to seek protection from redemptions due to falling commodity prices and consequent poor performance. Assets under management by RAB have reportedly fallen by 74% in 2008.

It is not only regular hedge funds that have crash landed but also mighty Sovereign Wealth Funds (SWFs). The Monitor Group, a US based consulting firm, estimates SWFs to have lost $57.2 billion on the publicly disclosed investments of $125.7 billion they have made since 2006. According to a working paper on Gulf Cooperation Council (GCC) SWFs published by The Council on Foreign Relations (Brad Setser and Rachel Ziemba), SWFs in the GCC have lost as much as $350 billion in 2008. SWFs elsewhere haven’t faired any better.

SWFs are returning to the market again and are making big investments. Some of these investments are in strategically important assets to their sponsors; i.e. their respective governments. SWFs have made a wide range of investments covering a multitude of sectors such as banks, real estate, energy and technology.

With their massive wealth and sprawling investments, SWFs have marked the rise of state capitalism. Owned directly by a sovereign government and managed independently of other state financial institutions, SWFs were created to manage the country’s foreign exchange reserves. Some high profile SWF investments include $3 billion in Blackstone Private Equity Firm by the Chinese Investment Corporation (CIC), $75 billion in Citigroup by Abu Dhabi Investment Authority (ADIA) and $800 million investment by Mudabala Investment Company from Abu Dhabi (Mudabala).


The advent of SWFs was viewed by many with considerable hostility and even prompted Mr. Larry Summers, the former US Treasury Secretary, to express concerns over potential threats by SWFs. Mr Summers’ concerns stem from the differences between investments by governments through SWFs and those by other conventional institutions as the former may have different motives. Mr Henry Paulson, another former US Treasury, urged the International Monetary Fund (IMF) to develop “best practices” to govern SWFs investments to, “demonstrate to critics that SWFs can be constructive, responsible participants in the international financial system.”

Those were the heady days of 2007-2008, when markets were defying gravity and oil was reaching new highs. And most of the SWFs are actually from oil rich nations. With government coffers brimming with foreign reserves on the back of the oil windfall, SWFs such as ADIA, Kuwait Investment Authority (KIA) and Qatar Investment Authority (QIA) were making inroads into markets in the West with investments in large corporations, banks and private equity firms.

Given the influence SWFs can exert and the magnitude of funds under their management (estimated to be $3.22 trillion), an analysis of SWFs and their investment strategies would prove to be appropriate. So what are the implications of these losses to the investment world? What have been the responses by SWFs? How will they change the investment strategy of these funds? What would be their role in a post financial crisis environment?


We interviewed investment officials and policy makers from several prominent SWFs to determine the answers to the questions above. In a series of articles we will be publishing views, findings and conclusions, of course within the boundaries of confidentiality.


One notable observation was that SWFs have started reducing their investment time horizons in response to market uncertainties and declines in reserve transfers. This appears to be the case particularly for SWFs established by oil producing countries. Views on expected returns have changed, leading to the postponement of some investments. It is fair to say that SWFs will not be making aggressive investments such as those in 2007 – 2008, unless of course the assets are at fire sale prices.

SWFs are also moving towards the establishment of stabilisation funds, to insulate their respective economies from falling commodity prices and export earnings. They are also expected to provide stability in fiscal revenues and protect against Dutch disease. Russia’s Stabilisation fund is a classic example which prevented the emergence of Dutch disease in the country.

SWFs as stabilisation funds are also expected to make investments in ailing domestic companies, as indicated by Kazakhstan’s sovereign wealth fund Samruk-Kazyna. The fund is seeking to buy gold, copper and iron assets which would benefit companies such as London listed KazakhGold Group (LSE: KZG), Kazakhmys (LSE: KAZ), Eurasian Natural Resources Corporation (LSE: ENRC) and Toronto listed Alhambra Corporation (TSX: ALH). Similar investments in local companies are expected by Singapore’s Temasek, CIC and Brazil’s SWF.

According to the International Monetary Fund (IMF) some SWFs are seeking indirect hedges in response to falling commodity prices. This would change the asset allocation strategy in the SWF portfolios resulting in overweighting assets that are negatively correlated with the price of the commodity that funds them. For example, though not exactly a SWF, Gazprom’s investment in Airbus Industries provides a natural hedge against falling energy prices. This may lead to SWFs seeking investments in new sectors and new regions as well as different asset classes that they have not invested in before.

This bodes well for sectors such as natural resources, particularly mining, as they currently have a relatively low exposure amongst current SWFs. At present, SWFs have the highest exposure to banks and financials, even after the market meltdown, followed by real estate and energy. As SWFs seek to diversify into other sectors, the mining sector emerges as an attractive candidate.

While SWFs have already made investments in the mining sector, it is worthwhile highlighting the latest SWF investment in a mining company. The China Investment Corporation (CIC) invested C$1.75 billion (US$1.5 billion) in Teck Cominco's (TSX: TCK.A and TCK.B, NYSE: TCK) outstanding Class B subordinate voting shares. This acquisition represents approximately 17.2 per cent equity and 6.7 per cent voting interests in the company. Other SWFs may also make similar investments in mining companies with Chinese SWFs however securing the lion share.


SWF investments in the energy sector is expect to be relatively low however, as most of the large SWF sponsoring governments already have an exposure to the sector either through investments already made or naturally through their own economies. SWF investments in oil are therefore expected to come from SWFs from countries that do not have oil resources (such as Korea Investment Corp, Temasek and Government of Singapore Investment Corporation) or from industrial nations such as China and Japan that are heavy energy consumers.

