Policymaking concerns hold back GCC ratings

Economies in the Gulf Co-operation Council (GCC) remain strong, but their ratings are constrained by structural challenges and policymaking concerns, according to a report from Standard & Poor’s.

The ratings agency said that the Gulf countries will remain ‘insulated’ from global and regional headwinds and forecast 4.6% growth across the GCC in 2013.

Ratings for the six economies were given a stable outlook, but S&P noted weaknesses remain that are constraining their assessments going forward.

“There are still particular shortcomings in the effectiveness and predictability of policymaking in the GCC,” S&P’s credit analyst Dima Jardaneh said.

“Weaknesses include the quality of policy debate; the strength and depth of institutions; transparency of decision-making; data monitoring and reliability of information; legal frameworks and the rule of law; and succession risks.”

The report noted that government debt burdens in the GCC remain at relatively low levels. Bahrain has the largest debt in the region at 34% of GDP, while Qatar’s debts amount to 29% of GDP.

The GCC’s monetary flexibility is weak because shallow local currency debt markets constrain the transmission of policy into the financial markets, S&P added. This can hinder attempts to broaden output away from oil and diversify sources of funding for small and medium sized enterprises.

“Fixed exchange rate regimes, the lack of independent monetary policy, and weak local currency instruments largely constrain the transmission of policy,” said the report. “These attributes and open capital markets largely shape GCC monetary frameworks. Nevertheless, the countries’ open economies with their easy flow of goods and labour have largely underpinned the fixed exchange rate as a credible nominal anchor”.

Subscription extended for Oman’s first Shariah fund

The initial subscription period for Oman-based Vision Investment Services’ new open-ended Shariah compliant investment fund has been extended by one month, Mena FM has learned.

The Vision Al Khair GCC Fund, open to both Omani and non-Omani investors, was due to close to initial subscription applications on 10 February but will instead end on 10 March.

The initial subscription period commenced on 10 January and has been open to individuals, companies, institutions, pension funds, and government organisations.

The new fund, which will have a minimum size of RO 2 million, is Oman’s first Shariah-compliant investment fund and will invest in listed securities in the GCC and Mena region which are compliant with Islamic Shariah principles.

Shariah advisory and audit services provider Shariyah Review Bureau (SRB) has been appointed to ensure the fund’s structure complies with Shariah guidelines.

NBAD seeks to reach Chinese investors with ICBC deal

The National Bank of Abu Dhabi (NBAD) has signed a partnership with ICBC (Asia) Investment Management which will help it reach the growing number of wealthy Chinese investors.

Under the Memorandum of Understanding with ICBCAIM - the overseas investment management arm of the ICBC Group – both firms will jointly facilitate the marketing of their respective investment capabilities through their distribution channels.

NBAD will help market and distribute ICBCAIM’s private equity and fixed income products in the UAE, while ICBCAIM will do the same for NBAD’s Cautious Income Fund and Dividend Leader Fund in Asian markets.

“This partnership allows us to expand the reach of our investment products, especially in Hong Kong which is the centre of Asian commerce and the international gateway to China,” said Alan Durrant, Group Chief Investment Officer and General Manager of NBAD’s Asset Management Group. “NBAD offers a range of innovative and distinguished investment vehicles and we would like to expand our channels of distribution, particularly in the growing markets of Asia. In the past few years, investors have generally been cautious; still, investors’ trust in the market is gradually recovering. Given the diversity of investors’ appetite, we believe the Cautious Income Fund and Dividend Leader Fund, which offer attractive dividends with low level of risk, would be well positioned in Asia.”

ICBC Group is the largest bank in China and the world’s largest bank by market capitalisation. Its asset management arm has over $140 billion in assets under management.

Jack Chang, CEO of ICBC (Asia) Investment Management, added: “ICBC (Asia) Investment Management places high importance in our cooperation with NBAD given the fast growing trade and investment flow between the Gulf region and China. Our parent company ICBC Group is currently expanding its network in the Gulf region and we expect significant increases in capital flow between the two regions.” 

