Mega Islamic bank may be launched in 2012
A long-awaited mega Islamic bank to be headquartered in Bahrain may be launched this year and $600 million of its $one billion capital will be contributed by Islamic banks in the Arab region, a senior banker has said. The remaining capital will be subscribed by local sovereign wealth funds and other financial institutions and investors, said Adnan Youssef, chairman of the Beirut-based Union of Arab Banks (UAB). Touted to be the world's largest Shariah-compliant unit, the bank idea was first floated in 2009 but was delayed many times because of the repercussions of the 2008 global fiscal distress, Gulf debt default problems, the European Union debt crisis and the political unrest sweeping the Middle East. Youssef, also CEO of the Manama-based Al Baraka Banking Group, had first said the bank would have a capital of $10 billion and would be a joint venture between regional Islamic banks and other investors. "This bank will have a paid up capital of $one billion, of which $600 million will be subscribed by Islamic banks in the region and the rest by other financial institutions, including SWFs," he told the UAB's magazine. "In order for us to enter the market with this project, we must first get the $600 subscription, which we expect before the end of 2012.....the remaining shares will also be floated before the end of the year." Demand for Islamic banking soared after the 2008 crisis and default problems and this has prompted several banks to set up Shariah-compliant units. Some banks have expanded existing units while others plan to launch such services. Islam bans interest, investing in prohibited sectors and stipulates that risk and reward be shared among all those in the business venture. Saudi Arabian businessman Sheikh Saleh Kamel, who owns Al Baraka, is behind the plan to create a giant Islamic bank to be owned by many Shariah-compliant. Saudi Arabia's Al-Rajhi group was the world's largest Islamic bank at the end of 2010, controlled $49.2 billion in assets, nearly a fifth of the combined assets of the Arab region's Islamic banks, according to UAB. The Kuwait Finance House (KFH) came second by assets, which stood at $43.7 billion at the end of 2010 compared with $39 billion at the end of 2009. Dubai Islamic Bank (DIB) was ranked third, with assets of about $24.5 billion, followed by Abu Dhabi Islamic Bank (ADIB), with around $20.5 billion. Al-Baraka Group came fifth, with nearly $15.8 billion while Qatar Islamic Bank (QIB) controlled the sixth largest assets of $14.2 billion. The report showed Al-Rajhi also had the largest capital of around $8.08 billion at the end of 2010. KFH came second with around $4.3 billion, followed by DIB with nearly $2.6 billion, QIB with $2.5 billion and ADIB with $2.2 billion.
Source: Emirates 24/7 News
Huge growth potential for digital finance in the UAE
MENA has announced the findings of a UAE-focused deep dive report which shows that search engines are the most used and most preferred tool for finance research, with almost half of online research for products such as bank accounts and personal loans starting from search engines. Additionally, close to 40% of people report banking online on a monthly basis. Google commissioned the study into digital purchasing, researching and banking behaviors as part of its commitment to developing the digital ecosystem in the UAE. “People across the world search on Google for information billions of times a day. The stats show that Middle East and North Africa region is a fast emerging market with the searches per day showing a growth rate of 25% year on year, having the UAE among the fastest countries in search activity,” said Mohamad Mourad, Google Gulf regional manager. “The result of this study along with the trends of search activity in the UAE implies that companies in the finance and banking industry should enhance their presence on search engines to provide their customers base with the most relevant information about their products.” The study showed that while consumers mostly prefer to purchase finance products offline, much of the research done happens online, with 52% of the 1000 people surveyed saying they used a search engine to search for product information. While the UAE as a whole is digitally savvy in terms of research, conservative purchasing behavior was observed, with respondents only buying, on average, 1.2 finance products in the previous 24 months, indicating the digital finance sector has ample room to grow in the coming years, and that companies would well to increase their online presence to attract customers. In terms of online banking, the internet is becoming a popular channel for processing banking transactions, with four out of ten respondents engaging in at least one online banking transaction on a monthly basis. Paying bills, transferring money, and keeping an eye on account balances and account transactions are the most popular online banking activities, and while the vast majority of users access their online banking system via stationary internet, nearly 30% report using some kind of mobile device to engage in online banking activities, displaying strong growth potential for mobile banking and finance applications. “The pace of innovation in search continues to accelerate and today, we’re making serious strides towards a knowledge engine,” continues Mourad. “More engineers are working on search today than at any time in the past to achieve our goal to help people convert data and information into knowledge. We conducted the UAE-focused deep dive report to help companies get insight into the industry online trends and provide them an opportunity to make informed decisions about investing in the future.” The research was undertaken by market research company TNS Middle East & Africa with the target group being decision makers and influencers for the purchase or research of financial products.
