Gulf Business | November 2010

CEO EXCLUSIVES: ETISALAT BATELCO & OMANTEL

TOP

Vol. 15 Issue 7 November 2010

COMPANIES

IN THE GCC Bahrain..............BD 1.0 Kuwait............... KD 1.0 Oman................ RO 1.0 Qatar.................. QR 10 Saudi Arabia.......SR 10 UAE.................. DHS 10

Can the UAE go nuclear by 2017?

Oman’s healthy balance sheet

How to lead your firm, post-recession

Harnessing Saudi’s unemployed youth

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AGMC, Dubai, UAE Tel: 00971 4 339 1555 www.rolls-roycemotorcars-dealer.com/dubai

Ali Alghanim & Sons Automotive Co. WLL, Kuwait Tel: 00965 184 6464 www.rolls-roycemotorcars-dealer.com/kuwait

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Euro Motors, Manama, Kingdom of Bahrain Tel: 00973 17 754 754 www.rolls-roycemotorcars-dealer.com/bahrain

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CONTENTS Vol. 15

The top 100 companies in the GCC

REGULARS 32 Letters

TOP

42 Executive moves 111 Books 113 Hotels

COMPANIES

115 Data monitor 120 Events

IN THE GCC

122 In your shoes

GCC NOW

44

12 The round-up News, numbers and people from around the region.

COMMENT

The wounds of the last two years are dying hard as sentiment remains sheepish and liquidity thin, but signs of life point to renewed buoyancy of the markets in the medium-term.

ANALYSIS 34 Playing it safe

22 French opinion riles

36 Transatlantic fights

24 UAE banks gain MATEIN KHALID

AVIATION The East/West plane credit debate heats up.

26 The CEO exodus

38 Signs of life

TOMMY WEIR

PRIVATE EQUITY The world is waking up to a slew of new deals.

28 QE round two MICHAEL PREISS

89 OFFICE SPECIAL Working spaces

30 Making mergers work

Special supplement on GCC office growth and how to create a happy workspace.

PHILIPPE DE BACKER

40 The business of F1 TOURISM How the Grand Prix is fuelling Abu Dhabi’s economy.

FINANCE Super-rich focus on cash assets and bonds.

MISHAL KANOO

Issue 7 November 2010

FEATURES 59 New leaders LEADERSHIP It’s time for an honest hands-on strategy.

62 Power trip ENERGY Local talent is the UAE’s top challenge as it goes nuclear.

66 Betting on Oman OMAN Savvy investors look closely at the sultanate.

November 2010 gulfbusiness

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70 Editor-in-Chief Obaid Humaid Al Tayer Group Editor and Managing Partner Ian Fairservice Group Senior Editor Gina Johnson Group Editor Catherine Belbin Editor Alicia Buller alicia@motivate.ae Business editor Karen Remo-Listana karenr@motivate.ae Chief Sub-editor Iain Smith iains@motivate.ae Editorial coordinator - business Concessa D’Souza concessa@motivate.ae

84

Art Director Cris Domdom cris@motivate.ae Senior Designer B Raveendran raveendran@motivate.ae

106

Contributors Ryan Harrison; Peter Shaw-Smith Martin Morris; Mark Atkinson General Manager Production and Circulation S Sasidharan Production Manager C Sudhakar General Manager Group Sales Anthony Milne anthony@motivate.ae Senior Advertisement Manager Abraham Koshy abraham@motivate.ae Advertisement Manager Ajay Mathews ajay@motivate.ae General Manager – Abu Dhabi Joe Marritt joe@motivate.ae

70 Arab angst KSA Can Saudi transform its young and jobless into a powerful asset?

Head Office: PO Box 2331, Dubai, UAE Tel: +971 4 282 4060, Fax: +971 4 282 4436, motivate@motivate.ae

75 Telco special report

Dubai Media City: Office 508, 5th Floor, Building 8, Dubai, UAE, Tel: +971 4 390 3550, Fax: +971 4 390 4845

TELECOMS Firms are seeking quick-fix mergers to expand.

109

85 Hold the mayo RETAIL The Freshii restaurant franchise brings healthy fast food to the UAE.

108 Cars

LIFESTYLE

Alicia Buller test drives the sleek new BMW Z4.

106 Travel

109 Art

Hong Kong’s business facilities and age-old heritage.

The expert’s low-down on Art Abu Dhabi.

10 gulfbusiness

November 2010

Abu Dhabi: PO Box 43072, UAE, Tel: +971 2 677 2005, Fax: +971 2 677 0124, motivate-adh@motivate.ae London: Acre House, 11/15 William Road, London NW1 3ER, UK, motivateuk@motivate.ae Editorial syndication details, Tel: + 971 4 2824060 gb@motivate.ae

Printed by Emirates Printing Press, Dubai

IN THE NEWS SULTAN QABOOS BIN SAID

The Oman ruler is set to celebrate 40 years in power this month, no clear successor is in place.

appointment with the British Army. After hanging up his military boots, he turned his focus to learning and spent the following six years in Salalah quietly studying

Reuters

Oman celebrates its 40th national day this month, marking Sultan Qaboos bin Said’s assumption of power in 1970.

Sultan Qaboos, 70, is set to play host to the British Queen and her husband between the 25 and 28 November as part of the celebrations.

Born in Salalah in Dhofar on November 18, 1940, Sultan Qaboos was the only son of ruler, Sultan Said bin Taimur.

He spent the first 16 years of his life in Salalah, where he was educated, until his father sent him to a private educational establishment in England.

At the age of 20, he chose to enter Sandhurst Royal Military Academy as an officer cadet.

He joined a British Infantry battalion on operational duty in Germany for one year, followed by a staff

Islam and the history of his country and people.

It was during that time that he became awakened to the country’s poverty, this set the tone for his policies.

F

On July 23,1970, his father abdicated and Sultan Qaboos bin Said took the throne. Today, Oman has become the most economically and politically stable country in the Middle East.

Going forward, Sultan Qaboos’ successor must be a male descendant of Turki bin Said Sultan, ruler of Muscat and Oman from 1871 to 1888, the Financial Times reported. But it is unclear exactly who this will be.

In 1996, Sultan Qaboos, who has no children and is in good health, amended the constitution so that his Albusaidy family should choose a successor when he dies.

In the event of a family dispute, he has left a letter that names his preferred choice. One copy is lodged in Muscat, the capital, and a second rests in Salalah in Dhofar in the south.

SOAPBOX There is no defined way to happiness. Happiness is within yourself, it is not somewhere else.

Europe has made a great mistake in cutting money for long-term economic drivers.

Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, gets earnest with Bloomberg TV.

We were left out by the Middle East competition because our balance sheet wasn’t strong enough.

Esko Aho, former prime minister of Finland, expresses his dismay over Europe’s failure to increase education investment, during a forum in Ras Al Kaimah.

Munir Majid, chairman of Malaysian Airlines, tells Gulf Business how the airline is now back in expansion mode after much-needed balance sheet restructuring.

GCC AND THE WORLD The fourth sequel of action blockbuster Mission Impossible starring Tom Cruise will be partly filmed in Dubai this month.

With filming lasting around three weeks, the city will host the crew for longer

12 gulfbusiness November 2010

than any of the other international cities in the movie series.

Dubai hopes the filming will boost the emirate’s position as a favoured destination for international movie production and

400

The number of cast and crew in the filming of MI4 in Dubai

cement its status as a regional movie hub.

Dubai Media Incorporated will provide technical and staff support, while Dubai Studio City will assist with technical and logistic support.

UNITED ARAB EMIRATES

Emirates Airline celebrates 25 years of growth

Emirates Airline celebrated its 25th birthday on October 25 this year. The Dubai government-owned aviation company has successfully cemented its international reputation, becoming the world’s sixth largest international airline today.

In 2009, the company flew 25.9 million passengers and continues to post

profits and launch new destinations – 105 to date – as much of the global aviation industry struggles in the recession.

For the financial year to March 31, the airline reported net profits of $964 million, an increase of 416 per cent over the previous 12 months.

Revenue for the year stood at $11.8 billion.

Dewa bonds receive vote of confidence October 2020 at the initial price of 7.375 per cent.The issue, largely subscribed

by European and US investors, represents Dewa’s second foray into the US dollar debt capital markets this year.

The first was in April, when it issued a $1 billion,

INNUMBERS

2.4%

UAE’s GDP growth this year, according to the International Monetary Fund’s forecast. The country’s GDP contracted 2.5 per cent last year.

Dubai-India direct trade transactions from January to July 2010 reached Dhs85 billion or 26 per cent of the aggregate Dubai trade rate with the outside world. Statistics from Dubai Customs showed that the value of Dubai imports from India stood at Dhs39.7 billion while Dubai exports to India stood at Dhs16.8 billion and the value of re-exported goods to India at Dhs28.5 billion.

In October 2008, Emirates moved all operations at Dubai International Airport to Terminal 3, a building exclusively dedicated to Emirates to sustain its rapid expansion and growth plans.

Sheikh Ahmed bin Saeed Al Maktoum launched the airline in 1985 and still leads today as chairman and chief executive.

COMPANYFOCUS

Dubai Electricity and Water Authority (Dewa) accessed the international debt capital markets last month, raising $2 billion, split across two tranches of $500 million maturing in October 2016 at the initial price of 6.375 per cent, and $1.5 billion maturing in

India tops Dubai trade list

five-year bond in a deal widely seen as reopening the debt capital markets for Dubai.

That issue was the first bond issued by the emirate since Dubai World announced a standstill on its debt-service payments in November.

Dhs6 bn

Dubai’s public finance deficit this year, down from last year’s Dhs12.9 billion shortfall. About 30 per cent of the budget is earmarked for infrastructure projects and development.

UAE leads acquisitions

The UAE was ranked as the most acquisitive Middle Eastern country for the first nine months of this year. The country accounted for 57 per cent of total mergers and acquisitions, according to a report from Thomson Reuters. Meanwhile, Kuwait is ranked as the most acquired Middle Eastern country.

Brits search for career upgrade

About 71 per cent of British expats living in the UAE have chosen to leave the UK in search of a better career or salary, results from a survey commissioned by Lloyds TSB International showed.

About 69 per cent of those who are motivated by career and salary are aged 35 to 44 years old.

Once the expatriates have moved, a third of this group do not plan to move home. Around 39 per cent of expats now living in the UAE have no plans to return to the UK.

November 2010 gulfbusiness

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SAUDI ARABIA

Saudi GDP to grow 3.7 per cent

SAMA’s foreign assets rise

Strong oil prices averaging $77 a barrel in August enabled the Saudi Arabian Monetary Agency (SAMA) to replenish its net foreign assets to SAR1.57 trillion ($419 billion) – the highest since February 2009.

State spending continues to be the motivating force behind economic growth, but Saudi Arabia’s monetary outlook remains guarded, with modest rates of growth in lending and money supply likely to continue for the remainder of 2010.

Intermedia

KSA’s economy is heavily cushioned by spending on government infrastructure.

Saudi Arabia’s economy is forecast to grow by an average of 3.7 per cent a year in 2010 to 2014, a slowdown from the annual average of 4.9 per cent during the 2003 to 2008 oil boom, but a recovery from 0.6 per

cent in 2009, when growth was dragged down by oil production cuts.

The Economist Intelligence Unit said the economy will be heavily supported by extensive government spending and by a public sector

that continues to absorb a large proportion of job market entrants.

Government spending will rise in 2010 to 2011 before falling slightly in the remainder of the forecast period as private-sector growth accelerates.

F

SPOTLIGHT

Aramco chief eyes unconventional gas Struggling to discover new gas reserves, Saudi Arabia has repeatedly experienced power shortages. To address this, Saudi Aramco’s chief executive Khalid Al Falih plans to develop the kingdom’s unconventional gas potential. He said the kingdom could hold ”hundreds of trillions

of cubic feet of unconventional resources such as shale gas, more than doubling its proved reserves.”

Aided by $130 billion investment funds, his plan involves attainment of a new technological skill set – a costly and huge task in a completely nationalised sector.

INNUMBERS

SAR1,000 $1billion The average monthly salary in Saudi Arabia’s private sector last year, down from SAR1,335 in 2008, according to the Ministry of Labour.

14 gulfbusiness November 2010

The amount Saudi Aramco and France’s Total plan to raise through a sukuk in Q4 to build a crude refinery in Jubail with 400,000 barrels daily capacity.

Wheat security reviewed

The food security committee at the Riyadh Chamber of Commerce and Industry has approved the preparation of a study on the possibility of wheat production in Saudi areas rich in renewable water resources. Saudi earlier planned to halt wheat production by 2016 because of concerns about the desert kingdom’s scarce water resources.

Saudi mulls tariff hikes

Saudi Arabia may consider another power tariff hike for non-residential users in the future, Abdulrahman Al Ibrahim, vice governor for consumer and service provider affairs at the Electricity and Co-Generation Regulatory Authority, said. In June, Saudi Electricity Co said its board of directors had decided to increase power tariffs for the government, commercial and industrial sectors effective July 1.

QATAR

N-power report by year-end

iStock

Qatari Diar, a sovereign wealth fund developer, is using its financial might to develop Chelsea in London.

Qatar branches out with London’s Chelsea Barracks Qatari Diar, the sovereign wealth developer, will fund the multibillion-pound development of the former Chelsea Barracks through its own cash as it uses the deep pockets of its oil-rich sponsor to create an upmarket London neighbourhood.

Qatari Diar, backed by the Qatari Investment Authority, has bought out the loan of more than $12 billion that had been used to acquire the 12.8 acre site for a record-breaking price, the Financial Times reported.

The Islamic financing deal was the largest of its

kind for the UK. Stephen Barter, chief executive of Qatari Diar, told the paper that the company had drawn a line under the previous financial structure, which was partly owned by the Candy brothers’ CPC Group.

Qatari Diar has projects in more than 20 countries.

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COMPANYFOCUS

QInvest eyes Qatar IPO next year Private investment bank QInvest, which was established in 2007 with paid up capital of $750 million, could list on the Qatari bourse late next year or early 2012.

“This is part of our strategy. It’s very early

days but we are looking at the fourth quarter of next year or maybe even early 2012,” said CEO Shahzad Shahbaz.

The company hasn’t yet appointed banks to advise on a potential IPO. Shahbaz added that listing

INNUMBERS

15.9%

Qatar’s GDP in 2011, down from 19.4 per cent in 2010, according to Energy Intelligence Unit.

16 gulfbusiness November 2010

on the Qatar Exchange would give the company’s shareholders an option to capitalise their stakes.

“We have a lot of investors including banks and high net worth individuals – this would give them a chance to sell,” he said.

6% Qatar’s slated population growth in 2010 and 2011, down from its peak of 17.9 per cent in 2007.

Results of the feasibility study on Qatar’s nuclear energy plan are expected by the end of the year, Essa bin Hilal Al Kuwari, acting managing director of Qatar General Electricity and Water Corporation (Kahramaa) said. Qatar’s electricity consumption has increased at an average rate of 10.5 per cent in the last 10 years while demand for water increased by 264 per cent, during the same period.

Rents in smaller units stable

Smaller units in Doha’s established neighbourhoods led the country’s property market during Q3 of 2010, according to the latest data from Asteco property management. Al Saad and Bin Mahmoud districts have stabilised with the price of onebedroom units unchanged from Q2 at QAR 4,500 and QAR 4,000 per month, respectively. This contrasts with newbuild apartments, which were subject to price adjustments of between five per cent and eight per cent.

QFC tax regime comes into effect The Qatar Financial Centre Authority (QFC Authority) said new tax regulations for the QFC have been enacted. Under the new regime, all QFC registered companies are subject to 10 per cent corporation tax that is chargable on locally sourced profits.

KUWAIT

Kuwait launches bourse system

The new system for Kuwait Stock Exchange (KSE) will be launched next year and will work at full capacity by 2012, said Kuwait’s Minister of Commerce and Industry Ahmad Rashed Al Haroun. “The time period to develop the system is three years, with one year down and two to go,” he said. The new KWD18.3 million-system is expected to increase trade operations at KSE up to 50,000 daily.

iStock

Kuwait Energy Company held 51.2 million barrels of oil reserves at the end of 2009.

KEC targets Kuwait or London IPO Kuwait Energy Company plans to launch an IPO within eight months. Kuwait Energy said its shares may be listed on the London and Kuwait stock exchanges, subject to market conditions.

The company originally mooted an IPO for the

end of 2010 but delayed these plans given weak international market conditions.

The privately held company’s shareholders also approved a plan to increase its authorised share capital through a rights offering.

Kuwait Energy’s capital will rise to KWD127 million ($448.4 million) from KWD 103.6 million after the rights issue of 198.3 million shares at 155 fils per share. Kuwait Energy operates in Egypt, Yemen, Oman, Ukraine, Russia and Pakistan.

Sponsorship system scrapped

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SPOTLIGHT

Kuwait national oil company gets new chief The Kuwaiti cabinet has approved a decree to appoint Faruq Al Zanki as the new CEO of Kuwait Petroleum Corp. Zanki replaces outgoing CEO Saad Al Shuwayeb who completed his three-year term in September, and whom the government decided

not to re-appoint. The US-educated Zanki has been the head of KNPC, the KPC’s refining subsidiary, since 2007.

Before that, he served as head of Kuwait Oil Co., KPC’s exploration and production arm, for several years. KPC was established in the early 1980s to

oversee the emirate’s oil industry at home and overseas.

The fifth largest producer in the OPEC oil cartel, Kuwait currently pumps around 2.3 million barrels per day.

Oil income accounts for about 94 per cent of the country’s total revenues.

INNUMBERS

KWD20 bn

$6 billion

The value of the oil projects in Kuwait’s development plan, whether in the production or refining sector.

The amount the US military in Kuwait generates for the annual economy via logistics services provided by local firms.

18 gulfbusiness November 2010

Kuwait’s labour and social affairs minister pledged there would be no reversal of the decision to scrap the controversial sponsorship system. “The ministry is moving forward with the cancellation of the sponsorship system in February,” Mohammad Al Afassi said. One of the proposed alternatives is the establishment of a shareholding public corporation to sponsor all employees employed within the country’s public sector.

$22bn owed in war reparations

Iraq still owes Kuwait $22.3 billion in reparations from its invasion of the Gulf state two decades ago and the Gulf War that liberated it, a Kuwaiti official said. Mansour Hayat, told reporters that the payments were due to the government and the oil sector.

BAHRAINOMAN

30

Seconds to make sense of… hotel investment

Kaan Ferhatoglu, Senior executive officer, Ata Invest Dubai

Orange not licensed in Bahrain In light of recent rumours generated by the public that Orange Telecom is providing mobile telecommunications services in Bahrain, the Telecommunications Regulatory Authority (TRA) has clarified that Orange Telecom has not been licensed to provide mobile services in Bahrain and that licensing another mobile company to operate in the kingdom is not on the agenda of TRA in the near future.

Alba to raise $541 million Aluminium Bahrain (Alba), the operator of an 850,000-metric-tonne-a-year smelter, plans to raise as much as BHD204 million ($541 million) from an initial share sale as Gulf markets recover from the global credit crisis. Mumtalakat Holding Co., Bahrain’s sovereign wealth fund, plans to sell as many as 163.3 million shares in the IPO.

Oman airports on time The construction of four Oman airports is progressing as per schedule, with the remaining packages reaching different stages of design and tendering, Oman’s Ministry of Transport and Communication, said. The four airports – Sohar, Al Duqm, Ras Al Hadd and Adam – will link interior regions with Muscat, and are part of a larger plan to meet the increasing travel demand.

INNUMBERS

2,700 The number of funds in Bahrain. Of those, 137 are Bahrain-domiciled and 59 are part of the growing Islamic finance market.

20 gulfbusiness November 2010

Is it the right time to invest in real estate?

Yes. People are now looking for distressed assets, such as projects which stalled mid-construction, so these are the most popular investments now.

Is the UAE the best place to put your money?

In terms of tourism, the UAE is the most promising place. Dubai not only serves as the regional hub for business and tourism, it is also a transit hub.

Which real estate segment is most attractive to investors?

They used to be involved in land development projects. That was the hot topic three to four years ago. Now what we see is more hotel investment.

Residential used to be first priority but now hotel investments account for 60 per cent and 20 per cent of commercial and residential, respectively.

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Is there an increasing appetite from Turkish investors to invest in the hotel industry here?

Yes, because of the great potential in tourism.

They are interested in hotel investments. Our clients think there is not enough capacity in terms of four-star hotels or lower to middle end hotels here. They would prefer Greenfield projects – buying or leasing the land from the government to build hotels, especially in Abu Dhabi.

How important is the trade relationship between the UAE and Turkey?

There are about 7,000 Turkish residents in the UAE and the majority of them own real estate. In addition, the UAE and GCC are Turkey’s 11th and sixth largest exporting partners, respectively.

In terms of opportunity, Turkey’s infrastructure and contracting companies have considerable experience, significant economies of scale, and are second only after China in this sector.

They could emerge as a major player in the GCC infrastructure sector. The larger and more experienced Turkish infrastructure and contracting companies could collaborate with the UAE’s relatively young contracting industry.

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COMMENT

FRENCH OPINION HAS GONE ONE STEP TOO FAR While the French independent stance and their business nous is admirable, the banning of the burka is nothing but an own goal.

MISHAL KANOO

I

love the French lifestyle and their culture of taking a stand no matter what others think. What’s more, some French companies are some of the best the business world has ever seen. Giants such as AXA in insurance, TOTAL and Technip in oil and gas, Dessault in Aeronautical, JCDecaux in outdoor advertising, Publicis in total advertising, Renault/Peugeot/Citroen in Cars, SUEZ and Vivendi in water treatment, L ‘Oreal and Garnier are but a few global names that pop to mind when one talks of excellence in business management.

They even have two of the world’s greatest universities in the Sorbonne and INSEAD. Yet for all their great business sense, the French seem to have an uncanny ability to shoot themselves in the foot.

Prior to the economic crisis, anyone silly enough to believe that he or she would enjoy great service in a Parisian hotel just needed to visit one to discover that it was an exercise in futility. The look that said, “why are you bothering me?” and that classical French expression “pffft!” that needs to be seen to be believed were part and parcel of Parisian life. I am told that this is not true of the rest of France but I have always heard the French say that France is Paris, so go figure. After the crisis, the French hoteliers quickly adjusted themselves faster than any of their European counterparts and, as a result of that were quick to reap the benefits of tourists still flocking into their capital of culture. People smiled and even talked English; a rare possibility in the pre-crisis era.

Now, after this fantastic progress, where even I - a solid Anglophile - sang their praises, I then had to stop and ponder what happened. As I am sure you know, the French parliament have resoundingly passed a law banning the burqa on the basis of either security or the silly idea of non-integration. The issue of security was a non-starter

as no-one accepted it as a real reason. The other, going against what is French, is nothing more than a hidden message to the 10 per cent population of France that they are not wanted (the ban would apply to no more than 2000 French citizens).

Now we get to the problem. Over 70 million people visit France a year. If 10 per cent of that were from Muslim countries and 10 per cent of that wore the burqa that would mean a ban for over 700,000 visitors to France. If you consider the amount of money that they spend per day and if you consider that most of them would be from the Gulf with a high disposition to spend, that would be a horrendous loss in economical terms, as well as politically.

Who knows for sure what that will cost French companies in the Muslim world in terms of contracts - some of which are quite lucrative, I might add? While no-one would publically say that this was the reason a French company might lose out on a contract, how many key players have wives who might be offended by this law and may ask their husbands to “think twice” before signing? Please do not discount this factor just because it doesn’t show on the company’s chart.

Yes, indeed, the French have a great ability to make themselves persona non-grata to the world without anyone’s help.

I do hope that better sense will prevail and that such a ludicrous law that suggests that women are too stupid to choose for themselves and need the nanny state to show them the way will be rescinded.

The French, quite rightly, pride themselves on their recent past, as the bastion of good sense and human rights. I do hope that they will live up to it.

Mishal Kanoo, deputy chairman, Kanoo Group.

How many key players have wives who might be offended by the French burka law?

Do not discount this as a factor in decision making.

22 gulfbusiness November 2010

COMMENT

THE DUBAI BOND AND UAE BANK SHARES As the Dubai World restructure is finalised and bonds are placed, the battered UAE banking sector is the biggest beneficiary.

MATEIN KHALID

T

he debt restructuring of Dubai World, the successful placement of the Dubai dual tranche sovereign bond and the fall in five-year Dubai credit default swaps has eased funding pressures in the UAE interbank market. It is no coincidence that three month dirham EIBOR is 2.25 per cent, the lowest since last spring. Commercial banks in Dubai will clearly benefit from the drop in funding costs as they deleverage and derisk their balance sheets.

With a $15 billion exposure to Dubai World, according to Moodys, the UAE banking system is the natural beneficiary of the successful Dubai World debt restructuring and the dramatic fall in Dubai’s sovereign credit risk. After all, the five year Dubai swaps traded as high as 600 basis points after the Nakheel standstill announcement. However, the five year Dubai CDS has now fallen to 382 basis points, one of history’s most dramatic U- turn in investor sentiment about the perceived credit risk for a Middle East sovereign borrower in the international bond market.