NBAD Asset Management currently has an AUM of around $1.4 billion.

Bahrain economy ‘steadily consolidating’

The Bahrain economy enjoyed a year of steady consolidation in 2012, with its non-oil sector making significant progress, according to the latest Economic Quarterly Report from the Bahrain Economic Development Board (EDB).

First estimates indicated that overall growth for the country in 2012 was 3.9%, building on confirmed figures of 4.4% annualised growth for the first three quarters, said the report. All main sectors of the economy registered positive growth while there has also been a significant increase in lending by Bahraini retail banks.

The strengthening of the short and long-term picture for the Bahraini economy was reflected in the fact that Standard & Poor’s recently revised its outlook on the Kingdom from ‘negative’ to ‘stable’. Growth hopes for 2013 are pinned on large-scale industrial investments and infrastructure spending.

Commenting on the report, Kamal bin Ahmed, Minister of Transportation and Acting Chief Executive of the Bahrain Economic Development Board (EDB), said: “The latest Economic Quarterly report demonstrates that Bahrain’s economy continues to strengthen and after achieving solid growth in 2012, the economy is well-positioned to continue to achieve steady and sustainable expansion in 2013 and beyond.

“In particular, the Kingdom plays an important role as a gateway to the rapidly expanding GCC economies, and the opportunity this offers for investors is demonstrated by the strong performance of key non-oil and gas sectors.”

DVK Group to launch Shariah-compliant fund targeted at women

DVK Group, an international commodity trading and financial boutique, has announced plans to launch a Shariah-compliant fund targeted at women in the Gulf Cooperation Council (GCC).

The multi-asset DVK GCC Shariah Women’s Fund, which has a capital target of up to $500m, will look at sectors including aviation, banking and financial services, trading of bulk commodities and private equity.

DVK, which recently launched in Saudi Arabia and boasts a member of the Saudi royal family as non-executive chairman, is in talks with senior figures in Qatar and Saudi Arabia to finalise the launch of the fund.

Deepak Kuntawala, the company’s founder and chairman, believes that a fund focused on women in the Middle East will find good opportunities for both organisers and investors.

“During all my trips and interaction with the GCC, we recognised there was a huge potential with respect to women,” he said. “There are some very inspiring leading women spearheading outstanding businesses.”

He said the fund could help overcome Western preconceptions about Islam, adding: “I was inspired by the religion which really does elevate women and has great business ethics at the core.”

DVK Group cites figures from Gulf One Investment Bank which show that Saudi women have around $6bn in deposits in local banks and own approximately 40% of real estate. The new fund will attempt to reach this relatively untapped pool of investors.

The firm, founded in 2001, also offices in London and Hong Kong and has a global presence in Europe, Africa, South America the Far East and the Baltic States.

Mena holding companies ‘to be boosted by government spending’

Banks and holding companies will be among the most attractive listed equities in the Mena region this year as most GCC countries members announce plans for large scale government expenditure, according to a report from Al Masah Capital.

In their Alternative Investment Strategy 2013, the Dubai-based firm highlighted four key markets, including holding companies, banking, utilities and chemicals, which they say provide opportunities for positive returns.

Akber Naqvi, executive director at the firm, believes “the holding companies sector holds the most potential” with the ability to pay steady dividends to those seeking regular income.

“An offshoot of the massive government spending is that industries other than manufacturing are starting to grow rapidly because income distribution is becoming more widespread,” he said.

“If the logic to the spending is to bring unemployment down, make the standard of living more affordable, and allow more people to feel good about themselves, then holding companies are going to benefit immediately as they have exposure to a variety of sectors and services,” he added.

Stocks of companies the alternative asset management firm highlighted include First Gulf Bank, Commercial Bank of Qatar, Banque Saudi Fransi, Saudi Arabian Fertilizer, Industries Qatar, Yanbu National Petrochemicals, Kuwait Projects, Qatar Gas Transport, Saudi Electricity, and National Industrialisation.

