Archive for October, 2008

A $60 floor for oil prices seems reasonable at this point and is still profitable for the Gulf, although not quite like it was, when nearing $150/bbl. Abu Dhabi’s budget is reportedly based on $40-$50/bbl prices, while Saudi’s is said to be in the range of $55-$60/bbl. Meanwhile, Ahmed Al Mazrouie, Chairman of the UAE Contractors’ Association sees a silver lining: “Construction work in Europe and the United States will be cut back considerably as a result of the crisis and this will result in large supplies of raw materials on the market and a drop in prices. Gulf countries will benefit most from this.” See the images and clips below from Emirates Business 24/7.

clipped from www.business24-7.ae Abu Dhabi ‘will not be affected by oil price slide’  “The Abu Dhabi boom began when oil prices were still relatively low. And the really high prices, ranging around $140 per barrel, were based on speculation. The government knows prices go up and down and based their development plan on lower prices. Thanks to this strategy Abu Dhabi is very stable,” it quoted Abdulla Al Hamed, Chief Executive of Capital Group, as saying.”Indeed, officials used an estimated price of $45-$50 a barrel in the 2008 budget. This means that, with a current account surplus amounting to 25 per cent of the gross domestic product, Abu Dhabi has ample room for manoeuvre and sufficient liquidity reserves to balance its national budget.” clipped from www.business24-7.ae Realty projects will not be scaled down   The demand for housing units is growing in most of the emirates in the UAE. (IMAD ALAEDDIN)

Details below from MarketWatch, of an announcement by Barclays (UK: BARC) (NYSE: BCS) of an US$11.9B capital raising effort via convertible notes from Qatar Holdings, Sheikh Mansour Bin Zayed Al Nahyan, a member of the Abu Dhabi royal family, and among other existing shareholders. It’s reported that pending conversion rates, Al Nahyan is poised to become Barclay’s top shareholder with a 16.3% stake, followed by Qatar at 12.7%. Those convertibles have coupons ranging from 9.75% to 14%.

Assuming Barclays doesn’t fail, it appears to be quite a deal for Middle East players — in fact, a win-win really, since Barclays gets the capital it so badly needs to boost its Tier One, and avoids heavy FSA hands sans a government injection.

clipped from www.marketwatch.com LONDON (MarketWatch) — Barclays on Friday struck a deal to raise up to 7.3 billion pounds ($11.9 billion) in fresh capital as the U.K. lender signaled its preference for cash from Middle Eastern royal families to the British government. Barclays said it’s issuing 3 billion pounds of notes that carry a 14% coupon to Qatar Holding, a state-backed investment vehicle, and Sheikh Mansour Bin Zayed Al Nahyan, a member of the Abu Dhabi royal family. The notes will carry options for the issue of up to 3 billion pounds at a price of 197.775 pence a share. Barclays also said it’s issuing 2.8 billion pounds of mandatorily convertible notes to Qatar, Qatar Holding’s Chairman Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, and Al Nahyan, as well as up to 1.5 billion pounds to existing institutional shareholders. The convertibles will have a coupon of 9.75% and will convert into equity at a price of 153.276 pence.

As reported in a TradeFlow21 posting on September 29th, it was suggested that sovereign wealth funds  may soon join a list of suitors seeking bargains among Wall Street’s ruins.  In an interview with the Financial Times published today, Deputy US Treasury Secretary, Robert Kimmitt,  indicated that SWFs were “actively looking at US opportunities.”  While Gulf nations struggle to address liquidity issues in banks and stock exchanges at home, many of their sovereign funds may also be waiting for the US market to hit a ‘true bottom’ before increasing such activity.  Patience is the rule of thumb here–buy low, sell high.

In what may be the first round of reductions in production, OPEC ministers agreed on Friday to cut output by 1.5 million barrels per day.  With oil in a virtual free fall, even the Saudis may have finally found the floor since their budget is built on a reported per-barrel price of $55 to $60.  Oil fell to a new low of $64 on Friday.

In an entry on September 12 concerning OPEC’s greatly exaggerated demise, the editors of TradeFlow21 cautioned against those who interpreted the rapidly declining price of oil, and the decision by the Saudis not to restrict output in direct opposition to other members, as a sign that the cartel was at an end.  Since that posting, oil has continued its precipitous per-barrel slide from a July high of $147.27 to $71.85 as of close Friday, October 17.  We noted then that disagreements within OPEC are less about the organization’s purpose and more about the floor price. Indeed, even the Saudis may have found the floor, which could explain OPEC’s decision to convene an emergency meeting on October 24.  For more, see CNBC/Reuters wire story.

In the past twelve months, nuclear Pakistan has survived a constitutional crisis that led to the temporary suspension of rights, the assassination of a beloved former prime minister, and the resignation of a contentious president.  With nations throughout the wider Middle East, including the Gulf, now pumping billions into banks and stock markets in an effort to blunt the blows from the global meltdown, Pakistan’s modest, emerging economy is also in need of a bailout.  A fast-sinking rupee has created a balance of payments crisis, which has reportedly prompted the Pakistani government to seek $4B in aid from the World Bank and other industrialized countries, including the United States and China.  See article in Financial Times, Pakistan calls on lender to help anchor rescue package.

Liquid Abu Dhabi investors to chip-maker AMD’s rescue. The cost: $700M and $1.2B in assumed debt for Advanced Technology Investment Co. (ATIC) to acquire a sizable chunk in the JV (Foundry Co). ATIC is also said to have a deep pocketbook of between $3.6B-$6B for capacity expansion. Meanwhile, Mubadala boosts its equity stake in AMD to 19.3% from 8.1%. See clips of coverage by MarketWatch below.

clipped from www.marketwatch.com NEW YORK (MarketWatch) — Advanced Micro Devices Inc. said Tuesday it plans to spin off its manufacturing operations in the form of a multibillion-dollar joint venture with an Abu Dhabi investment firm. AMD(AMD) said it will own 44.4% of Foundry Co., as the venture will be called. The remaining 55.6% would be own by Advanced Technology Investment Co., an investment company formed by the government of Abu Dhabi. Under the deal, ATIC will pay $700 million to AMD for its ownership stake in Foundry Co., with the joint venture also assuming $1.2 billion of AMD’s debt. At the same time, Mubadala Development Co. will pay $314 million to AMD for 58 million newly issued shares and warrants to buy an additional 30 million

See the FT’s Lex team commentary below on the sole out-performance of Jordan amidst the ongoing massive global wealth destruction. Note the original was published last Friday, so after Monday’s global sell-off, even Jordan is in the red now.

clipped from www.ft.com From Jordan to Iceland Jordan is the equity trader’s favourite pin-up. Of Standard & Poor’s own 52 world market indices, the Hashemite Kingdom is the only one that is still in positive territory this year, albeit by just 1 per cent. Given that investors are $10,500bn poorer than at the start of the year, on a free-float basis, with 40 per cent of that wealth destruction occurring in the last tremulous month alone, that is small consolation. All other emerging markets, the hope of decoupling theorists, have been creamed. One-time wondermarket India, for example, has lost more than half its value so far this year, with China and Russia not far behind. This year’s best performing developed market, the US, is down by almost 20 per cent, while the worst performing, Iceland, has lost 69 per cent of its value. To some, the silicone dunes of Jordan have never looked more alluring.