This is not to suggest that the local credit markets or banking system exhibits the best of all worlds. The UAE Central Bank has estimated that loan provisions in local banks have almost doubled in the past year to 37 billion AED. UAE banks had allowed their loan books to rise by 30- 40 per cent during the 2004- 8 credit bubble and financed their funding gap not by generating low cost deposits via branch networks but by raising high cost wholesale funding by issuance of Euro- medium term notes (Euro MTN’s). This dependence on wholesale funding proved catastrophic when the failure of Lehman Brothers led to a spike in the cost of counterparty risk as the Treasury billEurodollar spread (TED) soared to a stratospheric 450 basis points. With systemic risk in international banking at its highest since the 1980’s Latin American sovereign debt crisis, it was only natural that several UAE banks were unable to fund their loan books in the interbank

money markets. It was only the swiftness with which the UAE government guaranteed local bank deposits and interbank loans, injected $20 billion into leading banks, created emergency finance facilities and slashed the central bank repo rate to one per cent that averted a funding Black Death for the Gulf’s most leveraged banking system, with loan/ deposit ratios that exceeded 150 percent.

The IMF estimates that UAE economic growth will exceed 2.4 per cent in 2011, thanks to high oil prices and Dubai’s return to the financial markets. UAE banks are still saddled with exposure to distressed borrowers and bankrupt speculators in a property market where prices are still 50-70 per cent below their bubble peaks in 2008. While the Dubai sovereign bond and the DP World debt settlement eases funding pressures and provides balance sheet flexibility for UAE banks, provisioning woes will continue to haunt the local banking system.

Bank mergers, as in the 1980’s, could be the natural endgame. This is the reason why even leading government controlled UAE banks trade at deep discounts to fundamental metrics such as tangible book value.

It is still premature to bottom fish in UAE bank shares until credit growth turns positive and NPL ratios peak, a prospect that is at least six months away.

As in Kuwait, structural issues will inhibit a valuation rerating in UAE banking. In contrast, Qatari banks exhibit 15 per cent loan growth, no systemic asset quality issues, a 20 per cent valuation discount to their peers in the emerging markets and major sovereign support from one of the world’s wealthiest emirates. UAE banks are cheap at a mere 7 times forward earnings, far below Qatar, Saudi, Kuwaiti and even Omani bank peers. However, price is not value. Use the current rally to book profits in UAE bank shares.

Matein Khalid, fund manager in a royal investment office and writer in finance and geopolitics.

For now, it is still premature to bottom fish in UAE bank shares until credit growth turns positive and NPL ratios peak, a prospect that is at least six months away.

24 gulfbusiness November 2010

COMMENT

CEOS SAY GOODBYE FOR ‘PERSONAL REASONS’ In the last year, around 50 per cent of UAE CEOs exited their companies.

There’s normally only one reason why: non-delivery.

DR. TOMMY WEIR

G

lobally speaking CEO turnover rates are dropping to their lowest point in five years, yet here in the UAE it is speculated to be nearer a staggering 50 per cent. This alarming statistic is a matter of concern for companies, employees and the economy, in general.

Many of the CEOs cited “personal reasons” but what does this mean? Does it mean they need to take care of personal matters at home as it implies? We all know better that than that. The cited ‘personal reasons’ is definitely a euphemism and usually a cover up for one or more of a multitude of reasons for the unexpected or at times even expected chief executive departure. The primary reasons for non-planned departures are: A polite way for the company to cover up under performance by the CEO A mutual understanding by the CEO and board that they are lacking chemistry A difference in desired direction between the board and the CEO The CEO being terminated by the board, yet the board working to preserves his/her honour The CEO having had enough of the local market and opting to get out of town.

The teething troubles of leading in the UAE are immense for many imported, experienced CEOs. This market is young, mobile, fast-moving and ambiguous. These dynamics are unlike the stable, calculated and controlled markets where most CEOs were educated and gained their experience. Now, comes the complication, when a CEO is hired he/she is expected to deliver results immediately so the chief executive jumps right in with both feet and does what he/she did in the past. Unfortunately, recent history reveals that this is not what is needed in the UAE market as what got the CEO here in the first place, might not necessarily keep him/her here.

The cosmopolitan nature of the workforce and local customer base is a tricky situation that most leaders are not prepared for. Even for an executive with diverse global experience, the realities in the Gulf can be daunting

as the market has more countries represented than the United Nations does. To date, the success rate of driving performance throughout workforces comprising 30 plus nationalities has not been at the level that the boards desire. This is a challenge for both expat and national leaders.

What should a company do when their CEO leaves suddenly? They should hire a CEO who accurately understands the market and can drive performance amongst a diverse workforce in this fast-growth yet ambiguous environment. This is easier said than done.

So what are the actions that a board can take to ensure success in their next hire?

Spend time as a board understanding and articulating what you are looking for in a CEO. This needs to move beyond looking for experience and a track record of success and encompass the requisites needed to lead in the UAE. Ensure the CEO matches the profile that you are looking for. This is achieved by selecting against a detailed profile and gathering evidence through experience based interviews, personality profiles, detailed reference dialogue and preferably observation of performance.

When the CEO joins, provide him/her with a coach who can help with leading in the young, fast-growth environment inclusive of a diverse workforce.

Create a partnership between the board and CEO for ongoing success.

The teething troubles of leading companies in the UAE are immense for many imported, experienced CEOs. This market is young, mobile, fast-moving and ambiguous.

26 gulfbusiness November 2010

Globally, CEO turnover is very costly for an organisation and it is imperative that the boards work to mitigate the risk of turnover and the success of the CEO and organisation. Here in the GCC, boards would be wise to spend time on the CEO selection process to identify potential leaders who possess potential for long-term triumph in this exceptional but professionally challenging local market.

Dr Tommy Weir, vice president of leadership solutions at Kenexa and author of The CEO Shift.

COMMENT

QE2 AND HOW IT AFFECTS YOUR STOCKS PORTFOLIO Confidence is rising as investors predict the US economy will be buffered by a second quantantive easing move, but caution is still advisable.

MICHAEL PREISS

T

he dilemma of quantitative easing is clear from the correlated rally in all “risk” assets, and the corresponding rapid decline in the value of the US dollar. Global financial markets increasingly seem to think that we got the best of both worlds for risk assets.

If the US economy normalises and grows again above par, equities and risk assets will rally. If the US economy falters, then equities will also rally as the market increasingly believes it will be saved by the next round of QE2.

Quantitative easing (QE) describes a monetary policy used by central banks to increase the supply of money by increasing the excess reserves of the banking system.

This policy is usually invoked when the normal methods to control the money supply have failed, i.e the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero.

A central bank implements QE by first crediting its own account with money it creates ex nihilo (“out of nothing”).

It is this creating money out of nothing that is potentially the problem.

While the US needs low rates, the emerging markets are experiencing a QE-led boom and potential bubble.

Western countries led by the US are growing below par and emerging markets are growing above par, leading to more global imbalances and potential asset market bubbles in the future. America and other developed economies will suffer from sluggish growth and potentially stagflation in the coming year because of budget cuts. However, emerging markets and, in particular, frontier markets are expected to continue to boom.

Liquidity is focusing on scarce and expensive “growth” within global equity markets. The most expensive equities are seeing the greatest upward pressure on price. Too much money is chasing too few investable emerging market stocks. The barometers are Turkey, Indonesia, the Philippines, Sri Lanka and Mongolia.

The World Bank recently lowered its outlook for growth next year in China and across East Asia, urging officials in the region to curb inflation by raising interest rates and ward off asset bubbles to avoid a repeat of the Asian financial crisis.

As recently as July, the Fed was talking of exit strategies, with the market then looking towards upside surprises.

Now, the consensus is that QE will be needed, with much

attention on QE2 being unveiled by the Fed in early November. The comments of a former Fed member, speaking at the IMF/World Bank meeting in Washington, summed it up: “Monetary policy is the only game in town.”

Given the politics, unemployment is figuring prominently in discussions about the US. Bernanke mentioned unemployment as a key early point in all his speeches. It would be no surprise if the Fed engaged in QE3 over the next year but there are a lot of sceptics who question whether QE actually works.

Clearly it does, as unconventional monetary policy has allowed normality to return to most markets. But therein lies the challenge, which still concerns most policy makers in Washington, as well as most central bankers around the world. While the additional QE might not provide much direct further boost, stopping it might be detrimental.

There is real risk that current conditions could lead to a repeat of the commodity price-driven phony inflation scare world markets last experienced in 2007 and early 2008. Any repeat of such a market dislocation will lead to an overshoot in commodity prices, driven by financial investors in commodity indices and resource stocks, and ultimately resulting in a violent sell-off. That sell-off will again could likely be characterised by a violent rally in the US dollar as the carry trades are liquidated.

There is a risk that recent sentiment regarding the certainty and magnitude of future QE2 may have stretched to extremes. For example, some Fed officials statements may be an attempt to dampen market expectations that the Fed will announce a mega QE2 Instead, the Fed may increasingly favour a more gradual and measured approach. This could set the stock market up for disappointment. With currencies war talk intensifying, the Fed announcing a mega QE2 would not be in the interest of most politicians let alone central bankers.

In the medium-term, it hence seems that upside to US stock is limited after the +12 per cent surge in the S&P500 over the last few weeks. Over a 12 month view, however, we maintain “over-weight” equities for 2011 as risk aversion recedes and investors turn to the economic prospects and ample liquidity provided by QE. Michael Preiss, chief equities strategist, Standard Chartered bank.

While the US needs low rates, the emerging markets are experiencing a QE-led boom and potential bubble.

28 gulfbusiness November 2010

COMMENT

KEY STEPS TO MAKING MERGERS WORK While deals made in turbulent times are often top performers, integration and retention strategies are vital.

PHILIPPE DE BACKER

A

s the fragile economic recovery picks up momentum, many GCC companies are emerging from the downturn in a strong competitive position: they are cash-rich. Even at the height of the worldwide financial crisis, the top companies on the Dubai Financial Market, Abu Dhabi Securities Exchange and NASDAQ Dubai were sitting on a cash pile that totaled $578 billion in 2009. This spells good news for GCC banks whose relatively unleveraged balanced sheets put them in a position to both support and grow with the region’s consumers and businesses.

The competition will be stiff, however, as financial institutions in the region race to achieve the scale and breadth required of market leaders. Mergers and acquisitions are one path to realising greater economies of scale and expanding into attractive business lines that are still nascent in the region, such as asset management, investment banking and private wealth management.

Deals made during turbulent periods often are top performers. Bain & Company recently analysed 24,000plus transactions in the 10-year period between 1996 and 2006. This analysis shows that acquisitions completed during or just after the 2001-02 recession generated almost triple the excess returns of acquisitions made during the preceding boom years. Excess returns refer to shareholder returns from four weeks before to four weeks after the deal, compared with peers.

This was true regardless of industry or deal size.

Meanwhile, many companies also are getting better at M&A. In 1995, about 50 per cent of US mergers underperformed their industry index. Ten years later, the figure was about 30 per cent. We think this is due to more experienced frequent acquirers and the increasing use of cash – instead of stock – to finance deals, which seems to encourage better due diligence and more realistic prices. Seasoned acquirers know that the non-recurring costs of acquisition and integration can be very high, a consideration which they factor into deal pricing.

Even when deals are strategically sound, many fail to live up to expectations. Often, the fault lies in post-merger

integration missteps. Many acquirers forfeit large amounts of value by failing to execute in three key areas: Defining and hitting the right targets. The failure to define a deal’s investment thesis – and risks – in crystal-clear terms shows there are no clear integration priorities, leading to missed targets. Understanding whether deals are to boost ‘scope’ or ‘scale’ is vital. Scope deals require fostering some capabilities of the acquired company and integrating where it matters most. In contrast, scale deals focus on combining two similar companies for maximum efficiency.

Retaining key people. When it comes to HR issues, many companies delay organisational and leadership decisions. In the interim, key personnel are at risk of being hired away by rivals. Experienced acquirers earn a reputation for retaining the best people – and creating opportunities for them.

Linking integration to the business.

Poor performance in the core business occurs when integration soaks up too much energy or drags on, distracting managers from the core business. Typically, at least 90 per cent of the organisation should be focused on its core, with clear targets and incentives to keep those businesses humming. The 10 per cent that is focused on integration needs to be tuned in and adaptive to the needs of the business.

Veteran acquirers have the best track record for avoiding these missteps. Our studies show that frequent acquirers consistently outperform infrequent acquirers by getting the integration process right and making it a core competency.

If you had invested $1 in each group, the returns from the frequent-acquirer group would be 25 per cent greater than the infrequent group over a 20-year period.

With cash-flush banks and relatively low regulatory barriers, we expect the pace of consolidation to increase across the spectrum of GCC financial institutions, especially amongst retail banks, brokerage houses and asset managers. The winning institutions will be those that work quickly and effectively to ensure smart acquisitions live up to their potential.

Philippe De Backer, partner, Bain & Company Dubai, with contributions from Julien Faye.

Mergers and acquisitions are one path to realising greater economies of scale and expanding into attractive business lines that are still nascent in the region.

30 gulfbusiness November 2010

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One year on, Gulf Air boss tells all RBS denies Dubai World firesale Will KSA mortgage law save market?

RAK SPECIAL REPORT

The man who sold the world: RAKIA CEO sells global assets

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10/18/10 11:32:57 AM

Opague messages I did like your Ras Al Kaimah feature, which highlighted the emirate’s move to reduce debt, a very sensible thing to do. However, although a number of senior officials have been quoted backing the deleveraging plan, there are recent reports that the RAK government is planning a bond issue worth at least $500 million. Arrangers for the reported benchmark-size bond issue have also been named. I understand this kind of confusion happens a lot in this region but I thought RAK, which has been named the most transparent by a reputed credit agency, is different.

Not that I am really directly affected, but I just thought if governments here are serious on transparency then they should not say one thing and act otherwise.

Sanjay Singh, Muscat, Oman

Leisure or pressure?

I lived in Dubai for eight years in hope of richer times, yet I wasn’t able to save anything. Due to the high cost of living, I needed four credit cards to survive. I have now lived in Saudi

32 gulfbusiness November 2010

Majali’s flight I think Samer Majali has been doing a great job at Gulf Air. I didn’t realise just how tough it was at the top until I read your article last month. The CEO has been very brave with his new strategy of cancelling routes and starting new ones to second-tier, underserved destinations. It was also refreshing to read an interview with a boss who is honest about the very serious challenges that the aviation world is facing. I know Majali managed to turn around Royal Jordanian airline and privatise it, but I can’t help but think the world of aviation was a less harsh one then, even in 2001. It would be a shame to lose the region’s oldest airline and I remember when Gulf Air was the jewel in the crown in the eighties. The going is getting more tough and simply putting out more planes on international routes wasn’t going to cut it. Majali is right not to do what other airlines airlines are doing, especially following his competitors who have much deeper pockets. But will high-frequency, low-yield flights work? I, for one, will be watching with baited breath. If anyone is up to the job, it is someone as fearless as Majali. I wish him all the best.

Jassim Nami, Dubai, UAE.

Arabia for one and a half years and I have already saved enough to buy a sedan car in cash. My point is, life in Dubai is driven by too much consumerism – no wonder malls are mushrooming and entertainment spots are still booming, as featured in your article. But let’s not fail to realise that this same driver of growth was also the main driver of the crisis. Here in Saudi, we don’t have that kind of extravagant city life but I’m happy not to end up miserable either way.

John Ilagan, Riyadh, Saudi Arabia

Plane business Gulf Air and RAK Airways woes reflect the fact that the airline business is perhaps the most difficult on this planet. I had a chat with the chairman of a loss-making Asian carrier and I learned that airlines operate at a two per cent margin, this means unpredictable events like SARS, 9/11 and the ash cloud can easily erode this marginal profit.

Seeing a number of airlines fail, I could not help but admire companies such as Emirates. Whether or not Middle Eastern airlines are

state-backed is still a matter of debate. Tim Clark has been very bold in his response to allegations of government support, which rivals claim has enabled Emirates to offer lower prices. In my opinion, business is about gaining marketshare and there’s never been anything ‘fair’ about that.

Adel Yasin, Abu Dhabi, UAE.

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ANALYSIS FINANCE

Playing it safe Stung by the recession, the rich are focusing on cash assets and bonds, writes KAREN REMO-LISTANA.

D

uring the boom times, investors and their wealth managers acted as if the cash tap would never stop flowing.

But just three months after the Lehman Brothers crash, $20 trillion was wiped off the global system in what was described as the largest decline in world wealth since the Second World War. Today, wary investors have shifted their focus to wealth preservation and are allocating heavily on cash assets and simple financial instruments.

According to the latest World Wealth Report by Merrill Lynch Global Wealth Management and Capgemini, high net worth individuals (HNWI) favoured predictable returns and cash flow, as

Walter Berchtold, CEO of private banking, Credit Suisse.

Asset allocation is similar across the globe.

You will see 35 per cent in cash, 25 per cent in bonds, 20 per cent in equities and the rest in alternative assets. evidenced by the rise in allocations to fixed-income instruments, to 31 per cent from 29 per cent.

“Clients are still very cautious,” says Walter Berchtold, the chief executive of Credit Suisse’s private banking division.

“Asset allocation is very similar across the globe and across competition. You will see 35 per cent in cash, 25 per cent in bonds, 20 per cent in equities and the rest are in other assets such as alternatives.”

In terms of complexity, Berchtold says clients tend to shy away from highly leveraged instruments and opt to invest in simple transparent products like equities and exchangetraded funds.

34 gulfbusiness November 2010

The investment scenario is similar in the Gulf, says Bruno Daher, managing director of Credit Suisse and co-CEO of the Middle East. “Our Middle Eastern clients are generally very sophisticated and global in their investment outlook. Typically, local clients favour growth areas and other emerging markets. They also tend to hold a high percentage of foreign currency.”

The World Wealth Report indicates that HNWIs have remained cautious and list effective risk management (90 per cent), transparency and simplicity (93 per cent), and specialised advice (93 per cent) as top priorities in the current environment. With memories of monetary casualties still fresh

in their minds, investors remain cautious. Private banks are also not expecting a full recoup anytime soon.

The Swiss lender’s private banking unit itself witnessed $200 billion worth of wealth destruction in 2008.

Its assets under management dropped from the peak of CHF995.4 billion ($1 trillion) in 2007 to CHF788.9 billion ($818 billion) in 2008, before going up to CHF914.9 billion ($15.5 billion) in 2009.

Berchtold says recovering all of the loss will take time. The bank recorded a four per cent growth in net new assets last year and is targetting a six per cent growth this year.

“Credit Suisse has been the fastest bank to recoup the shortfall,” he said.

“We have added over CHF100 billion ($104 billion) in net new assets since the outbreak of the crisis.”

The bank expects to derive its biggest growth in new assets from emerging markets (15 to 20 per cent)

followed by the US (six per cent) and slates Western Europe will register no growth at all.

Berchtold shares a popular belief with other wealth managers that the BRIC nations, as well as the GCC, are expected to be the drivers of HNWI growth for their respective regions in the coming years. In Asia-Pacific, China and India are slated to continue to lead the way, with economic expansion and HNWI growth likely to keep outpacing more developed economies. Asia-Pacific HNWI expansion is likely to be the fastest in the world as a result. In Latin America, Brazil is similarly expected to remain an engine of growth. Russia is expected to display strength due to its commodity-rich resource base.

The Middle East is also considered an area of expansion. And the 7.1 per cent increase in the region’s total HNWI population (7.1 per cent to 400,000) and wealth (5.1 per cent to $1.5 trillion) last year is a testament to that.

“The rebound has been, and will continue to be, driven by emerging markets – especially India and China, as well as Brazil,” said Yasar Yilmaz, regional head of sales, Middle East, global financial services, Capgemini.

The GCC also is an ideal field for private banking expansion because the region’s HNWIs are the most active in wealth management.

According to Barclays Wealth, GCC HNWIs spend a ‘significant’ amount of time managing their portfolios, in comparison to other nations, and this trend is extending to later life.

Soha Nashaat, Barclays Wealth, CEO.

The bank found that out that HNWIs in Saudi Arabia (92 per cent), UAE (91 per cent) and Qatar (89 per cent) have the largest desire among global respondents to keep working in later life. Even though the “Never tirees” concept is a global phenomenon, it is true to a lesser extent in developed markets, with Switzerland (34 per cent) and Spain (44 per cent) respondents least

likely to continue working post-retirement age.

“This represents a step change for wealthy people,” says Soha Nashaat, chief executive of Barclays Wealth Middle East. “While previous generations looked to create their wealth early on in life with a view to enjoying it when they retired, this report reflects a different attitude, with people wanting to continue to challenge themselves well beyond the traditional retirement age.”

Another unique attribute of the GCC is its priority on succession planning compared with the rest of the world. Nearly 100 per cent of respondents in UAE and Saudi Arabia feel financially responsible for their children.

However, wealthy individuals in developed economies do not feel that they are financially responsible for the next generation, with Switzerland (38 per cent) and Japan (41 per cent) at the bottom of the list.

As the region’s wealth continues to grow, the fact that bankers are scrambling for a slice of the pie is a no-brainer. However, many clients are still emotionally reticent to invest as the recession dies down. The biggest job for wealth managers will be convincing the rich otherwise. ■

While previous generations looked to create wealth early on in life, people now want to challenge themselves beyond the traditional retirement age.

IN NUMBERS

$20trn

400,000

$1.5trn

The value of wealth destruction in 2008, the biggest decline since World War II

The number of HNWIs in the Middle East

The value of wealth held by the regions’ HNWIs

November 2010 gulfbusiness 35

ANALYSIS AVIATION

Transatlantic fights As the credit row heats up between airlines in the Gulf and the West, MARTIN MORRIS explains why the debate over ‘unfair’ export lending to rival carriers is not set to cool anytime soon.

W

hen it comes to courting controversy, British Airways CEO Willie Walsh is never far from centre stage. Taking time out from his ongoing skirmishing with the trade unions in the UK, he used a recent speech in Brussels to tackle head-on a wider issue now pre-occupying boardrooms at many major Western airlines; namely commercial favouritism being shown to Middle East and other carriers at the expense of their own.

At issue are loan guarantees designed to help Boeing and Airbus sell more planes and preserve manufacturing jobs in their host countries.

Export financing, usually in the form of Government guarantees underpinning commercial loans, has been a feature of the aviation landscape for a number of years and now accounts for an estimated 35 per cent of Boeing and Airbus sales. This is almost double the estimated 20 per cent seen prior to the credit crunch in 2008.

However, under a 1986 side agreement between the US and Europe, airlines in the five countries where Airbus and Boeing have a major manufacturing presence (the UK, France, Germany, Spain and the US), are

Willie Walsh, British Airways.

Paul Griffiths, Dubai Airports.

Association (representing US airlines), recently wrote to US Treasury Secretary Timothy Geithner noting that the level of Ex-Im (US ExportImport) Bank support to foreign airlines has been roughly matched by credit supplied by the export credit agencies (ECAs) of the UK (ECDG), France (Coface) and Germany (Euler Hermes).

He added that the foreign airline beneficiaries of these Ex-Im Bank and ECGD subsidies compete directly with US airlines for US passenger traffic and

For its part, Emirates has dismissed claims it benefits from government subsidies, arguing it pays the same landing fees and fuel prices as everyone else at Dubai International Airport, for example. And as Paul Griffiths, CEO of Dubai Airports, says: ‘’ The only thing Dubai is guilty of is providing an environment that actually supports aviation. ‘’ Since 1996 the airline has raised $22 billion for new aircraft purchases and other corporate finance requirements – the financing coming from a variety of sources, including operating leases, ECAs and commercial asset-backed debt, as well as non-conventional sources such as Islamic funding.

To date US and EU export credit agencies have supported 24 per cent of Emirates’ aircraft financing.

The airline contends that ECAs are ‘’a legitimate and internationally accepted support mechanism to boost manufacturing sectors and exporters in Europe and the US.’’ Given Emirates is now the largest airline in terms of scheduled international passenger-kilometers flown, it should come as no surprise that Walsh and his US/European colleagues are cranking up the heat.

To date, US and EU export credit has supported around 24 per cent of UAE-based Emirates airline’s financing needs. denied access to this form of funding.

In a thinly veiled attack on Emirates, Walsh told officials at the European Aviation Club: ‘’We believe these guarantees are not operating in the way they were intended – and therefore urge the EU to amend the rules to remove the competitive distortions that have developed.’’

Meanwhile, James May, President and CEO of the Air Transport

36 gulfbusiness November 2010

include nine of the 10 most profitable airlines based outside of the US, UK, France and Germany. ‘’With the growth of their fleets supported by US government financing, our foreign competitors have been taking market share away from our airlines on routes to and from the United States, where foreign airlines now operate more than 50 per cent of the capacity.’’

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ANALYSIS INVESTMENT

Private equity splutters to life Following near-death in 2009, the investment world is stirring as new exits and funds come online, writes KAREN REMO-LISTANA.

L

ast year, private equity (PE) executives agreed that exit avenues – the routes to finally cash in on their investments – were unequivocally shut. Popular options like public market offering and trade sales were weak. With uncertainty as the main theme, fund raising and investment deals were also dry.

Due to lack of liquidity, there was only one exit in the region, the trade sale of Reliance Petroleum, by the Global Opportunistic Fund 2 for a value of $49 million against a purchase price of $33 million.

This year, there have been five IPOs (excluding insurance listings), an 80 per cent drop from the 21 deals seen in 2008. However, PE firms are more bullish now, with some exit strategies already planned over the next few months, senior executives told Gulf Business at the Super Return conference in Abu Dhabi.

Burger King was sold for $3.62 billion to 3G Capital in September.

Gulf private equity firms are more bullish now, with exit strategies already planned over the next few months.