While the objectives of SWFs sponsoring governments cannot be fully ascertained, some display very clear-cut investment aims. For instance, Singapore’s Temasek Holdings acts like a reserve investment corporation seeking to generate returns to its sponsors through investments in diverse industries including energy and resources. Stabilisation funds such as the Kazakhstan National Fund seek to insulate the economy against the price swings of oil, gas and metals, on which the country heavily depends. The Government Pension Fund of Norway seeks to facilitate government savings necessary to meet future public pension expenditures and to support a long-term management of petroleum revenues.

However, concerns by the likes of Mr. Summers and Mr. Paulson are not ill-founded and it is imperative to determine if SWFs can be used as a government policy tool. Sponsoring countries could use the SWF muscle in a protectionist backlash. SWFs such as CIC can not only ensure base metal and energy supplies, they may also use their clout to gain access to greenfield energy and mining projects in places such as Africa.

Governments have so far not used their SWF clout as a policy tool. SWFs such as Temasek, ADIA, KIA and QIA have indeed remained passive partners. In the case of ADIA, Yousef al Otaiba, Abu Dhabi’s director of international affairs, even assured that they have no plans to use investments by ADIA as a foreign policy tool. CIC in its investment in Teck has also assured that they seek to be mere passive investors. One would fervently hope that SWFs would indeed follow similar policies and usher in a more effective system of corporate ownership.

Sources & Acknowledgements:
Sovereign Wealth Fund Institute, International Monetary Fund, International Financial Services London, Council on Foreign Relations, The Economist, Individual Sovereign Wealth Funds, The Monitor Group

Saudi grants approval for UBS securities business

* UBS Saudi Arabia to offer full range of services

* Part of expansion in Middle East

ZURICH, July 14 (Reuters) - Saudi authorities have granted approval for UBS (UBS.N: Quote, Profile, Research, Stock Buzz) (UBSN.VX: Quote, Profile, Research, Stock Buzz) to start securities business activities, which the Swiss bank said on Tuesday would help it expand in the fast-growing Middle Eastern region.

In establishing the business, UBS said it had partnerned with Mohammed Al Dhoheyan, former chief executive of the Saudi Development and Management House for Investments, and MerchantBridge, an equity house investing in the Middle East.

UBS, the world's second largest wealth manager by private client assets, is struggling to rebuild its once powerful brand after massive investments into risky U.S. assets forced it to make more writedowns than any other European bank.

Last year, UBS won won a licence to open an investment banking branch in Saudi Arabia, the world's top oil exporter and the region's largest economy, joining a growing list of western banks boosting their presence in the booming Gulf Arab region.

UAE and Saudi to lead GCC M&A activity in Second Half of 2009

Even though merger and acquisition agreements have fallen considerably across the GCC, in sync with the global slowdown, the UAE and Saudi Arabia may see most of the agreements happening in the second half of this year as far as the region is concerned.

According to Azhar Zafar, Head of Mergers and Acquisitions at Ernst & Young Middle East, the UAE and Saudi Arabia will see the most number of deals in the Middle East.

Nawal Roy, Managing Partner, Shobhit Capital Group based in the US, sees the UAE as one market where maximum number of deals are expected to happen in the latter part of the year.

"We expect to see M&A activity still subdued in the second half of the year. Early signs suggest there maybe some activity in Saudi, Egypt and the UAE," says Vikas Papriwal, a partner in KPMG's private equity and sovereign wealth funds practice. However, market stabilisation is vital if deals are to happen.

"In the beginning of the year, there was little buyer interest in transactions at any price. With stabilisation in the last couple months, groups are again considering growth investments, but buyers can afford to be selective. We should see some pickup in activity at the year-end as more bids and asks continue to converge," Steve McIntire, Managing Director, Capital Street Partners told Emirates Business.

Agrees Zafar: "M&A deals activity in the coming quarters is dependent on investor confidence – the key driver, which means for companies achieving good operating results as well as on the availability of liquidity," he said.

Experts believe this is a great opportunity to buy but if credit remains limited, most of the deals may be distressed and out of necessity. "It will be more driven either to strengthen or just out of sheer necessity for survival," said Roy.

"If liquidity remains tight, we can expect to see more mergers particularly in the real estate and financial services sectors," said Zafar.

However, deals could be more than just distress, said McIntire. "This is a great time for opportunistic buyers with valuations in many sectors failing to reflect growth inherent in the UAE market. As the market recognises that new consumers will eventually live in all these properties close to completion, there will be bids that appeal to more than forced sellers, at least in non-construction, consumer-driven sectors," he said.

"Sectors that are likely to be more favoured include healthcare, power and utilities and financial services," said Papriwal.

Experts differ on the subject of the sectors that may see the most M&A deals in the coming months.

According to E&Y, most activity is expected in the financial services, telecommunications and the real estate. Roy believes banking sector is very ripe for M&A activity.

McIntire, on the other hand, sees retail and consumer products as the best sectors ripe for deals.

"Retail and consumer products are the broadest markets with the most opportunities. Despite the recent down trend, the UAE consumer market will grow over a five-year horizon. In both consumer product and retail, there is a healthy mix of sellers and buyers along with some interest from financial buyers who recognise the longer-term growth dynamic," he added.

