Public Service Message: Baldness in the Gulf

David Roberts over at the Gulf Blog has published this important bit of health related news  about one of the hazards to males of living in the GCC.

Consider yourself warned.

Bottled water may be an acceptable "solution" (in a manner of speaking).

Venues for 2010 and 2011 Gulf Cup Football Championship Announced

Announcement here:  Yemen 2010 and Iraq 2011.

I think I will miss both though I suppose a loss might be easier to take in Yemen.  Wonder if there are qat vendors in the stands?  Both sites in Yemen are in the south of the country, if you're wondering.

S&P BICRA Ratings - Kuwait Downgraded from 4 to 5

Standard and Poor's analyzes the health of national banking sectors and then assigns them a rating from 1 (best) to 10 (worst).

Here's a recent ranking report from 2 October 2009.  A more recent report requires a subscription to S&P.

This week S&P downgraded Kuwait from 4 to 5.

GCC Monetary Union: Imminent Meeting to Form Gulf Monetary Council

AlRiyadh newspaper quotes Dr. Nasir Al'Uqud, Assistant Deputy Secretary General for Economic Co-Operation of the GCC as saying that the Governors of the Central Banks of Bahrain, Kuwait, Qatar and Saudi Arabia will meet in the coming weeks to form the Gulf Monetary Council ("GMC") as a first step in the creation of a unified currency for the GCC and a GCC Central Bank.

Oman and UAE are not participating in either the common currency program or the GCC Central Bank.  Apparently the UAE was miffed that the CB will be headquartered in Riyadh as opposed to Abu Dhabi.  It announced this May that it was not participating.  Oman had advised its withdrawal back in 2006 (or early 2007?).

The GMC is charged with taking all the steps necessary to establish monetary union, including the timing thereof and the issue date of the new common currency.    the specifics of the unified currency and its issue date as well as setting up the basic infrastructure.  Associated with the common currency will be the development of plans to co-ordinate GCC economies  and set up related units to implement and monitor that process.

The original plan was to issue the unified currency in 2010, but the GMC will have the right to determine the timing.   The article notes that unnamed Gulf officials expect it to take several years for the currency to be issued.

Hope remains that Oman and the UAE can be persuaded to join at a later time.

The Banker: 2009 “Best Bank” Awards by Country

The Banker has announced the winners of its award for 2009 Best Bank in each country.

Click on that link to read the rationale for the selection.  As always, it's important to read the fine print to determine what the criteria for evaluation were.   I recall reading a ranking of a university where two of the criteria (apparently equally rated with the rest of the criteria) were the survey taker's view on the beauty of the campus and the vigor of the social life. 

Here are the relevant GCC winners:

1. Bahrain - Ahli United Bank
   
2. Kuwait – National Bank of Kuwait
   
3. Oman - Bank Muscat
   
4. Qatar – Qatar National Bank
   
5. Saudi Arabia – Saudi British Bank
   
6. UAE – First Gulf Bank
   

And in Lebanon, BLOM!

Emirati Women Hold AED 12.4 Billion (US$3.4 Billion) in Investments

Raja AlGurg (Al Qurq), President of the Council of Dubai Businesswomen, said at a press conference held in Dubai to announce the seventh competition for Emirates Prize for Businesswomen that there were 11,000  businesswomen in the UAE.  4,300 in Dubai, 3,200 in Abu Dhabi.  With AED12.4 billion (US$3.4 billion) in investments in a diverse range of assets: hotels, real estate, buildings, shares, etc.

Earlier post on women's wealth in the GCC.

Women's Wealth in the GCC (No, Not a Marketing Pitch)

AlQabas had an article on the topic in its 12 December issue.

Unlike a previous article this is not a marketing pitch by some firm about how it can help wealthy GCC women manage their wealth, but a more serious discussion of women's place in Arab national economies.