Al Masah, through their various funds and portfolios, maintain exposure to all these companies and continue to manage these positions.

“Any new funds and portfolios that we launch will also find allocations towards such companies,” Naqvi said.

Delta Partners reaches $100m target for emerging markets fund

Delta Partners Capital has announced it has completed the first closing of Delta Partners Emerging Markets TMT Growth Fund II following capital commitments of $100m.

With a target size of $350m and a hard cap of $200m, it will invest under strict environmental and social standards in areas including the Middle East.

The vehicle, which may also invest in debt securities that have equity-like returns, will focus on investment opportunities in technology, media and telecommunications (TMT).

Geoffrey D. Fink, managing partner and head of investments, said: “We are delighted to have met our first-close target and to have attracted a world-class group of institutional anchor investors to the Fund.”

He added: “We believe that given our depth of expertise in TMT and extensive on-the-ground presence across emerging markets we are uniquely positioned to identify and execute on attractive opportunities in this dynamic sector, and to provide tangible added value to our portfolio companies.”

Domiciled in the Cayman Islands, the 10-year fund is sponsored by Delta Partners Group and has first-close investors including IFC (World Bank Group) which has invested $20m.

Additional investment comes from mobile phone operator NTT DOCOMO and a number of family offices from Europe and the Middle East.

Delta, which is headquartered in Dubai, has offices in Johannesburg, Singapore and Barcelona and has plans to open a new office in Latin America.

Qatar Investment Fund: Changing Times

A successful fund that experiences a change of leadership often faces the challenge of convincing investors that there will be continuity, and that the new boss shares the strategy and insight of his predecessor.

This does not appear to be a problem for Nicholas Wilson, the new chairman of the Qatar Investment Fund (QIF). Appointed chairman in November 2012 following the untimely death of David von Simson, Wilson has the advantage of having been on the board of QIF since its inception in 2007. He also knows he has the support of investors, with over 98 per cent of shareholders at the recent AGM voting for the continuation of the fund.

In Wilson’s view, von Simson leaves behind a strong legacy. “David was an excellent chairman. He focused very much on maintaining dialogue with investors which I will continue, particularly with active investors. We have shareholder support… and we would like to grow the company. We can grow it by increasing the NAV per share or having another offering; in this market it’s hard to raise additional funds.”

QIF, which launched in July 2007, is a closed-end investment company which invests primarily in Qatari equities. It was incorporated in June 2007 in the Isle of Man, and was initially listed on the AIM market of the London Stock Exchange (LSE), graduating to the main market in May 2011.

Wilson remembers the launch well.

“In retrospect it was not a great time to launch an investment company, but it raised $170m which for a frontier market fund was very nice indeed,” he said. In December 2007 there was a secondary fund raising of $76m; but then the financial crisis hit.

“When 2008 came the world changed somewhat,” says Wilson. “But we’re still up around 6% in net asset value (NAV) terms since launch. We’ve done our best to manage volatility by running a fairly active buyback programme to keep things steady. Each time we buy shares at a discount we’re increasing the value of the NAV.” At the recent AGM investors voted on a tender offer to buy 20% of holdings. “It gave some of the shareholders a chance to reduce their holdings if liquidity is not in the market, and got them out at 10% above market price.” Wilson says there are plans for a further tender offer in November 2013, for 10% of outstanding shares, subject to shares trading above a 10% discount to NAV.

Wilson has had a long career in the investment management industry, and first became involved with listed companies in 1997 when he joined the board of Alternative Investment Strategies Limited, a position he still retains. Based in the Isle of Man, Wilson has experience of running branch offices which he says has given him valuable exposure to all aspects of investment. “I’ve had broad coverage of vanilla equities, and derivatives, both exchange traded and over the counter (OTC). I even ran a hedge fund in the eighties which did pretty well. Now, though, my focus is entirely on PLCs.”

