mena weekly monitor (03)...

1Week 03 January 10 - January 16, 2016

JANUARY 10 - JANUARY 16, 2016

WEEK 03

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MENA MARKETS: WEEK OF JANUARY 10 - JANUARY 16, 2016

The MENA WEEKLY MONITOR

Economy___________________________________________________________________________p.2 MORGAN STANLEY SEES 12 POTENTIAL SURPRISES FOR THE MENA REGIONIn a recent report, Morgan Stanley said that lower oil prices and geopolitics have dominated MENA headlines, and examines 12 possible surprises that could have a material impact on the investment outlook for all or part of the MENA.

Also in this issuep.3 Overall sovereign creditworthiness in the MENA region has deteriorated during past six months, says S&Pp.4 Bahrain and Oman raise fuel prices to boost government coffers

Surveys___________________________________________________________________________p.5 OMAN TOPS MENA COUNTRIES IN TRADE FREEDOM, AS PER HERITAGE FOUNDATIONThe latest rankings of trade freedom were recently published by Heritage Foundation, in conjunction with the Wall Street Journal. According to the 2016 scores, Oman emerged as the freest country among MENA counterparts when it comes to trade freedom.

Also in this issuep.6 UAE’s real estate markets cools down in 2015, as per JLL

Corporate News___________________________________________________________________________p.7 ABU DHABI UPC APPROVES US$ 1 BILLION MALL PROJECT Kuwaiti developers National Real Estate Company and United Projects for Aviation Services Company won detailed planning approval from the Abu Dhabi Urban Planning Council (UPC) for their US$ 1 billion Reem Mall project.

Also in this issuep.7 Qatar's Barwa Real Estate secures US$ 444 million Islamic loanp.7 Majid Al Futtaim launches US$ 509 million Cairo retail project p.8 Emaar awards construction contract for Dubai Creek Residences project p.8 Bahrain's Mumtalakat inks deal for US$ 40 million copper tube factory p.8 Joint venture Kemya to extend into rubber industry

Markets In Brief___________________________________________________________________________p.9 PRICE DROPS ACROSS CAPITAL MARKETS AMIDST EXTENDED OIL PRICE SLIDEMENA stock markets extended their plunge during this week, as reflected by a 5.6% slide in the S&P Pan Arab Composite Index, amidst lingering global growth concerns, an extended oil price slump and fears of a prolonged era of weaker oil prices on speculation that international sanctions against Iran would be lifted early this year, a move that effectively took place on January 16, 2016. Under these conditions, a sell-off mood spread across regional fixed income markets, with offshore accounts better sellers of risk and the street looking to take profit on the slightest uptick. Middle East’s 5-year CDS spreads widened by 21 bps week-on-week to 373 bps.



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ECONOMY______________________________________________________________________________MORGAN STANLEY SEES 12 POTENTIAL SURPRISES FOR THE MENA REGION

In a recent report on the MENA region, Morgan Stanley said that lower oil prices and geopolitics have dominated MENA headlines, driving significant falls in equities. Against this backdrop, Morgan Stanley examines 12 possible surprises that could have a material impact on the investment outlook for all or part of the MENA region. The report examines potential outcomes that are not priced in by markets, but which could have substantial consequences for the growth outlook of the region over the medium to long term.

The 12 surprises are a comprehensive reform in Saudi Arabia including housing, infrastructure spending and labor; a successful stabilization in Libya; Iran GDP growth topping 7%, faster than expected, post sanctions easing; GCC bank consolidation; regulatory changes that positively impact investor sentiment, resulting in a sharp increase in Dubai property prices; Qatar removing the moratorium on the North Gas Field; enhancement of Saudi Arabia's QFI rules resulting in the Tadawul's inclusion in the MSCI Emerging Markets index; privatization wave across the Gulf countries; new telecom license auctions; higher taxes across the GCC; currency peg changes in Gulf countries; and Qatar losing the right to host the 2022 FIFA World Cup.

Among the 12 surprises, we chose to report the most significant five. First is a comprehensive reform in KSA, as the dramatic oil price slump since mid-2014 has highlighted the need to rationalize spending and increase the size and productivity of the domestic non-oil economy. Recent government announcements suggest that a radical reform agenda may now be emerging. Morgan Stanley talks about substantial rationalization of spending, whereby the government cuts spending by 25% over five years, focused on infrastructure capex. Mega-projects are completed and capital spending drops from 40% of total spending to 13% (as it was in 2002-2004). In addition to the already announced reform of energy subsidies, the government freezes public sector hiring. Supply side reforms generate a compensating economic stimulus: government hikes required rates of Saudisation in the private sector, reducing the leakage from expatriate remittances and raising the annual rate of growth in employment of nationals to above 5%. Radical changes to the mandate of the Real Estate Development Fund leverage the potential of the private sector banks and get the national house building project moving, and the government launches a privatization drive.