Saudi-based Amwal AlKhaleej is looking at a Saudi IPO by the end of this year and another IPO in Egypt in the first quarter of 2011. Ammar AlKhudairy, managing director of Amwal, says the firm expects good returns despite relative low valuations thanks to the “growth stories” of its portfolio companies.

Cairo-based Citadel Capital plans to raise about $175 million from the initial public offering of its portfolio company, Taqa Arabia, during the first half of 2011. The firm, which owns 34 per cent of Taqa Arabia, will use the proceeds from the share sale to

38 gulfbusiness November 2010

increase Taqa Arabia’s electricity production capacity.

“We will list the company around April or May because the company needs access to capital. We also have another potential exit in the first half of next year but I cannot discuss that one,” Ahmed Heikal, chairman and founder of Citadel Capital said.

The increase in exit activity mirrors a global trend. Figures from alternative assets data provider Prequin show that Q3 2010 saw 190 PE-backed exits worth $57 billion, 22 per cent up from the previous quarter. Notable exits include the

sale of Burger King to an investment company in September for $3.62 billion, against a purchase price of $1.5 billion in December 2002; and the sale of Sunrise Communications, a Swiss subsidiary of Denmark’s TeleDenmark Communications, for $3.3 billion in September.

Exit activity during Q3 represents the most active quarter for exits in the post-financial crisis landscape, with the aggregate exit transaction value matching pre-downturn levels.

In terms of fundraising, however, the landscape remains challenging.

Last year, the sector only raised 20 per cent of what it raised in 2008, according to Gulf Venture Capital Association’s (GVCA) 2009 annual report. Of the six new funds in 2009, only two were able to make a first close and this barely makes up a quarter of the announced amount.

And of the $32.6 billion announced from 2005 and 2008, only 55 per cent has been raised. The report says that some of the funds may never reach financial closure.

Prequin data shows 83 PE funds worldwide reached a final close in Q3, raising $59 billion, a 20 per cent increase from last quarter’s figures.

But these figures still fell short of the $66 billion raised in the first quarter this year, suggesting that the fund raising market remains challenging for managers currently seeking investors’ commitment.

“The condition for raising funds in the GCC is still tough,” Citadel’s Heikal said. “We administered a first closing of three funds mainly through money from international investors like the International Finance Corp and other developmental institutions.”

Mark Yassin, National Bank of Abu Dhabi’s (NBAD) senior general manager of corporate and investment banking, is positive their aviation fund will raise cash from institutional investors and family offices in the region.

National Bank of Abu Dhbai (NBAD), which launched its private equity business in late 2008, faced difficulty in fund raising. It solved this problem by unveiling an aviation fund together with Germany’s DVB Bank. The bank aims to raise $250 million from investors and the rest are from leverage.

“We went to the market in the first quarter of this year, but the market hasn’t been easy,” Yassin said. “Margins have dropped dramatically… but we think the fundraising target is achievable by the end of this year.”

Investment-wise, there were fewer deals in the region than hoped for. Despite speculation that 2009 would be a stellar year with a supposed abundance of dry powder in the region, the period ended with a 75 per cent decline in the total size and 65 per cent drop in the number of investments. Investment deals were even less than those recorded in 2005.

However, the initial signs of recovery are strong. Funds raised from the region in the first quarter of this year almost equal the funds raised in the full year of 2009, figures from Zawya show. With the exception of the $57 million close

by Gulf Capital Equity Partners 2, all capital raised were from funds announced in 2010, suggesting the fund raising environment may have turned a corner. ■

WE SUPPORT THE PEOPLE WHOSE MISSION IS TO PROTECT THE WORLD.

IN NUMBERS

November 2010 gulfbusiness 39

ANALYSIS TOURISM

The business of Formula One As Abu Dhabi gears up for its second F1 Grand Prix, Gulf Business takes a look how the event is fuelling billion dollar revenues for the capital emirate.

L

ine up music legend, Prince, rapper Kanye West and rockers Linkin Park in an F1-themed circuit near the world’s fastest roller coaster and what you do you get?

The second series of the Etihad Abu Dhabi F1 Grand Prix.

While the event is a calendar-must for sports and showbiz enthusiasts, the race is also a hot topic among economists and investors around the globe.

In its inaugural year in 2009, F1 bolstered Abu Dhabi airport traffic by seven per cent, catapulted retail sales and afforded the hotel industry 97.5 per cent occupancy, with rooms going for an average rate of $606 per night.

As the only global sports event that compares with the Olympic Games and the FIFA World Cup in terms of mass audience reach, F1 consistently boosts the economy of its host country.

Left to right: Abu Dhabi F1 Grand Prix, Amber Lounge VIP F1 party lounge.

Studies show that Formula One fans spend twice as much as regular tourists and stay three nights longer on average than their counterparts.

Studies show that fans of the race spend twice as much as regular tourists and stay three nights longer on average than their counterparts.

Indeed, the F1 is a boon for an emirate that aims to increase total number of visitors by 10 per cent every year from 1.5 million in 2009 to more than 2.3 million by 2012.

To realise these goals, ancillary automotive sports and entertainment projects, such as Ferrari World Abu Dhabi, have been built to shore up increased leisure interest from all over the world.

This year’s F1 event, for instance, boasts a mega entertainment line-up where race ticket holders have the chance to see top international acts at the end of each day’s action.

40 gulfbusiness November 2010

And for those not going to the race, ADTA offers free concerts.

Reggae star Sean Paul, R&B artist Kelis and Lebanese pop star Nancy Ajram are all set to strut their stuff on the Abu Dhabi corniche as part of the free “Beats on the Beach”.

“It’s all adrenalin-pumping stuff,” Lawrence Franklin, Strategy & Policy Director, ADTA, tells Gulf Business.

“For 2010, Abu Dhabi stakeholders have once again activated the entire city and raised the bar with a wide-range of off-track activities, attractions and events.”

The most glamourous F1 option remains the Amber Lounge – the VIP Grand Prix after-party event.

“We use our partners Diageo, Davidoff Cigarettes and Hilton Hotel

Abu Dhabi to help us promote Amber Lounge and the Abu Dhabi Grand Prix, which enables us to pull more tourists in,” says Sonia Irvine, Amber Lounge founder and sister of Ferrari F1 star, Eddie Irvine.

Last year, the event was graced by Steve Tyler from Aerosmith, Hollywood starlet Neve Campbell and Nicole Scherzinger from the Pussycat Dolls alongside newly crowned F1 world champion Jenson Button, five past world champions and 11 other F1 drivers, including Lewis Hamilton, Michael Schumacher, Nico Rosberg and Rubens Barrichello.

All this glitz and glamour forms an integral part of a serious long-term economic plan.

Staging the F1 event entails massive capital spending, with the Yas Marina circuit alone thought to have cost close to $800 million, while Formula One franchise holder, Bernie Ecclestone, reportedly received $80 million in fees.

At the moment, there are no definitive investment and development

figures specific to the Grand Prix, Franklin says. But when promotion, original infrastructure development and other activities are taken into account, he says investment reaches “billions of dollars”.

“Based on the extremely positive feedback we’ve received and continue to receive, we believe the Grand Prix delivers strong return on investment,” Franklin says.

In a move to better capitalise on the revenue potential of the event, this year’s F1 event will be subject to a “detailed economic impact assessment”, and the findings will be presented after the Grand Prix.

“There are indicators of the success of last year’s event,” Franklin says.

“We know that F1 teams make huge investments in Grand Prix destinations and the dollar value of paid advertising to reach the massive

global audiences associated with the sport are enormous and should not be underestimated.”

ADTA’s figures show that last year’s Grand Prix was televised in more than 180 countries, reaching 600 million viewers in total.

ADTA is optimistic that it will see enhanced TV viewership figures this year, as well as greater visitor numbers and interest.

“There are also indirect expenditure benefits, as suppliers locally and throughout the region purchase equipment and services, employees spend in shops and event-specific visitors travel more widely and spend on accommodation and attractions,” Frankin says.

Economic and cultural benefits go much further than the obvious, he added. For example, Mubadala, Abu Dhabi’s investment arm, which

owns five per cent of Ferrari, used its association with the sport to raise the profile of its other investments in aerospace and technology.

“By capitalising on the excitement and glamour synonymous with F1, we are seeing enhanced career uptake by UAE nationals in sectors such as technology and aerospace,” Franklin says, pointing out that the effects of hosting a Grand Prix effect lasts much longer than the race weekend.

“We would like to see that translated into increased visitor attraction, not just around the race, but all year long,” he says.

To do that, the emirate must continue to sustain the significant momentum it has so far delivered with F1. With deep pockets aided by oil savings. Abu Dhabi has the ability to meet the challenge. ■

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AND WE WILL CONTINUE DEFENDING WORLD SECURITY. WWW.CASSIDIAN.COM November 2010 gulfbusiness 41

EXECUTIVE MOVES Gulf Capital has named Chris Foll, known for executing M&A transactions, divestments and IPOs, as its new chief financial officer.

In his six years stint with India’s Hutchison Essar as CFO, Foll helped grow the company before it was sold in 2007 for $10.7 billion to the Vodafone Group. In his role as CFO of Hutchison Telecommunications International, he oversaw the spin-off of the Hong Kong/Macau operation and subsequent listing on the HKSE and secondary listing on the NYSE.

Qatar Islamic Bank has named Ahmad Meshari as acting CEO after previous CEO Salah Jaidah resigned last month for personal reasons.

“After understanding the personal reasons, the board of directors approved the request from the CEO,” QIB said in a statement. Jaidah will continue to represent QIB on the board of directors on all other financial institutions where QIB maintains a financial interest both locally and internationally.

Leo Apotheker has been appointed CEO and president of HP. Apotheker, who was previously the CEO of SAP, also joins HP’s board of directors. He replaced Mark Hurd who has joined Oracle as co-president in September. Meanwhile Eyad Shihabi has been appointed managing director and enterprise business leader, Middle East. He joins HP from Smartworld, where he served for the last two years as CEO.

Park Hyatt Dubai has appointed Adrian Slater as general manager, his new role reflects a return to the UAE after almost 16 years. In the early 1990s, Slater held the role of Banquet Sales Manager for the Hyatt Regency Dubai before relocating to Australia. Born in Auckland, New Zealand, Slater started his career in tourism and hospitality as a Hyatt Management trainee in the late 80s with the Hyatt Regency Auckland where he remained for nearly five years before accepting his first international expatriate position in Dubai in 1991, staying for five years.

42 gulfbusiness November 2010

Global Investment House – Saudia (Global Saudia) has named Fahad Bin Saleh Al Hamidi as CEO. He holds a bachelors degree from Willamette University, USA, and has more than 22 years experience in the banking sector and Saudi Financial Market.

Previously, Al-Hamidi was the acting CEO of the investment arm of Bank Albilad in the kingdom. He has held positions in Riyadh Bank, Saudi Investment Bank and Saudi Hollandi Bank.

Enviromena Power Systems has named Amjad Bseisu as chairman of the board of directors. Bseisu currently serves as CEO of EnQuest PLC, a UK-based independent oil and gas production and development company. In March 2010, he led EnQuest through dual public listings in London and Stockholm, where the company became a constituent on the FTSE 250 Index.

Link Development, a subsidiary of Egypt’s LINKdotNET and Orascom Telecom Holding, has appointed Irini Raafat as managing director. The change follows the formation of OTVentures, an Orascom Telecom subsidiary that is now being led by Hanan Abdel-Meguid.

Gulf Bank has named Grant Jackson as general manager of treasury following the approval of the Central Bank of Kuwait. He joins from Commercial Bank International in Dubai, where he has been head of treasury and investments since November 2008. Prior to this, he was seconded for 18 months to the Qatar subsidiary of Ahli United. Jackson began his career in Australia and New Zealand, spending 13 years at N.M. Rothschild & Sons (Australia) Ltd.

Motashar Almurshed has been appointed CEO for Merrill Lynch, Saudi Arabia. He joins Bank of America Merrill Lynch from Alinma Investment – a subsidiary of Saudi Arabia’s Alinma Bank – where he served as CEO and a member of the board. Prior to that, he was a managing director at NCB Capital, and previously worked for Alrayis Business Group and SABB/HSBC.

TM

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COVER STORY TOP 100 COMPANIES

THE TOP

COMPANIES

IN THE GCC ... and how they performed

44 gulfbusiness November 2010

This year saw a quieter ride for the region’s companies after the cataclysmic roller coaster of 2009. As equities across the GCC begin a sheepish ascent and markets offer signs of life, MOHAMMAD HAWA looks at where the dust has settled

iStock

as the recession recedes.

November 2010 gulfbusiness

45

COVER STORY TOP 100 COMPANIES

T

here is one overarching difference between this year and the last for the region’s companies: drama, or the lack of it.

The news flows on significant corporate or sovereign defaults in the region have been quiet.

In fact, if anything, we have seen positive news from the Dubai World debt restructuring. If 2009 was a year of turbulence, 2010 was a period of watchfulness and cautious optimism.

The wounds of the last two years are dying hard as sentiment remains sheepish and liquidity remains thin, but signs of life point to renewed buoyancy of the markets in the medium-term.

STOCKING UP Equities have had a rather mild 2010.

After having outperformed global emerging markets in H1 2010, GCC equities have lagged behind in H2 so far. On a year to date (YTD) basis, Qatar has generated the highest returns (12.4 per cent), followed by three per cent for Saudi stocks. Abu Dhabi and Kuwaiti stocks have been flat while Dubai’s stocks have declined by 3.2 per cent. On a regional basis, the MSCI EMEA has been the best performing at 15.8 per cent while global emerging markets have returned 13 per cent. The GCC region’s new benchmark – the S&P Pan Arab Index has returned just 7.4 per cent YTD.

hit Dubai-based brokerage houses particularly hard with 13 of the 90-odd DFM registered brokers requesting suspension of their licenses for a year.

while financials (ex-real estate) are likely to gain at the expense of telecoms and chemicals.

PRIMARY MARKET RECOVERS

GCC equities are not trading cheap visà-vis emerging markets. On a fwd P/E basis, they are currently trading onpar with their emerging market peers, at 11.4x P/E (2011). The valuation gap has been closed from the six per cent discount that they were trading at six months ago. The GCC valuation premium has also stretched against the EMEA region to 17 per cent from the 4 per cent levels six months ago.

However, the region is attractive on a dividend yield perspective, with 2010 and 2011 dividend yields estimated at 3.5 per cent and 4.2 per cent respectively. This is significantly higher than the respective 2.5 per cent and 2.9 per cent yields that we expect from emerging markets on aggregate.

Within the GCC, we expect Qatar and Saudi Arabia to generate the highest dividend yields of 5.3 per cent and 4.3 per cent respectively in 2011.

Large cap banks and Q-Tel are likely to prop up dividends in Qatar while in Saudi we expect the same from SAFCO (no major capex plans), telecoms (cashcows) and large cap banks.

The UAE has not had an IPO since March 2009 but now that looks set to change with Axiom Telecom planning to offer shares in the market. There are also further signs of a pick up with companies such as Aluminium Bahrain BSC and Nawras due to raise equity. The debt markets improved following the Dubai World debt restructuring. Just recently, there were a slew of debt offerings from companies such as Qatar Telecom ($1.5 billion), Dubai government $1.25 billion), Qatar Islamic Bank ($750 million) and Emaar ($500 million).

NEW BENCHMARK MSCI and the Saudi Tadawul exchange were unable to resolve their differences and the former eventually decided to discontinue the indices, which included Saudi stocks, effective September 31 2010.

Due to this, the region’s historical benchmark – the MSCI GCC will no longer be available to fund managers. Our discussions with fund

Just as in 2010, we expect Saudi Arabia to remain the fastest growing market, with earnings estimated to grow at 24 per cent.

SECONDARY MARKET FALLS As many international investors have stayed away from the region and local investors are unable to liquidate portfolios (unwilling to book losses), we are seeing thin liquidity in the equity markets. Trading volumes have fallen significantly, with the 2010 YTD average going down 38 per cent, 40 per cent and 57 per cent in the three largest markets – Saudi Arabia, Kuwait and Dubai respectively. The volumes were particularly bad in July and August but have rebounded a bit in September. The declines have

46 gulfbusiness November 2010

VALUATIONS

managers revealed that they are now looking to switch to either S&P Pan Arab Composite or S&P Pan Arab Composite LargeMidCap index. In a recent research note, we analysed the difference in weights between MSCI GCC and the two S&P indices mentioned above. We highlighted that the stocks likely to gain the most on account of this switch are Samba and Riyad Bank, while SABIC would be the biggest loser. At a country level, Saudi Arabia is likely to lose a bit of ground in favour of Morocco

PROFITABILITY Just as in 2010, we expect Saudi Arabia to remain the fastest growing market, with earnings estimated to grow at 24 per cent. The 34 per cent earnings growth for Saudi Arabia in 2010 was mainly due to an estimated 100 per cent earnings growth from heavy-weight SABIC, which was rebounding from a steep decline in 2009. Earnings growth in Kuwait and UAE is pegged at 23 per cent and 20 per cent respectively. The high economic growth in Qatar isn’t fully

COVER STORY TOP 100 COMPANIES

trickling down to equities due to the limited number of listed stocks and we peg 2011 earnings growth at 15.6 per cent. On 2011 ROE terms, we peg Qatar to remain the most profitable at 18 per cent (same as in 2010) followed

by Saudi Arabia at 14 per cent.

MEDIUM-TERM PROMISE We are of the view that GCC is a reflationary trade. Given that banks dominate the market cap in the region (ranging from 53 per cent in Saudi Arabia to 35 per cent in Qatar), the sector is the most important driver of stock-market performance. Given the current high credit costs and low margins (arising out of low interest rates), we refrain from being bullish on GCC equities. Overseas investors are likely to wait until late next year when credit costs ease and interest rates rise on signals from the US fed.

KSA – STATE SPENDS The Saudi government continues to focus on economic diversification and in August it announced a $385 billion development plan. Real GDP growth is estimated to rebound from 0.6 per cent

shying away from corporate lending.

It is worth noting that most of the defaults in Saudi Arabia came from the corporate sector. Monthly ATM cash withdrawals and POS transactions (the best indicator of retail spending) have rebounded to their 2008 peak levels. In the first nine months of 2010, consumer plays Almarai and Jarir Marketing reported revenue growth of 19 per cent and 20 per cent respectively. Almarai and Mobily are our preferred plays in the country.

KUWAIT – LIQUIDITY ISSUES Kuwait is the only major GCC market to see its loan growth decline this year. Liquidity shortage among local investors was a reason for the market overhang this year. Many investors that we met said that they were looking to raise liquidity by borrowing against assets, which were typically real estate assets or illiquid domestic equities.

However, we think the recently unveiled $104 billion economic development plan might act as a catalyst for loan growth and improved liquidity. In late 2009 and early 2010, there was a lot of talk about the possibility of the Kharafi group

We remain highly selective on UAE stocks, with our top picks being First Gulf Bank, National Bank of Abu Dhabi and Union National Bank. in 2009 to 3.2 per cent in 2010E and further to 4.5 per cent in 2011E. We are not worried about inflation creeping in through government spending as food and beverages account for 26 per cent of the weight and this is unlikely to shoot up unless we have global food inflation.

Moreover, a portion of the corpus will also be allocated towards housing development and should help check real estate prices from sky-rocketing. For the first time since 2006 (when SAMA tightened consumer lending norms), consumer lending in Saudi Arabia has been growing at a relatively higher rate than corporate lending. Banks are beginning to gain confidence in the consumer play story while they are still

48 gulfbusiness November 2010

turning insolvent. However, the disposal of Zain’s (in which Kharafi group holds a significant stake) African assets was followed by a special dividend which allayed the market’s fears.

UAE – CRUNCH TIME In May, Dubai World announced its restructuring proposals to creditors, postponing repayment in two tranches – five and eight years. According to our calculations, the new proposals would amount to a haircut of 40 per cent for the creditors. The proposals were followed later on by an announcement that 99 per cent of the creditors have agreed to the

terms and this helped calm the credit markets. However, liquidity remains a major worry in the market, with M2 growth being at low single-digit levels. Real estate prices continue to remain under pressure. According to data from Better Homes, rents in Burj Khalifa are currently quoting 40 per cent below the levels prevailing at the launch 10 months ago, with current occupation levels being just 80 per cent. The banking sector continues to report high levels of provisioning. We remain highly selective on UAE stocks, with our top picks being National Bank of Abu Dhabi (NBAD), First Gulf Bank (FGB) and Union National Bank (UNB), these banks have high capitalisation, asset quality and adequate coverage.

QATAR – SAFE HAVEN In recent times, Qatar has been the most resilient economy in the GCC. Qatari stocks are trading 38 per cent below their pre-crisis peak levels, which is the least in the GCC. Through 2010, inflation has been virtually non-existent in Qatar with consumer prices having actually declined by two per cent year on year (yoy) as of August. This is mainly due to a 14 per cent decline in housing costs. However, liquidity has been strong with M2 money supply growing in excess of 20 per cent and bank lending and deposits growing at double digits this year.

In Qatar, our preferred plays are the banks – Qatar National Bank, Commercial Bank of Qatar and Doha (due to their high growth, dividend yields and asset quality), along with IQ (attractively valued and diversified global economic play) and Q-tel.

BANKS The operating environment for the GCC banking sector is largely unchanged from the previous year as balance sheet growth continues to be sluggish and provisions remain high.

Qatar is the only banking sector to witness meaningful loan growth this year. In the first eight months of 2010, Qatar’s loan book grew by 13

per cent while that of Saudi Arabia (3.7 per cent) and UAE (2.3 per cent) saw very low growth and Kuwait actually witnessed a decline (-0.5 per cent). Qatar’s deposit base has also grown at 17 per cent this year in sharp contrast to the one per cent to two per cent growth in UAE and Kuwait and a decline of 1.6 per cent in Saudi Arabia.

During H1 2010, the total income of Saudi and UAE banks fell by 1.6 per cent yoy and 11.5 per cent yoy, respectively, while in Qatar, it grew by 11.1 per cent yoy. This is a reflection of sluggish loan growth in the UAE and Saudi coupled with relatively lower margins. Due to the dollar pegging of the GCC currencies, it is unlikely that interest rates in the region will rise before the US Fed raises rates and our view is that this is unlikely to happen before the end of 2011. The cost of funds in the Saudi

The definitive moments for Gulf stocks in 2010 1. The contagion effect of Europe’s sovereign debt worries 2. The Dubai World debt restructuring proposal being accepted by 99 per cent of creditors 3. Dubai brokerage houses shutting down due to low trading volumes 4. MSCI’s exclusion of Saudi stocks in its indices

banking sector fell to a low of 0.41 per cent, which is largely due to a sharp increase in the demand deposit ratio from 44.4 per cent in August 2009 to 53.1 per cent in August 2010.

Credit costs have remained high during H1 for Saudi and UAE banks.

In our estimate, credit costs of Saudi banks are estimated to decline by 45bps yoy to 84bps in 2010E and further

down to 60 basis points (bps) by 2011E. However, we estimate it to remain above 100 bps for the UAE banks in 2011E. As of H1 2010, barring SABB and Arab National Bank, the other five Saudi banks under our coverage reached non-performing loans (NPL) coverage levels of 100 per cent and above. Credit costs fears in the UAE have receded among investors following favourable news flows on the Dubai World debt restructuring proposals.

Qatar banks remain our most preferred in the sector due to their reasonable valuations and high profitability. In the UAE, we remain positive on NBAD, FGB and UNB due to their high capitalisation (tier 1 ratio more than 15 per cent), high asset quality (Q2 2010 NPL ratios of 1.5 per cent to 2.5 per cent) with provisioning over 100 per cent levels and, finally, attractive valuations.

Executive Office: 17, Building 16, Ground Floor, Dubai Internet City | P.O. Box: 73030 | Phone/Fax: +971 4446 2640

November 2010 gulfbusiness

49

We also remain long-term buyers of Saudi banks as we acknowledge that provisioning levels are now at all-time highs, brokerage activity is at all-time lows and interest rates are at all-time lows.

Al Rajhi and Samba are our top picks among Saudi banks due to their high profitability and adequate provisioning coverage.

TELECOMS Saudi Arabia is one of the most attractive telecom markets in the EMEA region because its market structure is not oversupplied and this is likely to remain the case in the near term. The country also maintains stable regulation.

Mobily is our top pick in the sector due to consistent market share gains, continued infrastructure expansion

and strength in the rapidly growing mobile data segment. Moreover, its major competitors – Saudi Telecom and Zain KSA are hampered by legacy product and cost structures; and balance sheet leverage respectively.

GCC telecoms are currently cheaper than their emerging market peers on a 2009E P/E basis and should also generate a higher dividend yield in 2009E in our estimate. Our top pick in the sector is Q-Tel as it not only trades at the lowest 2009E P/E (7.8x) but should also generate the highest 2009E dividend yield (6.7 per cent), according to our estimates.

CHEMICALS We are negative on the chemicals sector globally since we expect the gap between supply and demand to widen.

The chemical sector has the highest correlation with the global economy and we remain cautious on demand recovery, especially in Europe. Given the uncertain pricing outlook, we think it makes more sense to get exposure to value stocks, which look attractive relative to their global peers (SABIC and IQ are trading at a discount currently), and to those that look fairly valued in a negative scenario. We suggest that investors gain exposure to Sipchem, IQ, and SABIC. We have a cautious view on companies that are yet to report operating incomes while trading at rich valuations (Rabigh, Kayan, and Yansab).