Some highlights:

As per Kuwaiti businesswoman and economic expert, Safa AlHashim:

1. Between 2007 and 2008 the wealth controlled by Saudi women increased from SAR 412 billion (US$110 billion) to SAR 600 billion (US$160 billion).  (AA:  If you're wondering how a change from SAR 412 million to SAR 600 million works out to a 68% increase,  it would appear you've never spoken a Kuwaiti investor.  It may even be an 86% increase by now.)
2. Within the GCC women controlled US$346 billion in 2008. (AA:  I suspect this refers to the total assets under control.  So, for example, if a women controlled a company with $100 million in assets and $25 million in capital, the higher number would be used.  But that is not specified in the article.  It would be highly useful if it were).
   
3. Saudi women retained their number #1 position in 2008.  
4. Kuwaitias were #2 with US$75 billion, Emiratias US$55 billion, Qatarias US$35 billion, Bahrainias US$12 billion and Omanias US$9 billion.
5. GCC women's personal wealth was US$ 40 billion.  (AA:  This is the reason for my comment in #2 above).
   
6. It's expected that by 2011 the amount under control will be US$385 billion.
7. Saudi women have 11 billion in current accounts (not specified if US$ or SAR).  They own 40% of all family companies, almost a third of all brokerage accounts, and control 20% of the capital of Saudi mutual funds.  (AA:  It appears that the first two metrics are by number of accounts and companies and not by value thereof).
   
8. Women in the GCC constitute between 15 to 25% of the actual work force.
9. Women should be given their proper role in the economy as they can serve as a key to development.

The article then quotes Dina Quduh from the Union of Arab Banks:

1. Arab women's participation in the labor force is increasing.
2. However, the Arab World needs to create 100 million jobs before 2020 to absorb the growth in the potential work force.  At 2020 it's expected that the Arab World will have 300 million inhabitants - most of them between 12 and 24 years old.
3. Women are 50% of the potential work force, but are underutilized.  Their unemployment rates are between 20 to 40%. 
4. The average women's employment in the Arab World is 32.7% with the lowest percentage in Oman and highest in Qatar.

Finally, Bahraini banker, Najah AlAli is quoted as attributing the low level of women's participation in leadership roles in the banking and finance sector to local culture, established ideals of the inferiority of women, and concepts about their intellectual and leadership skills.  She also blamed a lack of implementation of laws and regulations for equality as well as weakness in co-ordination between the public and private sector in setting and implementing a national strategy.

Middle East (UAE and GCC) Finance and Investment News

Another blog added to the links of Interesting Blogs and Other Links.

Link here.

Apparent Dramatic Improvement in GCC Security? Or Outbreak of Diplomatic Illness?

The Sixth Annual International Institute of Strategic Studies Regional Security Summit is being held in Manama from 11 through 13 December.

In an apparent sign of markedly decreased tensions in this formerly volatile part of the world, neither Secretary Gates from the United States nor the Foreign Minister of France, Bernard Kouchner, needed to attend. Secretary Gates was in Kirkuk for a clearly much more important "sunny day town hall meeting" with 300 US troops. Foreign Minister Kouchner was in Paris to join President Sarkozy for critical meetings with President Mubarak of Egypt who is arriving Sunday, which coincidentally is the last day of the conference.

Completely unrelated to this bit of news were the comments by the Foreign Minister of the Kingdom of Bahrain, Shaykh Khalid Bin Ahmed Al Khalifah, against imposing additional sanctions on Iran and criticizing the exclusion of the Arab states of the Gulf from the negotiations with Iran.  And it appears even more comments here.

Also completely unrelated to both was the reported presence of the Foreign Minister of the Islamic Republic of Iran at the conference.

The Gulf Curve Blog: Interesting Analysis on GCC Bonds

The GulfCurve blog has a very interesting analysis of GCC credit spreads with a focus on the impact of the Dubacle.   Well worth a read.

Sadiq AlBahrain AlAmin

Long ago in a much warmer place, my then landlady made a comment that the patron saint of Lebanon was not Mar Marun but rather Jamal Abdul Nasir because his economic policies in Egypt were responsible for the rise of Beirut.