Source: Corporate Publishing International
UAE banking sector likely to be subdued in 2012
Although the UAE represented an oasis of relative calm amid the regional unrest which dominated 2011, its banking sector remains beset by concerns, not least the depressed property market and new regulatory requirements which have curbed lending growth momentum in some sectors. Despite an apparent rebound in economic activity in the country in the latter half of 2011, the country's banks are still treading softly with regards to lending. According to the latest available figures from the UAE Central Bank, overall bank credit as of end-September 2011 reached Dhs998.4bn, a rise of just under 2% on the Dhs979.2bn recorded at end-September 2010. Bank lending to the private sector remained flat at Dhs732.2bn as of end-September 2011, an increase of just 0.8% year-on-year, although lending to the public sector did rise 13.2% to Dhs196.5bn over the period. While other Gulf economies are witnessing a boom in lending, having finally shaken off the uncertainties of the global economic downturn, the fate of the UAE's banking sector is still heavily intertwined with that of the global banking community, and so concerns over growth in the euro-zone, the US and China have stymied growth in the Emirates. The financial sector remains highly vulnerable to external shocks, and the ongoing debt refinancing obligations of various large private, government and quasi-government conglomerates contributes to the ongoing insecurity. As a result, analysts argue that banking sector growth is likely to be subdued in 2012, as confidence and therefore lending activity remains in short supply. Neither the Dubai Financial Market (DFM) nor the Abu Dhabi Securities Exchange (ADX) enjoyed a positive 2011, as they suffered from declining turnover and trading value. The DFM General Index finished the year down 17% on end-2010, and the ADX lost 12% of its market capitalization over the same 12-month period. The DFM registered a trading value of Dhs32.1bn in 2011, down from Dhs69.7bn in 2010 and Dhs173.5bn in 2009; its trading volume stood at 25.2bn shares, down from 38.4bn in 2010 and 110.7bn in 2009. On the ADX, trading value recorded Dhs24.9bn in 2011, down from Dhs34.6bn in 2010 and Dhs70.2bn in 2009; its trading volume stood at 15.9bn shares, down from 17.6bn in 2010 and 37.6bn in 2009. Leading figures on both bourses have indicated that a merger could help arrest sliding volumes and shrinking profits, and the executive chairman of the DFM confirmed that both bourses held discussions over a merger in February 2011. However, there have been no further updates on the prospects of a merger, and analysts expect both bourses to struggle again in 2012. The country's initial public offering (IPO) market did at least come back to life in 2011, after two-and-a-half years of inactivity. Three companies listed on the Abu Dhabi Securities Exchange, the largest coming from real estate developer Eshraq Properties, which sold 55% of its shares to raise Dh825m. The IPOs came after a succession of planned IPOs had been scrapped due to unfavorable market conditions following the 2008-09 global financial downturn and the 2009 Dubai credit crisis; of recent cancellations, the most notable was probably a planned IPO on Nasdaq Dubai by Axiom Telecom, which was scrapped in December 2010. Market watchers - and participants - will hope that the listing activity witnessed in 2011 is sustained and even bettered in 2012. However, the ongoing troubles in Europe and elsewhere suggest it could be another rocky year for UAE stocks.