SEI Launches the First Shariah-Compliant Manager of Managers Equity Funds

SEI Launches the First Shariah-Compliant Manager of Managers Equity Funds

SEI Attracts $160m in Assets in First Month

SEI (Nasdaq: SEIC), a leading global provider of asset management, investment processing and investment operations solutions, today announced the launch of the first dedicated Islamic Manager of Managers equity funds. The SEI Islamic Investments Fund Plc (SIIF) is a new umbrella UCITS III fund designed to offer Shariah-
compliant investments.
This represents the first phase of SEI's expansion plans for the Middle
East and Islamic Finance market, where it has already attracted significant
interest in SIIF among High Net Worth investors in partnership with a major
global private bank, gathering $160m in assets in the first month since
launch.
Commenting, Brandon Sharrett, Managing Director of SEI's Global Private
Banking business in the EMEA region said:
"Investors globally are familiar with the Manager of Managers concept
and have been benefiting from this approach for quite some time. This is
the first time Islamic investors will be able to take advantage of our
sophisticated, internationally-recognised Manager of Managers programme.
Our launch of these funds represents SEI's first step towards targeting the
rapidly growing Islamic Finance market."
The SIIF umbrella fund will have four initial underlying Manager of
Managers sub-funds. These are the SEI Islamic US Equity Fund, the SEI
Islamic European Equity Fund, the SEI Islamic Emerging Markets Equity Fund
and the SEI Islamic Pacific Basin Equity Fund. These can be used to build
global asset allocation models and benefit from a rigorous manager
selection process designed to limit volatility, manage risk and deliver
consistent returns.
The adviser for Shariah compliance is HSBC Amanah, the Islamic Finance
Division of HSBC Securities (USA), part of the HSBC Group. Shariah
compliance is specifically included in the investment objective of each
SIIF sub-fund, with customised Shariah guidelines for each underlying fund
manager.
About SEI
SEI (Nasdaq: SEIC) is a leading global provider of outsourced asset
management, investment processing and investment operations solutions. The
company's innovative solutions help corporations, financial institutions,
financial advisors, and affluent families create and manage wealth. As of
the period ending March 31, 2007, through its subsidiaries and partnerships
in which the company has a significant interest, SEI administers $382.4
billion in mutual fund and pooled assets and manages $190.0 billion in
assets. SEI serves clients, conducts or is registered to conduct business
and/or operations, from more than 15 offices in over a dozen countries. For
more information, visit http://www.seic.com

TAQA Arabia, the energy subsidiary of Egypt's private equity firm Citadel Capital, said Sunday it won an EUR118 million contract in Libya

TAQA Arabia, the energy subsidiary of Egypt's private equity firm Citadel Capital, said Sunday it won an EUR118 million contract in Libya, its first in the North African country.

Under the contract, TAQA Arabia will connect over 370,000 households in the Libyan cities of Tripoli, Benghazi and Misurata with natural gas through a gas distribution network, the company said in an emailed statement.

The project will be executed through a joint venture between TAQA Arabia and the Libyan Social Economic Development Fund under the auspices of the General People's Committee for Electricity, Water and Gas Distribution, according to the statement.

The joint venture, operating as The Arab Gas Co. (Libya) and to have a paid-in capital of 5 million Libyan dinars ($4 million), will be 49%-owned by TAQA Arabia, while the Libyan Social Economic Development Fund will hold 51%.

"We believe that this contract will be the launching pad for more Libyan projects for TAQA Arabia as well as our other platform companies," said Citadel Capital Managing Director Marwan Elaraby.

TAQA Arabia said it will also draft a strategic plan for the expansion of Libya's gas grid, a project worth an estimated EUR2.5 million.

The company, which was established in March 2006 by Citadel Capital, was previously awarded contracts in the United Arab Emirates, Qatar, Jordan and Syria.

-By Tahani Karrar,

Foreign capital floods back to the Gulf

Foreign capital is flooding back to Gulf equity and debt markets as international investors who fled the region last year reload on local stocks and bonds.

International investors bought shares worth about Dh6.3 billion (US$1.71bn) on the Dubai Financial Market last month, up more than 20 per cent on April, helping the market advance last Wednesday to its highest close since November. Debt markets are also receiving a boost as foreign investors withdraw from other asset classes such as US treasuries and seek higher returns from Gulf corporate and sovereign bond sales, analysts say.
But the rapid gains of the past week could lead to a significant correction across regional stock markets later this month as investors take profits, according to analysts based in Dubai.

“From our side, we’ve seen a marked increase in foreign participation in the local equity and debt markets,” said Ali Khan, the managing director of Arqaam Capital. “There’s been a shift to more positive sentiment for our markets from international investors.”
International investors retreated from Gulf markets in the second half of last year while a global lending squeeze hit regional bond and syndicated loan sales. Emerging markets have risen for the past three weeks on speculation that the worst of the recession is over, encouraging investment flows to return to economies driven by oil and other commodities.

The return of international capital has also triggered activity in the region’s private equity market, where activity has slowed over the past six months. Gulf Capital, a buyout group based in the UAE, last week launched a Dh1.75bn fund that was heavily subscribed by foreign investors.

“It was an eye-opener for us,” said Karim el Solh, the chief executive of Gulf Capital. “If you look at most of the funds launched here, they were raised locally. We were very surprised to see that international money is chasing opportunities in the Gulf. If you put it in perspective, the Gulf is expected to grow by 4.5 per cent over the next two years. It’s not the 6 to 7 per cent we saw over the past five years, but still respectable by any measure.”
But regional companies may need to become more transparent and communicate with potential investors more effectively if markets are to attract further inflows and build on recent gains.

“That’s the area of concern at the moment, there needs to be more progress in terms of reform and development for companies in the GCC in order for us to see more capital inflows,” said Mohieddine Kronfol, the managing director of Algebra Capital.
The GCC’s $100bn debt market almost ground to a halt in the previous two quarters as bond spreads widened and liquidity was unavailable. Analysts say the recent success of sovereign debt issuances helped revive interest in local bond sales. Mubadala Development, Abu Dhabi’s strategic investment arm, launched a $1.75bn bond programme in April and Qatar raised $3bn through a bond issue on April 3.