Over the past 10 or so years, Dubai has mounted a serious challenge to Bahrain's role as the regional  banking center.

I wonder if my landlady has an opinion on this issue?

Abaar Loan

AlQabas quotes an unnamed analyst at National Bank of Abu Dhabi that the loan may be for:

1. Temporary refinancing of a maturing loan while Aabar sorts out financing options.
2. Purchase of additional shares in Daimler.
   

A Fair Day's Wages for a Fair Day's Work - Follow-Up to Hadith Qudsi #21

A follow-up to my earlier post, two articles from GulfNews Dubai.  A bright one here and one not so bright here.

The next step is making sure the wage paid is fair.

"A fair day's-wages for a fair day's-work:" it is as just a demand as
Governed men ever made of Governing. It is the everlasting
right of man.

Thomas Carlyle

S&P Predicts Bank Merger Activity in UAE, Kuwait and Bahrain

Article here.

The key issue is the market for corporate control.  Many local private investors would prefer to hold the majority in a "samak saghir" (small fish) than a minority position in a "huut" (whale).  And in  the merged entity there is sadly only one chairman.  And it is hard to let go of control.

Perhaps, the sting of corporate distress coupled with regulatory encouragement can do the trick.

Transparency International Publishes 2009 Corruption Perceptions Index - How Did the GCC Do?

By now you've probably seen other reports on the rankings of the GCC countries in TI's 2009 CPI.  Before we turn to the numbers, a few words.

First, how does TI itself describe the CPI?

Here are their exact words:  "The Corruption Perceptions Index (CPI) measures the perceived level of public-sector corruption in 180 countries and territories around the world. The CPI is a "survey of surveys", based on 13 different expert and business surveys."

A few points to emphasize:

1. The second word in the name says it all.  It is a Corruption Perceptions Index.  It is the perception of the level of corruption not necessarily the reality. 
2. It is public sector corruption only.
   
3. It is based on surveys (there are a universe of 13 different surveys).  Not all surveys use the same methodology.  Not all cover the same set of countries.  Usually, countries are ranked using 5 or 6. 
   

Despite these factors, the results are set forth with apparent Cartesian precision.   New Zealand is the least corrupt with Sweden two places below.  Not three.  Not one.   Similarly, at the other end of the scale, Somalia is more corrupt than Afghanistan.  Really?  How do they get to this fine a level of distinction?  Are the same set of respondents doing business in both Somalia and Afghanistan?

I commented on this phenomenon before and so I will turn to the rankings.

GCC states CPI ranking (best to worst):  World rankings follow the country name.

1. Qatar             22
2. UAE              30
3. Oman             39
4. Bahrain          46
5. Saudi Arabia  63
   
6. Kuwait           66
   

Qatar to Introduce Corporate Tax From 1 January 2010

See updated post here.

The local GCC press is abuzz with the news that Qatar has passed a law establishing an income tax  effective from 1 January 2010.

That would make it the first GCC state to have a general income tax with the exception of the Bahrain income tax which is only on oil companies.

Some accounts differ on whether the tax will apply only to companies or individuals as well. 

AlQabas (Kuwait) huna is in the no personal tax column.

Maktoob takes an opposing view here.

AlRiyadh (Saudi) huna shares Maktoob's view.

Qatar Tribune with the apparent definitive answer:  companies only.

Another Truckers' Delay on the Saudi-UAE Border - But What is the Real Story Here?

 "There are three whose adversary I shall be on the Day of Resurrection: a man who has given his word by Me and has broken it; a man who has sold a free man and has consumed the price; and a man who has hired a workman, has exacted his due in full from him and has not given him his wage."

Hadith Qudsi #21

SAA

If you'll look closely at this article,  you'll see in the fourth paragraph that driver, Mohammad Jolan Mustafa, gets the princely sum of AED200 (US$54.50)  to make the trip  to Doha regardless of the time spent.

