Summit Notebook

Cure for lending constipation needed

Yes, the market for IPOs is opening up, investors are regaining confidence and the worst seems to be over, but challenges are still looming and there’s a dire need for a change in regulation. Or so suggested Shuaa Capitals’ chief Sameer al-Ansari.

“With the balance sheet of banks, whatever is keeping them constipated, we need to give them something to start. Banks have to be more comfortable and confident that there are no more shocks on the horizon,” said Ansari at the Reuters Middle East Investment Summit in Dubai on Tuesday.

The right provisions need to be made — and that means more acknowledgment of non-performing loans — in turn bringing adequacy ratios down, so that banks get a boost and start lending again, Ansari noted.

“We need to open the tap a bit, even if its a drip,” the banking exec said, using hand gestures to illustrate his point. “We can’t have growth in the economy if its negative.”

Ansari, who’d made recommendations – simple to drastic – to decision makers in Dubai, suggesting solutions, cited the Irish example of gathering all bad debts linked to real estate and placing them in a government bank.

“It should be looked at here. If that’s what’s making the banks constipated, then lets do it!” he says.

Dubai, one of seven emirates that make-up the UAE federation, was hard hit by the global financial downturn and endured billions of dollars in projects cancellations, not to mention the $25 billion debt restructuring of Dubai World.

No bonds for Arabtec; not for now anyway

Just to be clear, Arabtec is not considering a convertible bond issue.

The builder has no need for funds and has adequate access to capital if needed. But nonetheless its chief financial officer Ziad Makhzoumi is watching the region’s increasing capital raising activities with interest.

“I don’t think we need any funding whatsoever… As a CFO I have to look at all the options all the time,” he told the Reuters Middle East Investment Summit in Dubai on Monday.

Convertible bonds are an attractive way to raise funds for listed companies, he said, highlighting Emaar Properties’ recent issuance plans.

Earlier this month, Emaar, the builder of the world’s tallest tower in Dubai, outlined plans for a $500 million convertible bond issue.

Makhzoumi said he saw more convertible bonds coming to the market, but there was no mention at all of Arabtec.

Arabtec has expansion plans which include a push into Central Asian states like Kazakhstan and Uzbekistan, which could be funded from internal resources, he said.

Is investor confidence returning to the Middle East?

A recovery in the Middle East and the prospects for investment are on the agenda at the Reuters Middle East and Investment Summit, taking place in Dubai, Riyadh, Cairo, Kuwait, Beirut, Bagdad, Abu Dhabi and London.

In the wake of Dubai’s debt crisis, which rocked financial markets globally and dented confidence in the region, top executives and officials will discuss whether the investment climate in the region is improving and confidence returning. 2011 will be a year of more restructurings, but the region’s capital needs will lead to a surge in debt issues and even a possible revival of the IPO market.

Reuters Middle East Investment Summit will generate exclusive stories, investable insights, online videos and blog postings. Check back here for more over the course of this week.

Awaiting the alternative energy sukuk: Innovation vs conservatism

MANAMA, Feb 18 (Reuters) – Dubai’s debt fiasco and real estate bubble bust pushes investors to look out for alternative assets underlying Islamic finance products – could renewable energy provide a way-out?

Predominantly, Islamic finance and investment products have been backed by infrastructure or commodities assets. But executives at the 2010 Reuters Islamic Banking and Finance Summit said product diversification was needed to cut the over-reliance on real estate in the Gulf.

“Sharia scholars are eager to support the renewable energy initiative, but the Islamic banking industry (in the Gulf) does not seem to be overly interested in this area although I am aware of a couple of deals involving acquisitions of clean tech companies in the U.S. and wind farms in the UK,” said Ayman Khaleq, partner at the Vinson & Elkins law firm in Dubai.

“The big banks have teams that focus on renewable energy as an asset class. However, the problem is that Islamic banks are not big enough to be able to cover specific sectors such as alternative energy,” he added.

In order to launch an alternative energy sukuk, the Gulf’s small local banks would need to team up with bigger international players such as Deutsche Bank, Barclays, or BNP Paribas, which have been active on the renewable horizon.

But some experts have warned more originality in the Islamic finance industry could alienate investors, who are reluctant to take on fresh risk in the wake of Dubai’s debt crisis and recent sukuk defaults in the region.

WAITING FOR THE GREEN PUSH

Is Islamic banking truly sharia-compliant?

Manama, Bahrain Feb. 16  - The Islamic finance industry has a problem. Its main selling point is that it is sharia-compliant, meaning it adheres to Islam’s prohibition of interest and avoids dealing with forbidden sectors such as alcohol and gambling.

But in the eyes of many, much of the industry is actually not sharia-compliant at all.