Qatar Telecom said last week it received $13bn worth of bids for the sale of $1.5bn in debt. Aldar Properties, the largest developer in Abu Dhabi, was also oversubscribed for a $1.25bn bond sale last month. The growing appetite for sovereign and quasi-sovereign debt sales is reflected in narrowing spreads on government credit default swaps, analysts say.
“This is an indication that flows are coming back, perhaps not to the same extent as [last summer], but spreads were very wide and they are narrowing now,” said Florence Pisani, an economist with Dexia Asset Management.

Equity markets are also seeing a revival, especially in Saudi Arabia and Dubai, which became the world’s third-worst performing exchange last year, losing 70 per cent of its value by the end of the year from retreating international investors.
Dubai shares on Wednesday advanced to their highest level since December after Bank of America (BofA) said the stocks offered the best value in the region. The value of shares traded last month reached Dh14.9bn, an increase of 6.9 per cent compared with Dh13.9bn in April, according to data supplied by the DFM.

Net foreign investment in DFM-traded shares more than doubled last month to Dh540.7 million as stocks gained 17 per cent. NASDAQ Dubai also saw trading volumes surge, rising 67 per cent to 331.3 million shares from 198 million shares in April.
Dubai shares are the best in the region to own for a short-term “trade” because the market’s valuation is 56 per cent lower than that of the MSCI Emerging Markets Index, based on the price-to-book ratio, according to a BofA report.

Last week, stocks advanced across the region, gaining 13 per cent in Dubai, 5.4 per cent in Abu Dhabi and 4.5 per cent in Saudi Arabia. Analysts warn that a correction could follow the huge gains of the past month.
“Equity markets have rebounded due to positive fund flows and increasing risk appetite. But our view is that there will be profit-taking in the short-term, resulting in markets in the region erasing a portion of the gains generated so far this year,” said Fahd Iqbal, a research analyst at EFG Hermes.

Sara Hamdan and Asa Fitch

ADIC eyes investments in South Korea, Asia

ADIC eyes investments in South Korea, Asia

State-owned Abu Dhabi Investment Company (ADIC) said yesterday it is diversifying investments into South Korea and Asia as it seeks also to attract inward investment.

ADIC, Korea Development Bank (KDB) and the Korea Trade Promotion Agency (KOTRA) signed an agreement to help increase investment flows between South Korea and the Middle East and the North Africa region, ADIC said in a statement.

The agreement lays the groundwork for cooperation in many areas, including cross-border mergers and acquisitions, private equity, infrastructure and portfolio equity investment.

Markaz expects 50% surge in Saudi demand after mortgage law

Markaz expects 50% surge in Saudi demand after mortgage law

Makkah and Jeddah will see higher growth compared to other cities. (AFP)

By Parag Deulgaonkar on Wednesday, June 03, 2009
The total demand for residential units in Saudi Arabia will be in the range of 500,000 to 800,000 during the period 2009-13, with the economy expected to get back on the growth track next year as oil prices rise, according to a new report.

"The demand will experience a 50 per cent upward shift from its current levels if the mortgage law comes into force, thereby turning ar-ound from the historic trend of waning investment in residential real estate and lack of home ownership affordability for the younger generation," Ku-wait Financial Centre (Markaz) said in its June report on real estate.

The currently planned organised supply will provide about 73,000 units during 2009-13 and the rest will be tapped by current and future projects by smaller size developers and major projects planned in future.

The younger generation, in the age group of 20 to 35, is currently deprived of real estate ownership and they live with the elder generation, which also leads to the choice of villas as preferred housing units. They have to face a rental cost at 45 per cent of their current income levels or a monthly mortgage at 41 per cent, should they decide to move out. The higher equity levels of 50 per cent on an average, which is the result of lower mortgage penetration, also magnifies the lack of affordability.

"The mortgage law, if and when passed, will include them in the target market and expand the potential for residential real estate in Saudi Arabia thereby turning around the waning investment trend seen in the past decade," the report said.

Supply scenario, currently dominated by projects worth less than $50 million (Dh183m) apiece, is slowly drifting towards more organised supply due to the planned mega cities. However, completions will happen in a phased manner with major completions planned during the middle of the next decade, thus providing attractive opportunities for developers of smaller size projects and also for big projects.

The current major cities of Riyadh, Jeddah, Makkah, Al Khobar and Dammam will remain the centre of activity for the next five years till the boom gets shared by the planned mega cities.

Rentals and prices contracted on an average by 10 per cent, much less than other cities in the region, driven mainly by a fall in risk appetite.

"We expect rentals and prices to bounce back again following economic recovery and re-emergence of risk seeking. We expect Makkah and Jeddah to experience a much higher growth compared to other cities mainly due to the current pent-up demand," Markaz said.

Residential real estate is one major type of capital asset and a sustainable trend in its share in the overall capital formation is essential for the prevalence of equilibrium conditions in the economy.

Residential real estate investment has been growing at a much slower compound annual growth rate (CAGR) of four per cent in the past decade in nominal terms compared to the 10 per cent growth in overall investment. In the past five years, marked by high nominal capital and gross domestic product growth, overall capital formation grew at a CAGR of 16 per cent in nominal terms while residential real estate grew by a much smaller six per cent.