Kuwait’s Burgan buys stake in Turkish bank
Kuwait's Burgan Bank has reached a deal to buy a 70 percent stake in Turkey's Eurobank Tekfen, a partnership of Greece's EFG Eurobank and Turkey's Tekfen Holding, sources with knowledge of the deal said. The stake sale comes as Greek banks, hit by the country's sovereign debt crisis, look to boost their capital base to cope with a protracted recession and rise in non-performing loans. EFG Eurobank, Greece's second-largest lender, said in July last year it had begun talks to sell a majority stake in Eurobank Tekfen as it sought to safeguard its balance sheet against debt losses. In December Eurobank Tekfen said talks with three potential buyers were continuing. The sources said on Wednesday the deal with Burgan Bank, the commercial banking arm of Kuwait Projects Co (KIPCO), was in excess of Eurobank Tekfen's equity capital value of 608.3m Turkish lira ($347m). "A deal has been reached. An official statement is expected in the coming couple of weeks," one of the sources told Reuters. The deal also includes an option for Burgan to buy Tekfen's 29.26 percent stake in Eurobank Tekfen. Greece's EFG Eurobank sold a majority stake in its Polish operation Polbank to Austria's Raiffeisen Bank in February last year for 490m euros ($698m). Eurobank bought 70 percent of Tekfenbank in 2007. Eurobank Tekfen made a net profit in the first nine months of last year of 20.3m lira. Its balance sheet size was 5.1bn lira, with deposits at 2.2bn lira. KIPCO is the Gulf state's largest investment company. It also has stakes in United Gulf Bank, as well as other financial services sector companies across the Middle East and North Africa.
Beyond Burgan: Kuwait’s new oil boom
For a country with a reputation for delays, 2011 was an eventful year for Kuwait’s upstream oil & gas sector, which is looking beyond its mammoth Burgan field to tap more difficult oil.
In June, together with fellow gulf producers Saudi Arabia and the UAE, Kuwait quickly increased its oil production from 2.3 million barrels per day (bpd) to over a current total of over 3 million bpd. The production hike followed a commitment from Oil Minister Mohammad Al-Busairi with his GCC counterparts to help soothe oil markets spooked by the sudden loss of Libyan crude. Kuwait lifted a self-imposed 10% cap on contract sales, and remedied an export bottleneck at the Mina al-Ahmadi oil terminal, allowing more oil from the Burgan field to be exported. Kuwait is currently the fourth-largest oil exporter in the world, with its population of 5 million consuming only 10% of its oil domestically, and is now pushing at the limit of its production capacity. By 2020, Kuwait hopes to have production capacity of 4 million barrels per day, and has announced a series of ambitious projects to make this happen. Kuwait is becoming an increasingly important source of oil for China, a trend which is likely to continue as Iran’s presence on oil markets diminishes. Kuwait’s crude oil exports to China surged 58.9% last December over 2010 to 853,000 tons, according to official data. The state is now providing China with 3.9% of its oil needs, up from 2.6% a year ago. Since the establishment of Kuwait Petroleum Company’s Beijing office in 2005, Chinese refiners have steadily and significantly increased crude purchases from Kuwait. As with other Gulf states, where China has lent on Kuwait for oil supplies, Chinese involvement in its supplier’s oil and gas sector have followed. Trade and foreign direct investment between the countries is increasing, with the upstream sector leading the way. Kuwait Petroleum Corporation (KPC) CEO Farouk Al-Zanki recently visited Beijing to enhance corporation’s relationship with major Chinese oil companies. Despite having one of the region’s most forward-looking and ambitious suites of national oil companies, Kuwait generally has a reputation as a difficult place to do business. The World Economic Forum’s Global Competitiveness Report places Kuwait 34th overall, second last in the GCC behind Qatar (14th), Saudi Arabia (17th), the UAE (27th) and Oman (32nd), but ahead of Bahrain (37th), a much smaller producer. The state is deemed to be performing well on basic requirements but lagging in innovation and sophistication. Inefficient government bureaucracy is cited as the single most significant problematic factor for doing business, earning the country, as Robin Mills