Rasmala MENA Markets report
MENA equity markets outperformed global markets in March as the MSCI Arabian Markets Index climbed 6.4% on the back of positive performances from all regional markets. This compares with a monthly gain of 5.9% on global indices as measured by the MSCI World Index. On a year to date basis the region has also performed well, climbing 11.5% as compared to a global gain of 2.7%.
The Dubai World restructuring news from the UAE dominated regional markets in March. In the last week of the month, the Government of Dubai announced the long awaited restructuring proposal for Dubai World and Nakheel; the terms of which were well received by investors. The DFM and ADX rallied quickly and sharply on the back of the announcements. The sukuks and bonds of the affected companies also appreciated. Furthermore, sentiment improved and spread to the neighboring GCC equity markets, sukuks, and bonds of other closely related companies.
As a result, the DFM was the best performing market in March with a 15.7% return. The Tadawul also generated strong returns, up 5.6%, bringing its year to date gains to 11.1%, the highest of the Arab markets. Recovering from last month’s dip, the EGX30 index experienced a more positive performance and rose 2.6% amid blue chips' earnings results, expansion plans along with various macro economic indicators. The Omani market had the slowest month, gaining a mere 0.1% with very low activity.
The Tadawul index closed up 5.6% by the end of March and became the leading regional market year to date with gains of 11.1%. Market heavyweight Saudi Basic Industries Corporation (SABIC) continued to positively impact the index, climbing 12.1% as the company successfully developed a fourth-generation catalyst used in the production of polypropylene.
Saudi Electricity Company gained 3.3% during the month as the company signed contracts worth SAR 618.5 million to build five substations in Riyadh. The projects include a SAR 226.5 million contract with Al Toukhi Company for Industry, Trading and Contracting to build four substations within 27 months and a SAR 392.0 million contract with Saudi Arabia’s National Contracting Company to build a station in the next 29 months. Meanwhile, Saudi Arabian Mining Company was also among the stocks that performed well during the month, increasing by a significant 13.1%.
In the banking sector, Banque Saudi Fransi fell 1.1%. Fitch Ratings affirmed its Long-term Issuer Default Rating (IDR) at 'A' with a stable outlook, while Short-term IDR was affirmed at 'F1', individual rating at 'B/C', support rating at '1' and support rating floor at 'A-‘. Moody's Investors Service assigned ratings to the bank’s USD 2.0 billion medium term note programme (EMTN). The agency assigned ‘Aa3’ and ‘A1’ to senior unsecured and subordinated notes, respectively, both with a stable outlook.
On the macro front, Saudi Arabian Monetary Agency (SAMA) data shows that Saudi money supply growth slowed for a fifth consecutive month to 5.6% in February compared with an 8.3% growth in January. Central Bank’s foreign assets inched up 1.2% to SAR 1.55 trillion in February compared to SAR 1.54 trillion in January, while annual inflation rates grew to 4.6% in February, from 4.1% in January. Saudi Arabia’s imports grew 22.6% to 4.3 million tonnes, while exports dropped 6.3% to 6.4 million tonnes. The government also indicated plans to spend USD 170.0 billion over the next five years on energy and oil refining projects.
Following the long awaited restructuring announcement from Dubai World, the DFM was the strongest Arab market in March, surging 15.7%. The ADX index also performed positively and closed up 7.6%. After much anticipation and speculation, the news that the Dubai government will recapitalize its indebted Dubai World flagship and the conglomerate’s Nakheel Property unit with as much as USD 9.5 billion in new funds through its Dubai Financial Support Fund (DFSF) was well received.
The Dubai World debt restructuring plan includes converting USD 8.9 billion of debt and claims, representing 38.0% of the total amount of standalone debt and guarantees of Dubai World, into equity, subordinating its claims to other creditors. In addition the DFSF will commit up to USD 1.5 billion in cash to fund the company’s working capital and interest payment commitments that will arise from the new debt facilities. Dubai World is proposing to repay its creditors excluding DFSF in full with a 100.0% principal repayment through the issuance of two tranches of new debt maturing in five and eight years. In a positive development, Limitless, a property development unit of Dubai World, paid creditors interest for a USD 1.2 billion loan due at the end of March 2010.
Nakheel also unveiled a comprehensive recapitalization plan of its debt and liabilities. The plan enables Nakheel to offer creditors 100.0% of agreed amounts owed and to fulfill its obligations to customers through the prompt completion of near-term projects. Under this proposal, the Government of Dubai, through the DFSF, will commit to providing approximately USD 8.0 billion of new money directly to Nakheel to fund operations and settle liabilities. In addition, the DFSF has proposed to convert its existing USD 1.2 billion debt claim in Nakheel into equity. However, ahead of a final agreement on the recapitalization plan, an initial USD 1.5 billion of the new funds from the DFSF will be made available as required to Nakheel to fund contractors to continue building near-term development projects.