Usually it only takes three days, which would make the per day wage the exorbitant sum of  AED 66.670 (US$18.17).

This time it will take eight days so his per day wages will be merely  AED25.000 US$6.81. 

I will leave it to readers to perform the wage per hour calculation.

On the border story, there was also a delay on the Causeway between Bahrain and Saudi Arabia, which the Gulf Daily News ascribes to a computer glitch in Saudi, speculating that this may have also affected the UAE/Saudi crossing.

Global Investment House Kuwait - Seized Deposits

As per GIH's financials, two deposits totaling KD115 million (US$402.6 million) have been attached or otherwise seized by third parties and are now the subject of legal actions. 

KD71.75 million of this amount relates to an investment that GIH had intended to make in National Bank of Umm AlQawain ("NBQ") for KD183.6 million (US$642.5 million) to purchase a 20% stake.  The two parties signed an MOU in July 2008.  GIH placed the equivalent of KD 71.75 million (US$249.9 million)  with NBQ.  (I suspect the amount placed was US $ or AED as the amount fluctuates from one quarterly report to another.  It would not if the amount were denominated in KD). 

Subsequently, GIH obtained commitments for a US$410 million loan to fund the remaining amount of the purchase price.  In November 2008, it decided not to proceed, canceled the loan and asked for its deposit back.  

NBQ refused alleging breach of contract.  See NBQ's 2008 Annual Report Note #13. (You will have to page through this as it is interactive).

Reportedly, a court in the Emirates gave the first round to NBQ.  No doubt there will be several more rounds.  The two parties' legal arguments are summarized in this article.

The second amount, KD43.2 million (US$148 million), is a deposit placed with a Kuwaiti bank by a subsidiary of GIH (AlThouraia) which that bank offset against obligations owed to it by GIH.  

The total KD 115 million represents roughly 0.1% of GIH's total cash of KD89.6 billion.  From that standpoint it's not a highly significant amount.  

From an equity standpoint, if GIH were to lose the court case against the Kuwaiti bank, the result should be no impact on equity as it would merely be a substitution of liabilities - the liability of GIH towards the bank replaced with one towards AlThouraia.  At some point GIH would have to make its subsidiary whole by transferring funds or other value.

With respect to the NBQ case, it's difficult to make a statement.

It is hard to understand the basis for this lawsuit.  In other words hard to fathom how a properly worded MOU could create a contractual obligation.  But then again AA didn't understand the structure of the convertible bond agreed to by Shuaa Capital and Dubai Banking Group.  Since the NBQ/GIH deal is also structured as a convertible, it may be that some cutting edge financial innovation in the Gulf has produced  a breakthrough in convertible deal structuring.  Or then again maybe just a breakdown. 

In any case, it's hard to imagine the UAE court confiscating GIH's deposit in toto.   

However, even if it did, the damage should be containable.

Global Investment House Kuwait - Debt Restrucuting Update - GIH Offers Collateral

Having devoted some attention to The Investment Dar over the past few days, it's time to turn to Global Investment House, where the story appears better.

 
On 25 October GIH announced that its creditors have overwhelming approved the terms of a proposed debt restructuring.  And contrary to TID, where the creditor Co-ordinating Committee is largely invisible and silent, here at GIH that is not the case.  WestLB, the head of the Bank's Steering Committee, (and you'll recall I made a point of the significance of the  change in name of the creditors' committee at TID in a recent post) is front and center selling the deal.

 
There have been, however, two intriguing developments since then - or at least public reports of these events.  

The first was contained in GIH's 3Q09 earnings announcement:  "The size of total bank debt to be restructured is expected to be KD500 million (USD1.75 billion).   The outstanding bonds of KD89.5 million (USD312 million) are expected to be paid as per their scheduled  maturities."

