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GCC Markets Mixed, OPEC Deal Uncertain

Date : 08/11/2016
Author:  Marmore MENA


According to Marmore’s recently released Monthly Market Review, GCC bourses had a mixed October, with Saudi’s TASI index rising 6.9 per cent, followed by Egypt (5.5 per cent) and Morocco (5.2 per cent). On the other end of the spectrum, Oman (-4.3 per cent), Dubai (-4.1 per cent) and Abu Dhabi (-3.9 per cent) indices witnessed fall. Saudi Arabian enjoyed their longest winning streak in more than two years, on the back of investor optimism and improving outlook for the kingdom’s banks. Saudi Arabia sold the largest international sovereign bond (USD 17.5bn) in emerging-market history, which would improve liquidity boost payments to contractors thereby help improve expectations regarding non-performing loans. Egyptian markets were buoyed by the possibility of a USD 12bn loan approval from the IMF. Speculation continues to mount that the central bank would devalue the currency, as the black market and official rate diverged to a record discrepancy. The country’s currency had been tumbling almost daily on the black market since Saudi Arabia halted petroleum aid to Egypt this month, forcing it to spend USD 500mn for oil products on the spot market.


Selling pressure created by Foreign Institutional Investors (FIIs) led to the fall in the Muscat index, while sharp fall seen in the Dubai index was attributed to profit booking, due to volatility in the international commodities and currency market. In terms of valuation, P/E of Morocco (18x), Qatar (14.3x) and Jordan (14.2x) markets were the premium markets in the MENA region, while the markets of Egypt (8.5x), Dubai (8.8x), and Oman (9.3x) were the discount markets.

Blue Chips also had a mixed month, with National Commercial Bank (Saudi Arabia) and Zain (Kuwait) ending the month at the top of the pile, gaining 33.5% and 16.4%, respectively. Kuwait Projects lagged behind the rest of the blue chips, falling by 10%, despite an 8% YoY rise in nine-month net profit. Although third quarter profit fell by 1.6%, shares of NCB were buoyed by the expected easing of liquidity, as the kingdom issued international bonds to tide over rising deficit. The bank cited an 18.7% jump in total operating expenses, caused by higher impairments on financings and investments for the fall in net profit. Zain Kuwait's number of subscribers increased to 2.9mn for the nine months to 30 September, in a very challenging period that witnessed intense price competition. The company also reported a better than expected 12% rise in third-quarter profit. Qatari telecom operator Ooredoo reported a 51% fall in third-quarter net profit, as the earnings continued to be affected by foreign exchange losses and plunging earnings from Iraq, although a strong domestic performance has helped mitigate the impact. Emaar Properties reported a 31% jump in third-quarter profit, as rising property sales overcame the wider real estate market malaise.

Saudi bond issue and market reforms
Saudi Arabia raised USD 17.5bn in the biggest ever bond sale from an emerging-market nation, as the kingdom sought to shore up finances battered by the slide in oil. The government supposedly sold dollar-denominated bonds due in five years yielding 135 basis points more than similar-maturity US Treasuries, 10-year notes at a spread of 165 basis points and 30-year securities at 210 basis points. The kingdom raised USD 5.5 bon in each of the five- and 10-year bonds, and USD 6.5bn in 30-year debt.

In a bid to improve foreign investment in capital markets and bring the Saudi stock market into the global investing mainstream, the nation's 175 listed companies are now required by the Capital Markets Authority to adopt the International Financial Reporting Standards (IFRS) from Jan 2017.

Oil Market Review

Brent crude rose to USD 53.14 per barrel in the month of October, before falling 9% and closing the month at USD 48.3 per barrel, as the OPEC deal to reduce crude output faced some obstacles towards the end of the month. OPEC members Iran and Iraq disagreed with the organization’s data on production levels, and have now refused to limit their crude output. Iraq, the second-largest producer in the cartel, is reportedly asking for exemptions from any production limits due to disruptions caused by the insurgency, while other members, including Iran, Libya and Nigeria already have exemptions.