Key beneficiaries would be consumer facing businesses, which suffer only limited margin pressure from higher wage and fuel costs but win from faster disposable income growth. The construction and building materials sectors would suffer stress, but Morgan Stanley thinks the Saudi banks are most likely well stocked with provisions to cover any deterioration in credit quality.

Second is the GCC bank consolidation. In the past, lower oil prices had a significant impact on Gulf banks in the form of lower liquidity, increased delinquencies and reduced economic activity. In previous cycles, M&A was prompted by troubled banks being folded into healthier peers or the withdrawal of foreign players. The Gulf is generally over-banked, but political considerations (many are owned by the government and/or family groups) seem likely to have held back consolidation, particularly across borders, which has been limited so far to a few minority strategic stakes. While the Gulf banks are generally well capitalized (and better regulated), a significant, prolonged reduction in profitability and hence organic capital generation prompts authorities to encourage domestic M&A and even allow cross-border deals, as envisaged by the report. Low competition and improved asset quality could benefit all banks across the GCC in this scenario.

Third is a privatization wave across the Gulf, knowing that GCC governments have started the process of selling stakes in domestic government-owned assets. The privatization process expands greatly, as governments mobilize private capital to take the place of government funding, rationalizing spending by introducing more competition into the provision of public goods and opening up new growth opportunities for private sector business. Private health insurers and private hospital operators could benefit from expansion of privately delivered healthcare (e.g. in Saudi Arabia). Contractors could benefit if private funding fills a gap left by retreating government funding (roads etc).



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Fourth are higher taxes across the GCC, bearing in mind that the IMF has advised the GCC to introduce VAT. The UAE started to draft the VAT legislation in 2015. The Saudi Finance Ministry says that it will begin the process for the implementation of VAT across the GCC. The Oman Shura Council is proposing an increase in the royalty rate on telecoms. Iraq has already introduced a 20% VAT on telecom services and some other tax introductions as well. Here, governments of oil exporting countries raise taxes to fund deficits. The telecoms are impacted by government levy hikes. Personal income taxes are probably off limits in the GCC. But Oman already levies corporation tax and has raised the tax rate to around 15%. Other GCC countries also introduce corporation tax on domestic firms (foreign firms already pay tax in some cases). Corporation tax would generally be negative for all firms. Taxes linked to consumption (i.e. VAT type taxes) would generally be negative for consumer facing businesses, broadly defined, as per the report.

Fifth is a currency peg change in the Gulf. Morgan Stanley acknowledges that Gulf countries have large FX reserves to support their currencies and gross debt to GDP remains low. In addition, the currency peg has been maintained during previous periods of large budget and current account deficits. The Saudi government has recently reiterated that it will maintain the Riyal's peg to the USD. Here, the Gulf countries stop supporting the currency pegs to the USD. This either means a change in the peg from current levels or allowing the currencies to float within a band. A weaker currency benefits the tourism-based economy of Dubai as the recent USD strength has resulted in hotels and shopping in Dubai being uncompetitive vs. popular global destinations, in particular Europe. A weaker currency increases inflation across the GCC given the countries' significant imports of consumer goods. A change in the currency peg would impact all sectors. Earnings of exporters, including petrochemicals and fertilizer producers, could potentially benefit from currency depreciation. _____________________________________________________________________________OVERALL SOVEREIGN CREDITWORTHINESS IN THE MENA REGION HAS DETERIORATED DURING PAST SIX MONTHS, SAYS S&P

Standard & Poor's announced that the overall sovereign creditworthiness in the Middle East and North African (MENA) region has deteriorated during the past six months.

S&P rated nine of the 13 MENA sovereigns in the “BBB” rating category or above, and the average MENA sovereign rating is currently close to “BBB”. When weighted by GDP, the average moves closer to “BBB+”.

This average, weighted by nominal GDP, fell by more sharply than the unweighted average over the past six months because S&P lowered the rating on the region's largest economy, Saudi Arabia, as per Standard & Poor's.

During the aforementioned time, Standard & Poor’s also assigned “B-/B” long-term and short-term foreign and local currency sovereign credit ratings to The Republic of Iraq, which has a relatively large economic weight compared with other MENA sovereigns.