 
There is always a tension in creditor groups between lenders and bond holders with the latter claiming that it is impossible to restructure their obligations and so they must be paid according to their existing maturities.  The images bondholders usually conjure up are scores of unsophisticated investors - widows and perhaps even orphans - who simply  just can't be persuaded to attend bondholder meetings and vote.  

Lenders push to have all obligations restructured as they don't want to see precious cash flow used to pay off another material creditor in full while they are waiting for their rescheduled debt to be paid.

GIH"s bonds represent roughly 15.2% of the outstanding debt obligations .  So this is not a trivial amount.  Maturities are as follows:  December 2009 KD 14.4 million (16.1%), April 2012 KD 40.9 million (45.6%) and November 2013 KD 34.3 million (38.3%). (If you're wondering why numbers differ from those in GIH's press release, I am using the amounts due after GIH Group holdings of the bonds are eliminated.  These appear to be KD 25.5 million.)

Just today GIH issued another press release (though there was a rumor at least one day earlier) that it had granted the bondholders collateral.

GIH states that it has "offered to the bondholders security on the same terms and basis as is being proposed to be offered to the banks and financial institutions currently in discussions with the Company for restructuring of the debt".

 
Since the bondholders are not restructuring their debt, the question is what is the quid pro quo for the collateral.  Is it to forestall their taking legal action?  As part of a bargain to keep them from accelerating repayment of their bonds? 

 
It seems the bank lenders may be acquiescing not only in the bondholders' exemption from the restructuring but are as well their sharing in the collateral. 

Of course without details of the negotiations it's hard to draw a firm conclusion.   However, it seems the bondholders have gotten quite a nice deal indeed.  One wonders if it extends to the GIH Group entities who are bond holders? Perhaps as much as KD 25.5 million as outlined above. 

It would be interesting to know who the holders of the bonds are particularly the 2008 issue which was raised around the time that it should have been apparent to GIH's management that things were getting difficult.   

From GIH's 3Q09 financials, it's clear that the Group itself stepped up for roughly KD 15.7 million of the issue.  That, of course. is based on the assumption that there were no prepayments of that debt.  The 3Q09 financials show no evidence of that.

And finally don't overlook the central message here - the price of the restructuring is collateral.  Not an uncommon requirement of creditors in a restructuring.  There will also be  covenants in the restructuring agreement designed to protect the lenders' interests by limiting what the borrower can do.  Depending on how onerous these are, GIH could find itself with limited room to conduct / expand its business.

IFC/World Bank Group "Doing Business in the Arab World 2010"

Today the IFC/World Bank Group officially released its annual report on regulations in the Arab World  "Doing Business in the Arab World -2010".  Those watching the GCC press have been aware of the report for a couple of days as it was discussed in several of the UAE papers under headlines calling for reforms of UAE insolvency law.  Here's one link.

This report is part of a larger project undertaken by the World Bank Group to measure regulations affecting the 10 stages in the life of a company - from birth (registration) to death (closure) in 183 countries.   The goal is not only descriptive.  It is as well prescriptive - to encourage reform.

Like many such efforts, it reduces very complex matters to a single number for ease of comparison.  The report ranks countries not only at a macro level (overall ease of doing business) but  at various sub levels (the ten regulations, e.g. starting a business, dealing with construction permits, etc).

Because the ease of doing business is not directly observable or measurable like the amount of rainfall during a year or average daily temperature, one measures it indirectly by using proxy variables.  The WBG has chosen 10 regulatory issues mentioned above.  These are also measured for ease of accomplishment.  That leads to the choice of a second level of proxies.  One then has to specify the relationship and relative weights of the proxy variables (write the equation).  Once the equation is specified, one needs data.