Mohamad Hawa is the head of MENA equity strategy and financials research, Credit Suisse

GULF BUSINESS TOP 100 COMPANIES IN THE GCC 2010 Ranking

2009 Ranking

Company

Market Cap ($ m)

Country

1

1

SAUDI BASIC INDUSTRIES CORP

72.6

Saudi Arabia

2

2

AL RAJHI BANK

30.4

Saudi Arabia

3

4

ETISALAT

23.2

United Arab Emirates

4

15

EZDAN REAL ESTATE CO

23.0

Qatar

5

5

ZAIN

21.0

Kuwait

6

3

SAUDI TELECOM CO

20.5

Saudi Arabia

7

7

NATIONAL BANK OF KUWAIT

17.8

Kuwait

8

9

QATAR NATIONAL BANK SAQ

17.4

Qatar

9

11

SAUDI ELECTRICITY CO

16.7

Saudi Arabia

10

6

INDUSTRIES QATAR

16.3

Qatar

11

8

SAMBA FINANCIAL GROUP

14.6

Saudi Arabia

12

10

RIYAD BANK

11.0

Saudi Arabia

13

12

KUWAIT FINANCE HOUSE

10.7

Kuwait

14

22

ETIHAD ETISALAT CO

10.4

Saudi Arabia

15

18

SAUDI ARABIAN FERTILIZER CO

9.8

Saudi Arabia

16

14

DP WORLD LTD

9.1

United Arab Emirates

17

17

BANQUE SAUDI FRANSI

9.1

Saudi Arabia

18

13

SAUDI BRITISH BANK

8.7

Saudi Arabia

19

20

KINGDOM HOLDING CO

7.8

Saudi Arabia

20

21

NATIONAL BANK OF ABU DHABI

7.7

United Arab Emirates

50 gulfbusiness November 2010

COVER STORY TOP 100 COMPANIES

GULF BUSINESS TOP 100 COMPANIES IN THE GCC 2010 Ranking

2009 Ranking

21

26

Company SAUDI KAYAN PETROCHEMICAL CO

Market Cap ($ m) 7.2

Country Saudi Arabia

22

27

QATAR TELECOM (QTEL) Q.S.C

7.0

Qatar

23

19

ARAB NATIONAL BANK

6.9

Saudi Arabia

24

23

EMAAR PROPERTIES PJSC

6.6

United Arab Emirates

25

31

ALMARAI CO LTD

6.3

Saudi Arabia

26

32

YANBU NATIONAL PETROCHEMICAL

6.2

Saudi Arabia

27

24

FIRST GULF BANK

5.8

United Arab Emirates

28

38

SAUDI ARABIAN MINING CO

5.7

Saudi Arabia

29

16

RABIGH REFINING AND PETROCHEMICALS

5.7

Saudi Arabia

30

33

COMMERCIAL BANK OF QATAR

5.3

Qatar

31

30

QATAR ISLAMIC BANK

5.0

Qatar

32

46

GULF BANK

4.6

Kuwait

33

41

SAVOLA

4.6

Saudi Arabia

34

25

EMIRATES NBD PJSC

4.5

United Arab Emirates

35

55

NATIONAL INDUSTRIALIZATION CO

4.4

Saudi Arabia

36

29

ALINMA BANK

4.3

Saudi Arabia

37

50

AHLI UNITED BANK B.S.C

4.1

Bahrain

38

37

COMMERCIAL BANK OF KUWAIT

4.1

Kuwait

39

28

DUBAI FINANCIAL MARKET

4.0

United Arab Emirates

40

66

BOUBYAN BANK K.S.C

3.9

Kuwait

41

58

BARWA REAL ESTATE CO

3.5

Qatar

42

42

du

3.4

United Arab Emirates

43

53

WATANIYA

3.3

Kuwait

44

47

ABU DHABI COMMERCIAL BANK

3.3

United Arab Emirates

45

59

MASRAF AL RAYAN

3.3

Qatar

46

43

JABAL OMAR DEVELOPMENT CO

3.1

Saudi Arabia

47

51

QATAR ELECTRICITY & WATER CO

3.1

Qatar

48

70

AL AHLI BANK OF KUWAIT

3.1

Kuwait

49

61

BANK MUSCAT SAOG

3.0

Oman

50

39

ZAIN KSA

3.0

Saudi Arabia

51

40

QATAR GAS TRANSPORT(NAKILAT)

3.0

Qatar

52

56

DOHA BANK QSC

2.9

Qatar

53

48

SAUDI HOLLANDI BANK

2.9

Saudi Arabia

54

35

DAR AL ARKAN REAL ESTATE DEVEL

2.7

Saudi Arabia

55

68

SAUDI INVESTMENT BANK

2.6

Saudi Arabia

56

44

AAMAL CO

2.6

Qatar

57

49

ABU DHABI NATIONAL ENERGY CO

2.5

United Arab Emirates

58

-

QATAR NAVIGATION

2.5

Qatar

59

45

DUBAI ISLAMIC BANK

2.5

United Arab Emirates

60

62

SOUTHERN PROVINCE CEMENT CO

2.4

Saudi Arabia

52 gulfbusiness November 2010

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COVER STORY TOP 100 COMPANIES

GULF BUSINESS TOP 100 COMPANIES IN THE GCC 2010 Ranking

2009 Ranking

Company

Market Cap ($ m)

Country

61

98

BURGAN BANK

2.4

62

74

SAUDI NATIONAL PETROCHEMICAL

2.4

Saudi Arabia

63

54

OMAN TELECOMMUNICATIONS CO

2.3

Oman

64

57

SAUDI INDUSTRIAL INVESTMENT GROUP

2.3

Saudi Arabia

65

50

AHLI UNITED BANK (ALMUTAHED)

2.3

Kuwait

Kuwait

66

74

SAUDI INT. PETROCHEMICALS

2.3

Saudi Arabia

67

60

KUWAIT FOODS (AMERICANA)

2.3

Kuwait

68

65

UNION NATIONAL BANK

2.2

United Arab Emirates

69

63

BAHRAIN TELECOM CO

2.1

Bahrain

70

72

KUWAIT PROJECTS CO HOLDINGS

2.1

Kuwait

71

78

ABU DHABI ISLAMIC BANK

2.0

United Arab Emirates

72

34

AGILITY

2.0

Kuwait

73

67

VODAFONE QATAR

1.8

Qatar

74

85

UNITED ARAB BANK

1.8

United Arab Emirates

75

81

YAMAMAH SAUDI CEMENT CO. LTD

1.8

Saudi Arabia

76

77

SAUDI CEMENT

1.8

Saudi Arabia

77

-

SAHARA PETROCHEMICAL CO

1.8

Saudi Arabia

78

36

ALDAR PROPERTIES PJSC

1.8

United Arab Emirates

79

71

NATIONAL INDUSTRIES GRP HOLDING

1.8

Kuwait

80

79

QATAR INT. ISLAMIC BANK

1.8

Qatar

81

64

EMAAR ECONOMIC CITY

1.7

Saudi Arabia

82

99

QATAR FUEL CO

1.7

Qatar

83

96

QATAR INSURANCE CO

1.7

Qatar

84

91

JARIR MARKETING CO

1.7

Saudi Arabia

85

-

BANK DHOFAR SAOG

1.6

Oman

86

73

COMMERCIAL BANK OF DUBAI

1.6

United Arab Emirates

87

100

ARAB BANKING CORPORATION

1.6

Bahrain

NATIONAL INVESTMENTS CO

1.5

Kuwait

KUWAIT CEMENT CO

1.5

Kuwait

87

AL KHALIJI BANK

1.5

Qatar

91

95

GULF CABLE & ELECTRICAL IND

1.5

Kuwait

92

83

BANK ALBILAD

1.5

Saudi Arabia

93

69

DANA GAS

1.5

United Arab Emirates

94

-

MABANEE CO SAKC

1.4

Kuwait

95

82

QASSIM CEMENT

1.4

Saudi Arabia

88

76

89

-

90

96

-

NATIONAL BANK OF RAK

1.4

United Arab Emirates

97

92

NATIONAL SHIPPING CO

1.4

Saudi Arabia

98

-

MAKKAH CONSTRUCTION

1.3

Saudi Arabia

99

84

BANK AL-JAZIRA

1.3

Saudi Arabia

100

93

NATIONAL BANK OF BAHRAIN

1.3

Bahrain Source: BLOOMBERG PROFESSIONAL™

54 gulfbusiness November 2010

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COVER STORY TOP 100 COMPANIES

TOP TENS Large cap companies The list of large-cap stocks remains relatively unchanged from last year. SABIC remains the largest company in the GCC, with a market cap of $72 billion. Along with SABIC, Industries Qatar and Saudi Electricity are the only companies in the top 10 list that otherwise remains dominated by banks and telecoms.

At a country level, Saudi Arabia continues to dominate the list with five companies among the top 10 and 15 companies in the top 25 companies by market cap. In the top 25, UAE has four companies while Kuwait and Qatar have just three companies each.

The aggregate market cap of the top 10 companies has increased by 18.2 per cent YTD to $262 billion. The composition of the top 10 stocks has largely remained the same from last year, with the only exception being Industries Qatar, which replaced Riyad Bank. The major change at the top of the table was Emirates Telecom, which jumped from number four to number three, while Saudi Telecom dropped from number three last year to number five this year.

Largest companies by revenues The list of largest companies by revenues is dominated by chemical and telecom companies. The only bank to make it to the top 10 is Emirates NBD, which reported revenues of $4.7 billion in 2009. Sabic and Saudi Telecom are the largest revenue-makers, at $27.5 billion and $13.5 billion in 2009 respectively.

Largest companies by profitability In 2009, Saudi Telecom dethroned SABIC to become the largest profit-making listed company in the GCC. However, we think this was due to a steep decline in global petrochemical product demand and in 2010, SABIC’s net income is estimated to rebound (by 106 per cent) to $5.6 billion. On a sector level, banks dominate the top 10 list with six slots, with Al Rajhi Bank leading the pack with a 2009 net income of $1.8 billion.

Best-performing large cap stocks Among the large cap stocks (market cap above $5 billion), Commercial Bank of Qatar was the best performer so far this year, returning 58 per cent followed closely by National Bank of Kuwait and Zain at 55.7 per cent and 54.9 per cent respectively. The worst performers among the large cap stocks were Petro Rabigh (-31.7 per cent) and Arab National Bank (-7.9 per cent).

56 gulfbusiness November 2010

TOP 10 GCC COMPANIES BY MARKET CAP Company Mkt Cap ($ billion) Country Saudi Basic Industries Corp 72.6 Saudi Arabia Al Rajhi Bank 30.4 Saudi Arabia Etisalat 23.2 UAE ZAIN 21.0 Kuwait Saudi Telecom Co 20.5 Saudi Arabia National Bank of Kuwait 17.8 Kuwait Qatar National Bank 17.4 Qatar Saudi Electricity 16.7 Saudi Arabia Industries Qatar 16.3 Qatar Samba Financial Group 14.6 Saudi Arabia

Sector Chemicals Banks Telecoms Telecoms Telecoms Banks Banks Utilities Chemicals Banks

Source: BLOOMBERG PROFESSIONAL™

TOP 10 GCC COMPANIES BY REVENUES (2009) Company Revenues ($ billion) Country Saudi Basic Industries Corp 27.5 Saudi Arabia Saudi Telecom Co 13.5 Saudi Arabia Etisalat 8.4 UAE ZAIN 8.0 Kuwait Rabigh Refining Co 7.8 Saudi Arabia Qatar Telecom 6.6 Qatar Saudi Electricity 6.4 Saudi Arabia Agility 5.9 Kuwait Savola 4.8 Saudi Arabia Emirates NBD 4.7 UAE

Sector Chemicals Telecoms Telecoms Telecoms Chemicals Telecoms Utilities Warehousing Consumers Banks

Source: BLOOMBERG PROFESSIONAL™

TOP 10 GCC COMPANIES BY NET INCOME (2009) Company Net income ($ billion) Country Saudi Telecom Co 2.9 Saudi Arabia Saudi Basic Industries Corp 2.4 Saudi Arabia Etisalat 2.4 UAE Al Rajhi Bank 1.8 UAE Industries Qatar 1.3 Qatar Samba Financial Group 1.2 Saudi Arabia Qatar National Bank 1.2 Qatar National Bank of Kuwait 0.9 Kuwait Emirates NBD 0.9 UAE First Gulf Bank 0.9 UAE

Sector Telecoms Chemicals Telecoms Banks Chemicals Banks Banks Banks Banks Banks

Source: BLOOMBERG PROFESSIONAL™

TOP 10 GCC COMPANIES BY YTD SHARE PRICE PERFORMANCE (STOCKS ABOVE MARKET CAP OF $5 BILLION) Company YTD returns Country Sector Commercial Bank of Qatar 58.0 per cent Qatar Banks National Bank of Kuwait 55.7 per cent Kuwait Banks ZAIN 54.9 per cent Kuwait Telecoms Qatar National Bank 44.6 per cent Qatar Banks Saudi Electricity 41.3 per cent Saudi Arabia Telecoms MAADEN 34.7 per cent Saudi Arabia Mining Safco 33.5 per cent Saudi Arabia Fertilizers Mobily 31.3 per cent Saudi Arabia Telecoms DP World 30.0 per cent UAE Harbour transport Almarai 26.4 per cent Saudi Arabia Consumers Source: BLOOMBERG PROFESSIONAL™

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FEATURES LEADERSHIP

What kind of leaders do we need now?

HANDS-ON The recession prompted companies and CEOs to lose confidence and double guess strategy. “They’ve been gazing inwards and thinking ‘where did I go wrong?’ But now there are real signs of economic activity and there will be no double dip.”

What’s clear is that organisations need a different type of boss for what is, and what will continue to be, a very different business landscape.

In the UAE, in particular, there is a need for a fresh paradigm based on lessons learned.

In the boom times, the country was awash with jaunty hope; anything was possible, particularly if you instated a ‘rock star’ CEO – a smoothed-tongued, charismatic leader who could court the media and shareholders. “We were all guilty of irrational exuberance,”

58 gulfbusiness November 2010

Forget ‘rock star’ CEOs. As the recession subsides, it’s time for hands-on, honest leadership, writes ALICIA BULLER.

iStock

A

s the recession unfurls its grip, there has been a collective awakening across Gulf boardrooms.

For a region that has only known growth, the crisis was even more unprecedented than in the West; so shell-shocking, in fact, that it caused companies to seize up through fear – stifling innovation and investment.

This is the first mistake, according to Aroop Zutshi, global president of consultancy firm Frost & Sullivan.

“Growth is imperative for companies, but they were shutting themselves down through fear. Expectations need to be recalibrated; they were irrational about growth previously. But the number one objective for all companies should be growth, no matter what region they are in.”

adds Zutshi. “It was not just in the Gulf region – it started in the West with the banking crisis.”

Without a shield of fast, loose credit and unsustainable revenues, it’s time to choose hands-on, operational leaders, say the experts. Bosses who understand the business, its people, goals and customers. According to Adrian Furnham, professor of psychology at University College London and leadership columnist for the UK’s Daily Telegraph newspaper, the qualities that Middle Eastern firms need in leaders today are similar the world over.

“When you shake the tree [in a

recession] it gets Darwinian. In tough times you need a calm defiance. In global surveys, respondents always picked the same qualities they want in a leader: steady and calm under fire, defiant and vigilant, fit in body and mind, someone who understands the business and its people,” he said speaking at the 8ack ‘Negotiation and Leadership’ workshop in Dubai.

“The cost is high when leaders fail, which is actually around 50 per cent of the time. There’s two types of failed leaders,” adds Furnham. “Leaders are either incompetent, because they don’t have enough qualities, or they get

derailed because they have too much of one quality.”

Incompetent bosses are nothing new, of course. But the 50 per cent failure rate, which is the mean figure quoted from 12 large-scale global surveys over the last 20 years, is surprisingly high.

This figure became magnified in the recession as one thing became clear: CEOs had not anticipated the crisis.

The buck stops with the boss, it is his/ her responsibility to perform and meet their targets. They didn’t.

DERAILMENT ‘Derailment ‘ in leaders was also evident. One overrepresented quality that became a double-edged sword was ‘ambition’. The boom time environment was heady and intoxicating for the overly ambitious.

A case in point is Peter Barker-Homek, former CEO of Taqa (Abu Dhabi National Energy Company).

Homek – who arrived at the company in 2006 from a previous role as BP’s senior adviser for mergers and acquisitions – decided to reach for the stars and aimed to turn Taqa into a $60 billion international energy company by 2012. He overleveraged, the company lost millions and he was ousted. Homek has since filed a lawsuit against Taqa from Michigan in the US for mistreatment and damages.

What really happened is hard to say, but one thing is clear, ambition and overleveraging hurt Taqa in the medium-term.

OVER PROMOTION A major downfall of companies prerecession was the habit of promoting staff who weren’t necessarily equipped for management.

“There is the assumption that the good technical people make good managers,” says Furnham. “These staff are happy to be promoted but essentially they still only want to do what they are good at, this creates serious problems. Many of them do not get given management training.”

‘Bumping up’ staff may have seemed an easy way around the recruitment

Aroop Zutshi, global president consultancy firm Frost & Sullivan.

issue when talent was in short global supply but today it’s an employers’ market and there is no excuse for not taking the time to plan exactly what roles are needed and filling them in a sustainable way.

While over-promotion is a major issue, another factor to consider is overload. In the UAE, a talented young national will often simultaneously hold various roles and directorships at companies and boards.

A case in point is former Dubai finance minister Nasser Al Shaikh, who held a dizzyingly broad range of key posts in the emirate, including

Anil Khurana, director at business consultancy firm PRTM.

Anil Khurana, director at business consultancy firm PRTM. “There is a recognition that businesses are actually run by people and that there needs to be a mix of locals and international talent to ensure continuity. This is an issue globally, but it was magnified in the UAE because so much money was made in such a short time. I know of companies, which I won’t name, where they have got rid of the young directors and replaced them with leaders with 25 years experience.”

As well as choosing experienced, hands-on leaders for the long-term, there are specific leadership techniques

Respondents always picked the same qualities they want in a leader: steady, defiant, vigilant and fit in body and mind.

The Executive Council, The Supreme Fiscal Committee and a slew of private firms. How much is too much? Shaikh was ousted from the government in May 2009 following a radio interview in which he spoke about Dubai’s debt crisis.

ACTION PLAN “Leaders must shift their understanding to the nuts and bolts of a company, it’s less about the ‘personality’ approach. We need leaders that understand their business deeply, that know the company’s capabilities, know their customers and take a hands-on approach,” says

that can help companies to navigate out of the recession in the near-term.

The ability of a CEO to shore up momentum after inertia is a key skill.

“When times are uncertain, people immobilise themselves. Therefore, the kind of leaders Gulf companies need are those who convey a clear, consistent direction supported by ‘quick wins’ to restore confidence and momentum. Their hallmarks are clarity, decisiveness and an emphasis on rapid results,” says Philip Anderson, professor of entrepreneurship, INSEAD. The quick wins are not speedy in the ephemeral ‘quick buck’ sense, but gains that arise from core direction, November 2010 gulfbusiness

59

planning and knowing the business.

And while no-one would say the economic crisis has been a good thing by any measure, there are opportunities to be had in readying the company for comeback; being the first off the start-line when the recession clears.

“Be ready to make tough decisions and lead the pace of change,” says Ahmed Youssef, partner, Booz & Company. “Take advantage of the crisis to create the burning platform for the needed changes.”

NEW ERA One thing is certain: the role of the CEO is going to become more challenging, complex and dynamic as globalisation and technology advances continue apace. Being able to innovate and intuit, as

well as manage the nuances of different cultures will be crucial.

“The role of the CEO is changing a lot. Today’s CEOs tend to last four or five years, whereas bosses of the past used to last 10 years. There is so much pressure to deliver. Today’s environment is more dynamic; leaders need to be more innovative and agile.

In mature markets, leadership is focused on the core business, whereas in developing countries it’s more about diversification. The focus is on producing more home-grown talent and sustainability,” says Sarwant Singh, partner at Frost & Sullivan.

But some tenets of good leadership are immutable, says Furnham.

According to the professor, all good bosses must have the following: drive, ambition, dedication, ability and stress tolerance.

“You can’t make people hungry for success, they either have it or they don’t. They must be bright enough, they must be good with people and have drive, Leadership is very stressful as the buck stops with you,” he says.

The Gulf’s new leaders will certainly need brains, but they’ll also need courage, vision and cultural awareness as they venture out into a business world with evershifting dynamics and tarnished confidence.

But unlike in the West, the region’s fast-growing population, mass infrastructure development and oil-rich governments will continue to provide inflowing buffers. Crucially, that growth will have to be managed very differently this time around. ■

November 2010 gulfbusiness

61

FEATURES ENERGY

The race for power iStock

The pressure is on to find the right strategy for the Gulf’s first nuclear power plant in 2017. Incubating local talent will be the UAE’s biggest challenge, says PETER SHAW-SMITH

62 gulfbusiness November 2010

S

ituated 50 km south-west of Ruwais and just over halfway to the Saudi border, and only 30km south off the azure waters of the Persian Gulf, lies a barren stretch of uninhabited desert which ordinarily would remain one of the less remarkable features of the UAE’s muscular topography.

But this tract of land is set to transform the future of the UAE and that of the whole of the Middle East, with establishment of the GCC’s first nuclear power plant, to be built at the Braka site by 2017.

In announcing plans to build its first nuclear reactor, the UAE has set itself a stiff target. Building the plant on time and moving to the operations phase are both fraught with difficulty. As nuclear power generation enjoys a global renaissance, new plants are being built in greater numbers around the world entailing a shortage of manpower and skills.

Decommissioning of the last generation of nuclear power plants and retirement of the experts that ran them makes this problem even more acute.

UAE technical cooperation with the International Atomic Energy Agency (IAEA) began in 1977 when the government sought advice on the establishment of a nuclear energy administration, according to the US Congressional Research Service.

In 2005, a new project explored the “technical and economic feasibility” of a nuclear power and desalination plant (the reason the proposed site is close to the sea).

As have all GCC energy planners, the UAE has viewed with increasing unease the growth in demand for electricity, most of which comes from industrial and residential users in the emirate of Abu Dhabi, which accounts for 85 per cent of the nation’s land mass. As early as 2008, UAE gas industry officials were warning that

ENEC timeline Key Emirates Nuclear Energy Corporation milestones and objectives April

2008

Roadmap for UAE nuclear energy programme completed

May

2008

UAE nuclear energy programme announced

November

2008

Appointment of managing agent

April

2009

Prime contractor selection process underway

June

2009

Technology and Prime Contractor down-select

March

2010

Preparation for construction of Unit 1 underway

July

2010

Nuclear and “safety culture” training begins

March

2012

First safety related concrete poured for Unit 1

March

2014

Operations training underway

March

2015

Control Room Simulator completed

July

2016

First fuel delivery for Unit 1

June

2017

First electricity to grid

Source: ENEC

there would be insufficient supplies of gas feedstock to drive existing conventional power stations during peak periods.

According to the US’ Energy Information Administration, the UAE’s total installed power capacity stood at just over 15,700 megawatts in 2007.

Abu Dhabi Water and Electricity Company estimates demand in the emirate alone could more than triple from almost 8,000 MW in 2009 to 30,000 MW in 2030. As with all Gulf states, the UAE is burdened by capacity overhangs for eight months of the year, since seasonal air conditioning use ramps up demand for the hottest months.

In choosing to go nuclear, the UAE has made clear that sufficient hydrocarbons remain available for conventional power generation.

However, while the burning of liquids (crude oil or diesel) would be logistically viable, it has been decided that this would be “both costly and environmentally harmful,” according to official statements. In

the GCC, Saudi Arabia is believed to be exploring its nuclear options, while Qatar is waiting to learn the lessons of its GCC partners before taking the plunge itself.

The engineering, procurement and construction (EPC) contract to build and operate the plant is to be carried out on the “build, operate, transfer” model, which will allow the UAE to benefit from contractor expertise decades into the life of the plant’s operation. The primary contractor for the project, Korea Electric Power Corporation (KEPCO) was duly selected in December in a bidding process that saw the UAE utility, Emirates Nuclear Energy Corporation (ENEC) choose it ahead of two groups, the US General Electric teamed with Hitachi and France’s consortium of Areva, GDF Suez and Total.

But time is running and ENEC has now less than seven years to deliver the first 1,400 MW unit on schedule. Three more units, bringing total capacity to 5,600 MW are to be completed by 2020. Although KEPCO

Ordering four new reactors from a company that has never built a reactor in an international setting was a gutsy move that carries with it a great deal of risk.

November 2010 gulfbusiness

63

FEATURES ENERGY

64 gulfbusiness November 2010

The global nuclear equation

T

he mix of a country’s electricity generating components depends on availability of renewable and nonrenewable resources. It can include conventional nuclear, or renewables, including hydroelectric, geothermal, wind, solar, tide and wave and biomass and waste.

According to IAEA estimates, last year 13-14 per cent of global electricity demand was met by nuclear power. Plant decommissioning and maintenance shut-downs have led to a slight fall from peak global output in 2006, of just over 2,550 terawatt hours (TWh). In 2007, total global installed electricity capacity stood at just under 4,420 gigawatts (GW), according to the US’ Energy Information Agency.

Of the world’s 149 planned nuclear reactors, estimated to have a total capacity of just over 163 GW, China has 33, India 20, Russia 14, Japan 12,

the USA nine, while the UAE has four, according to World Nuclear News (WNN).