Wilson says that although QIF can invest in other Gulf Co-operation Council (GCC) countries, its raison d’etre is to provide exposure to the Qatar market. The investment case for putting money into Qatar remains strong, he believes.

“The primary focus is always on Qatar, with a maximum 15% in other regions. It’s really a huge investment proposition, with strong growth, low valuations and high earnings visibility. The government makes it clear what its spending will be, for example it has $150 billion budgeted for infrastructure spend. This will make its way into the banking sector, and we can gain exposure via that. On the valuation point, the price to equity (P/E) ratio is probably about the best measure and for the current year is estimated at 10.9, and 9.8 for next year. Shares are currently very attractively valued in Qatar.”

Another attraction is the country’s population statistics, says Wilson. “Qatar has a population of 1.84 million including nationals, expats and mobile workers. When the government came to the end of its hydrocarbon development the forecast was for a decline [in population] but we’ve seen 8.4% year-on-year growth. The demographics seem to be moving up the socioeconomic scale. That has really good implications for companies in Qatar at the consumer end of the market, and property and banking.”

Mark Hughes, analyst at Panmure Gordon, which is a holder of QIF, sees Qatar as an attractive area. “It has strong GDP growth and its resources offer it a fantastic platform. Profits are being invested into infrastructure, which is a good story for Qatar. I think the management team of this particular fund is good. There is a large banks position within the fund, and banking is an important sector within the Qatari market.”

From a valuation point of view, Hughes points out that Qatar looks attractive relative to many other Mena countries. “The Qatar exchange is trading on a discount, and this particular fund is trading on a discount to its own NAV. If you put all that together; the macro, the management team, the double discount, [QIF] is a good way to access the Qatar investment opportunity.”

Hughes says Panmure did revisit the fund following Wilson’s appointment as chairman. “But with the fund the really important guys are the managers. With the board, the important thing is they set the right criteria from a due diligence point of view, looking after shareholders. We’re happy with the new chairman, and looking at his CV we think it’s an excellent appointment.”

Going forward, there are plans for the fund to add exposure specifically to Saudi Arabia. Sandeep Nanda, senior vice president of investments and treasury at Qatar Insurance Company (QIC) and investment adviser to the fund, says while the fund has always had an allocation to the GCC of 15% it has never previously been able to access Saudi due to foreign ownership restrictions. “It didn’t have the structures. Over the last year or so the system whereby foreigners get into the market has become more transparent. It’s still not direct, but you can get economic rights into companies which are properly managed.”

The investment thesis for investing in Saudi, says Nanda, is that it is the largest market in the GCC. “It has volumes of $2 billion a day, so it’s a very active and deep market. You get cross-industry access to companies and direct access into the retail story. You’ve got large companies and reasonably attractive investment themes. There are also some good local banks which trade at good valuations, and good chemical stocks. The expertise is already within the team; QIC is a GCC company, so it’s not a new thing for us.”

But, says Nanda, exposure to Saudi will be restricted. “It’s still a Qatar fund. We’ll stick within allowed limits. There’s just a broader universe of some of the plays in the United Arab Emirates (UAE) in places like Kuwait and Saudi. It provides diversification.”

Nanda says he feels comfortable with QIF’s large overweight to the banking sector. “I suppose it’s similar to any emerging market. Financial plays always become an effective investment option. You create a leveraged play into the economy fastest. The financial sector in Qatar has significant capacity to drive infrastructure spend. We don’t see any systemic problems with the financial sector; it’s a good proxy to the economy of the country.”

Nanda also picks up on Wilson’s point on demographics. “The change in demographics will impact the financial sector first. It becomes a lead indicator of what’s happening in the economy. You can see trend lines on the growth in the economy and link it to the GDP of the country. In the fund we’re very focused on picking up the top three or four names; filtering banks which have greater access to the market. We do look at banks which have significant access to infrastructure spend and provide a front step for expats. We look at which banks are retail focused; this will lead us to choose one over another.”