Tags:  Capital Markets, MENA, Oil, Stock Market

 Current rating: 0 (3 ratings)

Flat July for GCC Markets

Date : 15/08/2016
Author:  Marmore MENA

Flat July for GCC Markets

According to Marmore’s recently released Monthly Market Review, July was a marginally positive month for the MENA indices, with most markets ending the month in green, as positive quarterly earnings led to increased investor activity. Markets in Egypt (13.1%), Qatar (7.3%) and Dubai (5.2%) performed well, while Saudi’s TASI (-3.0%) and Kuwait weighted (-0.2%) indices lagged behind. The negative performance of the largest GCC market led to flat performance of S&P GCC index. Other indices witnessed slight rise in index values, despite the steepest monthly fall in oil prices in 2016. Egypt HRMS index rose in the last week of the month, as the country’s plan to secure a USD 12bn loan from the International Monetary Fund (IMF) was close to fruition. The loan is being sought to ease a crippling dollar squeeze, and restore confidence in the economy, and would be the fund’s biggest aid package in a region that has been pummeled by political unrest and oil price fall.

MMR Table - Figure 1

Blue chips drove Qatar’s index surge, with real estate (8.52%), telecoms (7.94%) and banking stocks (7.1%) performing well in July. The recently announced Qatar’s fuel subsidy reform will also help shrink its budget deficit by reducing expenditures; a move that will help investments in private sector. Saudi index fell due to fall in oil price, and the continued resilience of shale oil, as increasingly efficient US shale production continues to drive a wedge in OPEC’s strategy of flooding the market with excess crude.

Blue Chips had a mixed July, with Emaar Properties (UAE) and Ezdan Holdings (Qatar) ending the month at the top, gaining 10% and 9.6%, respectively. National Commercial Bank (Saudi Arabia) and First Gulf Bank (UAE) witnessed a slump, losing 6.0% and 4.4%, respectively. Positive Q2 results contributed to improved market performance for most companies in the region, as investors returned to the markets post Ramadan. Dubai's Emaar Properties reported a 8% rise in Q2 net profit, as strong investor demand led to higher revenue recognition. Ezdan Holdings half-yearly profit went up 8%, driven by rise in operations. Despite posting a profit of 3.2% in Q2, shares of National Commercial Bank declined the most in July, as the bank proposed a lower dividend for the first half of the year, as compared to the previous year. Q2 profits of First Gulf Bank slipped 10%, meeting analyst estimates, while the merger between FGB and National Bank of Abu Dhabi was confirmed early in July.

Rise in Debt issuance
According to IIF, GCC countries are turning to both domestic and foreign debt markets to finance their rising fiscal deficits, and this trend is likely to persist in the short to medium term. Since mid-2014, the drop in oil prices has shifted the large aggregate current account surpluses of GCC countries, accumulated in the past decade, to a deficit of USD 35bn in 2015, and this is expected to widen to USD 89bn or 6.5% of the GDP in 2016. The large resident capital outflows in the form of investments, which peaked at USD 384bn in 2013, have virtually disappeared, and international reserves are being used to fund widening deficits.

Prior to 2016, GCC sovereign debt issuance had been relatively sparse, barring Bahrain, particularly in foreign currency, and usually reserved for benchmarking or for monetary policy purposes. Thus far, in 2016, both Abu Dhabi and Qatar have tapped international markets with sizeable issues.

Fall in Real Estate transactions
Saudi Arabia has registered a sharp drop of 56.7% in the total weekly sales, settling at USD 0.5bn, the lowest weekly level in a decade. Experts claim this drop in sales was caused by the low demand that followed the implementation of the so-called white land fees regulation, which pushed people who want to buy properties to wait for a real decline in prices.

Oil Market Review
Brent crude fell sharply by 14.5% in the month of July, closing at USD 42.46 per barrel; the lowest close in 4months. Oil output from the Middle East rose to a record high in June, with production rising above 31mn barrels per day for the third month running. Supply from the Organization of the Petroleum Exporting Countries has risen to 33.41 million barrels per day (bpd) in July from a revised 33.31 million bpd in June, adding downward pressure on prices.