In 2009, four plants were closed but only two activated worldwide, WNN said. “One factor in nuclear power’s performance since 2007 has been the prolonged shutdown of reactors at Kashiwazaki Kariwa in Japan following the Niigata-Chuetsu-Oki earthquake.”

The largest nuclear power plant in the world, it accounts for two per cent of global nuclear capacity and was out of action for many months.

Nuclear energy’s application across the world is uneven. France’s generation network has the highest nuclear input at 78 per cent, the US stands at 20 per cent, the UK 19 per cent and China only two per cent. In 2008, Iceland was the world’s highest per capita consumer of electricity, and 100 per cent of the nation’s electricity is produced by geothermal energy and hydropower.

Gulfpics

has won the prime contract, ENEC says it will continue discussions with the other bidders on potential cooperation in areas outside its scope, such as long-term fuel supply, joint investments, training and education.

Key to success of the UAE programme will be a steady supply of qualified manpower, which requires not only top dollar but government resolve. “[The] government’s commitment is not only financial but [a] demonstration of political will by committing resources to ensure that the best skills in the world are procured to help build the UAE programme from scratch to operation is a very important... advantage for the UAE,” says the IAEA’s Bismark Tyobeka, a South African nuclear engineer.

With a contract value of $40 billion, ENEC’s nuclear power project sets major store by its 60 per cent Emiratisation target. According to John Wheeler, senior manager of Nuclear Workforce Planning at Entergy, a leading US nuclear energy company, a headcount of 650 is required to run a two-unit plant, meaning the UAE will require at least 1,300 qualified professionals by 2020.

But that’s to say nothing of actual plant construction. “[Constructing] a nuclear plant is far more complex than building a combined cycle gas plant. Ordering four new reactors from a company that has never built a reactor in an international setting was a gutsy move that carries with it a great deal of risk,” says Wheeler. “Headcounts have begun to rise because many plants are proactively feeding their talent ‘pipelines‘ to prepare for the pending departure of ageing workers, and to prepare for the potential of more competition for talent as new reactors are built in the USA and around the world.”

Selection of plant operationality close to peak summer temperatures is an unwitting admission of the pressure Abu Dhabi faces. A delivery date of June 2017 leaves little margin for error if delays occur. Peak demand

for electricity, mostly in the form of air conditioning, occurs from June-September, when monthly UAE temperatures hit 39-40 degrees centigrade; any delay in plant completion will cause problems if summer 2018 becomes the earliest date at which additional power is deliverable.

Given the putative programmes of fellow GCC members, Wheeler suggests a regional nuclear company to harness effective working and human resources practices. “[The UAE] will experience competition for top talent internally from the oil

and gas industry, and as their people gain experience some are likely to be attracted away by other new nuclear programmes in the region.” The international community, in the shape of the IAEA, and especially the US, have given their blessing to the UAE’s peaceful nuclear energy development programme, especially thanks to a commitment not to enrich uranium “onshore.” Huge challenges await the UAE government, its young engineers and its international partners. But there seems little doubt that one day in the not-too-distant future, Braka will be firmly established on the map. ■

FEATURES OMAN

Betting on Oman As the Sultanate reaps the rewards of prudence, RYAN HARRISON explores the gains for inward investors.

B

y all estimates it looks like prudence is paying off for Oman.

While other Gulf states let the boom years go to their heads, the sultanate held its economy on a tight leash, avoiding excesses in real estate and banking.

The government has carefully spent its way out of the recession and yet is on track to post a budget surplus of around $1billion this year thanks to higher-than-expected oil prices.

Its nationalization programme is arguably the most advanced in the region and strong domestic demand is being matched by huge investments in

66 gulfbusiness November 2010

education, power and water, ports and industrial projects.

Simon Williams, chief economist for HSBC Middle East, said on the whole Oman a positive economic story and one that savvy investors should keep a close eye on. “Oman weathered the 2008/9 period better than many of its peers in the Gulf, partly because it’s less integrated into the financial markets. But the government’s prudent economic management shouldn’t be overlooked as well.

“There are a few MENA economies where over the next three to five years it will be difficult to identify where growth will come from. Oman is not on that list. Its underlying drivers are domestic demand and its appeal as a services economy to the local region.

Williams said the country’s central bank has always been particularly hands-on when it comes to regulations, even though its banking sector is small and seemingly more manageable than other local economies.

“The wider appeal of Oman is the greater political stability and its encouraging economic trajectory, which seems ambitious but realistic,” he added.

The Central Bank of Oman (CBO) said recently it has no immediate plans to wind down the fiscal stimulus measures introduced in the wake of the global financial crisis in 2008.

According to Executive President Hamoud bin Sangour al Zadjali, continuing concerns over the pace

of the global recovery, as well as the sluggish recovery of Oman’s non-oil sector, do not warrant a lifting of the stimulus measures.

Oman largely overshot its expenditure plans in the past two years to help the economy through the global downturn. Spending has focused heavily on its infrastructure, building three new airports. It also plans to upgrade its main airports in Muscat and Salalah, its second largest city.

This investment also goes for shipping ports, such as Sohar, Salalah and Duqm, which has been in part to take advantage of its geographical location. Experts say building facilities in the Gulf of Oman means trade can avoid the potential dangers of the Straights of Hormuz.

In 2009, Oman spent about $16billion on local infrastructure and other projects, and this year the government has already signed contracts worth $11.5 billion out of the $18.7 billion spending budget, according to national economy ministry statistics. Massive inward investment has been possible as it largely side-stepped the huge debt of some of its neighbours, while oil prices have remained buoyant.

For instance, Oman based the 2010 budget on a $50 per barrel price but sold its oil at an average of $77.57 a barrel in the first half of the year.

Its budget surplus widened to $1.82 billion at the end of June alone.

It even plans to increase spending by 11 per cent in its 2011 budget to

push ahead with infrastructure and development projects, according to a recent report by Reuters.

Meanwhile, lawyers say Oman has been enticing foreign direct investment like never before thanks to a well-organised and predictable regulatory and legal regime.

Sean Angle, head of corporate for the Middle East at Reed Smith, said: “It is possible to get a 100 per cent foreign ownership, so for example, US companies can get a 100 per cent foreign ownership through the Free Trade Agreement that Oman and the USA have. It has a corporate tax regime but it is sensible, well drafted and favourable to foreigners.”

Angle said the only blot on Oman’s plans is the legal underpinnings of November 2010 gulfbusiness

67

FEATURES OMAN

Paul Sheridan, managing partner, SNR Denton & Co.

Simon Williams, chief economist, HSBC.

its tourism projects, a sector that’s been vital to efforts to diversify the economy away from hydrocarbons.

Estimates are that investments to expand facilities for tourism across Oman will amount to $20 billion over the next few years, according Business Monitor International.

The country wants to attract 12 million visitors annually by 2020, according to the head of the state airline Oman Air. Sultan Quaboos Bin Said, Oman’s ruler, has counted foreign visitors since assuming power in 1970.

He said travel and tourism are an essential part of his nation’s economic mix.

In September, it was reported that the number of UAE tourist arrivals at Muscat Airport grew 30 per cent from 23,000 in July 2008 to around 30,000 in 2010.

Angle said: “The tourism projects might not have gone ahead as well as had been expected a number of years ago. There might be a few issues in that respect in that the regime for obtaining freehold title has not yet been settled with the relevant ministries such as the Ministry of Housing.

“The Ministry of Tourism is trying hard to be more efficient in how they deal with the negotiation of the number of tourism development projects as there have been some concerns in the past about inefficiencies in that area,” he added.

Still, to the untrained eye, Omani tourism has a lot going for it: the country is renowned for its pristine beaches, mountains, wadis and deserts as well as its unique calendar of festivals which draw in thousands of regional and international visitors each year.

Concerns have been raised that in efforts to kick-start the economy in the post-financial crisis world, lending to the private sector has become overly exuberant, with some reports suggesting an increase of 50 per cent last year.

Questions have been asked as to the future performance of these loans, considering Dubai as a case study.

68 gulfbusiness November 2010

Stimulate and regulate

K

een to stimulate growth and get credit flowing, the Central Bank of Oman implemented a number of fiscal incentives in the wake of the global financial meltdown.

It reduced the reserve requirement for banks from eight per cent to five per cent. Further, the lending ratio ceiling was restored to 87.5 per cent from 85 per cent with effect from January 2009 to avoid any regulatory induced credit contraction.

Finally, with the intention of providing adequate dollar liquidity support to local banks following the global financial credit squeeze, the Omani government kept open a lending facility of up to $2 billion.

But Paul Sheridan, managing partner in the Muscat office of law firm SNR Denton & Co., strikes an upbeat assessment. “High loans to the private sector indicate a dynamic economy – especially in a world where many countries are attacking their banks for failing to support the private sector. I don’t see significant dangers to the banks who are tightly controlled by the Central bank of Oman.

“The economic outlook is good but mainly because Oman has been well managed – certainly conservatively, but not without some dynamism,” he added.

Oil will for now be Oman’s ace up the sleeve, and the sustained price of a barrel, which at the end of 2010 will average in the range of $70, has proved this theory beyond doubt.

The heightened prices will be enough to settle the Omani deficit and even to record a surplus.

The sultanate said in March it expected gross domestic product to jump 6.1 per cent in 2010, helped by a recovery in the oil prices. Crude oil production provides more than 70 per cent of Oman’s income, while crude exports accounted for more than 67 per cent of its overall exports on an average month.

Oman’s crude oil production rose by seven per cent in the first eight months of this year to 208.5 million barrels compared to 195 million barrels in the corresponding period in 2009, according to statistics released by the National Economy Ministry.

Continuing to increase this production to support its developments will be key to hitting its ambitious targets.

Outside oil and gas, Oman has worked hard to foster its other positives, such as its thriving population, which now stands at over three million, including an increasing mobilised national work force.

If the past is any guide to the future, investors considering Oman for part of their pool of cash can take comfort in knowing that it will be in safe hands. ■

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Domestic demand seen fueling Asia’s long-term growth Developing economies in Asia, led by China, may have shifted out of the fast lane for the moment. But Bill Sung, CEO of Singapore-based Absolute Asia Asset Management, believes that a slow and steady increase in domestic consumption can fuel strong growth in the Pac-Rim region for decades.

“Consumption has substantial room for growth in the region. The domestic economic environment in Asia is currently quite robust with low interest rates, increasing confidence levels, strong retail sales, and doubledigit GDP growth in many countries,” said Sung. In this environment, Absolute Asia continues to believe that consumption-related stocks across Asia, and particularly in China, are currently offering the best investment opportunity. Industries Sung is eyeing include autos, IT distributors, retailers, television manufacturers, and dairy product companies in China.

In its “No. 1 Document of 2010”, jointly issued by the State Council and the Central Committee, the Chinese government vowed to increase investment and create more jobs to fuel domestic consumption, particularly in rural areas. Rural areas currently account for only about one-third of China’s total retail sales, and rural residents have a much lower standard of living than urban residents, two factors which could contribute to increased demand for goods and services as worker incomes in these areas grow.

GROWTH OF PRIVATE CONSUMPTION IN ASIA EX JAPAN 41% 39%

Asia ex-Japan private consumption as % of US orivate consumption

35% 33% 31% 29% 27% 25% 23%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: CEIC Data, CLSA Asia-Pacific Markets, from “Global & Asia investment strategy” presentation dated March 2010

Domestic consumption is poised to overtake exports as the main growth driver in Asia, home to more than 3 billion people – more than half the world’s total population. Sung points to the region’s largest economy as an example.

“We are seeing many signs pointing to an ongoing structural shift in China today – away from an export-driven economy toward a domestic consumption-driven one,” said Sung. He suggests that if the Chinese people regain individual economic confidence and save less, it is very likely that the consumption share of the Chinese GDP could rise from its record low of 35.1% in 2008 to a more normal 50% threshold, providing a major growth driver for the Chinese economy in the next 10 years.

China’s expanding social welfare programs and rural development For over two decades, Sung has closely monitored and managed portfolios investing in China. He notes that fundamental modifications in government policy have increasingly encouraged domestic consumption and provided greater financial support for social welfare programs. For example, in early 2009, the Chinese government released plans to allocate 850 billion yuan (USD125 billion) by 2011 to establish a universal healthcare system to provide medical insurance for more than 90% of the population.

“Government spending in these areas has the potential to significantly stimulate private consumption by relieving households of the need to save to finance retirement or to self-insure against a medical emergency,” said Sung.

GB-Natixis.indd 1

Asia continues to be key growth driver Looking at the final quarter of 2010 and into 2011, Absolute Asia expects to see ongoing market volatility, but believes Asian markets should do well on the back of sustained solid economic performance with double-digit GDP growth in several countries, decent earnings prospects, reasonable valuations, and likely currency appreciation.

“While Asian central banks are nudging up interest rates in response to increasingly apparent inflationary pressures throughout Asia, we believe economic momentum is generally strong enough in most economies to withstand a measured normalization of rates and we believe that Asian economic growth will continue to significantly outpace that of Japan, Europe, and the U.S.,” said Sung.

This communication is provided in and from the DIFC financial district by Natixis Global Associates Middle East, a branch of Natixis Global Associates UK Limited, which is regulated by the DFSA. Related financial products or services are only available to persons who have sufficient financial experience and understanding to participate in financial markets within the DIFC, and qualify as Professional Clients as defined by the DFSA. Registered office: PO Box 118257, 5th Floor, Building 8, Gate Village, DIFC, Dubai, United Arab Emirates.

Natixis Global Associates Middle East is a business development unit of Natixis Global Associates, the global distribution organization of Natixis Global Asset Management, the holding company of a diverse line-up of specialized investment management and distribution entities worldwide, including the investment manager referenced herein. Absolute Asia Asset Management Limited, a subsidiary of Natixis Global Asset Management, is authorized by the Monetary Authority of Singapore (Company registration No.199801044D) and holds a Capital Markets Services License to provide investment management services in Singapore. The company conducts all investment management services in and from Singapore.

This communication is for information only and does not constitute an offer of financial services, nor a recommendation or offer to purchase or sell shares in any financial instrument. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing.

The analyses and opinions referenced herein represent the subjective views of the portfolio manager as referenced.

10/27/10 2:43:24 PM

Arab angst

getty images

FEATURES KSA

Switch bowling centre, pool hall.

As Saudi’s young and jobless population grows, RYAN HARRISON looks at how the country can mould its youth into a powerful asset rather than a liability.

O

n the face of it, the outlook is good for Saudi Arabia.

The kingdom has oil wealth unsurpassed by its Gulf counterparts, with reserves of 267 billion barrels of crude in place. This compares to 5.5 billion in Oman and 104 billion in Kuwait, according to the US Energy Information Administration.

It’s the region’s largest economy precisely because of its petro-dollar credentials. But Saudi’s importance in the energy market, and its decades of

70 gulfbusiness November 2010

increasing production and income, mask an uncertain future in its non-oil sector.

Specifically, it is the crisis of chronic unemployment among its booming youth population. Instead of snatching up the mantle of diversification into the private sector, Saudi’s youth have become a societal burden, as more and more jobless lean on the welfare state to survive.

Experts say the bloated public sector is unproductive and cannot keep providing the young, educated natives with administrative jobs. Plus, many Saudi university students continue to pursue degrees in fields such as social studies, religious studies, history, and

literature, despite the labour market being saturated with social-science and humanities-types. The bottom line is there’s a glut of educated Saudis on the market but the government needs to create a workforce better suited to the needs of the private sector.

But the short-comings have not come through lack of investment in education. Earlier this year, Saudi passed the latest five-year development plan. It pumped about $200 billion into expanding access to schools and universities, and for substantially increasing vocational training by 2014.

Previously, about a quarter of each yearly budget went towards

education and vocational training; this year’s allocations, amounting to $36.5 billion, represent a 12.4 per cent increase over those of 2009.

“The government has risen to the challenge and kept a lot for a rainy day,” said Oliver Cornock, regional editor for Oxford Business Group.

“But the educational system is still not producing enough people for the private sector, something that’s compounded by massive imported labour.

“The government needs to use its considerable reserves and start creating more partnerships with foreign institutions, especially at the university level. There needs to be more emphasis on job creation in technical sectors, R&D and genetics, which are all quite academic and inline with the type of degrees graduates have.”

Officially, unemployment stands at 11 per cent in Saudi, although some unofficial estimates peg it as high as 35 per cent among men in their early 20s. Matters will be compounded as the 40 per cent of the population that is currently under 15, along with more women, enter the labour force.

The most worrying element of this job crunch is the societal costs in the coming decades, said Metin Mitchell, managing director for Middle East & North Africa at headhunter Korn Ferry.

Oliver Cornock, regional editor, Oxford Business Group.

Ghanem Nuseibeh, founder, Cornerstone Global Associates.

He said the burden to Saudi of having this level of youth unemployment is incalculable. “Any society, not just Saudi’s, when faced with high youth unemployment is faced with the dangers of extremism, organised crime, destruction of the family unit and a socially divisive creation of a caste of haves and have-nots.

“The country is faced with a double whammy – the direct cost of subsidising non contributing members of society on the one hand; and on the other the loss of national income that goes in workers’ remittance to their countries of origin – the workers who

do the jobs that young Saudis refuse to do or which culturally might be difficult for them to do, for example the million or so jobs for drivers,” added Mitchell.

Recent media reports even linked the joblessness to a growing hostility to expats, after a HSBC bank survey found white-collar foreigners working in Saudi were among the world’s wealthiest, with disposable incomes allowing them to buy luxuries such as yachts.

As the number of unemployed Saudis increased to 449,000 in 2009 from 416,000 a year earlier, an eight per cent jump, there were 1.54 million work visas for foreigners issued to the private sector last year, almost double the number granted in 2004, according to a report by Banque Saudi Fransi.

Indeed, security officials admit that young Saudis without jobs are easy prey to militant groups. From 2003 to 2006 alQaeda tried to destabilise the kingdom with a series of bloody attacks.

Ghanem Nuseibeh, founder at Cornerstone Global Associates and senior analyst with Political Capital, said: “Foreign private company visas should come with strings attached when they’re issued, such as quotas or training for Saudi nationals. But problems come like in the UAE where locals are on the books but may not be up to standard.

“If this visa issue is not part of a much wider government push to get

WANTED: URGENT EDUCATION REFORM

P

ressure is building on the Saudi government to continue driving a massive overhaul of its primary and secondary school education.

Beginning with: Better quality teachers – with career progression and salary progression based on performance not on seniority.

A curriculum that strongly includes and promotes enquiry-based learning, maths, algebra, technology, science, foreign languages and Islam as a force for integrity-based and socially conscious private enterprise.

Private sector partnership – bringing

private businesses into the class room as role models, educators and influencers of curriculum.

Widespread introduction of highly competitive and demanding team sports in order to promote a culture of winning, physical struggle, teamwork, correlation of effort and results, playing within agreed rules and a healthier lifestyle with a view to reducing both obesity and diabetes Open up private schools to the poorest by reserving 25 per cent of private school places for scholarship students from the poorest families in Saudi Arabia Source: Korn Ferry

November 2010 gulfbusiness

71

FEATURES KSA

young Saudis into jobs, then it’s the type of thing that can be abused.�

The country’s private sector is largely powered by the foreign workers who make up about a third of its 28 million residents. The government has imposed minimum quotas of Saudi employees on various companies and ruled that certain businesses, like gold shops, travel firms and car dealerships, be staffed by Saudis.

Nuseibeh said problems also exist in the Saudi welfare system, which is unevenly distributed. “There are a lot of Saudis who feel that they don’t receive as much welfare support as they ought to. Yet on the other hand, it’s really difficult to say accurately who’s receiving what given that it’s often broken down by tribe, area, province and so on.� So what type of job creation is needed to turn the youth sector into an asset rather than a liability?

Nuseibeh said there’s appetite for

blue and white collar jobs across the board, but specifically, the financial system has an opportunity to build a world-class Islamic banking centre in Saudi, which would spur job creation.

Meanwhile, Rabea Ataya, the CEO of Bayt.com, said more needs to be done to get young Saudis starting their own companies. “The top recruiting industries at the moment are oil and gas, chemicals and banking. Next would come IT. Interestingly though, 71 per cent of Saudis would like to set up their own business. So they have the appetite to go into business themselves, but historically have never been trained in it. “In most countries the vast majority of jobs are created in small to medium sized businesses. This entrepreneurial spirit needs to be fostered in Saudi.�

Ataya said in the last 20 years in the US there would have been a decline in job availability if it wasn’t for companies that were less than five

years old. “In a place like Saudi, the entrepreneurial drive is needed to diversify the economy and offset 20 years of dependence on oil wealth.�

The kingdom’s new 2010-2014 economic development plan is designed to cut unemployment to 5.5 per cent, but commentators agree that this figure will struggle to make it out of the double digits.

There is still a general view that companies in the private sector tend to see the Saudi population as being short of skills despite the huge strides in investment in education.

Government action in the last 10 years has served to avoid a potentially catastrophic situation brewing at the beginning of the decade. But it knows it has a lot to do and that turning around the tanker will take time. Many say it’s not more money Saudi needs, just money better spent. â–

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November 2010 gulfbusiness 10/24/10 3:01:58â&#x20AC;­ 73 â&#x20AC;ŹPM

FEATURES TELECOMS SPECIAL REPORT

Calling for growth Gulf telcos are seeking quick-fix mergers to expand. KAREN REMOLISTANA asks regional bosses if growth is sustainable long-term.

G

CC telecoms operators are in a bind. On the one hand, their home markets revenues are shrinking, meanwhile, impatient shareholders are demanding double-digit growth. The factors vary from company to company, but subdued expansion results from high-penetration levels for the voice segment, heightened competition and lower average revenue per user (ARPU) than ever before.

After years of aggressive growth, profitability of GCC telecom companies dropped marginally last year.

According to data compiled by Global Investment House, the aggregate net income of GCC telecom companies was $7.64 billion, 1.86 per cent down from $7.79 billion a year earlier.

In comparison to Western counterparts, the region is still performing well, says Wasim Khan, Mena telecom leader at Ernst & Young. â&#x20AC;&#x153;If you look at global benchmarks, growth comes from cost management but in the Middle East, all operators are still enjoying good growth in terms of top line.â&#x20AC;?

But soon, the top line will begin to dry up. Mohamad Mourad, principal at Booz & Company says GCC mobile

Zain head office, Kuwait City.

Reuters

November 2010 gulfbusiness

75

FEATURES TELECOMS SPECIAL REPORT

Mohammad Omran, chairman, Etisalat.

Peter Kaliaropoulos, group CEO, Batelco.

Bashar Awadeh, group chief financial officer, Zain.

penetration reached an average of 178 per cent in Q2 2010, the highest among all regions globally.

“Operators are facing increasing pressure to continue with their inorganic growth through globalisation. But at this stage, there are limited new licences being issued around the world, hence the drive towards consolidation,” Mourad says.

Peter Kaliaropoulos, group CEO of Bahrain Telecommunications Company (Batelco), admits that the years of double-digit growth are over and any growth prospects will no longer be organic.

The company, with operations in Bahrain, Jordan, Kuwait, Yemen,

Saudi Arabia and India, is losing market share in its home market. It reported a decline of 20 per cent in its net profits in the first half and forecast its full-year net profit to be lower than BHD100 million, due to increased competition.

“Shareholders want to see sustainable growth. They say, ‘Show me the bottom line, show me the dividends’ and if operators fail to deliver, investors will park their cash somewhere else,” Kaliaropoulos

emphatically pointed out during the Telecoms World conference in Dubai.

“We’ll be happy to get a single-digit top line so we have to work twice as hard and three times as clever as before,” notes Kaliaropoulos. “We are now under tremendous pressure. To grow three to five per cent organically is a good year, so operators have to make bold moves and acquire as many operators as they can.”

There will be a new wave of mergers and acquisitions in the telecoms sector, particularly in “areas related to the provision of advanced services for consumers and developing vertical expertise in information and communication technologies for enterprises”, Etisalat’s chairman Mohammad Omran says.

“The telecoms industry was last and least affected by the economic crash of 2008,” he says. “Although global GDP and IT spending saw a dip in 2008-09, telecom company revenues continued to grow. This is because telecom services have joined the bundle of critical services and have some resistance to recessionary pressures.”

But even if the sector is cash-rich, expansion is proving to be difficult.

Batelco earlier this year earmarked $2 billion for acquisition on top of its assets in Bahrain, Jordan, Kuwait, Yemen, Saudi Arabia and India, but remains empty-handed. It had earlier lost its bid for the third Saudi mobile license in 2008 to Zain Saudi Arabia, which had paid $6 billion and in July, Batelco’s acquisition of an additional

Despite the drop in GDP and IT spending, the telecoms industry was last and least affected by the economic crash in 2008.

Total country connectivity measure results for 2009 Per cent

UAE Saudi Arabia Qatar Bahrain Libya Kuwait Oman Algeria Lebanon Morocco Jordan Tunisia Syria Egypt Palestine Iraq Yemen Sudan Source: Capital IQ

352 286 254 250 246 201 189 161 155 149 148 145 142 140 109 100 66 51.2 50

100

76 gulfbusiness November 2010

150

200

250

300

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FEATURES TELECOMS SPECIAL REPORT

6.3 per cent stake in S Tel Limited from India-based Siva Group was cancelled.

It also lost in acquiring a stake in Morocco’s second largest telecom firm, Meditel.