of Manaar Consulting says, the old moniker of ‘Queue and wait’. Examples are not hard to come by, with ‘Project Kuwait’ – an ambitious $7 billion plan to involve international oil companies in reviving production at Kuwait’s mature fields – on hold after political controversy. Other upstream projects are going well, however, including the North Kuwait Heavy Crude recovery program and an innovative steam-flooding project in the Partitioned Zone between Kuwait and Saudi Arabia. The $340 million PZ pilot, which is the third test phase for the steam flood project, is expected to lead to full-field steam flooding of the field’s First Eocene reservoir. This would mark the first ever commercial application of conventional steam flooding in a carbonate reservoir. A new oil and gas gathering center at Kuwait’s third-largest oil field Sabriya, built by South Korea’s SK Engineering and Construction at a cost of $626.7 million dollars, can handle 165,000 barrels of crude oil per day and 85 million cubic feet of gas, and is a key part of Kuwait’s export growth plan. The project was completed six months ahead of schedule, showing that quick work can be done in the country, and setting down the gauntlet to non-Asian EPC contractors who are striving to compete with tight margins and strict deadlines. Kuwait produces around 175 million cubic feet of gas per day, and has an official target of 1 billion cu ft. per day by 2015. In common with other gulf states, Kuwait has seen surging domestic demand for gas for power generation, desalination and petrochemicals feedstock, and has consumed more than it has produced since 2007. If Kuwait is to wean itself off expensive liquefied natural gas imports, it must either produce attractive and settled exploration and production deals for international oil companies or seek long-term supplies from its neighbors. Fears over intensifying competition for ethane feedstock from heavy industry and the power generating sectors are reportedly rife among Kuwait’s petrochemical elite. According to America’s Energy Information Administration, Kuwait imported 270 million cubic feet per day of LNG in 2010, supplied by Shell and Vitol under a contract running until 2013. In February 2010 an Enhanced Technical Service Agreement for development of the Jurassic Gas fields was struck with Shell. The Anglo-Dutch super major was to deploy technical experts to Kuwait to support KOC in its management of the ongoing development of the Jurassic Gas fields. This project is both complicated and challenging, due to unconventional geological formations, difficult reservoir conditions and complex sour gas compositions. The project has stalled as a parliamentary probe was appointed to investigate the contract in June last year, a typical victim of the country’s robust and often dysfunctional political scene. Despite delays Kuwait is taking other steps to tackle its gas squeeze. Kuwaiti gas projects in the north and south of the country will add around 600 million cubic feet to the already existing production of 140 million cubic feet, according to Kuwaiti Oil Minister Mohammad Al-Busairi. Through its huge projects in both regions, Kuwait hopes to improve feedstock supply to the gas needs of the petrochemical industry, according to Al-Busairi. “The gas project in the north will be much clearer in 2017. It is an ambitious project and there are promising excavations that reveal signs of a considerable amount of reserves. But time is needed for more accurate readings,” he said. The Partition Zone project may also invest in gas production, with the intention of improving gas utilization and eliminating continuous natural gas flaring at the Wafra Field. Infrastructure projects are underway, with a recent $552 million contract with South Korea’s GS Engineering & Construction to build 10 storage tanks for butane and propane gases an example of Kuwait’s willingness to invest in the sector to meet domestic demand. The tanks will have a capacity of 723,000 cubic meters and will be built at the 460,000 bpd processing capacity Mina Al-Ahmadi refinery. Unique oil recovery projects, a critical need for gas, a drilling spree in the north and the managed decline of one of the world’s greatest oil fields in the south: Kuwait remains one of the most absorbing upstream environments in the region, and with plenty of money to spend, one that retains the ability to surprise.