Tags:  Capital Markets, Oil, Stock Market

 Current rating: 0 (3 ratings)

Private equity can fill the funding gaps left by banks

Date : 23/06/2016
Author:  Marmore MENA

The article originally appeared in The National.

Is this the perfect time for GCC private equity and venture capital to scale up?

After the global financial crisis, private equity activity in the GCC declined tremendously. Fundraising became anaemic, despite the sizeable amount of dry powder accumulated over the boom years, and deals had stalled as acquisition finance became expensive and difficult to obtain. After a long hibernation, value raised under private equity experienced a quantum leap from US$900 million in 2013 to $2.4bn in 2014, but fell to $500m last year.

The recent entry of UAE and Qatar into the MSCI Emerging Markets index has led to many market reforms across the region aimed at improving disclosures and standardising corporate governance. But nascent legal and regulatory framework, with stringent foreign ownership restrictions, weak bankruptcy laws and high set-up costs, continue to dampen investor enthusiasm.

So what has changed in the recent past? Last year marked one of the worst years for oil prices and revenues – the backbone of most of the GCC economies. And the consensus forecast for the next two years indicates only a modest increase in prices, at less than $60 per barrel, a consider­able fall from the high of $115 per barrel in June 2014.

Such a drastic drop in revenues has triggered a liquidity fall, affecting several sectors of the GCC, especially in banking and financial services industry.

Growth in deposits are lagging behind credit growth and this deficit is accentuated by falling government deposits and continued remittance outflows.

Government borrowing has also been on the rise, which crowds out the private sector and deprives them of credit facilities. S&P has already forecast that Saudi Arabia is expected to tap international debt markets by 2016-17, as the domestic banking system can lend only up to $100bn, which comprises only one-third of their borrowing needs.

In addition, the looming rate hikes from the Fed could increase cost of capital, which makes it more difficult for the private sector to access funds. The IPO market, which in 2014 had 14 new issues worth $9.7bn, including the listing of NCB, the largest IPO in the region, had a dull year last year, with fewer than five new issues.

Most companies are staying away from floating shares in the GCC markets, owing to the oil price volatility and weak global cues. This hurts small and medium-sized enterprises (SMEs) and start-ups, which were already facing stringent collateral requirements, including personal guarantees.

Banks are reserved about funding SMEs because of their limited size and higher risks as SMEs are more vulnerable to eco­nomic fluctuations. Larger corporations in the GCC also rely heavily on bank financing, as it allows them to be less transparent and maintain greater control over their operations. But this leads to crowding out of funds as SMEs compete directly for capital with large corporations. For example, in Kuwait, the percentage of total bank loans given to SMEs is as low as 2 per cent. Fewer options in terms of Sharia-compliant products also imply that many SMEs find themselves excluded from the banking sector.

The number of start-ups have also risen in recent years and require strategic guidance to expand during the early stages. It is in this setting of challenging economic situations coupled with growing number of start-ups that PE & VC funds cannot only provide the required capital but also leverage on their industry contacts to share their domain expertise, streamline operations and thus create value for these businesses.

For example, Saudi Arabia’s STC Ventures provided a $3m venture capital funding for, a Dubai- based finance comparison start-up, which is expanding into Saudi Arabia. STC would also facilitate expansion by getting local support, and access to untapped sectors.

Many major sectors in the GCC are set to grow in the coming years, as rising disposable incomes will inevitably lead to higher consumption of goods and services. Expanding retail businesses, from jewellery, beauty and cosmetics, clothing, supermarkets and restaurants are expected to intensify investor interest, with significant opportunities in online retail (general and discount) space, as mobile penetration continues to rise in the region.

Luxury retailing is already a thriving business in the GCC – propelled by affluent locals, splurging expatriates, growing brand-aware youthful population and deep-pocketed tourists. Rising public spending in education has been driven by the need to develop skills of a rapidly growing population in the GCC countries and offer considerable opportunities for PE players.