Despite a slew of unsuccessful bids, Kaliaropoulos is patient and optimistic that they will wager a fair deal within the next 12 months. “Batelco is not valuing companies in huge multiples just because they are strategic,” he says.

Shareholders want to see growth and if operators fail to deliver, investors will park their cash somewhere else.

But even a skyrocket offer can also be justified. For example, Etisalat’s bid of 1.7 dinars a share or $11.7 billion offer for a 46 per cent piece of Zain Saudi is justifiable because of Zain’s “well-established presence,” Shrouk Diab, analyst at UAE-based investment bank Rasmala, says. The proposed value translates into 2010 and 2011 EV/EBITDA multiples of 16.7x and 11.6x, respectively, based on Zawya’s

Gulf operators must open up

D

espite heightened competition, the is normal that in areas like the UAE, prices cost of broadband and mobile/fixed are initially high but we expect it to go down phone calls in the Middle East remains after a certain point.” High tariffs are also a one of the highest in the world. result of a lack of competition.

According to a study conducted “Because there are only two major by independent consulting firm operators in the UAE and they have a large Teligen, average mobile tariffs in migrant populace, they want to milk their Arab countries are almost double cows as much as possible,” says Mike the OECD states. And although broadband prices have reduced by up to 50 per cent over the last two years, prices are still three times greater than the European average.

Generally, prices in Arab countries have gone down, mostly with broadband services.

But since prices have gone down in other parts of the world, the gap between prices in Arab countries and European countries remains.

Olivier Campenon Mike Singh Speeds below 256 kilobyte per second are still common in most Singh, chairman and CEO of Telkom Caribe.

Arab countries.

“I am a strong believer that the market Yet speeds in this range are hardly will force them to open up. And once the offered in Europe any more. market opens up, all the inefficiencies will “I am as frustrated as you are that be addressed.” it doesn’t get cheaper. Clearly, there “Competition is essential for the is a problem in pricing but the trend is end-user in terms of price and quality,” positive,” says Olivier Campenon, BT Campenon concurs. “But we need to Global Services president for Europe, remember that it takes a long time in Middle East, Africa and France. He Europe to get what we are experiencing adds that the telecom business involves today. I am absolutely convinced it will massive infrastructure investment, which happen in the Middle East.” translates to high operating cost in the Customers, meanwhile, have no first few years. other alternatives. Earlier this year, the “Overtime, the equipment is being UAE legalised international voice over depreciated and then lower prices can internet protocol (VoIP) services for local be offered,” Campenon explains. “So it operators, but Skype remains banned.

78 gulfbusiness November 2010

Only the four local operators – etisalat and du, and satellite service providers Yahsat and Thuraya – will be allowed to offer such services.

“Strictly speaking, my understanding is the regulation does not allow Skype in Oman and in the whole GCC, but the trend is to open up,” says Dr Amer Awadh Salim Al Rawas, Omantel CEO. But if governments are planning to offer this service too, they should do it quickly, says Singh. “They may run the risk of being left behind,” he says. “It may be that the real market value of the assets would have diminished by the time they made up their minds.”

He insists that as GCC players expand to other geographies, they should also be quick to adopt international trends.

“They have invested in overseas markets but they don’t want competition. That is hypocrisy,” he argues.

“What’s good for the goose must be good for the gander. You’ve got to have a level playing field. They have to revisit their outmoded and outdated legislation and remove the perceived threat that VoIP is going to cannibalise them.”

“I think the GCC is already quite competitive,” Al Rawas says, when asked if the region is being unfair.

“But the phase of competition really depends entirely on the size of the market.

In the region, we’ve reached a level in competition that is satisfactory and that is why regulators are not opening up further.”

FEATURES TELECOMS SPECIAL REPORT

Mohamad Mourad, principal, Booz & Company.

Wasim Khan, MENA telecoms leader, Ernst & Young.

Karim Khoja, CEO, Afghanistan’s Roshan Telecom.

EBITDA estimates, higher than the average of 9x EV/EBITDA for the most recently announced telecoms merger and acquisitions (M&As) transactions, completed or pending.

Despite the high price, Etisalat – which operates in 18 countries throughout the Middle East, Africa and Asia – will not face difficulties in financing this offer. It stands on a net cash position of about $2 billion at the end of June 2010.

If its proposed deal to acquire Zain is successful, Etisalat will be able to gain access to strategic markets in the MENA region, including Iraq, in addition to Kuwait, Bahrain, Morocco and Jordan. This could open up a potential consolidation opportunity in Sudan, where Etisalat already has a fixed-line operation.

Diab said Etisalat’s strong cash balance and potentially strong ability to raise debt should enable it to comfortably finance M&A deals through a combination of both equity and debt – a mode of fundraising which Batelco plans to emulate.

Batelco is looking at raising debt and is being advised by JPMorgan Chase & Co on getting a credit rating by the end of this year. “Believe it or not for a company without debt, the easiest thing to do is to arrange the debt. The toughest thing to do is to find an acquisition target at the right value,” says Kaliaropoulos.

Overall, funding is not a hindrance

for GCC operators as they start to explore new sources beyond the traditional bank debt, Mourad adds.

“Operators may consider revising their dividend strategies in order to release funds for investment or they could tap into the equity or debt markets,” he says. “It is clear that M&A is back after a temporary slowdown during the recent downturn. But now it is back in a new form. We expect to see a smaller number deals compared to the wave of M&A prior to 2008, but

we expect these deals on average to be much larger in value starting in 2010 and 2011.”

However, the M&A trend does not apply to all. Oman Telecommunications Co (Omantel), for one, has chosen to remain concentrated in its domestic market.

“We came into the game late so there were fewer opportunities,” says Dr Amer Awadh Salim Al Rawas, Omantel CEO. “We looked at the options available at the time and there were really very limited offers.

We are still open-minded about the issue, however, we are not aggressively pursuing any new markets.” Omantel lost

At this stage, there are limited number of new licences being issued around the world, hence the drive towards consolidation.

80 gulfbusiness November 2010

Connectivity related to GDP per capita

T

he UAE is the most connected country in the Arab world according to the Arab Advisors Group’s annual Total Country Connectivity Measure (TCCM).

Saudi Arabia and Qatar follow second and third positions respectively. The group calculates its TCCM by adding the household mainlines penetration, cellular penetration, and internet users penetration rates in each country.

The household mainlines penetration is measured by dividing the residential mainlines by the number of households in each country. The TCCM shows the extent of connectivity of individuals in a certain country whether via fixed lines, cellular lines and/or the Internet.

There is an expected overlap since many individuals will be using these three

communications services at the same time. However, the measure still yields an accurate and informative picture on the level of ICT services adoption in each country, the group claims.

“By looking at the TCCM scores, it is noticeable that high scores are correlated with high-income levels,” says Samer Abbas, senior research analyst at the Arab Advisors Group.

“GCC countries dominate the TCCM, as income levels and GDP per capita in these countries is significantly higher than the rest of the Arab countries.

Moreover, countries with competitive markets have seen their scores improve rapidly as competition drove down rates and enhanced awareness amongst consumers.”

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FEATURES TELECOMS SPECIAL REPORT

its fixed-line monopoly to Nawras this year but is still enjoying customer growth. In the first quarter of this year, it took a higher share of new subscriber additions. It accounted for 66.6 per cent of new subscriber additions while Nawras accounted for the rest.

“The market estimate for growth is 12 to 15 per cent,” says Al Rawas. “We have 2.2 million mobile subscribers, and this this will increase, despite the fact that we are 148 per cent penetrated.” Omantel’s decision not to join the M&A bandwagon means it cannot grow as fast as its peers but it also means it is spared from the teething pains of consolidation.

According to Harvard professor Michael Porter, between 50 per cent and 60 per cent of acquisitions are failures. In 1995, Mercer Management Consulting noted that between 1984 and 1994, 60 per cent of the firms in the “Business Week 500” that had made a major acquisition were less profitable than their industry. In 2004, McKinsey calculated that only 23 per cent of acquisitions achieved a positive return on

Dr Amer Awadh Salim Al Rawas, CEO, Omantel.

investment. “Most M&As fail not because of financial fundamentals, but because of non-fitting culture,” says Bashar Awadeh, group chief financial officer of Zain. “In the Middle East there are different cultures so how many differences

will you see in other regions?

At one point, we were in 23 geographies and gluing the soft side, or the human side, is the most difficult part.”

Operators agree that at the end of the day, what matters most is that customers are served well. Karim Khoja, CEO of Afghanistan’s Roshan Telecom says success is dependent on satisfying customer needs. “We have to identify our customers. In Afghanistan, there is, an estimated $10 billion drug money market but obviously we do not consider them enterprise customers,” he says.

Despite an environment where threats of Taliban attacks abound, where life expectancy is 44 years, and where having no electricity is the norm, Khoja says the company continues to see 10 per cent growth.

For Khoja, there are other ways to grow the business aside from M&As. “I can launch a BlackBerry service but only 12 can use it,” he explains. “So what we did was we created a service where farmers can call in and enquire about the price of crops.

And it became a hit.” ■

We came into the game late.

We are still open-minded but are not aggressively pursuing any new markets for the moment.

Top 10 telecoms companies in the GCC Company name

Location

Capitalisation $million

Total revenue $million

Gross profit [LTM*] $million

Emirates Telecommunications Corporation (Etisalat)

United Arab Emirates

23,139.4

8,476.1

4,038.2

Saudi Telecom Company (STC)

Saudi Arabia

20,531.4

13,617.9

7,217.7

Kuwait

18,307.4

8,159.0

5,882.1

Saudi Arabia

10,312.4

3,893.4

2,130.4

Qatar

6,994.7

7,032.4

6,635.1

United Arab Emirates

3,335.5

1,673.4

985.6

Kuwait

3,329.0

1,740.7

1,039.5

Mobile Telecommunications Company

Saudi Arabia

3,061.1

1,137.3

424.2

Oman Telecommunications Company (Omantel)

Oman

2,360.0

1,123.3

639.7

Bahrain

2,081.7

921.0

568.6

Mobile Telecommunications Company Etihad Etisalat Company Qatar Telecom (Q-TEL) Emirates Integrated Telecommunications (Du) National Mobile Telecommunications (NMTC)

Bahrain Telecommunications Company (Batelco) *Last 12 months; reportedly

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Source: Capital IQ

PROFILE RETAIL

Hold the mayo Freshii, an ultra-healthy deli that’s taking the world by storm, has landed in Dubai.

RYAN HARRISON reports.

Photo: Farooq Salik

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anadian entrepreneur Jennifer Ridgway wants you to put down the hamburger and step away from the fries. Drop the chicken wings and exit the restaurant quietly. The ex-private equity fund manager and MBA graduate is attempting to instigate something of a healthy eating revolution in the UAE. Her plan is to do it one salad at a time.

With her husband, Michael Boocher, a retail sector specialist, Ridgway is to launch Freshii Dubai, a franchise of the brand dubbed the Starbucks of fresh food.

Freshii has a rock solid North American presence as a restaurant chain that serves on-the-go customised salads, wraps, burritos, yogurts, soups and rice bowls. The company’s tag line is “Fresh food. Custom-built. Fast.”

But Ridgway and Boocher think Dubai – where fried food and obesity reigns – has the appetite for a detox.

It’s a hard sell, they admit.

“It was a concern for us and we thought carefully about it,” says Ridgway. “The world we come from has experienced a health and fitness craze in recent years. Dubai and the UAE are slightly different.

“But recently there has been a huge government push on diabetes and health disorders, particularly in

children.” Earlier this year, the UAE government rolled out a national nutrition strategy to help fight its obesity epidemic, saying it may force fast food companies to inform people of exactly what’s in their products.

Unhealthy eating habits and a general lack of exercise has given the

UAE the unwanted accolade of being the country with the second-highest incidence of diabetes in the world.

One in five residents over 20 suffers from the debilitating disease.

The husband and wife team, who have lived in the UAE for two years, found the ‘Dubai stone’ adage to November 2010 gulfbusiness

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PROFILE RETAIL

be true, as they themselves were swiftly sucked into a sedentary and unhealthy lifestyle.

“There was simply a lack of good, wholesome, healthy options to kick us out of this rut,” says Ridgway.

So, last summer the couple started talks with the Freshii people.

After striking a deal, they paid an upfront franchise fee to Freshii and contribute a percentage of their gross sales from outlets in the region.

Their flagship store recently opened in the Dubai International Financial Centre, in what will be the first of five in the emirate.But why pick such a seemingly tough market like Dubai?

Boocher says: “This is our home now so we wouldn’t have thought to do it anywhere else. The place is a growth economy and accustomed to rapid change. Therefore, bringing in a new idea doesn’t seem that hard compared to more mature economies that are more set in their ways.”

Freshii also recently launched in Vienna, its first European outlet. Since the store’s opening in Toronto in 2005

going to be Qatar and Oman as the healthy next step for us.

“Saudi would be a very big step for us as we don’t have the experience in that market, although I have no doubt that the concept would work.”

The couple is targeting Freshii’s well-trodden catchment areas: places in a city that have repetitive foot traffic. Given that as much as 80 per cent of Freshii’s customers are return customers, it makes sense.

There’s only one problem. Dubai is not exactly pedestrian-friendly.

“Finding places where people regularly walk in Dubai was definitely a critical factor,” says Ridgway.

“Although we’re better off than five years ago when people just snapped up real estate just to get a foot in the door.

We can be more selective now.

“It’s likely to be JBR, Media City and large office complexes. To begin with, DIFC employees have a higher pay scale generally compared to the average UAE resident, but more importantly they have access to a more international community and

There are not that many independent, internationally exposed Canadian brands.

So it seems only the strong will survive. it has rapidly expanded across North America and now has 60 locations open or under development in 18 countries.

There are 21 Freshii locations in Canada and the US. Nine of these, including several in Toronto and one in Chicago, are corporate-owned. The rest, such as locations in Denver and Washington, are franchises.

About one new Freshii restaurant opens each week. By the end of 2010, 60 Freshii restaurants will be open around the world from Los Angeles to Vienna. By the end of the year, the company is expected to bring in $50 million in sales.

Boocher adds: “For us, we’re now looking at five stores in Dubai, and if they prove successful then we will open to other emirates, starting with Abu Dhabi. Outside that, it’s likely

are therefore exposed to different and often healthier lifestyles.”

Eventually it is hoped that about 20 per cent of the Dubai business will come from large office orders.

Boocher is a self-proclaimed serial entrepreneur who to-date has launched three retail businesses in Dubai, most recently an arcade style lounge and snack shop for residents of a new housing development.

The cash generated from these ventures was put towards securing the Freshii franchise last year.

Boocher says part of the Freshii ethos is sustainably grown ingredients and an environmentally aware atmosphere.

Again, in an import-reliant economy such as Dubai’s it must have been

difficult to keep that promise. “It was a difficult challenge and we were worried that we’d have a hard time having products available to us. But we have negotiated deals with three or four suppliers in the region, Delmonte being the primary one.”

So what kind of prices can customers expect?

“We’re priced above the sandwich restaurant Subway, but it’s a completely different proposition.

You also get a lot more quantity; to eat through a Freshii salad is a real challenge,” says Ridgway.

What Ridgway is attempting in Dubai is something that would be balked back in her native Canada.

Taking such a risk on a volatile market is just not Canadian.

Typically, the national psyche has leant towards the fiscally conservative, with little appetite for daring exploits in foreign markets. For instance, unlike in the UK or US, Canadian banks didn’t dabble in the complex financial instruments and mortgage securities that brought down the world economy.

Indeed, in the past, rarely has the Canadian economy featured in discussions between global leaders.

As a national stereotype, Canadians have lived a friendly but benign and inert existence.

So the fact that Ridgway is taking a punt on a hot-blooded market like Dubai might be considered out of step with her inner-Canadian.

She agrees, with a chuckle, but adds: “Canada is a huge country with a small population. Most of the cities with large populations border the US, so if brands can make it there then they have the confidence to make it anywhere, especially Dubai.

“There are not that many independent, internationally exposed Canadian brands. So it seems only the strong will survive. We’re confident Freshii is one of these.”

The brand and concept for Freshii, it seems, is as strong as it is healthy.

What may trouble Boocher and Ridgway is the strength of the UAE’s resolve for fast food. ■ November 2010 gulfbusiness

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The office fit-out sector is set for major growth across the GCC in the next decade.

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How to ensure your office environment gets the most out of your employees.

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Furnishing demand Research suggests that the GCC is leading the way in terms of new commercial office projects. MARK ATKINSON investigates what is in the pipeline and finds out what this means for the fit-out market.

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here seems to be no exaggeration in the numerous reports of how much new commercial supply is coming onto the market. Research conducted

by Ventures Middle East suggests that GCC commercial projects between 2009 and 2010 are valued at $34 billion, with projected interior design spend at $4 billion. In the UAE alone, projects worth $22 billion are expected to generate an estimated fit-out spend of $2.7 billion.

By 2012, estimates suggest that 46.4 million square feet of commercial space will be completed across the GCC. By 2012, estimates suggest that around 46.4 million square feet of commercial space will be completed across the GCC. The value is immense. Pipeline projects in the longer-term are reported to be $761 billion – many of which are scheduled for completion before 2020.

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In Dubai, reports have been rife about empty offices and plummeting prices, which, as most real estate firms seem to agree on, is set to get worse before it gets better. “The amount of supply coming onto the market implies a vacancy rate of 55 per cent by 2012 – it is currently around 25 per cent,” says Charles Neil of Landmark Properties.

“Dubai and Abu Dhabi certainly will be the cheapest cities in the GCC in terms of commercial office space by the end

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of 2012.” Still, a Jones Lange LaSalle report suggests that Dubai has the world’s fastest growing ‘occupied’ office market per capita. If one considers the scale of building over the past few years, dwarfing that of just about every other city in the world, a current 25 per cent vacancy rate does not seem quite so dramatic. During the boom years, it was estimated that almost 30 per cent of the world’s cranes were busy building Dubai.

Photo courtesy of Knoll Inc.

Opportunity abounds Considering what is in the pipeline, prospects for the architecture and design industry have never looked better it seems. “Qatar’s real GDP has grown an average of 17.4 per cent over the last five years, making it one of the fastest growing economies in the world,” offers David Wilson, event director for the Office Exhibition, held annually at Dubai World

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Now is a good time to capitalise and set themselves up in key areas such as Sheikh Zayed Road, which they may previously have been priced out of.

Trade Centre. “Qatar’s massive public spending in 2010 includes the new airport and new city areas such as Lusali. This has given interior designers billions of dollars of contracts that have simply replaced the delayed work in Dubai.

“Saudi is also presenting the architecture and design market with

huge opportunities. There has been huge spending in a bid to educate the country’s large youth population, particularly with the launch of the King Abdullah University of Science and Technology. This is an area that will continue to accelerate.”

Certainly one needs to look beyond the office sector alone to see the fit-out opportunities in areas such as retail, healthcare and hospitality – as many hotels look to renovate their existing stock.

With its considerable projected population growth, Saudi Arabia needs to build across all areas. The kingdom is pushing tourism and has huge expansion plans for both its healthcare and commercial office sectors.

“Companies are interested in setting up in Saudi Arabia,” confirms Jason Burnside from architectural firm Godwin Austen

Photo courtesy of Knoll Inc.

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Johnson. “We’re getting more enquiries for fit-outs and architecture, as at the moment there simply isn’t enough supply.”

Shifting sands In the UAE, while several of the bigger pipeline projects are in Abu Dhabi, many of Dubai’s small to medium-sized projects are full steam ahead. “Some companies

have done well in the recession,” says Burnside. “For them, now is a good time to capitalise on the current situation in Dubai and set themselves up in key areas such as Sheikh Zayed Road, which they may previously have been priced out of..”

As Wilson adds, “Currently, the infrastructure in Dubai and Abu Dhabi includes world-class airports and seaports,

while there are 1.3 billion people within three hours flying time. All this means that the UAE’s long-term objective to be the Middle East hub of commerce could soon be realised.” In some ways, it already is.

When Dubai Logistics City, part of Al Maktoum International Airport, is completed, it will be the largest logistics hub in the world. If completed on the scale originally planned, its annual cargo capacity of 12 million tonnes will be three times that of Memphis in the US, currently the world’s largest logistics hub.

“Commercial office space is set to double in Dubai and Abu Dhabi in the next two to four years,” Wilson continues. “New office space will fill the market with higher quality offices as developers try to compete, differentiate and make themselves more attractive to new landlords. This will drive office rents and make both cities far more attractive centres for business, taking away from the likes of Kuwait, Bahrain and even Saudi Arabia.” Yet he feels, while the corrections in the commercial

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Photo courtesy of Knoll Inc.

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Photo courtesy of Knoll Inc.

property market are fraught with opportunity, a lot still hinges on stimulating investor confidence: “The government really needs to strike now to introduce stimulus measures that leverage this improved affordability, encourage the growth of industries and fill space that currently might be vacant.”

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Commercial office space is set to double in Dubai and Abu Dhabi in the next two to four years.

Equally, many companies in Dubai are making do with what they have, or what the last firm left behind. As Neil explains, “Landlords are now saying to companies moving out to leave partitions and other fit-outs as they are, so they can utilise them for the next client. This makes it easier for them to lease the property again. Landlords are also becoming more flexible, doing office fit-outs themselves – full or partial.”

Certainly, with a maturing market and tighter economic conditions, there has been a change in approach, Burnside says: “In the GCC in general, rather than demolishing, people are looking much more at refurbishment, which is closer to the European model.”

Finally, while the mad rush of the boom years may well be over for the longer-term, it is not necessarily a bad thing for the architectural and design industry. As Burnside concludes, with the fact that companies now have more time to plan properly, there is more of an opportunity for design to come to the forefront and companies can get the best value from their working space.

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The right fit-out Gulf Business talks to the experts about office layouts and technologies that ensure workers feel comfortable and productive.

T

he statistics don’t look good.

A survey conducted at last year’s Office Exhibition of 1,000 respondents across the GCC, revealed that almost 90 per cent are de-motivated by their working environment, while only six per cent reported that their office environment has no impact on motivation.

Many respondents cited back pain and

discomfort from their computer screen as sources of their discontent.

Employers should take heed simply from an economic perspective. Reports suggest that lost work hours through repetitive strain injury for bad posture, the wrong type of chair, a badly-designed workstation, or not taking enough breaks, costs businesses a reported $2.9 billion, or 10 million days sick leave, in the UK alone.

The statistics give an overwhelmingly clear message – people want, and need, a working environment that supports their health and well-being.

Rachel Savage, design manager, CitySpace.

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“Although there’s no data for the Middle East region as yet, research by a number of companies in the USA has shown that ergonomically-designed offices increase productivity by as much as 15 per cent, reduce back-related absenteeism by 50 per cent and decrease staff turnover from 40 per cent to five per cent,” asserts Rachel Savage, design manager, CitySpace. “The statistics give an overwhelmingly clear message – people want, and need, a working environment that supports their health and well-being.”

Ergonomic approach From Savage’s point of view, ergonomics goes well beyond the realms of desks, chairs and computer peripherals: “Many people still believe that ergonomics just relates to our keyboard and mouse set-up or seating adjustments, but it is far more comprehensive than that.

“An ergonomic office is one where the work environment is designed according to the needs of humans, to promote health and safety and ultimately optimise motivation and productivity.

In workplace design, this means taking into account elements such as overall space planning, desk/furniture size and shape, storage height and proximity and circulation space so that people can work comfortably and efficiently. It also encompasses our reaction to lighting levels, access to natural light, air quality and acoustics. All these factors play a role in determining whether an office is ergonomic or not.”

“Acoustics are very important,” agrees Peter Donaldson, sales director at Xworks Interiors. “The two main things are having a carpeted floor and acoustic ceiling tiles,

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both of which absorb sound. As a general rule, soft surfaces absorb sound while hard surfaces reflect sound.”

In terms of layout, closed door is fast giving way to open plan, hence a more collaborative environment. “More companies are bringing managers out of private offices to be part of the team, which helps with relationships, efficiency and in breaking down barriers,” says Donaldson.

Physical barriers are being reduced with lower, or glass, partitioning – the latter of which still provides some privacy while increasing natural light.

Yet a lot of companies get it wrong from the word go, forging ahead

with no input from the very people that count the most. “A lot comes down to management style,” Donaldson asserts.

“Many companies don’t actually get their staff involved in what they’re doing.”

Great Place to Work Institute, whose workplace design evaluation and consulting service operates across 45 countries worldwide, recently opened its doors in the Emirates. Michael Burchell, the company’s partner and director in the UAE cites the example of the DreamWorks Animation office in terms employee input.

“During the planning process for a new building, the company conducted meetings with each department to elicit

More companies are bringing managers out of private offices to be part of the team, which helps with relationships and breaking down barriers.

Peter Donaldson, sales director at Xworks Interiors.

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Architecture Interior Design Engineering

www.lwdesigngroup.com

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opinions on everything from work space configurations to desk size,” he explains. “As a result, the design team made important modifications that would save the company money and help to create an even more aesthetically beautiful and functional environment. The opportunity to be a part of the decision-making process also gave employees a greater sense of ownership and control over their physical environment…the best companies create physical work environments that respect the people working in those buildings.”

Virtual working As one might expect, technology is also playing an increasing role – in and out of the office. “Research shows that we’re only at our workstations about 35 to 40 per cent of the day,” comments Stacy Straczynski in Contract, an office design publication. “The greatest influencer on

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The greatest influencer on corporate design is new technological improvements such as the growing prevalence of smartphones.

modern corporate design is continuing technological improvement such as the growing prevalence of smartphones, virtual conferencing and virtual private networks (VPNs), which has allowed employees to push the limits of the office further into virtual realms.”