The better growth in non-residential real estate capital, which was at a decadal CAGR of 15 per cent and by 25 per cent in the past five years, should not be construed for commercial and retail real estate assets as this includes the infrastructure capital spending as well.

Investment in residential real estate marked by years of relative and absolute under investment.

Besides, residential real estate's share in the total capital investment also came down from its high of more than 20 per cent during early 2000s to 13 per cent in 2008 due to shortages in ownership financing. This is corroborated by a 100 basis points contraction in mortgage lending as a percentage of total credit during the past three years.

According to the report, the primary cause of the dramatic fall in the residential real estate capital build-up is the lack of mortgage lending. The effect of the current economic slowdown hit bank lending hard, which has resulted in lending contraction.

"Given the historic dismal lending to real estate and construction sector, we can expect no significant changes in the trends in bank lending to real estate. Mortgage lending as a percentage of total residential real estate capital formed stood at a meagre average of three per cent in the past five years. Though it has grown up to 5.5 per cent in 2008, it still indicates dismal penetration," said the Markaz report.

Saudi Arabia is among the least levered countries in the GCC, measured in terms of bank credit to private sector as a per cent of nominal GDP, and hence is not a highly levered economy. This scenario warrants the necessity for the passage of the mortgage law, which would remove these impediments while a further delay could put the sector in a gridlock till the time it is passed, the Markaz report said.



Kingdom urged to focus on housing supply gap

Saudi Arabia needs to give priority in its massive investment programme to tackling the housing supply constraints within efforts to bring inflation rates to normal levels, the kingdom's largest bank said yesterday.

The National Commercial Bank (NCB) estimated the investment programme being carried out in the world's oil superpower at SR2.4 trillion (Dh2.35trn), covering planned projects and those under way.

It said such projects, mostly infrastructure, are intended to expand the supply capacity in the kingdom and ease inflationary pressure in the long term.

Citing official data, NCB said inflation in Saudi Arabia, which controls a quarter of the world's recoverable oil deposits, declined to about 5.2 per cent in April from six cent in March, its lowest rate since the historic high of 11.1 per cent in July.

But the report noted that the main cause of the decline was a sharp fall in food and beverage prices, which tumbled by 10 per cent during that period. In contrast, the rental component of the cost of living index in the kingdom slipped by only about 1.2 per cent, the report said.

The report attributed the plunge in food inflation to the drop in imported inflation from major trading partners, as a result of the rapid decline in global commodity prices. In rental, the decline was minimal due to the domestic supply crunch.

"In the kingdom, the demand for residential housing is estimated at nearly 155,000 units per annum that will require a significant investment outlay of about SR68 billion during 2009-2014," NCB said in its weekly bulletin, sent to Emirates Business. "Bottom-line, priorities should be in place to direct both public and private resources towards relaxing such capacity constraints and to counterbalance the spillover effects of external shocks by capitalising on the windfall of oil resources, which will mitigate inflationary pressures in the long-run."

Saudi Arabia, which pumps nearly 10 per cent of the world's oil supply, has already announced it would invest more than $400bn (Dh1.47trn) in infrastructure development in the next five years.

The government also announced a record budget of SR475bn for 2009 in a bid to stimulate the economy that has been largely stifled by the global financial distress.

Inflation in Saudi Arabia climbed to its highest annual rate of about 10 per cent in 2008 because of a surge in food prices and rents, a weakening in the US dollar to which the Saudi rial is pegged, and strong domestic demand after oil prices soared to their highest average of nearly $95 per barrel.

The rate last year was more than double the 4.1 per cent inflation average recorded in 2007 and five times the rate of 2.1 per cent in 2006. Independent estimates expect the rate to tumble below six per cent this year.

Like in other Gulf oil producing countries, the global financial crisis has ended nearly six years of an economic boom in Saudi Arabia after sharply depressing crude prices and forcing the kingdom to trim oil output in line with an Organisation of Petroleum Exporting Countries' accord. This has led to a liquidity shortage, weakened domestic demand and slashed the kingdom's income, prompting it to use part of its massive overseas assets. (Nadim Kawach)

SHUAA sees overwhelming investor interest during GCC Investor Conference in London

SHUAA sees overwhelming investor interest during GCC Investor Conference in London

31 May 2009
Dubai - 31 May 2009: SHUAA Capital (ticker symbol: SHUA.DU), the GCC's leading financial services institution, saw significant interest and renewed optimism towards the Gulf region during its two day GCC Investor Conference in London.
Mr Majid Al Ghurair, Chairman, SHUAA Capital commented:

"The conference was a great success and we saw real optimism amongst international investors towards the GCC. This demonstrates the widespread belief amongst investors that regional markets are likely to recover more quickly from the global crisis than many in the developed world. The strength of the GCC economies lies in the vast hydrocarbon reserves and the initiatives governments have taken to modernise, liberalise and regulate their markets and in the programmes to educate their growing populations. As the hosts of this conference, we are proud to be continuing our longstanding tradition of attracting foreign capital to the GCC."

Conference participants included the senior management of 17 leading GCC companies and over 150 international investors who together discussed each company's investment case and equity story during a series of one on one meetings.

H.H. Sheikh Khaled bin Zayed Al Nahyan, Chairman, Bin Zayed Group commented:

"As Dubai 1.0 witnessed a strong focus on developing its hardware, I believe that we now have in place the financial and economic infrastructure to enable Dubai to develop its software, or knowledge infrastructure, that will help it rebound more quickly than other economies. Dubai 2.0 will symbolise an economic model that can compete globally with its state-of-the-art soft and hard infrastructure, cutting edge technology and an entrepreneurial environment that supports creativity and unrestrained flow of capital. Dubai's solid achievements over the last few years enable it to now consolidate its position as it moves ahead with its recovery."