It is worth noting that these averages mask a clear difference between those sovereigns with a significant hydrocarbon endowment and those without, as per the rating agency. The average rating for the hydrocarbon-endowed sovereigns of Abu Dhabi, Bahrain , Iraq, Kuwait, Oman, Qatar, and Saudi Arabia, is currently close to “A”, having been at “A+” prior to the downgrade of Saudi Arabia and the inclusion of Iraq in the average. For those with more limited hydrocarbon resources (Egypt, Jordan, Lebanon, Morocco, Ras Al Khaimah, and Sharjah), it is closer to “BB+”, according to Standard & Poor’s.

Standard & Poor’s downgraded Saudi Arabia's ratings to “A+” from “AA-” due to the deterioration in the Kingdom's fiscal position. Saudi Arabia's general government fiscal deficit widened to about 15% of GDP in 2015, from 1.5% in 2014, primarily reflecting the sharp drop in oil prices. Absent a rebound in oil prices, the rating agency expect general government deficits of 10% of GDP in 2016, 8% in 2017, and 5% in 2018, based on planned fiscal consolidation measures.

S&P also lowered the ratings on Oman to “BBB+” from “A-”. The downgrade resulted from the rating agency’s expectation that a period of sustained low oil prices would impair the country's fiscal and external balances. Standard & Poor’s also believes that Oman's trend growth in real per capita GDP would remain materially below that of peers.



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Of the 13 MENA sovereigns rated, nine currently have a “stable” outlook despite the challenging political and economic backdrop. Four have “negative” outlooks, namely Bahrain, Lebanon, Oman and Saudi Arabia.

Standard & Poor’s has “negative” outlooks on Bahrain and Saudi Arabia, to reflect their weakening fiscal profiles and uncertain policy responses. The downgrade of Oman's ratings with a “negative” outlook reflects S&P’s view that the government's fiscal and external positions could deteriorate beyond its current expectations over the next two years. Lebanon’s outlook was revised to “negative”, stemming from the political uncertainty and regional tensions that would continue to weigh on economic growth in the medium term.

As for Egypt’s outlook, it was revised to “stable” from “positive” and the rating agency expects the country’s economic recovery to remain gradual and its external imbalances to persist. S&P also considers that the strong external support that Egypt received over the past few years could be affected by fiscal pressures in Gulf Cooperation Council countries.

Outside the GCC, the currencies of oil-exporting sovereigns depreciated significantly, and some devalued their currencies and introduced more flexible exchange rate regimes. Speculation in the market increased about whether GCC countries would experience the same scenario, and unpeg their currencies from the dollar. According to S&P, although the risk of such an event coming to pass increased, GCC countries would maintain the exchange rate peg over the medium term, mainly because S&P assesses GCC states as having sufficient funds available to defend their currencies. _____________________________________________________________________________BAHRAIN AND OMAN RAISE FUEL PRICES TO BOOST GOVERNMENT COFFERS

Bahrain and Oman have increased fuel prices significantly as the Gulf states struggle to rein in budget deficits and ease pressure on government coffers ravaged by the decline in oil prices. The two members of the GCC followed the example of the UAE and Saudi Arabia in cutting subsidies and spending while looking at ways to boost non-oil revenues. Bahrain, which last year ended state subsidies on meat, announced that regular petrol would rise on Tuesday by 56.3% to 33 US cents per litre and premium petrol would increase by 60% to 42 US cents. Oman said it would raise regular petrol by 23% to 36 US cents, premium petrol by a third to 42 US cents and diesel by 10% to 42 US cents. The Omani price increase comes into effect on January 15 and will be reviewed monthly. The reform, which includes spending cuts, was endorsed by cabinet in Muscat last month. Bahrain needs around US$ 125 a barrel to balance its budget, while Oman’s fiscal break-even price is around US$ 110 a barrel. Raising petrol prices is a risky move for Gulf governments, which have historically traded loyalty for welfare payments and other handouts. The increase in petrol prices, Bahrain’s first in 33 years, will further raise the cost of living, while Bahrain’s economy has been burdened by simmering unrest. All Gulf states are also seeking to increase non-oil revenue streams by introducing taxes, such as a valued added tax, which is set to be rolled out within a few years. Governments are also considering various corporate taxes and additional fees. The IMF has called on regional governments to reform subsidies, using compensation payments for poorer nationals, as well as restraining wage growth while maintaining capital expenditures.