With the growth of the virtual office, it is perhaps only natural that designers and companies are putting another practical spin on office design.

The case for ergonomics Studies have suggested that employers generally pay little attention to the impact of repetitive strain injury – neither from an employee’s perspective nor in terms of the costs to businesses, which run into billions of dollars in lost work time. Looking at the UK market, only 17 per cent of businesses assess the cost impact of back injuries, a mere 11 per cent consider the cost impact of RSI, while just 22 per cent provide any sort of treatment or rehabilitation in the event.

RSI conditions include joint stress, ligament injuries and back problems from bad posture, badly-designed workstations or using the wrong chair. For businesses, a few ergonomic investments around the office may end up as a big saving.

Source: The English Times

iStock

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“In the current economic climate of the GCC, getting the best value from the investment in corporate real estate – whether owned or rented, is a major factor influencing office design,” says Savage.

“However, it is not so much about cramming as many people into a space as possible…it is about optimising the space, being as flexible as possible, looking at creative ways to provide multifunctional zones and looking at the various ways people work – whether office-based or mobile. Do all employees need to ‘own’ a desk or could we consider desk-sharing or mobile work?

Can the break-out space double up as a meeting room? What is the best desk or workstation configuration which will accommodate for fluctuations in headcount? These are just some of the

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It is not so much about cramming in as many people as possible... it is about optimising the space and being as flexible as you can.

design-related questions our clients have been asking us.”

The different facets of office design go far beyond a desk, chair and coat of paint. Going by the Office Exhibition motivation survey, GCC businesses might do well to take note.

With 90 per cent of the GCC workforce demotivated by their office environment. Here are some things businesses can consider to reduce discontent.

tEnsure there is sufficient light and a variety of lighting, both natural and artificial. tProvide different work areas with their own temperature controls and access to fresh air. tUse furniture and décor to ensure that noise levels are not disruptive, including fitted carpets/carpet tiles and acoustic ceiling tiles.

tMake sure there are areas to converse privately, enough space for group meetings and for the workforce to rest/stretch out occasionally.

tEnsure sufficient passageways to easily move around the office, and easy access to printers, photocopiers and beverage making areas.

tDesign the office to be inspiring to the workforce (colours, textures, choice of furniture/ décor, adequate safety standards).

Source: TradeArabia

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To find out more email info@masdar.ae or visit us online at www.masdar.ae www.greenabudhabi.org Join us in painting the town green with Green Abu Dhabi 2010, taking place from 14th October to 6th November, at the Emirates Heritage Club, Abu Dhabi Masdar is a proud supporter of Green Abu Dhabi 2010

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LIFESTYLE TRAVEL

Asian allure Hong Kong retains its dual charm, combining state-of-the-art business facilities with beguiling heritage, writes Charles Pocock

T

he gateway to trade in China, Hong Kong is a vertical city that lives and breathes business and money. This regional hub bursts at the seams with international business headquarters, from HSBC to Jardine’s and Swire.

But it’s the juxtaposition of the ages that makes this city so special: the colonial architecture and fading habits of the late 19th century British Empire, infused with the modern-day speed, design and ways of doing business.

Corporate deals are brought headlong into the future in surroundings such as Lord Foster’s HSBC building and IM Pei’s Bank of China.

Hong Kong is separated into two areas: Hong Kong Island and the mainland. An efficient and clean metro system links the main parts of Hong Kong, with an ultra-fast airport city link whisking you into Central.

Be sure to buy an ‘Octopus’ from the station for your travels, the metro debit card that allows you to just swipe and go. With the city’s chaotic traffic system and no car parking in sight, you’ll find that the metro is used by all walks of life.

Business aside, Hong Kong is a shopper’s dream, with the latest brands presented in a novel way. The city is a pioneer in its presentation of shops and malls, with a totally different experience to that encountered in Dubai.

There is an innovative walkway in Central that connects all the major hotels, transport links and shopping areas – so, even as the Prada, Giorgio Armani, Loro Piana, Dunhill and Louis Vuitton boutiques glide by, you’ll hardly feel that you’re in a mall.

As you’d expect, this exotic business metropolis offers a multitude of hotels, catering for all types of business traveller. Some of the hotels are the best in the world – the Mandarin Oriental, Four Seasons, W Hotel and the East Hotel all come highly recommended.

106 gulfbusiness November 2010

Destination checklist JOIN THE JET SET The Peninsula, Hong Kong’s most historical hotel, offers exclusive helicopter experiences, providing a unique link between the old and the new. The departure terminal is crammed with rare aviation memorabilia, evoking the glamour of a bygone era. To get a birds-eye view of this great city, take off from the Peninsula’s helipads. It’s the only way to see Hong Kong. (+ 852 29202888, www. peninsula.com/hong_kong).

SUITS YOU Hong Kong is famous the world over for its tailors, however, there are two notable outlets. The best for suits is Loa Hai Shing in Central – The Wong’s are superb and will not disappoint (+ 852 2523 6167). Opposite from Loa Hai Shing are Jantzens, Hong Kong’s top shirt makers (+ 852 2810 8080).

Both are on Des Voeux Road in Central and are opposite each other.

CANTONESE CUISINE Man Wah at The Mandarin Oriental Hotel (+ 852 25231970, www. mandarinoriental.com/hongkong) and the Luk Yu Tea House (+ 852 2523 1970) are two of Hong Kong’s superior culinary experiences. Man Wah is pure high-end delight, while what makes Luk Yu a must-see is its tradition: the eatery has remained unchanged for nearly 80 years.

More ignomiously, Luk Yu was the scene of an infamous assassination in 2002, where the hit-man casually ate his meal, paid the bill, and well, you can guess what happened next.

SENSATIONAL SPA Four Seasons offers one of Hong Kong’s premium spas. Replete with state-of-the-art thermal baths, steam rooms and pools, all treatment rooms look out over the harbour. Above all, the rooms and amenities are spacious and cannot be matched by anywhere else in Hong Kong. (+ 852 3196 8888, www.fourseasons.com/hongkong).

WHERE TO STAY: MANDARIN ORIENTAL With majestic suites overlooking the harbour and all the services needed to run an office from your room, the Mandarin Oriental is deserving of its regular plaudits. What’s more, this hotel offers some of Hong Kong’s greatest restaurants.

Be sure to try the Michelin-starred offerings of Pierre Gagnaire (two stars) the Mandarin Grill (one star) and the excellent Man Wah. Built in 1963, this superb hotel has recently been overhauled, bringing it into the modern day while retaining many of its original features. (+ 852 25231970, www.mandarinoriental.com/ hongkong).

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LIFESTYLE CARS

Pole position The elegant, hard-topped version of the BMW Z4 doesn’t disappoint on Dubai’s roads, writes Alicia Buller.

I

’ll let you in on a secret. I’ve wanted this car forever. But when the BMW Z3 model first came out in England around ten years ago, it was called the quintessential ‘hairdresser’s car’ – something I always put down to thinly-veiled jealousy.

It was the first mass-market roadster introduced by BMW, a zippy and stylish model that carved a special place in the English psyche and the rest of the world.

The Z4 model was initially released in 2002 and it won Automobile Magazine Design of the Year Award.

Last year, the anticipation was similar – only this time for the new hardtopped version of the Z4. It doesn’t disappoint. The new model retains all the fun and cheekiness of the BMW Z3 and the original Z4, but with a new touch of elegance.

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The new Z4 actually has a doublesided personality. You are offered a choice between the harder, more thrilling drive of having the top down – while driving with the roof closed can make the car feel like a standard luxury coupe.

This choice adds considerable dimension to the joy of the journey.

There’s also a second contrast: the model’s classic, imperial lines placed with a cutting-edge engine.

This is an extremely sporty model, which comes with a choice of three engine sizes from 2.5 litres to 3.2 litres. I drove the BMW Z4 sDrive35i: a straight-six petrol engine with twin turbo and direct fuel injection.

This car really does go and will transport you around Dubai in virtual milli-seconds if the traffic is good The Z4 does 0–100 km/h in a G-force-

inducing 5.2 seconds, while the top speed is 250 km/h.

The car feels well-made. Every aspect of the design has the luxury BMW hallmark – but most of all, it’s fun. I test-drove the BMW Z4 around the Palm Islands in Dubai early one morning.

The car lets you feel like you own the road with its racing-style seats so close to the ground. Whether you have the roof down or up, it feels like a true racing car, and that’s the best thing about it.

As a regular (and lucky) reviewer of luxury cars, I’ve developed an additional layman’s barometer of a car’s desirability – how many people stare at it when you’re at the traffic lights. The hard-topped BMW Z4 tops the league this year. Not so much a hairdresser’s car now, eh? ■

ART

Abu Dhabi Art: The connoisseur’s event In contrast to Art Dubai’s cutting-edge fare, the capital emirate offers higher-priced, museum-quality works, writes Charles Pocock.

A

bu Dhabi Art is a platform for modern and contemporary art and aims to bring artists and art lovers together from all over the world.

The event runs from November 4 to 7 at Emirates Palace and Manarat Al Saadiyat.

Exhibitions Opening the Doors is the most comprehensive exhibition of Middle Eastern modern and contemporary art ever held, all from private collections. Featuring over 80 museum-quality works of art from artists of the region and of Middle Eastern origin, this collection showcases works by Dia Al Azzawi, Parviz Tanavoli, Shafiq Abboud, Jawad Salim, Msssoud Arabshahi, Ismail Al Sheikhly, Mahmoud Mokhtar, Ismail Fattah, Adam Henein, Abbas Kiarostami and others. This is held at Emirates Palace.

Another exhibition worth visiting is RSTW, a world premiere of masterpieces from the private collection of renowned collector and art figure, Larry Gagosian.

This event features works from artists Rauschenberg, Ruscha, Serra, Twombly, Warhol and Wool and runs from September 22 to January 24. RSTW aims to challenge the perception of what it means to be a private collector and public figure simultaneously. This is held at Manarat Al Saadiyat.

Debates There are also a number of important debates and panel discussions through the fair.

Art from Iraq and from Iran features Dia Al Azzawi, Parviz Tanavoli, Nada Shabout and Shiva Balaghi, moderated by Philip Kennedy of New York University.

a large collection of modern Iranian art being withdrawn from their recent sale in Dubai, this should prove to be a provacative discussion.

Cy Twombly, The Rose (IV), 2008

Parviz Tanavoli, White Heech, 1970

Ed Ruscha, Robin, 1963

This will be followed by the book launches of the monographs relating to the two masters of modern Middle Eastern art. To have the two leading artists from the Middle East and the two leading art historians discussing art in the region, will be a first in the history of art in the region and a must-see.

The Auction House debate will feature representatives from Artcurial, Bonham’s, Sotheby’s and Christie’s. The houses will discuss their influence on the art market and their relationships with galleries.

With the Christie’s scandal exposed by the Financial Times resulting in

Galleries Abu Dhabi Art includes 50 galleries.

These galleries hail from 17 different countries and represent a wide range of art from around the world. The aim of Abu Dhabi Art is to place emerging, as well as established, galleries from both the region and the world alongside each other in a platform of open dialogue and communication. A full list can be seen at www. abudhabiartfair.ae A number of questions have been raised about how Abu Dhabi Art differs from Art Dubai and what is the difference. Abu Dhabi Art is a heavyweight show with a focus on modern and contemporary art. There is a heavier academic side to Abu Dhabi Art, it does not emulate the carnival atmosphere of Art Dubai and it is a lot more serious.

I was on the phone last week to Antonia Carver, fair director of Art Dubai, and we discussed the position of artists like Azzawi, Tanavoli, Kiarostami and other modern masters and their place within Art Dubai. She told me the guidelines for Art Dubai are being revised to include only cuttingedge art. This now defines the difference between the two fairs in the Emirates; Abu Dhabi presents museum-quality work, international and Middle Eastern, modern and contemporary at the very highest level, whereas Art Dubai presents the cutting-edge, contemporary and more affordable. The two fairs, both equally interesting, cater for very different markets.

Charles Pocock runs the Meem Gallery, Dubai.

November 2010 gulfbusiness

109

ESSENTIALS BOOKS

Born to lead?

In search of an answer to the age-old question ‘are leaders born or made?’ Gulf Business looks at two very different books that explore the concept of leadership.

Persuasion James Borg, Pearson

E

ver wondered what it’s like to get people to do what you want, whenever you want? That’s what Persuasion intends to help you do.

Written in an easy-to-read, workshop style, the book takes you through the steps it takes to become one of those people who seem to effortlessly get people on their side. The truth, says Borg, is that charm is never effortless and requires knowledge and training.

Based on years of analysing the behaviours and mind-sets of the most persuasive people around, Persuasion guides you through some of the most difficult work and life situations and offers a masterplan applicable for most scenarios.

Some of the keys include empathy, listening and reading body language.

You’d also be surprised just how much persuasive power you can claim simply remembering someone’s name and life details.

Persuasion is full of useful practical tips, which even when used alone could have long-lasting results. For example, did you know using the words ‘why?’ or ‘you’ when attempting to address poor behaviour simply creates resentment and doesn’t resolve the root problem?

Most usefully, the book offers a detailed section on how to deal with ‘difficult’ personality types; the list includes a range of characters we’ve all come across, from the ‘explosive’ to the ‘self-important’

and the ‘antagonist’. Another key section is ‘negotiation’, which takes you through how to get what you want on the telephone by using some choice words and flattery.

Ultimately, Persuasion is a ‘selfhelp’ book that encourages us to brush up on our interpersonal skills and become more aware of how we come to across to others, which is never a bad thing. Are you persuaded?

why, for example, almost everyone thinks hard-working male executives are high-flyers, whereas females CEOs are viewed as iron-maidens.

Is it because – somewhere in the primitive psyche – we secretly think women should live in domestic and maternal servitude, following the long-established pattern of our female ancestors?

It’s not an easy feat to cover the entire history of anthropological history and keep your readers awake at the same time, but authors Mark van Vugt and Anjana Ahuja sprinkle practical humour throughout the book with some success. With Selected, you’ll come away satisfied that you‘ve glimpsed around 80 per cent of human society through the ages and gained some understanding of how history affects the workplace up to the present day.

Selected Mark van Vugt and Anjana Ahuja, Profile Books

I

f you want to know why some people lead and why others follow, then Selected is the book you have been waiting for. Jam-packed with psychologal theories and historical background that stretches all the way back to the BC era, this book attempts to scientifically explain

November 2010 gulfbusiness

111

Hotel Collection Gulf Business Hotel Collection members offer guests complimentary copies of the GCC’s premier business magazine Gulf Business.

United Arab Emirates AL RAHA BEACH HOTEL

Abu Dhabi Al Raha Beach Hotel, created to provide the very best of traditional Arabian hospitality. This unique jewel of luxury and tranquility, offering magnificent services, awaits you for an unforgettable visit to Abu Dhabi.

Tel 00971 2 50 80 555 Fax 00971 2 50 80 429

PARK ROTANA ABU DHABI

Khalifa Park area, Abu Dhabi Conveniently located adjacent to Khalifa Park, the property offers 318 luxurious rooms and suites, 6 world class dining venues, 6 meeting rooms and spacious ballroom with day light access and outdoor terrace.

Tel 00971 2 6573333 Fax 00971 2 6573000 park.hotel@rotana.com

JUMEIRAH EMIRATES TOWERS

Sheikh Zayed Road, Dubai Jumeirah Emirates Towers is a sleek architectural masterpiece of steel and glass. It redefines the business hotel category, seamlessly combining form with function, high technology with unparalleled luxury and elegance with efficiency.

Tel 00971 4 3300000 www.Jumeriah.com

LAYIA OAK HOTEL & SUITES

Al-Barsha, Dubai Offering 161 furnished units ranging from 81 sqm to 160 sqm, 3 dining venues, 3 multi-purpose meeting rooms, recreation facilities & a majestic landscaped area around the temperature-controlled pool.

Tel 00 971 4 437 78 88 Fax 00 971 4 437 79 99 welcome.oak@layia.net

MEDIA ROTANA DUBAI

THE FAIRMONT DUBAI

Al Barsha South-TECOM Located in the heart of Dubai’s new business hub and opposite Dubai Media City and Internet City the Media Rotana Dubai has 460 rooms, suites and deluxe hotel apartments, 5 award winning dining venues and 15 meeting rooms.

Tel: 00971 4 4350000 Fax: 00971 4 4350011 media.dubai@rotana.com

Sheikh Zayed Road, Dubai This 394-room hotel boasts 10 dining and entertainment venues a superb spa and unrivalled meeting facilities.

Tel 00971 4 3325555 Fax 00971 4 3324555 dubai.reservations@fairmont.com

KEMPINSKI HOTEL MALL OF THE EMIRATES

LAYIA PLAZA HOTEL DUBAI

PULLMAN DUBAI MALL OF THE EMIRATES

Sheikh Zayed Road, Dubai The truly unique and exciting five stars hotel features 393 rooms, suites and chalets together with Mall of the Emirates shopping centre and Ski Dubai’s alpine themed indoor snow resort.

Tel 00971 4 3410000 reservations.malloftheemirates@ kempinski.com www.kempinski.com/dubai

Al Qusais, Dubai Conveniently located nearby Dubai International Airport Terminal 2. Offers exceptional levels of comfort with 232 rooms & suites, three dining options, temperature-controlled swimming pool and state-of-the-art fitness center.

Tel 00971 4 233 44 44 Fax 00971 4 233 44 45 welcome.plaza@layia.net

Mall of the Emirates, Dubai Discover a new attitude hotel directly linked to the region’s ultimate shopping destination amidst Dubai’s sophisticated metropolis.

Elegant 481 guestrooms complemented with chic dining experiences awaits both leisure and business guests.

Tel 00971 4 702 8000 Fax 00971 4 702 8001 H7337@accor.com

TAMANI HOTEL MARINA

ACACIA HOTEL

MÖVENPICK HOTEL DOHA

Dubai Marina This hotel boasts 240 units, including studios, 2 or 3 bedroom units, and penthouses. There is also one restaurant. a health club, indoor and outdoor swimming pools and 5 meeting rooms.

PO Box 215855, Dubai, U.A.E Tel 00971 4 3992500 Fax 00971 4 3993225 sales@tamanimarina.ae

Ras al Khaimah The Acacia Hotel is a superbly designed four star hotel complete with Al Nakhla restaurant, the stylish Flamingo bar, the vibrant Club Acacia, a pristine pool serving as a backdrop to varied and exciting Theme Nights, the luxurious O-Zone Spa, and high-energy Oxygen Gym. Tel 00971 7 2434421 Fax 00971 7 2434429

Doha Located on the Corniche Road, opposite the Museum of Islamic Art, the hotel offers 154 rooms and suites, a business centre and meeting rooms. Recreation facilities are also available.

Tel 00974 4291111 Fax 00974 4291100 www.moevenpick-doha.com

JEDDAH HILTON

HOLIDAY INN RIYADH, IZDIHAR

SOFITEL AL HAMRA JEDDAH

Jeddah Located a 10-minute drive from the Jeddah International Airport. Offers over 414 rooms including 46 suites. 10th and 11th floors are Executive floors addressing all the needs of a modernday businessman.

Tel 00966 2 659 0000 Fax 00966 2 658 2489

Riyadh The first 5 star Holiday Inn hotel in the Kingdom, with 289 new and trendy accommodations, huge lobby with W-Fi access, outdoor pools, sauna, Jacuzzi and health club. Also has state-of-the-art meeting rooms, 24-hour business center with professional secretarial support.

Tel 00966 1 4505054 Fax 00966 1 4505056

Jeddah The hotel situated in the heart of the business centre offers 211 rooms, 17 suites and 25 apartments. 5 meeting rooms and 2 reception rooms to accommodate up to 350 people.

Tel 00966 2 6602000 Fax 00966 2 6604145

Qatar SHANGRI-LA

Sheikh Zayed Road, Dubai Offers 301 luxuriously appointed guest rooms and suites, nine restaurants and bars, health club and spa, tennis and squash courts and outdoor swimming.

Tel 00971 4 3438888 Fax 00971 4 3438886 sldb@shangri-la.com

Qatar INTERCONTINENTAL DOHA

Doha Situated in the West Bay area, yet located near the city. With its various dining options, 24 suites, 234 rooms, private beach and state-of-the-art gymnasium, it is an idyllic setting for business and leisure.

Tel 00974 4844444 Fax 00974 4839555

GulfBusinessHotels.com

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Organised by

Data monitor Compiled by Karen Remo-Listana

116 TOP DEALS

Mergers & acquisitions Public equity offerings Public debt offerings Private placements

118 GCC ECONOMIC INDICATORS Real GDP & CPI inflation Market overview World commodity markets

118 IN FOCUS

Debt: Demand from corporates strengthens Economy: Copycat phenomenon threatens growth

119 COMPANY WATCH

DIB: A penny for your stake Qtel: Solid results despite heated competition

November 2010 gulfbusiness

115

TOP M&A TRANSACTIONS Deal Value ($m)

Bidder

Target

Deal Description

255

Dnata

Alpha Flight UK Limited

Dnata, the UAE-based company engaged in providing transportation, leisure and business support services, has agreed to acquire Alpha Flight UK Limited, the UK-based provider of food catering services to the airline industry, from Autogrill S.p.A., the listed Italy-based operator of retail food and beverage outlets, for a total consideration of GBP160 million including net debt of $60 million. The proceeds from the sale of Alpha Flight UK will be used by Autogrill to pay off EUR162 million of debt. Alpha Flight UK which was a part of Alpha Airports Group was acquired by Autogrill in 2007 for GBP193.6 million. The transaction is subject to the approval of the anti-trust authorities and consent of certain financing banks of the Autogrill Group and it is expected to close by December 31, 2010.

220

Lafarge SA; and MerchantBridge & Co. Ltd

Karbala Cement Plant

Lafarge SA, the listed France-based manufacturer of building materials in the range of cement, aggregates, concrete, roofing and gypsum products, and MerchantBridge & Co. Ltd, the UK-based private equity firm, has acquired the Karbala Cement Plant, the Iraq-based cement producer, from the Government of Iraq, for a total consideration of $220 million. Under the terms of the agreement, Lafarge and MerchantBridge will take on full operations and management of the plant under a 15-year lease agreement. The Karbala Cement Plant currently produces less than 300,000 tonnes of cement per year. MerchantBridge and Lafarge intend to increase annual production to two million tonnes within 30 months.

–

Zurich Insurance Company Ltd

Compagnie Libanaise D’Assurances SAL

Zurich Insurance Company Ltd, the UAE-based company engaged in providing insurance services and a subsidiary of Zurich Financial Services Group, the Switzerland-based provider of insurance related financial services, has agreed to acquire 99.98 per cent stake in Compagnie Libanaise D’Assurances SAL, the Lebanon-based company engaged in providing insurance services, for an undisclosed consideration. Compagnie Libanaise had generated gross written premiums of $49.1 million in the year 2009. The transaction is subject to the regulatory approval and is expected to close in the fourth quarter of 2010.

–

Landmark Group

Fitness First (MENA franchise )

Landmark Group, the UAE-based company engaged in hospitality and retail business has acquired the Middle East franchise business of Fitness First, from Awwal Fitness Ltd, the UAE-based health club operator and part of the Alhokair Group, for an undisclosed consideration. The Fitness First Middle East franchise generated annual turnover of $55 million and has 18 clubs across the UAE, Qatar, Jordan, Bahrain and Saudi Arabia. Concurrently, Fitness First and Landmark has also signed 10-year franchise agreement.

–

Sabre Holdings Corporation

Flugwerkzeuge Aviation Software GmbH

Sabre Holdings Corporation, US-based solutions provider for the aviation industry, and a subsidiary of TPG Capital LP and Silver Lake Partners, the US based private equity firms, has acquired Austria-based Flugwerkzeuge Aviation Software GmbH from Dubai Aerospace Enterprise for an undisclosed consideration. DAE Services, the UAE-based aviation system integrator and a subsidiary of Dubai Aerospace Enterprise, has acquired Flugwerkzeuge, for a total consideration of $25 million in 2008.

–

Maritime industrial Services Co. Ltd. Inc.

Litwin PEL

Maritime industrial Services Co. Ltd. Inc., the listed UAE-based company has agreed to acquire Litwin PEL, a UAEbased company that provides engineering services to the oil, gas and process industries, from EMDAD LLC for an undisclosed consideration. Litwin PEL has a staff of just under 200 people.

Notes: Deals are based on the geography of target, bidder or vendor being in the Middle East, for the period between September 21, 2010 and October 19, 2010. Based on announced deals, including lapsed and withdrawn bids. Where deal value is not disclosed, the deal has been entered based on turnover of target exceeding $10 million. Activities excluded from the table include property transactions and restructurings where the ultimate shareholders’ interests are not changed. Source: Mergermarket

12,000 10,000

MIDDLE EAST ACTIVITY BY INDUSTRY SECTOR YTD 2010  VALUE Number of deals

14,000

Value ($m)

MIDDLE EAST QUARTERLY M&A ACTIVITY FROM 2005 TO OCTOBER 19, 2010

Value Volume

50 40

8,000

30

6,000

20

4,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2005

2006

2007

2008

2009

0

2010

MIDDLE EAST ANNUAL M&A ACTIVITY FROM 2004 TO OCTOBER 19, 2010

Leisure 4.2%

Transport 8.2%

Pharma/Medical/ Biotech 3.1% Construction 5.8%

Consumer 1.5% Business Services 1.6%

Real Estate 26.6%

25,000

100

15,000 10,000

50

5,000 2004

2005

Defence 0.6%

Transport 1.8%

Pharma/Medical/ Biotech 5.5%

150

20,000

0

Leisure 3.6%

200

Value Volume

Financial Services Industrials and 25.4% Chemicals 10.6%

2006

2007

2008

2009

2010

0

Energy/ Mining/ Utilities 7.3%

Construction 3.6%

Real Estate 7.3% Agriculture 0.9% Defence 1.8%

TMT 20%

Business Consumer Services 6.4% 7.3%

Mergermarket tracks all M&A deals of more than $5m where the target, bidder or parent is a Middle Eastern company.