Source: Arabian Business
Promising reform – Algeria boosting capital markets
Early results from a capital markets reform program initiated in May 2011 have been promising, and Algeria is now looking to increase the number of initial public offerings (IPOs) on the Bourse d’Alger, Algeria’s stock exchange, Global Arab Network reports according to OBG. With the sixth-largest reserves of gas in the world, much of which remains unexploited, the country already supplies up to 30% of Europe’s natural gas needs. Algeria’s economy also emerged relatively unscathed from the 2008 global financial downturn and the regional instability of 2011, achieving an estimated 2.5% GDP growth last year, according to the International Monetary Fund. The country has the highest GDP per capita ($4495) among its North African neighbors, World Bank statistics show. Thus, policymakers in Algiers are mindful that with a wealth of natural resources at their disposal and growing foreign interest in the country, a more active stock exchange would likely boost economic growth, particularly as Algeria looks to unlock new sources of capital for the country’s relatively small private sector, in addition to bringing in new funds for the larger state-owned enterprises. “We have identified areas of the industrial sector from where we plan to float public firms on the bourse as joint stock companies,” said Nouredine Smail, the president of the Bourse Supervisory Commission (Commission d’Organisation et de Surveillance des Operations de Bourse, COSOB) when speaking with local media in mid-December. Smail was delivering the initial conclusions of a capital markets reform program, a $5.1m scheme aimed at revitalizing the bourse with help from the UN Development Program (UNDP). The 14-month project is part of a government strategy led by the Ministry of Finance to diversify the economy away from an overreliance on hydrocarbons, as well as make a concerted effort to increase competition among both public and private sector firms. Ultimately, Algiers wants to bring the bourse up to international standards. The capital markets reform panel, made up of government officials and international advisors, has established four recommendations to do this. The first option calls for IPOs of shares in some of the large state-run industrial firms on the exchange, with a percentage of the shares to be retained by the state directly or through an investment vehicle. A second option under consideration is to foster the creation of specific strategic partners for the state, whereby the state will hold 50-60% of the shares in the new firms and between 20% and 30% of the shares will be made available to the public in an IPO. A third recommendation of the capital markets reform panel is to set out growth projects for specific sectors and allow private firms wanting to list on the bourse to boost their capital through the exchange ahead of such plans. Finally, COSOB and the panel recommend that stakes in banks and financial institutions should also be made available to foreign and public investors under the supervision of the Money & Credit Council (Conseil de la Monnaie et du Credit ). Foreign investors are already limited to a 49% stake in Algerian private firms, with 51% retained by the government. “The 51%/49% rule is already a reality,” said Smail. “What we want to do is to offer the 51% stake to the public via the bourse, applying this common international practice to Algeria.” Similar local content rules for ownership are in place elsewhere in the Middle East and North Africa region. It is hoped that 2012 will see more IPOs offered to Algerian nationals and foreign investors in an effort to boost the equity capital markets on the bourse. Many local private firms and investors consider this long overdue. Through its reform program, the government is already trying to coax more private firms to consider a listing by offering incentives, such as a reduction in transaction fees. The government is also looking at its right of first refusal on Algerian firms selling stakes in their companies to foreign investors. Currently, any shareholdings offered to foreign firms must be first sanctioned by the state, which can lead to some confusion, as evidenced by the lengthy negotiations over Djezzy, the country’s largest mobile operator. Djezzy, a unit of Orascom Telecom, is currently being valued for a sale to the Algerian government, following a lengthy discussion over the scope of the state’s right of first refusal. Making this process more efficient and speedy is also being considered by the capital markets reform panel. The bourse’s market capitalization remains extremely modest by international standards. The vast majority, around 98% or so, of activity is focused on the debt market, primarily corporate bonds for public enterprises. Since insurance firm Alliance Assurances listed on the bourse in November 2010, market capitalization rose by 62% from AD7.7bn (€77.64m) to AD12.5bn (€126m) in early January 2012. By the middle of the month, market capitalization stood at AD14.8bn (€152m), according to the Bourse d’Alger website. Still relatively nascent, at 11 years old, the bourse does not yet reflect the range of economic activity in the country. Alliance was the first Algerian private firm to list on the bourse, and the other four public firms on the exchange are state energy giant Sonelgaz, pharmaceutical group Saidal, real estate firm Spa Dahli and tourist company L’Hotel El Aurassi d’Alger. Aurassi and Saidal have been the only traded stocks since 2000. The corporate bond market remains the center of activity, mainly due to debt instruments offering higher earnings than savings accounts, as their interest rates are in the range of 5% to 6%, compared to 1.5% to 3%. In 2009 two licenses for notes were issued for Sonelgaz and ETRHB-Haddad, a construction company. As the recommendations of the capital markets reform project take shape and lead to improved regulations, the Bourse d’Alger may see several new IPOs of industrial firms over the course of the year. This will indeed be a boost to both domestic and potential foreign investors.
Source: Oxford Business Group