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SURVEYS_____________________________________________________________________________OMAN TOPS MENA COUNTRIES IN TRADE FREEDOM, AS PER HERITAGE FOUNDATION

The latest rankings of trade freedom were recently published by Heritage Foundation, in conjunction with the Wall Street Journal. According to the 2016 scores, Oman emerged as the freest country among MENA counterparts when it comes to trade freedom. Sudan lagged behind, appearing at the bottom of the regional ranking. The trade freedom scores are based on two variables: trade-weighted average tariff rates and non-tariff barriers (NTBs). Different imports entering a country can, and often do, face different tariffs. The weighted average tariff uses weights for each tariff based on the share of imports for each good. Both qualitative and quantitative data are used to determine the extent of NTBs in a country’s trade policy regime. The categories of NTBs considered in the trade freedom penalty include: quantity restrictions, price restrictions, regulatory restrictions, customs restrictions and direct government intervention. The grading was absent for Syria in last year’s ranking but was included in this year’s. As to average ranking for MENA countries, it has remained the same year-on-year at 102, hinting to no change in the region’s countries overall trade freedom levels relative to other countries. At the same time, when it comes to the average score of the region, it slightly decelerated from 73.8 in 2015 to 73.3 in 2016, implying minimal overall deceleration in trade freedom levels. It remained, however, below the global average of 75.6 (up from an average of 75.3 in 2015). Eight MENA countries appeared in the upper half of the list of 177 countries included in the survey, while seven others appeared in the bottom half. Oman was the region’s top performer, coming in the 53rd spot out of 177 countries worldwide. It is the MENA country that has witnessed the biggest improvement in rank over the year, up by 36 notches, from the 89th spot in 2015. Its score also improved by 8%. Sudan

GLOBAL RANKS AND SCORES OF MENA COUNTRIES IN 2016 TRADE FREEDOM INDEX

Sources: Heritage Foundation, Bank Audi's Group Research Department



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was at the lower end of the scale, coming in the 174th position globally, and regressing by four notches from last year’s rankings. Its score went down by 5%. The second most significant improvement in rank was registered by Morocco (up by 17 notches), Bahrain (14 notches) and Saudi Arabia (12 notches). As to the most significant deceleration, it was reported by Jordan (down by 29 notches), followed by Qatar (4 notches), UAE (3 notches) and Libya (2 notches)._____________________________________________________________________________UAE’S REAL ESTATE MARKETS COOLS DOWN IN 2015, AS PER JLL

According to its recently released report: “The UAE Real Estate, 2015: A Year in Review”, Jones Lang Lasalle (JLL) considered that the real estate market in the UAE and in Dubai particularly cooled down last year after a significant expansion in 2013 and the first half of 2014.

According to the report, the lower oil prices and appreciation of the US dollar decreased the demand for real estate and weighed on the performance of key sectors like retail and tourism especially for visitors with no US Dollars pegged currencies.

In details, the Dubai office market saw the delivery of 700,000 square meters of gross leasable area (GLA) in 2015, increasing the total stock to 8.3 million square meters. However, Abu Dhabi’s market encountered the completion of much less office space with 146,000 square meters added, raising the stock to around 3.3 million square meters of GLA. Both Dubai and Abu Dhabi remain two tiered office markets with a strong demand for single owned Grade A office, but minor interest in secondary locations. Vacancies in Dubai’s Grade A buildings are now minimal, pushing rents up 4% year-on-year. In Abu Dhabi, Grade A office rents increased by 7% on an annual basis given the more limited supply of quality stock.

The residential completions across the country in 2015 remained lower than in recent years. This trend is likely to continue into 2016. The market in both Dubai and Abu Dhabi witnessed subdued sales activity in 2015. According to JLL, lower oil prices coupled with geopolitical unrest had a negative impact on investor sentiment while the strengthening of the US Dollar made UAE property more expensive for overseas investors. Looking at Dubai, volume and value of transactions fell by 33% and 28% respectively in year-to-November 2015, compared to the same period of 2014.

As for the retail market, Dubai encountered higher levels of new retail supply than Abu Dhabi in 2015. Activity in the UAE’s retail market across the UAE came under pressure in 2015 as the volume and value of retail sales slowed down. In Dubai, rents in 2015 remained flat in both primary and secondary super regional malls and are expected to decrease in 2016 as the market moves in favor of the tenants. In Abu Dhabi, retail rents in the prime malls are expected to remain stable in the short term given the more limited existing stock of good quality malls, the high purchasing power among residents and less dependency on tourist spending.

According to the report, the UAE hotel market saw mixed performance throughout 2015. Room rates remained flat in Abu Dhabi, however saw a 9% decline in Dubai in year-to-October 2015. Occupancy rates remained healthy in both markets with 77% and 74% in Dubai and Abu Dhabi respectively.



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CORPORATE NEWS_____________________________________________________________________________ABU DHABI UPC APPROVES US$ 1 BILLION MALL PROJECT

Kuwaiti developers National Real Estate Company and United Projects for Aviation Services Company won detailed planning approval from the Abu Dhabi Urban Planning Council (UPC) for their US$ 1 billion Reem Mall project.