116 gulfbusiness November 2010

Agriculture 0.2%

MIDDLE EAST ACTIVITY BY INDUSTRY SECTOR YTD 2010  VOLUME

Number of deals

30,000

Value ($m)

TMT 8.2%

10

2,000 0

Energy/Mining/ Utilities3.2%

Industrials and Chemicals 18.2% Financial Services 16.4%

TOP PUBLIC EQUITY OFFERINGS Value ($m, Historical rate)

Target/Issuer

Transaction Status

Transaction comments

–

Aluminium Bahrain

Announced

Aluminium Bahrain (Alba) is offering 163.3 million shares comprising of the retail offer and the institutional offer.

The offering period starts on October 24, 2010 and closes on November 4, 2010.The final price for the offering would be decided on November 8, 2010.The shares offered as a part of this offering would be listed on the Bahrain Stock Exchange and on the London Stock exchange in the form of global depositary receipts. J.P. Morgan Securities Ltd would act as the underwriter for the issue of global depositary receipts and Gulf International Bank would be managing the domestic share issue. The retail tranche of the offering is underwritten by domestic underwriters.

Transaction: IPO or Follow-on Equity Offering; Geographic locations: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, or UAE; All transactions announced date (Including Bids and Letters of Intent): [9/21/201010/20/2010]; Source: Capital IQ.

TOP PUBLIC DEBT OFFERINGS Value ($m, Historical rate)

Target/Issuer

Transaction Status

Transaction comments

750.0

QIB Sukuk Funding Limited

Closed

The Islamic bonds,with a coupon rate of 3.856 per cent, are guaranteed by Qatar Islamic Bank. The sukuk are due 2015. The fund managers, banks, private banks and supra/agency subscribed for 33 per cent, 40 per cent, 10 per cent and 17 per cent of the offering.The company is acting as a trustee with respect to the offering. Financial advisors are Credit Suisse (USA), Inc, HSBC Holdings plc ,QInvest, National Bank of Abu Dhabi, and the investment banking arm of Islamic Development Bank Group.

500.0

Dubai Electricity And Water Authority

Announced

The notes, rated Ba2 by Moody’s and BBB- by Fitch, are a part of series 2 and tranche 1 of the global medium term note programme. Interest (6.375 per cent) on the notes, will be payable on April 21 and October 21 each year. Maturity date is on October 21, 2016.

400.0

Burgan Bank

Closed

The bonds, which carry a coupon rate of 7.875 per cent, will mature on September 29, 2020. The bonds are rated BBB by S&P and A3 by Moody’s. Proceeds will be used for general corporate purposes and working capital.

80.0

Polarcus Limited

Closed

Polarcus Limited completed an issuance of an $80 million bond in the international market. Maturity date is October 29, 2015. An application will be made for listing of the bonds on the Oslo Alternative Bond Market.

The bond issue was significantly oversubscribed. The bonds carry a coupon of 12.5 per cent per year, to be paid semi-annually. The proceeds will enable the company to finance the acquisition and completion of the vessel Polarcus Alima.Underwriters are ABG Sundal Collier Norge ASA and Pareto Securities ASA.

Transaction: Fixed income; Geographic locations: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia or UAE; All transactions announced date (Including Bids and Letters of Intent): [9/21/2010-10/20/2010]; Source: Capital IQ.

TOP PRIVATE PLACEMENTS Value ($m, Historical rate)

Target/Issuer

Buyers/Investors

Transaction Status

Transaction comments

2,730.0

Qatar Telecom

–

Closed

On October 19, 2010, Qtel closed the transaction. The company issued $1 billion 3.375 per cent notes due October 14, 2016; $1 billion 4.75 per cent notes due February 16, 2021; and $750 million five per cent notes due October 19, 2025 for total gross proceeds of $2,730,775,000.

2,000.0

Dubai Electricity and Water Authority

Announced

Dewa announced that it will raise $2 billion through the issuance of notes on October 14, 2010. The securities will be issued pursuant to Rule 144A. The notes will be issued in two tranches. In the first tranche the company will issue $500 million notes. The notes will carry a coupon of 6.375 per cent and will mature on October 21, 2016. The first interest payment will commence from April 21, 2011. In the second tranche the company will issue $1.5 million notes. The notes will carry a coupon of 7.375 per cent and will mature on October 21, 2020. The first interest payment will commence from April 21, 2011. The transaction is expected to close on October 21, 2010. Citigroup, Credit Agricole, National Bank of Abu Dhabi, RBS and Standard Chartered Bank will serve as joint bookrunning managers and lead managers to the transaction.

1,000.0

Gulf Air Company

Kingdom Of Bahrain, Endowment Arm

Announced

Gulf Air announced that it will raise $1billion in funding from the returning investor Government of Bahrain through the endowment arm of Kingdom of Bahrain, on October 19, 2010. It will use the proceeds for ongoing restructuring costs.

108.43

Kuwait Energy Company

–

Announced

KEC announced a pre-IPO transaction of 198,323,540 shares at a price of KWD 0.155 per share for gross proceeds of KWD 30,740,189 on October 10, 2010. The funding will involve the participation of existing share holders through rights issue. The subscription period commences from October 10, 2010, to October 24, 2010. Allocation and settlement of shares will take place from October 25, 2010, to November 10, 2010. KEC will use the proceeds to pursue expansion plan, development and exploration of key assets and for potential acquisitions in greater MENA region.

60.47

Polarcus Limited

–

Closed

Polarcus Limited closed the transaction on October 14, 2010. The company issued 67,421,359 common shares at NOK 5.15 per share for gross proceeds of NOK 347,219,999 in the transaction. The transaction was multiple times oversubscribed at the subscription price.

2.75

Nishat UAE LLC

Nishat Mills Ltd.

Announced

Nishat UAE announced that it expects to receive $2.75 million in equity funding from Nishat Mills Ltd. on September 24, 2010. Upon completion of the transaction, the investor shall hold a 100 per cent stake in the company. The setting up of the entity is conditional upon the approval being granted by the shareholders at the annual general meeting of the company to be held on October 30, 2010.

Transaction Types: Private placement; Geographic Locations: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia or UAE; All transactions announced date: [9/21/2010-10/20/2010]; Source: Capital IQ.

November 2010 gulfbusiness

117

DEBT

GCC ECONOMIC FORECASTS Updated as of: 8-Oct-10

Real GDP Growth (%) 2008 2009F 2010F

2011F

CPI Inflation (% avg.)

2008 2009F 2010F 2011F

S.Arabia

4.3

3.4

9.9

0.1

3.2

5.1

5.7

4.8

UAE

5.1

-1.4

1.0

2

12.3

1.6

1

2.8

Qatar

15.8

9.0

11.3

9.1

15

-4.9

-2.9

2.5

Kuwait

6.4

-2.2

2.5

3.1

10.5

4

3

4

Oman

12.3

3.8

4.6

4.8

12.6

3.5

4

4.8

Bahrain

6.1

1.8

2.4

1.6

3.5

2.8

2.5

3

Source: BoFA Merrill Lynch Global Research, Bloomberg, EcoWin, national statistics offices.

Returns Tadawaful (Saudi Arabia) KSE (Kuwait) BSE (Bahrain) MSM 30 (Oman) DFM (Dubai, UAE) ADX (Abu Dhabi, UAE) DSM 20 (Qatar)

GCC MARKET OVERVIEW Value YTD* 6392.39 4.70% 6985.00 4.40% 1444.76 1.80% 6472.76 3.50% 1683.69 13.50% 2673.19 7.0% 7694.88 6.50%

YTD* 4.40% -0.3% -0.9% 1.60% -6.6% -2.6% 10.60%

Source: Bloomberg * All returns are latest available end of day September 30, 2010.

Commodity Energy Coal,Australia Crude oil, average Crude oil, Brent Crude oil, WTI Natural gas index Natural gas, US Non Energy Agriculture Beverages Food soybean meal soybean oil soybeans Grains Maize Sorghum Wheat, Canada Wheat, US, HRW Wheat, US, SRW Sugar EU Sugar US Sugar world Raw Materials Fertilisers Metals and Minerals Aluminium Copper Gold Iron ore Lead Nickel Silver Steel products index Tin Zinc

WORLD COMMODITY PRICE DATA, 2010 unit July Aug Sep 257.4 260.1 262.22 $/mt 96.0 89.8 94.9 $/bbl 74.6 75.8 76.1 $/bbl 74.7 76.7 77.8 $/bbl 76.4 76.6 75.3 2000=100 157.3 157.8 161.0 $/mmbtu 4.6 4.3 3.9 262.3 274.6 285.2 219.5 228.6 237.5 261.7 260.4 256.6 209.4 222.2 233.4 $/mt 356.0 382.8 393.0 $/mt 907.0 1002.3 1033.0 $/mt 429.0 456.8 466.0 192.3 210.8 234.4 $/mt 163.8 175.6 205.9 $/mt 132.4 143.4 184.9 287.5 326.0 365.0 $/mt 195.8 246.2 271.7 $/mt 222.3 261.6 276.3 c/kg 42.8 43.2 43.9 c/kg 73.3 77.2 84.2 c/kg 38.5 40.7 49.6 222.5 227.8 237.7 259.4 276.4 300.8 350.4 368.7 381.2 $/mt 1988.3 2118.1 2162.3 $/mt 6735.3 7284.0 7709.3 $/toz 1193.0 1215.8 1271.0 c/dmtu 205.0 205.0 205.0 c/kg 183.7 207.5 218.4 s/mt 19517.5 21413.3 22643.4 c/toz 1794.0 1849.3 2061.1 2000=100 231.8 230.4 235 c/kg 1819.1 2075.5 2270.1 c/kg 184.4 204.5 215.1

$=US dollar; c=us cent; cum=cubic meter; dmtu-dry metric ton unit; kg= kilogram mmbtu=million British thermal units; mt= metric ton; toz=troy oz; SGP=Singapore n.a.=not available; n.q.=no quotation; source: World Bank, Commodity price data

118 gulfbusiness November 2010

Sep/Aug (change) 0.8 5.7 0.4 1.4 -1.7 2.0 -9.3 3.9 3.9 -1.5 5.0 2.7 3.1 2.0 11.2 17.3 28.9 12.0 10.3 5.6 1.6 9.0 21.9 4.4 8.8 3.4 2.1 5.8 4.5 0.0 5.3 5.7 11.5 2.0 9.4 5.2

Demand from corporates strengthens in Q3 Continuing the upward trend seen during the first half of the year, the third quarter saw GCC conventional debt markets gain further momentum. A report from NCB Capital shows that the number of offerings almost doubled from 14 in Q2 to 26 in Q3.

On the supply-side, massive capital requirements of the regional governments and companies are expected to be the key factor driving bond and sukuk issuance. On the demand side, global investors, especially from the developed markets supported by low interest rates, are seeking higher yields on emerging market.

The pent-up demand for debt capital is also becoming more active. Potential issuers who had earlier forestalled planned issues in hopes of better values are beginning to come forward to tap the market.

The total amount issued more than doubled from $4.5 billion in Q2 to $10.8 billion in Q3.

“The market was supported by debt refinancing needs but also by the greater optimism created by the Dubai World deal,” a spokesperson from NCB Capital, said. “The pick-up in activity was led by

ECONOMY

Copycat phenomenon threatens GCC growth The GCC has failed to execute three major projects designed to integrate its six states due to long-standing differences and fierce competition, a note from Standard Chartered bank, said.

The GCC was created in 1981 and has since then aimed to establish a customs union and common market by 2003 and 2008, respectively.

Such concepts, however, are crippled by disputes and to date, remain not functional.

The main reason behind the delay is the debate over how to split tariffs between the six countries. Other stumbling blocks also regularly arise.

The Arab group has missed its 2010 Monetary Union deadline, with Oman and UAE already out of the proposed union. The much-talked GCC Railway is also likely to miss its 2017 deadline, as the project battles with political, financing and technical issues.

With about 40 million people or less than half the population of Egypt, the region’s eight separate bourses – each with relatively low liquidity (except Saudi Arabia) – are too many.

COMPANY WATCH

corporate conventional bond issuance, reducing the previous reliance of the market dynamic on sovereign issuers.”

Companies accounted for 71 per cent of the total value of issues and 62 per cent of the number of offerings. Financial sector companies dominated. Notable deals include issues

by Qatari Diar Finance ($3.5 billion), Waha Aerospace ($1.5 billion), ADCB Finance ($239 million), and Kuwait Projects Company ($500 million). In the sovereign space, the Government of Dubai successfully returned to the market.

However, in the absence of high-profile offerings, the GCC sukuk market in Q3 2010 plunged below the disappointing opening quarter of the year with value of issues down sharply to $362 million.

VALUE OF CONVENTIONAL BONDS ISSUED IN Q3 Value (LHS)

30

No of deals (RHS)

25

12,000 10,000 8,000 6,000 4,000 2,000

15 10 5

3Q10

2Q10

1Q10

4Q09

3Q09

2Q09

1Q09

4Q08

3Q08

2Q08

1Q08

4Q07

3Q07

0 2Q07

0

20

1Q07

Value ($ million)

16,000 14,000

Dubai Islamic Bank

A penny for your stake Dubai Islamic Bank’s (DIB) stake in Tamweel rose from 20 per cent to 57 per cent after it bought stakes of other leading shareholders in the UAE’s largest home finance company.

It was understood that selling shareholders – Dubai World’s Istithmar (20 per cent), Dubai Holding’s Dubai Capital Group (8.8 per cent) and Dubai Investment Group and others – were short of liquidity, while DIB has excess of the same. Tamweel has been struggling to maintain its Dhs9.6 billion of customer borrowing while DIB has been warehousing Dhs15 billion excess cash.

There is plenty of missing data, including the acquisition price, but UAE-based investment bank Rasmala speculates the price is likely to have been at a discount to the last traded price of Dhs0.99 or a total of Dhs1 billion. Although the transaction raises DIB’s exposure to the property market, from 40 per cent of the loan book to 50 per cent, Rasmala believes the sensibly priced transaction may be value enhancing.

Credit rating agency Fitch revises Tamweel’s rating watch to positive after the deal. Tamweel’s standalone risk profile, however, remains weak.

Key Forecasts FY08A 1730 0.42 0.23 9.94 20.00

Reported Net Profit (Dhsm) Normalised EPS (Dhs) Dividend per share (Dhs) Dividend yield (%) Return on avg equity (%)

FY09A 1207 0.26 0.14 6.22 13.60

FY10F 949.4 0.21 0.15 6.62 11.00

FY11F 1254 0.29 0.18 7.72 14.60

FY12F 1591 0.37 0.18 8.04 17.80

Source: Company data, Rasmala Forecasts

Source: Bloomberg, NCBC Research

Qtel

Solid results despite heated competition

Saudi Arabia

Qatar

Oman

Kuwait

Dubai

Bahrain

Abu Dhabi

Furthermore, each bourse has different trading days and hours, different clearing systems and widely divergent regulatory requirements, which makes trading difficult.

Heightened competition also threatens to undermine common regional goals, as seen in entertainment (the region now has two Formula One Grand Prix), tourism and financial services where every state bids to become the regional hub.

“The copycat phenomenon within the region brings the risk of cannibalisation at best, or failure for some at worst,” a spokesperson from Standard Chartered said.

He said the GCC should prioritise closer coordination if the region wants to maximise the economic potential of the bloc, which has combined market size of $1 trillion and average per capita GDP of $45,000. “Despite the region’s positive economic outlook and shared MARKET CAPITALISATION OF GCC goals, the GCC is BOURSES $ MILLION not moving forward 400 collectively,” the 300 spokesperson said.

“By limiting their 200 co-ordination efforts, 100 the GCC countries may be foregoing economic 0 opportunities, as well as chances to increase their global political Source: IMF, Standard Chartered Research clout,” he said.

Despite increased competition across the board, Qtel group’s performance remains solid across most of its operations, particularly in Kuwait, Indonesia, Iraq, Algeria and Oman.

Qtel’s consolidated revenues in the first half increased by 13.7 per cent to reach QAR13.1 billion for from QAR11.5 billion during the same period last year.

Its customer-base also increased 30 per cent from 51.4 million to 66.6 million.

Net profit attributable to Qtel shareholders stood at QAR1.8 billion up 8.9 per cent. Consolidated EBITDA remained strong with a 14.6 per cent increase to reach QAR6.3 billion. Qtel’s Key stats Revenue (QARm) EBITDA (QARm) Reported net profit (QARm) Normalised net profit (QARm) Normalised EPS (QAR) Dividend per share (QAR) Dividend yield (%) Normalised PE (x) EV/EBITDA (x) EV/invested capital (x)

FY08A 20,319 10,164 2,306 2,306 15.70 10.00 6.02 10.60 4.38 0.95

management expects capex of QR8.6 billion to QAR9 billion for year-end 2010. The telco firm has successfully closed previously announced pricing of its senior unsecured notes under its existing $5 billion global medium-term note programme. The most recent $1.5 billion and $1.25 billion issuances were priced and allocated as follows: $1 billion; 3.375 per cent six-year notes due October 14, 2016; $1 billion; 4.75 per cent 10-year notes due February 16, 2021 and $750 million; five per cent 15-year notes due October 19, 2025. The proceeds will be used for general corporate purposes, including refinancing existing indebtedness.

FY09A 24,025 12,124 2,780 2,780 19.00 7.00 4.21 8.76 4.00 0.91

FY10F 26,687 13,583 2,860 2,860 19.50 8.60 5.18 8.52 3.43 0.85

FY11F 28,808 14,674 2,958 2,958 20.20 7.45 4.48 8.24 2.82 0.78

FY12F 31,013 15,994 3,559 3,559 24.30 8.96 5.40 6.84 2.10 0.68

Accounting standard: IFRS; Source: Company data, Rasmala forecasts

November 2010 gulfbusiness

119

EXHIBITIONS & CONFERENCES

ADIPEC

iStock

ADNEC, November 1 – 4 Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC) is one of the world’s largest oil and gas conferences, bringing together regional and international professionals, including exhibitors from 59 countries. The theme for 2010 is ‘Meeting the Increasing Oil and Gas Demand through Innovation.’

Now in its 14th year, the Society of Petroleum Engineers (SPE) has again been appointed to organise and coordinate the 2010 Conference. This is the energy event of the year and an opportunity for likeminded professionals to contribute to a platform for exchanging knowledge and best practices.

UNITED ARAB EMIRATES Abu Dhabi November 01-04 02-04 08-09 21-22 22-24 29-30 09-11 22-24 22-27 22-24 28-30 28-30 Dubai November 02-04 08-11 08-11 21-24 22-25 22-25 25-27 29-01 Dec Sharjah November 22-25

ADIPEC 2010 Abu Dhabi Art Fair 2010 The Abu Dhabi Conference Advanced Negotiation for Project Management Hydrocarbons EPC Projects 2010 Middle East Wastewater Treatment & Reuse 2010 Future Media Congress SIAL Middle East 2010 Fourth International Date Palm Festival IPA Middle East MEMEX 2010 – Middle East Manufacturing Exhibition Roadex-Railex Exhibition & Conference 2010

ADNEC, Abu Dhabi Emirates Palace, Abu Dhabi Fairmont Bab Al Bahr, Abu Dhabi Sheraton Hotel, Abu Dhabi Crown Plaza, Yas Island Abu Dhabi Beach Rotana, Abu Dhabi ADNEC, Abu Dhabi ADNEC, Abu Dhabi ADNEC, Abu Dhabi ADNEC, Abu Dhabi ADNEC, Abu Dhabi ADNEC, Abu Dhabi

www.adipec.com www.abudhabiartfair.ae www.meedawards.com www.marcusevans.com www.meedawards.com www.meedawards.com www.turretme.com www.turretme.com www.turretme.com www.turretme.com www.memexme.com www.roadex-railex.com

Helishow Dubai 2010 Index Exhibition Smart Electricity World MENA 2010 Private Equity World MENA 2010 The Customer Show The Big Five Exhibition 2010 The Indian Property Show Carbon Capture Storage World MENA 2010

Airport Expo, Dubai Dubai Int’l Convention and Exhibition Centre Movenpick Hotel, Jumeirah, Dubai Shangri-La Hotel Dubai The Address, Dubai Marina Dubai Int’l Convention and Exhibition Centre Airport Expo East Hall, Dubai Movenpick Hotel, Jumeirah Beach

www.dubaihelicoptershow.com www.indexexhibition.com www.terrapinn.com www.terrapinn.com www.terrapinn.com www.thebig5exhibition.com www.indianpropertyshow.com www.terrapinn.com

Chinese Commodities Fair Sharjah

Expo-Centre Sharjah

www.expo-centre.ae

09-11 11-13 29-01 Dec

Career Expo 2010 Bahrain International Property Exhibition Healthcare Infrastructure World MENA 2010

Bahrain Int’l Exhibition and Convention Centre Bahrain Int’l Exhibition and Convention Centre Gulf Hotel, Manama

www.career-expo.net www.bipex.org www.terrapinn.com

29-30 24-26

Kuwait Projects 2010 Careers Fair

Courtyard Marriott, Kuwait City Kuwait Int’l Fairgrounds

www.meedawards.com www.kif.net

09-11

Diyafa 2010

Doha Exhibition Centre

www.ifpexpo.com

BAHRAIN November

KUWAIT November

QATAR November

120 gulfbusiness November 2010

IN YOUR SHOES

Beauty and the boss ALICIA BULLER touches down in London to check out Vertu’s luxury smartphone

and brush shoulders with the firm’s CEO, Perry Oosting.

W

hen I first I saw the 18 carat gold Vertu Constellation Quest and its price tag – $27,300 – the dollar signs danced across my eyes. I desperately tried to hide my palpitations as I counted up to the equivalent number of cars and pairs of shoes in my head. Can people really afford phones like this, when there’s such a long, long list of material indulgences that could go in its place? But that’s me. And I’m poor. Vertu phones aren’t made for people like me. That’s kind of the point.

Standing at the entrance of the launch party for luxury firm’s long-awaited smart model, I come to the realisation that this really isn’t – it just can’t be – only a phone. The chaffeured black Merc drops me outside the majesticallyfronted Lancaster House in Mayfair. As TV’s most famous nosy neighbour Lloyd Grossman would ask, who would live in (amazing) house like this? As it happens, the Duke of York did, 400 years ago.

Tonight it’s home to a glittering array of London’s thinnest, richest and most beautiful. The sweeping staircases are manned by handsome, charming young models handing out the finest champagne in the finest glasses.

The music is moody and carefully crafted; everything about the evening has been nimbly orchestrated to strike the right tone in understated taste.

A walk into a pitch-black room envelops you in suspense until… there it is – the telecoms beauty. A shining, coveted slab of gold, with sapphire cool-to-the-touch keys. For what is ultimately an object, the new smartphone becomes strangely personified as it shows off its wares on high-tech screens, flexing lithe curves from every angle and offering coquettish glimpses into the love that has been poured into its engineering.

Each Vertu phone is handmade by a single technician in a small factory in Hampshire in the UK. Tonight, Constellation Quest is the

122 gulfbusiness November 2010

celebrity. Never mind the fact that Oscar winner and Vertu phone owner Kevin Spacey just stepped on my toe.

I’ll have a word with him later.

Two and half years in the making, the Quest smartphone, like all Vertu phones, comes with a one-touch concierge service and 24-hour technical assistance. Vertu Concierge can ‘proactively anticipate an individual’s potential needs’ with a personalised ‘lifestyle manager’ on the end of the phone to book that must-go-to restaurant or flowers for the wife.

“The challenge is to make a beautiful instrument from something very complex; it’s got to be functional, but it’s got to be beautiful,” says Perry Oosting, suave boss of the luxury phone maker, in between hobnobbing with singer Seal and Tom ParkerBowles, stepson of the future UK King, Prince Charles.

“It’s been a long wait. Our customers love our phones, the brand, the hand-crafted premium materials and the design. And now they have the QWERTY keyboard that comes with it,” says Oosting, flicking back his hair.

The CEO says that Vertu now has 700 point-of-sales in 70 countries. Around 10 per cent of his phones are sold in the Middle East and Oosting is planning to expand this. Dubai is a hot market, with the majority of the Vertus being snapped up by young males, some as young as 14 years old.

“The Middle East is starting to bounce back from an economic point of view. Saudi Arabia is a strong market. I have been in the luxury market for __25 years and this was the first time that I really saw a global recession affect the industry,” he says.

“At the beginning of 2009 there was nothing you could do. What is good to see now is that the luxury market is bouncing back strongly. We are very positive and back into double digit growth,” he says.

And now I understand why. Vertu isn’t a phone, it’s a statement. ‘I love beauty and I can afford it’. Can you?

HERE’S HOW TO CHEER UP A DEPRESSED ECONOMY.

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