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JUNE 2018 | ISSUE 207

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MIDDLE EAST

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JUNE 2018 | ISSUE 207

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UNTIL DEBT DO US PART Lebanon has inspired confidence among global investors; however, its new benefactors want to see their money put to work A CPI Financial Publication

UNTIL DEBT DO US PART

Lebanon has inspired confidence among global investors; however, its new benefactors want to see their money put to work Dubai Technology and Media Free Zone Authority

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Q1 MENA M&A activity down by 21.8 per cent MENA M&A activity recorded 93 announced deals in Q1 2018, a decline of 21.8 per cent when compared to 119 deals in Q1 of 2017, according to EY’s Q1 2018 M&A report. The total disclosed deal value in MENA also dropped by 26.7 per cent in Q1 2018 to $15.4 billion, compared to $21 billion in Q1 2017. Of the transactions across the MENA region, the UAE saw the highest deal value with $5.1 billion from 23 deals announced in the first quarter of this year. Q1 2018 saw inbound deal activity and value increase; however, both deal activity and value declined for outbound and domestic transactions. The announced number of inbound deals was 27 deals, up by 42.1 per cent from the 19 deals announced in Q1 2017. The inbound deal value increased by 138.7 per cent to $7.4 billion in Q1 2018, up from $3.1 billion in Q1 2017. The number of outbound deals fell from 41 deals in Q1 2017 to 29 deals in Q1 2018, while outbound deal value fell by 63.8 per cent. The MENA region also saw a decline in domestic deals as they fell from 59 announced deals in Q1 2017 to 37 deals in Q1 2018, with domestic deal value falling by 28.2 per cent.

Why the global Sukuk market is stalling in 2018 Total Sukuk issuance dropped by 15.3 per cent compared with the same period last year, reaching $44.2 billion compared with $52.2 billion first half of 2017. This drop was even more pronounced for foreign currency Sukuk issuance at 45 per cent, likely due to the absence of major issuances from the GCC countries seen in 2017. In the second half of 2018, S&P expects Sukuk issuance volumes will continue to be slowed by the global tightening of liquidity conditions as well as by lower financing needs of some GCC countries as a result of oil prices stabilising at higher levels. The sharp increase in geopolitical risks in the Middle East will also likely weigh on investors' appetite. Meanwhile, inherent challenges related to the Sukuk market continue to drag on expansion of this market, although Malaysia will probably continue to support market growth, owning to its strong market foundations and government support for Islamic finance. Overall, S&P maintains its expectations for volume of issuance at $70 billion-$80 billion in 2018. There are four main reasons that S&P expects the market will continue to lose steam: the tightening of global liquidity that started in the first half of 2018 is likely to continue; the US Federal Reserve is expected hike its federal funds rate by another 50 basis points in the second half of 2018 after the two increases of the first half and that central banks of GCC countries will probably mirror such an increase due to the peg of their currencies with the US dollar. Overall, it is likely that the liquidity channelled to the Sukuk market from developed markets will reduce and become more expensive. Currently, European and US-based investors account generally for about one-quarter of Sukuk investment in terms of volume, while muted economic growth and declining lending activity in the GCC has shifted banks' focus to capital market activities in hopes of achieving higher yields than with cash and money market instruments.

MENA ISSUERS CREDIT RATING UPDATE AS OF 1 MAY 2018 Issuer

Foreign Currency Rating

Last CreditWatch/Outlook Update

1 Bahrain

B+/Stable/B

1-Dec-2017

2 Central Bank of Bahrain

B+/Stable/B

2-Dec-2017

3 Egypt

B-/Stable/B

12-May-2018

4 Iraq

B-/Stable/B

03-Sep-2015

5 Jordan

B+/Stable/B

20-Oct-17

6 Kuwait

AA/Stable/A-1+

20-Jul-2011

7 Lebanon

B-/Stable/B

2-Sep-16

8 Morocco

BBB-/Stable/A-3

16-May-2014

9 Oman

BB/Stable/B

11-Oct-2017

10 Qatar

AA-/Negative/A-1+

25-Aug-2017

11 Saudi Arabia

A-/Stable/A-2

17-Feb-2016

12 Abu Dhabi

AA/Stable/A-1+

02-Jul-2007

13 Ras Al Khaimah

A/Stable/A-1

31-Oct-2014

14 Sharjah

BBB+/Stable/A-2

27-Jan-2017

Copyright Š 2017 S&P Global Ratings. All rights reserved.

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Islamic Business & Finance

MIDDLE EAST AWARDS 2018

Save The Date for Dubai!

6th December 2018 Jumeirah Emirates Towers Dubai

For more information please contact CPI Financial’s events team Tel: +971 4 391 4682 or Email: events@cpifinancial.net

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Banker Middle East issue #207 - June 2018  
Banker Middle East issue #207 - June 2018