Sanjay Uppal, Chief Financial Officer, Emirates NBD commented:

"The uncertainties posed by the current global economic downturn have necessitated continued, if not increased, engagement with the market and Emirates NBD have maintained an active dialogue with the regional and international investor community throughout the crisis. The SHUAA Capital GCC Investor Conference in London provided an excellent opportunity to continue this dialogue at a time when sentiment is showing signs of improvement and the outlook is starting to become clearer."

Zeina Al Tabari, Chief Corporate Affairs Officer, Drake & Scull International PJSC said:

"We are very pleased to have been given the opportunity by SHUAA Capital to explain our investment case to such a wide range of leading international investors. Importantly, our discussions also focused on the strong fundamentals supporting GCC economies and equity markets which make the region a very attractive destination for foreign investment.'

The conference also saw keynote speeches and panel sessions with regional business leaders and experts including H.H. Sheikh Khaled bin Zayed Al Nahyan, Chairman, Bin Zayed Group, UAE; H.H. Sheikha Hanadi Al Thani, Chairperson, Amwal Investment Co., Qatar; Mr. Abdulrahman Alsufiyani, VP SAGIA Funds Initiative, Regional Development, Saudi Arabia; Mr. Husam Hourani, Managing Partner, Tamimi & Company; Mr. Tom Healy, Chief Executive Officer, Abu Dhabi Stock Exchange; Mr. Abdullah Bin Saleh Al Suweilmi, Chief Executive Officer, Saudi Stock Exchange (Tadawul); and; Mr. Kito de Boer, Director, Middle East North Africa, McKinsey & Company.

-Ends-

About SHUAA Capital psc:
Since 1979, SHUAA Capital has played a prominent role in shaping the financial services landscape of the GCC and will continue to be at the vanguard of regional integration into global financial markets. www.shuaacapital.com

SHUAA Capital psc maintains a leadership position in Investment Banking, Asset Management, Brokerage, Private Equity, Finance, and Research. Headquartered in Dubai, in the United Arab Emirates, SHUAA Capital has a regional presence with offices in Abu Dhabi, Riyadh, Doha, Cairo, Beirut and Istanbul.

Embedded in the dynamic economic environment of the Gulf Cooperation Council (GCC), SHUAA Capital provides a broad range of financial services to corporations, governments, institutional clients, and high net worth individuals.

Euromoney Conference discusses future of financial sector in Saudi Arabia

Euromoney Conference discusses future of financial sector in Saudi Arabia

The Euromoney Conference has completed two days of discussions at the Faisaliah Hotel, Riyadh on the current global financial situation and the effects it is having on different industries in the Saudi Arabian market.

Saudi Arabia: Thursday, May 21 - 2009

The conference was addressed by H.E. Dr. Ibrahim Al-Assaf, Minister of Finance, Kingdom of Saudi Arabia, who said:
'Saudi Arabia has continued to follow an expansionary fiscal policy. The 2009 budget includes a 36% increase in investment spending.'


He added, 'The current expansion of investment expenditure, which covers infrastructure, public services, education and health sectors, will provide great trade and investment opportunities for the private sector both at home and abroad. We expect contracting firms and suppliers to take full advantage of these opportunities.'

The second keynote speech was delivered by H.E. Abdullah Alireza, Minister of Commerce and Industry, Kingdom of Saudi Arabia. In it he spoke about the future vision of the Saudi economy until 2025, focusing on diversification of the sources led by the private sector to provide well-paying job opportunities, high quality education and excellent health care.

'Saudi Arabia has carried out many steps to achieve this goal including increasing sustainable economic and industrial growth, developing the business environment and infrastructure, continuing high rates of spending and supporting the national private sector,' he added.

'This vision sends a clear message to the world that Saudi Arabia will not accept being or being looked at as a fuel station but rather as a laboratory of distinction and as an incubator of innovation and invention. There is no room for reversing this policy,' he stated.

H.E. Dr Mohammed Al-Jasser, Governor, Saudi Arabian Monetary Agency (SAMA), explained the fiscal policy in the Kingdom, 'The Saudi Arabian economy is still exposed to the vagaries of the oil market so that our growth is much more volatile than in the advanced economies which are highly diversified. The result is that we have always used fiscal policy as a powerful counter-cyclical tool to stabilize the growth path.'

Mubarak Al-Khafrah, Chairman, National Industrialisation Company (Tasnee), gave an insight into the view of the global economic crisis from a private sector perspective, 'The Saudi economy has faired better than most economies in the world coping with the financial crisis. We still need a lot of work through co-operation between the public and private sectors to withstand the impact of this crisis while at the same time pushing for our economic growth which is critical for our prosperity.'

Day two was opened with an address from H.E. Dr. Jobarah Al-Suraisry, Minister of Transport, Kingdom of Saudi Arabia who commented, 'Saudi Arabia has not postponed or cancelled any public sector projects. At the beginning of the crisis it was announced that none of the Government’s projects would be affected and the largest ever budget in the Kingdom’s history was immediately put in place. The North-South Rail Project connecting Jordan and Riyadh is on track and will be completed next year. The express train connecting Jeddah to Mecca and Medina has already started and is due for completion in 2012.'

The conference included a series of discussion panels on topics on the global economy, Saudi Arabian macroeconomy and Government finance, the private sector response, equity markets, infrastructure investment, real estate and power and water. Panelists included representatives from both the public and private sector.