Similarly, health care has attracted a lot of investments in the PE space, as the need to tackle the effects of lifestyle issues and newly introduced mandatory insurance are driving industry growth. In the en­ergy sector, GCC states have also started exploring alternative sources of energy including ­solar power, nuclear and natural gas to boost capacity and diversify the energy mix.

Governments are also focused on modernising their transport and infrastructure, in partnership with the private sector. The entry of PEs into the family businesses can help in the greater flow of ideas, realign focus on core assets and competency, and can generate lead to better sustainability.

Private equity funds could fill the existing funding gap and take advantage of the growing regional economy.

Tags:  Capital Markets, equity, GCC, Oil, private

 Current rating: 0 (3 ratings)

Brent’s record rise sustains MENA momentum

Date : 08/05/2016
Author:  Marmore MENA

According to Marmore's recently released Monthly Market Review, April was a positive month for all MENA indices, barring Bahrain, Qatar and Jordon, as oil rise buoyed markets. Saudi Arabia (9.4%) was the star performer, followed by Oman (8.7%) and Morocco (6.9%), while Kuwait price and weighted indices rose 3.1% and 1.8%, respectively, in April.  Jordan was the worst performer in the month of April, registering a fall of 3.4%. Brent crude rose to its highest monthly gain in seven years, climbing 21.5% to close the month at USD 48.13 per barrel. S&P GCC also improved by 5.7% in March, to close at 95 points.

Gulf markets have been gaining for the past couple of months, on the back of strong oil market performance, with the belief that the oil price movements have turned a corner. Investor focus has now shifted to the corporate earnings that are affected by the austerity measures, which were undertaken due to low oil prices. The TASI index performance was largely due to companies beating their first-quarter earnings estimates, as well as the surge in oil prices. The combined net profits of Qatar's publicly traded firms stood at QR10.8bn for the first quarter of 2016, down 18.9% over 1Q15. Real Estate and Industries sectors led the rout falling by 62.5% and 18.6%, respectively.

MENA markets liquidity had a negative month, with volumes decreasing by 11% and value traded falling by 5.1%. Oman and Kuwait witnessed increases in both volume and value traded, whereas the rest of the markets recorded declines in both. Volume and value traded in Oman increased by 61% and 42%, as investors responded to positive earnings season and rise in oil prices.

Most Blue Chips ended the month of April in green, with Al Rajhi Bank (Saudi Arabia) topping the charts at 16.4%, as the company witnessed a 33% increase in quarterly earnings, mainly due to higher fee income. SABIC (KSA, 13.7%) and Emaar Properties (UAE, 13%) followed, as the former benefitted from rise in oil price, while the latter reported a 17% rise in earnings, despite weakening market conditions. Leading UAE banks witnessed large earnings decline in the first quarter, and most, with the exception of a few, reported rising pressures on key performance indicators such as loans and deposit growth, and asset quality in their first quarter results. Abu Dhabi Commercial Bank (earnings, -18%), National Bank of Abu Dhabi (-11%), Commercial Bank of Dubai (-18%) were some of the big names on the list. ADCB and CBD witnessed a fall in operating income, because of drop in business volumes, while NBAD’s incomes reflected lower investment gains and higher provisions.

Global Oil News
OPEC and non-OPEC producers failed to reach a deal to freeze oil output at the Doha meeting in April, as OPEC members requested for more time to reach a deal among themselves, possibly at a June meeting, before striking one with other country producers.

Kuwaiti oil and gas workers have ended a three-day strike that had temporarily cut the OPEC member's crude production by nearly half. The strike forced Kuwait Oil Company (KOC) to cut output to as little as 1.1 million barrels per day (bpd), down from a normal level of about 3 million bpd, as workers fear reduced salaries, benefits and staff layoffs will be part of a planned government overhaul of the payroll system in the public sector.