One notable event coming up in Qatar is the 2022 FIFA World Cup, which should both raise the country’s profile internationally and dramatically increase spending on infrastructure projects. Nanda believes the country’s sporting infrastructure will start really ramping up in maybe two years’ time. “There’s also broader infrastructure spend. You’ve got the Qatar rail story, with an investment of close to $10 billion. We would be focused on where infrastructure spending is happening for sure, to get as much access to infrastructure spend.” He highlights the Qatar National Development Strategy’s 2030 National Vision document, which takes a holistic view of the country’s proposed spending, breaking it into five year pieces. “This gives us as investors a very reasonable view of which companies will benefit.”

NBAD launches offshore retirement plan for UAE expats

The National Bank of Abu Dhabi (NBAD) has become the first UAE bank to launch a retirement savings plan for expatriates, via an offshore corporate trust offered by a subsidiary.

The Wealth Builder Plan is aimed at UAE domestic and multinational companies who want to offer expatriate employees pension saving to underpin the traditional end-of-service benefits offered in the UAE. It will be run by NBAD Trust Company (Jersey) Ltd, which is wholly owned by NBAD, with a range of investment fund options provided by NBAD Asset Management.

The retirement schemes will be tailored to each client, with regular contributions either solely made by the company or made jointly by employer and employee. Employees can choose the investment plan that suits their risk appetite, and both employers and employees have access to web portals where they can access account information and investment performance.

Samira Zakour, the Chief Marketing Officer of NBAD Trust Services, says: “By offering employees a cost effective and professionally managed savings solution, employers will be able to demonstrate that they have the long term interests of their staff in mind. This will have a powerful and positive impact on their ability to recruit and retain high quality employees.”
Individuals will be able to use the Wealth Builder Plan to gain access to investment funds that would normally only be available to institutions. The trust structure is also intended to give employer and employees peace of mind, as retirement funds are held independently from the employer. NBAD Trust Company (Jersey) Limited will act as trustees and the administration will be carried out by RBC Corporate Employee and Executive Services.

Alan Durrant, Group Chief Investment Officer and General Manager of NBAD’s Asset Management Group. said: “NBAD will be providing well balanced investment funds as the core of our Wealth Builder Plan service. Our performance and service has been recognised in a host of recent UAE and regional awards. Employers and their employees can be assured that their savings are being managed in experienced and diligent hands.”
If this model of retirement plan becomes popular in the UAE it could provide a shot in the arm for the local and regional asset management industry. Expatriates account for around 88% of the UAE’s population, and their retirement plans could be a fast-growing source of investment in the coming years.

EFG-Hermes mulls Ucits launch and further regional expansion

EFG-Hermes Asset Management is set to launch funds on Ucits in the coming year as it anticipates more foreign money flowing back to the region.

Managing director Mohamed Abdel-Halim told Mena FM that a Mena-wide Ucits fund was one of several potential new products in the pipeline, given the growing desire of European investors for Ucits-compliant investments.

“We believe the timing is right for this as European investors particularly reassess the attractiveness of the region following the financial crisis and the ensuing Arab Spring,” said Abdel-Halim. “We are fairly hopeful that we’ll do this early on in the year, in the first half of 2013, with the idea that we go on the road at the right time once we see that foreign investor interest is coming back. We’re hopeful, given the increase in volumes that we’ve seen so far in the market, that this year will be the year when foreign investors come back to the region.”

Abdel-Halim also said that the firm, which has a total AUM of $3.5 billion, is considering expanding into new markets away from its current base in Egypt and the GCC.

“Our ambitions are endless,” he said. “We hope that we’re able to grow on the extremely strong performance of 2012, continue to grow our market share, launch new products and continue to expand our footprint into new markets. In the coming years we plan on looking very closely at Sub-Saharan Africa, and Turkey as well. Those are two markets that are very important to us and they are certainly on our radar screen, so we are quite hopeful that we will be able to grow our business and our platform and our presence there as well.”

For a full interview with Mohamed Abdel-Halim, see February’s issue of Mena FM magazine.