Delegates were also able to attend a series of focused workshops during the course of the conference discussing GCC capital markets, strategic alternatives for capital raising, domestic consolidation in the Kingdom, the future of economic diversification and financing regional economic growth through Sukuk.

The Euromoney conference was attended by 1,200 delegates over the course of the two day event.

'The conference has been a great success with many different view points on the current global financial situation and how new models should be created to free the restrictions in the financial markets and improve the availability of finance in the future. We would like to thank all the speakers, delegates and our sponsors for helping to create a very informative and interesting conference,'

concluded Richad Banks, Director, Middle East, Euromoney Conferences.

Kuwait's Noor to launch $175m real-estate fund

Kuwait's Noor to launch $175m real-estate fund

Kuwait's Noor Financial Investment is set to launch a $175 million real estate fund in the second quarter of 2009 looking to tap on to growing opportunities in the sector, sources close to the company said on Sunday. Noor has already applied for the proper licensing from the Kuwaiti authorities and the fund is expected to be launched in the near future, the source told Kuwait's Al-Qabas daily. The fund will invest in the commercial real estate properties across the region despite the downturn in the real estate sector in the GCC.

The source pointed out that Noor has identified many opportunities in the real sector and wanted to invest now and capitalize later.


The GCC's real estate sector has been hit hard by the global economic downturn, with hundreds of projects being delayed or closed down in 2008. But experts say these properties offer good value as they are now undevalued.

The source said the creation of the fund is timely due to a number of good valuations available in the market, and the region's economies positive growth outlook.

Noor Financial Investment is the financial arm of National Industries Group (Holding) with interests in several sectors including telecommunications, infrastructure and oil, gas and private equity investments. - RPN

Middle East Private Equity Raises Record $6.4 Billion in 2008 Press Release

Middle East Private Equity Raises Record $6.4 Billion in 2008
Press Release

Of the $19.6 billion raised since 2000, $11 billion remains available for acquisitions

Middle East private equity fund managers raised a record $6.4 billion in 2008, up more than 10% over 2007 and more than double the amount raised in 2005, according to Gulf Venture Capital Association's (GVCA) 2008 report on Private Equity & Venture Capital in the Middle East, which was released today at the Dubai International Financial Centre.

Large size funds are primarily responsible for this growth, with the average fund size in 2008 being $258 million, compared with $213 million in 2007 and just $177 million in 2006. This trend is driven by the need for more flexibility in structuring deals and the past success of large buyout transactions, according to the 2008 GVCA report, developed in cooperation with KPMG, and Zawya, and supported by Hawkamah - The Institute for Corporate Governance.

Three regional funds have crossed the $1 billion mark, and as the report notes, the current economic downturn may make it more difficult for all but the most established fund managers to secure the successful closure of these larger funds.

Yet, there is also tremendous liquidity among regional funds, which are cash rich with $11 billion in capital under management yet to be deployed. The report notes that this "dry powder", as it is called, gives private equity a strategic opportunity vis-à-vis target companies, given the limited scope of other funding sources available in the current environment. This liquidity results from both an increase in fundraising and a decrease in deals, with the number of private equity investments dropping by 22% between 2007 and 2008, as well as the total investment size, which fell by 31%.

The report found that over the past four years, Egypt, Saudi Arabia and the United Arab Emirates were the largest recipients of private equity funds, at 33%, 15% and 14% respectively. The majority of funds are Middle East and North Africa (MENA) focused, with Turkey sometimes included as part of that region. Regional players are experiencing an increasing request for funds with a mandate that includes MENA, to expand and include South Asia, Southeast Asia and/or Africa.

The sectors of focus for portfolio acquisitions during 2008 were healthcare, transport, power & utilities and construction. Healthcare likely would remain a top recipient of private equity funds in the next few years.

In terms of fund strategies, more and more funds are seeking controlling stakes. While in 2005, only 3% of transactions were control buyouts, by 2008, some 26% of transactions volume and half of transactions values were control buyouts.

The report was optimistic about the future of private equity in the region, noting that as an asset class, it does not have a short-term investment horizon and so is well placed to weather the current crisis.

Imad Ghandour, Chairman of the GVCA Information & Statistics committee, said, "The economic fundamentals of the region remain strong and are supported by aggressive fiscal policies. Governments' reserves will continue to trickle down to the rest of the economy - sustaining corporate profits and public investments. A sober market will offer better valuations, and hence better returns for private equity. Although the increased attention from international players that the region witnessed in 2007 may be disrupted, we expect the disruption to be temporary. As a matter of fact, we expect the robust economic performance of the region to attract additional allocation from international institutional investors over the medium term."

Although fundraising in the region has been strong, when compared with the total value of announced fund sizes, it is clear there have been delays in reaching target sizes. In fact, after excluding one major fundraising, only 16% of the total amount announced in 2008 was actually raised in the same year, compared with 65% in 2005. Roughly half of the funds announced in 2006 have so far been raised, and approximately $11.7 billion of announced funds in 2006-8 have yet to make a close. The report suggests that this is because fund sizes are much larger, as well as recent constraints on liquidity.

While 2008 saw an increase in the total value of sale activity, which reached $3 billion, most of this was due to one major exit of $2.5 billion; excluding this one-off transaction, sale activity decreased by approximately 60%, as did the number of exits, which dropped from 17 in 2007 to 11 in 2008. The report suggests that there will be fewer exits in the current economic climate, as funds won't be able to achieve the returns traditionally targeted and exit options shrink, particularly with the sharp decline in regional IPOs. Trade sales were named as the most likely exit over the next couple years.