According to Reuters, OPEC's oil output rose in April to close to the highest level in recent history, as production increases led by Iran and Iraq more than offset the strike in Kuwait and other disruptions. The region’s top exporter, Saudi Arabia, made no major change to its output, despite the kingdom hinting it could boost supply after OPEC and non-member nations failed to reach an agreement earlier in the month.

Despite the recent rally, oil markets remain oversupplied by about 1-2 million barrels of crude per day, which has led to global storage tanks filled to their rims with unsold fuel.

Oil Market Review
Brent crude hit a high of USD 48 per barrel in the month of April, up 21.5% from March, the best monthly gain seen since May 2009. Weaker dollar and positive sentiment about the global supply glut easing raised crude oil futures by more than USD 20 per barrel, since witnessing 12 year lows of below USD 30 per barrel, in the first quarter. Oil price rose, despite OPEC and non-OPEC producers failing to reach a deal to freeze oil output. Members informed non-OPEC producers that they need to first reach a deal within OPEC, possibly at the upcoming June meeting, before being able to invite other producers to join the accord.

Tags:  Capital Markets, MENA, Oil, Stock Market

 Current rating: 5 (3 ratings)

Kuwait Petrochemicals

Date : 11/02/2016
Author:  Marmore MENA


Petrochemicals Industries Company (PIC) is the major player in Kuwait petrochemicals sector. Petrochemicals Industries Company (PIC) was established in 1963 by the orders of Amiri decree. PIC is one of the few low cost manufacturers of petrochemicals in the world owing to cheap feedstock costs. Located in the GCC region with excellent port facilities and its geographic location being a strategic advantage, PIC enjoys competitive advantage over other players in the world.

PIC’s goal is to prove its efficiency and capabilities in the Petrochemical sector through Joint ventures and construction of mega integrated refining and petrochemical projects in Kuwait and in other countries. According to Marmore’s Kuwait Petrochemical report, PIC plays a major role in the effort of the Kuwait government to diversify its exports from Oil and Natural Gas.


Petrochemical projects worth USD 337.7 Bn (Zawya) are planned to be executed in Kuwait between 2009 and 2017. The Olefins-III project in Shauiba Complex of Kuwait worth USD 7,000 Mn is the major project of PIC and is expected to become operational from 2017 or 2018. Al Zhor refinery project worth USD 30 Bn was signed in October 2015 which will help in capacity addition of Naphtha feedstock for petrochemical plants after its expected commencement in 2018.


Petrochemicals demand deteriorated during 2008-2009 due to the global financial crisis. Demand recovered after 2010 when the economic growth rates increased, especially in the emerging Asian markets like India and China.

According to Marmore’s Kuwait Petrochemical report, increased demand forecasts for paints, electronics and fertilizers in India and China during the period 2015 to 2018 is going to be a key driver for the Petrochemical companies in Kuwait as petrochemicals are the major raw material for the manufacture of paints, electronics and fertilizers.

Chinese self-reliance in the production of petrochemicals is a cause of concern for PIC as China is the major export destination for Kuwait’s petrochemicals. To mitigate the risk, PIC entered into joint venture in China for the construction of the China Integrated plant at Zhanjiang province which is expected to become operational from 2017.

The domestic demand for oil and natural gas is increasing due to increasing population and increased demand for electricity. The shift to heavier feedstock like Naphtha eliminates the cost advantage PIC enjoyed with the subsidized supply of Ethane. Increasing feedstock costs will eliminate the competitive advantage enjoyed by PIC over other petrochemical players outside the GCC region.

PIC has carved out three Horizon plans for the development of the petrochemicals sector in Kuwait. PIC is working towards realizing its Horizon plan –III from the year 2000. Streamlining investments into refining and petrochemical integration, entering into more number of joint ventures and diversifying the product portfolio with the help of timely government initiatives will help PIC to handle the challenges and achieve its goals set as a part of the Horizon plans.

Tags:  &, Economy, Gas, Kuwait, Oil, Petrochemicals

 Current rating: 0 (3 ratings)
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