For one, the industry’s benchmark is LIBOR, which is an interest-based concept and critics say it should develop its own.  In addition, many scholars complain that the most popular of structures are, if not in direct breech of Islamic law, then widely abused.

“If you believe in Islamic finance and you believe money is just a medium of exchange then a lot of going on is not acceptable, because it’s making money off money,” says Simon Eedle, managing of Islamic banking at Credit Agricole CIB.

So what will it take for the Islamic finance industry to clean up its act? Just your ordinary punter, it seems.

“I think the man on the street wants to do genuine Islamic banking,” Eedle says.

“I think the problem is the business is not yet developed enough to be able to offer anything other than conventional banking in a sharia-compliant format,” he says.

Islamic Banking & Finance to attract new attention in 2010

Islamic banking is one of the world’s fastest growing financial sectors, according to industry estimates. It has attracted more attention in the aftermath of the global financial crisis as investors are increasingly looking for alternative, ethical ways of investing. This has also intensified a debate within the industry on whether it should move further away from conventional banking, designing products based more directly on Islamic principles.

Global issuance of Islamic bonds, or sukuk, is expected to fall this year from 2009 levels, a recent Reuters poll showed, as the Dubai debt crisis and an expected rise in borrowing costs weigh on market sentiment. In the Gulf Arab region, a funding crunch at Bahrain-based Islamic investment house Gulf Finance House shows that the financial crisis is far from over in the region and that the industry urgently needs to develop new products and business lines to generate revenues.

CEOs and other top names will discuss these and other topics in a series of closed on-the-record interviews at the Reuters Islamic Banking and Finance Summit, to be held in Dubai, Manama, Kuala Lumpur, London, Geneva and Jakarta on February 15-18, 2010.

Dubai returns to fixed income sphere

Dubai returns to the fixed-income sphere for the first time in more than a year after raising about $2 billion from dirham and dollar-denominated Islamic bonds.

Confidence in the emirate had run aground earlier this year as investors bet on Dubai’s state-linked entities not being able refinance debt. So far, this year it has met all its obligations and with the fresh issue booking about $6.5 billion from regional and international investors, Dubai’s doomsday scenario appears to be vanishing. 

With much of the United Arab Emirates’ oil coming from the largest of the emirates Abu Dhabi, investors have flocked to the capital this year as appetite for good emerging market debt revives. The spread between Abui Dhabi and Dubai widened at its peak to over 500 basis points in February, but Dubai government efforts to restore confidence — kickstarted by the UAE central bank buying $10 billion of its bonds — has helped spreads narrow to about 200 basis points.

Dubai still has a long way go. The next test will be property developer Nakheel resolving its $3.5 billion Islamic bond maturing on Dec. 14 and then a raft of debts in 2010…..but as Harold Wilson once said, ”A week’s long time in politics.”  

Green shoots and short attention spans

Coming out of one of the darkest recessions, have we learned the lesson at all? Or are we going to repeat the mistakes of the past again?

Khuram Maqsood, managing director of boutique corporate financing advisory firm Emirates Capital, thinks we may well repeat them.

He says a second wave in the downturn – if it comes at all – is unlikely to come from a new, unseen fault in world markets.

Being socially responsible investor in the Gulf

Socially responsible investing, which takes into account social, environmental and governance risks, is arguably still in its infancy in the Gulf, where the enormous wealth created by hydrocarbons sometimes flows into extravagant projects like an indoor ski resort.

But Mustafa Abdel-Wadood, managing director of Abraaj Capital – the Middle East’s biggest private equity firm — sees SRI as enlightened self interest and the firm puts its own money where its mouth is.

Fred Sicre, executive director of Abraaj, told us the firm — which signs up to United Nations Principles for Responsible Investing (UNPRI) — has a 5+5+5 plan, where it encourages employees to donate 5% of bonuses to a charitable pool, 5 days for community/charitable work and the firm itself gives 5% of net revenues to a charity. Sicre himself taught at the first class yesterday on entrepreneureship.

“When we invest for pure business reasons into an education business or a hospital group, in a certain sense, we are looking at this also from a sustainable investment (point of view) for this region because the competitiveness of a country is directly linked to the health of the population,” Sicre says.

“We feel we have great opportunities and responsibilities to bring portfolio companies to adhere to sustainble investment practices, whether its security or health standards… It’s just about being good human beings and doing good practical businesses.”

Watch a clip below for Sicre talking about this 5+5+5 plan.

Video – What’s ahead for the Middle East?

Gulf Arab states have awed the West with six years of breakneck growth fueled by record oil prices and a real estate boom.

But what does the future hold? Will it be just a mirage of prosperity in the desert? Or, will the region, rich in oil, adapt to the future? Speaker: Timothy Fox Chief Economist, Emirates NBD Presenter: Martina Fuchs Dubai.