This is a difficult process.  How does one choose the proxies - both at the first and the second levels?  How does one determine the equation and the relative weights of the proxies?  How does one ensure that data across 183 countries is consistent - both in terms of definition and standards for reporting?  For example, if the measure is days to get a license  for a new business, how does the local MOIC  track dates?  From the date of a properly completed application?  But what if there are numerous rejections of an application as incomplete?  Are  those days counted?  Does the clock start ticking from the date the applicant drops off the completed application?  Or the date the MOIC enters it into its records?  What is the quality of the record keeping?  I posted a comment to a blog about Yemen LNG with articles raising doubts about the GDP calculation for the USA and Japan, two countries whose statistical accuracy might be assumed above reproach.

All in all a daunting task.  Because it is difficult does not mean it should not be done.  Because it involves interpretation (there is no single right answer) does not mean it should not be attempted.

Efforts like this are to be applauded and encouraged. That being said, the issues involved should not be overlooked.  The results should be recognized for what they are:  interpretations not facts.

And that gets to perhaps the central issue here:  the report is designed as prescriptive.   A country can reform by using the WB specified equation.  But what if it is mis-specified either with the wrong proxies or the wrong weights?  Reform will be mis-directed. 

There is another issue.  I am a bit uneasy about  the  individual numerical rankings.  Singapore is rated #1 for ease of doing business.  Hong Kong #3.  As a businessman, would I really notice a perceptible difference between the two in the running of my business?  If I could, would it really matter?

I think that such studies should be directional rather than locational.

Instead of individual rankings, determined with apparent Cartesian precision,  countries should be grouped into bands chosen where there is a very perceptible break in "ease".  The difference between Hong Kong and Singapore may be too minor to notice.  That between Singapore and Yemen is probably not. 

Anyways to the report, first the overall rankings for the GCC states for ease of doing business:

(Note:  The report rates 183 countries).

1. Saudi Arabia  (#13 in World Rating) 
2. Bahrain           (#20)
3. UAE               (#33)
   
4. Qatar              (#39)
   
5. Kuwait           (#61)
   
6. Oman              (#65)

Drilling a little bit further into the report, here are the rankings for investor protection with world ratings again in parentheses:

1. Saudi Arabia   (# 16)
2. Kuwait            (# 27)
3. Bahrain           (# 57)
4. Oman /Qatar   (# 93)
5. UAE                (#119)

Had I been asked to come up with ratings based on personal experience, I would have a different order.  For the record, the rating is determined by equal weights of the following three index proxies: disclosure, director liability, ease of shareholder suits.

Rankings for contract enforcement:

(The report includes details on the average time to settlement and the average cost of enforcement - lawyer's fees, etc. - measured as a percentage of the claim.)

1. Qatar               (# 95) 
2. Oman               (#106)
3. Kuwait             (#113)
4. Bahrain            (#117)
5. UAE                 (#134)
6. Saudi Arabia    (#140)

This ranking is based on three equally weighted variables: number of legal steps, average number of days to a settlement and the cost of enforcement as a percentage of claim.  It seems to me that outcome of the case would be a very important measure. Legal procedures might be very simple (a few steps), get completed quickly (say 60 days), and cost relatively little as a percentage of the claim.  But,  if  the result is unjust,  how is the contract enforced?   That gets back to my comment about the difficulty of measuring abstract qualities.  How does one measure a just decision?  Clearly, the plaintiff and defendant are likely to have quite opposed views.

As one of my lawyer friends says the clearest commentary on the state of GCC legal systems is that both the DIFC and QFC use as a major selling point the fact that  their centers have their own imported law and judges separate from the local on-shore legal system.  That is hardly a ringing endorsement for local justice.  And it is coming from a governmental or quasi-governmental authority in the country!

One might well criticize local courts.  I know that I could easily recite a list of complaints and anecdotes.

That being said, I would not want to bring a lawsuit in Texas.  Texaco could testify more eloquently  (perhaps 10 billion times more!) than I could about the legal system in that state.  Or a bank  I know that tried to foreclose on an office building loan, only to have the judge dismiss their case on the grounds that under Texas law a lender may not take a debtor's primary residence.  Seems the borrower moved a bed into the building  the night before the trial and claimed it as his home!