Ihsan Jawad, CEO of Zawya and board member of GVCA, said "Private Equity in the region is developing in many ways that are unique in comparison to the developed world. Transparency remains a major barrier that hinders this mode of investment from becoming a strong component in the GCC financial system. More research efforts and collaboration is needed by all practitioners to elevate the current opacity of the private equity market."

Of the 18 private equity fund managers interviewed for the report, most said they were established in the last five years. They expressed an expectation of consolidation in the industry, a decrease in investment, and lower portfolio company growth. This means portfolio companies will be held longer and fund managers will be increasingly active in managing their companies in order to add the maximum value.

These efforts should include corporate governance, according to Dr Nasser Saidi, Director of Hawkamah. "MENA private equity can, and should, play a critical role in diffusing good corporate governance practices across portfolio companies, in terms of board structures, executive compensation better aligned with long term shareholder interest and underlying risk, improved risk management, transparency and disclosure requirements and minority interest protection. This benefits all parties, as empirical evidence shows that investors are willing to pay a premium for companies with good corporate governance. The current global financial crisis has reinforced the view that improved corporate governance practices lead to sustainable growth and value of companies, with a focus on the medium and long-term and away from short-termism. This is why Hawkamah has launched a Private Equity Task Force to develop corporate governance guidelines for private equity firms and portfolio companies in the MENA region."

Elaborating on the role of fund managers toward their portfolio companies given the current environment, Vikas Papriwal, Partner in KPMG's Private Equity and Sovereign Wealth Funds practice, said, "With attractive exit options scarce at present, the focus for many private equity firms is now the workout of their existing portfolio - with operational improvements, debt restructuring and working capital management at the core. Discretionary spending is being restricted, including expansionary capital expenditures, and business plan timelines are being reassessed, as entities look to weather the storm. However, no one doubts that opportunities will exist once we are over the worst."

The GVCA report compiles comprehensive information and statistics about private equity funds and investments across the Middle East, and contains nine articles on current topics in the industry. The 125-page report also provides a detailed survey of 18 private equity fund managers regarding their views looking back at 2008 and ahead to 2009. There also is a special section dedicated to sovereign wealth fund strategies and investments.


About GVCA
Gulf Venture Capital Association ("GVCA") is the non-profit trade and industry association for Venture Capital (VC) and Private Equity (PE) in the Gulf Cooperation Council. GVCA organizes conferences, industry forums, training and workshops. In addition, GVCA periodically publishes information and statistics about the regional activity of VC and PE. GVCA is based in Bahrain.

Trump and Nakheel - Dubai Developments

Nakheel, developer of more than US$30 billion in real estate in Dubai, and The Trump Organization have unveiled a new design for the Trump International Hotel & Tower, the centerpiece of The Palm Jumeirah.

Donald J. Trump, Jr., son of Donald J. Trump, and Executive Vice President of Development and Acquisitions, The Trump Organization, is in Dubai this week to reveal details about the new design and discuss The Trump Organization’s increased involvement in the UAE. Speaking at the Arabian Hotel and Investment Conference (29th April to 1st May), he will discuss mixed use developments & condo hotels and feature in a round table discussion on private equity in the Middle East. On the 2nd May, he will be present on the Nakheel stand at the Arabian Travel Market.
Trump Dubai

Trump Dubai

Trump International Hotel & Tower, The Palm Jumeirah is the initial development in Nakheel and The Trump Organization’s joint-venture in the Middle East, which includes exclusive rights for 19 countries in the Middle East region and 17 major brands. It is also the first UAE property in the portfolio of Nakheel Hotels & Resorts, Nakheel’s hotel and resort investment company, which was launched in February this year.

On announcing the partnership in October 2005, Donald J. Trump, Chairman and President of The Trump Organization, who is known throughout the world for his luxurious real estate developments, stated that the organization’s architects and designers would engage closely with Nakheel Hotels & Resorts on the design. The results of the partnership have now been released.

The US$600 million Trump International Hotel & Tower, The Palm Jumeirah is a stunning 48 storey mixed-use hotel and residential building, anchoring the trunk of the 5 by 5km man made palm tree shaped island which lies off the coast of Dubai. The first of three such islands to be built in Dubai, The Palm Jumeirah will be one of the world’s premier resorts, offering a wealth of beachfront hotels, residences, retail and leisure.

The new ultra-modern design, features a split linked tower – an innovative open core design that minimizes shadows – constructed with stainless steel, glass and stone.

Regarding the new design, Donald J. Trump, Jr. said: “In redesigning the property, we focused on creating a magnet for tourists and residents and a landmark icon on the Dubai skyline. Trump International Hotel & Tower, The Palm Jumeirah will soar into the sky, its twin sets of glazed diamond shaped structures at the top of each tower creating a sense of infinity as the glazed elements blur building and sky”.

Sultan Ahmed bin Sulayem, Executive Chairman, Nakheel stated: “The new design ensures that the property will be a striking landmark – a bold monument at the heart of the island. The property’s taller, more slender design allows for a linear view through the building to the top of the island and provides spectacular panoramas of the island, Dubai and the Arabian Gulf, with all rooms benefiting from a sea view.”

“In building the vision of Dubai, Nakheel is committed to creating genuinely unique projects which are at the forefront of innovation”, Sultan Ahmed bin Sulayem continued. “The new design of the Trump International Hotel and Tower lives up to this commitment and will provide a fitting landmark centerpiece for The Palm Jumeirah, our flagship development.

“As the world’s fastest growing city, it is important that Dubai forms progressive partnerships with prominent international organizations. Our alliance with The Trump Organization is a fantastic example of how such partnerships can operate successfully. The Trump International Hotel and Tower is the first example of this success”