In the banking sector, the deputy Finance Minister, stated that UAE banks are strong enough and have sufficient capital to absorb any shock, including the impact of the Dubai World restructuring. However Central Bank data showed that the banks’ NPLs increased by 0.6% in February compared to January with expectations to climb further particularly after the Central Bank stated that it is in the final stages of issuing new provisioning norms.
Union National Bank had a strong performance, up 15.2%, after Fitch Ratings affirmed its Long-term Issuer Default Rating (IDR) at ‘A+’ with a stable outlook, its Short-term IDR at ‘F1’, individual rating at ‘C’, support rating at ‘1’, support floor at ‘A+’ and senior unsecured debt at ‘A+’. The agency also affirmed National Bank of Abu Dhabi's strong rating, based on the performance during the global financial crisis. It affirmed the bank’s Long-term Issuer Default Rating (IDR) at 'AA-' with a stable outlook, Short-term IDR at 'F1+', support rating at '1' and support rating floor at 'AA-'. The ratings positively impacted the stock which climbed 21.7%.
The real estate sector was also up with Union Properties climbing 8.5%. This came despite a breach of contract case filed against the company by more than 30 investors, regarding the non-delivery of homes in its Index Tower project. Meanwhile, Aldar Properties expects default rates to hover between 5%-7% in FY 10, but has not initiated any foreclosure moves. The company is also targeting the delivery of 2,200 units over the next eighteen months. Aldar Properties’ stock performed exceptionally well during the month, gaining almost 30.0%. Heavyweight Emaar Properties was also up on significant gains of 34.2%.
On the macro front, the head of Dubai’s Department of Finance stated that the emirate plans to reduce spending by 15.0% during 2010, in an effort to achieve a budget surplus by 2011. According to the Minister of Economy, the UAE economy grew by 1.3% in 2009, and is expected to grow by approximately 3.2% in 2010.
Continuing its bullish trend, the Kuwait Stock Exchange gained another 2.1% during the month of March. Commercial Bank of Kuwait’s earnings release, Kuwait International Bank’s credit ratings, and the forming of a joint committee by banks, to take legal action against the Saad and Algosaibi groups were the main catalysts affecting index performance during the month.
Commercial Bank of Kuwait (CBK) was up 1.1%, despite reporting a 32.5% drop in FY 09 net profits to KWD 173.7 million. The bank’s NPL ratio stood at 19.2%. Meanwhile, Fitch Ratings affirmed Kuwait International Bank’s Long-term Issuer Default Rating (IDR) at 'A-', Short-term IDR at 'F2', individual rating at 'C/D', support rating at '1' and support rating floor at 'A-', with a stable outlook on the Long-term IDR. The bank gained 1.8% during March.
In other sector related news, a number of Kuwaiti banks including Gulf Bank, Commercial Bank, Burgan Bank and Kuwait Finance House founded a joint committee to launch legal proceedings against the two troubled Saudi business groups, Saad and Algosaibi, for debt estimated at around USD 1.5 billion. This follows months of failed negotiations with the Saad and Algosaibi groups.
On the macro front, Kuwait's total state earnings reached KD 16.01 billion during the period April 2009 to February 2010. These revenues are 98.4% higher than the current FY's estimated earnings of KD 8.07 billion, but 20.8% lower than the same period in FY 2008-2009.
After its 4.8% rebound last month, Qatar’s DSM continued climbing to gain 8.6% during March and was the second best performing market on a month to date basis.
Fitch Ratings affirmed Commercial Bank of Qatar’s (CBQ) Long-term Issuer Default Rating (IDR) at 'A' with a stable outlook, Short-term IDR at 'F1', individual rating at 'C' and support rating at '1'. The support rating floor is affirmed at 'A'. The CBQ share price reacted positively to increase by 15.1% during the month.
Meanwhile, Moody's Investors Service placed an 'A1' long-term rating on Qatar Telecom (Qtel), an 'A1' rating for Qtel International Finance Limited and an 'A1-' rating for bonds issued under Qtel's GMTN programme under review for possible downgrade. The new ratings followed Moody's change in outlook to negative from stable of the ‘Ba1’ Corporate Family Rating for "Indosat", a 65% Qtel owned subsidiary. As a result, Qtel’s stock incurred a 3.2% loss in March.
Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed Qatar International Islamic Bank (QIIB) long-term foreign currency rating of 'BBB+', its short-term foreign currency rating of 'A2' and its financial strength rating of 'BBB+', with a stable outlook on all ratings. Additionally, CI affirmed the support rating of 2. QIIB recorded monthly losses of 5.1%. Meanwhile, Qatar Islamic gained 7.5% over the course of the month.
On the macroeconomic front, the Prime Minister stated that Qatar’s economy is expected to grow by 16.0% in FY 10/11. According to the Minister of Finance, Qatar will boost its government budget spending to QAR 117.9 billion for the FY 10/11, up from QAR 94.5 billion in FY 09/10. Revenues were set at QAR 127.5 billion for the coming fiscal year, compared with QAR 88.7 billion in 2009/10.
The MSM index traded sideways, up a mere 0.1% at 6,697.5 points after a month of minimal activity. On a YTD basis the index has gained 5.2% which is in line with other markets.
Of particular note, Bank Dhofar significantly outperformed the market, up 9.2%, after reporting a 7.2% annual growth in 2009 net profits. Oman Holding International, on the other hand, fell by 4.9%. During the month shareholders’ provided approval to acquire Al Salamah Clinic and to enter into a new venture with Sagar Medical Group of India to upgrade Salamah’s Clinic to a Polyclinic. Shareholders also approved the acquisition of the Muscat branch of Occupational Training Institute by Douglas OHI LLC, a subsidiary of Oman Holding International.
Meanwhile, the Omani Central Bank stated that Oman is expected to issue OMR 122.0 million in domestic bonds at the end of 2010. It added that the banking system is sound and resilient to shocks; however banks need to improve their efficiency and tighten internal controls.
On the macroeconomic front, Oman's real GDP is expected to grow by 6.0% in 2010 while nominal GDP is expected to increase by 18.4%. The government further expects a budget surplus in 2010, on the back of higher oil prices which are expected to range between USD 60-80 per barrel.
Recovering from last month’s dip, the EGX30 index rose 2.6% bringing YTD gains to 9.6%, rendering Egypt the third best performing market after Saudi and Morocco since the beginning of the year. Earnings announcements marked stock performances this month.
Orascom Telecom Holding reported a FY 09 net income of EGP 1.8 billion, representing a 25.0% decrease compared to FY 08. According to the company’s press release the company recorded a USD 50.0 million tax provision for Orascom Telecom Algeria’s (OTA) tax assessment in FY 09, of which USD 40.0 million was recorded in Q4 09. In that essence, OTA received a rejection on its submitted administrative appeal which was against the notice of the reassessment received from the Algerian Tax Department in respect to the tax years 2005, 2006 and 2007.
OTH also estimates losses from recent riots in Algeria to be around USD 55.0 million including the loss of revenue opportunity, damages of stock (SIM and scratch cards, handsets) and provision for taxes and an additional USD 41.0 million in losses, because of damage to physical assets net of insurance and provision for income taxes. On another note, S&P announced that it raised OTH’s long-term corporate credit rating to 'B-' from 'CCC+', with a stable outlook. It is worth noting that S&P also removed OTH from credit watch. Following an eventful month, OTH lost 6.8%.
Telecom Egypt also placed downward pressure on the telecom sector as the stock fell sharply during March and lost 12.4%, as the company reported earnings which were below consensus estimates. FY 09 earnings came in at of EGP 3.1 billion, an annual increase of 9.4% compared to FY 08. The results imply a Q4 net income of EGP 481.0 million, a decrease of 41.7% compared to Q3 09 and a decrease of 20.0% compared to Q4 08.
On the other hand, market heavyweights Orascom Construction Industries (OCI) and EFG-Hermes performed well as both stocks climbed 11.2%. This came despite reporting a decline in earnings as OCI’s FY 09 net profits came in at 2,416.5 million, compared to FY 08 net profits of EGP 3,998.8 million, representing a drop of 39.6%. Meanwhile, EFG-Hermes’s FY 09 net income of EGP 551.8 million represented an annual decrease of 40.9% compared to FY 08.
The Central Bank of Egypt stated that Egypt's net foreign reserves reached USD 34.3 billion in February 2010, an increase of 0.3% compared to January 2010.
- Burgan Bank's Ahmadi Branch re-locates to prime position
- Rasmala MENA report - April 2010
- DFM asks banks to release dta on exposure to Saad and Algosaibi groups
- Aldar Properties PJSC Ratings Lowered To 'B' And Placed On CreditWatch Negative On Continued Tough Trading Conditions
- Rasmala and RBS Launch Telecom Sector Report