The UPC’s granting of detailed planning approval to Reem Mall, a leisure, shopping, entertainment and dining destination coming up in Abu Dhabi, marks the final go-ahead required to take the project to the next stage.

It comes only six months after the mall’s concept plans were approved._____________________________________________________________________________QATAR'S BARWA REAL ESTATE SECURES US$ 444 MILLION ISLAMIC LOAN

Qatar's Barwa Real Estate signed a US$ 444.3 million Sharia-compliant loan with Islamic bank Masraf Al Rayan.

The loan is for five to seven years and would be used to refinance earlier borrowings, as per a company statement.

Barwa Real Estate Company is a publicly owned real estate investment firm. The firm engages in investment, development and management of properties. It also invests in stocks of real estate firms. The firm invests in the real estate markets across the globe. Its portfolio includes residential and commercial property and hotels. _____________________________________________________________________________MAJID AL FUTTAIM LAUNCHES US$ 509 MILLION CAIRO RETAIL PROJECT

UAE-based shopping mall developer Majid Al Futtaim plans to develop a third city centre project in Egypt at an investment of over LE 4 billion (US$ 509 million).

Majid Al Futtaim has laid the foundation for the new City Centre Almaza mall, its 14th in the City Centre network.

City Centre Almaza would be located in Cairo’s suburb of Heliopolis on the north eastern quadrant of the junction between the Cairo-Suez Road and Nasr Road in Heliopolis.

The mall, which is set to open by the first quarter of 2019, would feature 103,455 square meters of retail space offering more than 300 international and local brands, and as well as 23 restaurants, 18 food court outlets and nine cafes.

In addition to housing a retail mix of the leading international and local brands, City Centre Almaza would include a 13,040 square meters Carrefour, 16 state-of-the-art VOX cinema screens, a 1,800 square meters Magic Planet family entertainment centre and 4,000 parking spaces.

City Centre Almaza is one component of Majid Al Futtaim’s investment plan in Egypt worth LE 23 billion (US$ 2.9 billion), which also encompasses the undergoing developments of another two shopping malls namely Mall of Egypt and the expansion of City Centre Maadi.



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______________________________________________________________________________EMAAR AWARDS CONSTRUCTION CONTRACT FOR DUBAI CREEK RESIDENCES PROJECT

Emaar Properties awarded the construction contract for its upcoming Dubai Creek Residences project to Dubai-based Al Basti & Muktha (ABM), as per a company statement.

Located in Dubai Creek Harbour, the project includes a complex of six residential towers that form part of The Island District. The 30 to 40-storey residential towers with one, two and three-bedroom apartments have been launched, as per the same source. The project is scheduled for handover in 2018. The overall Island District would include a 4.5 km creek boardwalk and have over 1,000 guestrooms and over 600 retail shops and cultural amenities. It would also feature a marina, yacht club, ferry terminal creek pier, lighthouse and a harbor point.

The Dubai Creek Harbour project, being developed by Emaar Properties as a joint venture with Dubai Holding, is located on a land area of six million square meters.

It would include environmentally sustainable ecosystems, integrated transportation systems and green open parks. It would also include a dedicated retail precinct, pedestrian walkways, cultural amenities, educational facilities, healthcare centers and a range of leisure choices. ______________________________________________________________________________BAHRAIN'S MUMTALAKAT INKS DEAL FOR US$ 40 MILLION COPPER TUBE FACTORY

The investment arm of Bahrain announced an agreement to build the first copper tube manufacturing facility in the Kingdom.

Bahrain Mumtalakat Holding Company is working with Mueller Industries and Cayan Ventures to invest about US$ 40 million in the facility, which would address the increasing demand for quality copper tubes in the Middle East and North Africa, as per a company statement.

The copper tube mill would be located at the Bahrain International Investment Park and would produce commercial copper tubes to serve regional air conditioning and refrigeration manufacturers.

Under the agreement, Mueller would be the technical and marketing lead in the venture with a 40% ownership of the joint venture.

Mumtalakat would be responsible for providing on-the-ground support, including procuring regulatory approvals for establishing the business, and would hold a 30% stake. Cayan would invest, structure and mobilize the project and would also hold a 30% stake.______________________________________________________________________________JOINT VENTURE KEMYA TO EXTEND INTO RUBBER INDUSTRY

ExxonMobil Corp. and Saudi Basic Industries Corp. are extending their Al-Jubail Petrochemical Co. (Kemya) joint venture into the rubber industry.

Kemya would expand its facility in Jubail, nearly doubling both its size and employment with a US$ 3.4 billion investment. The project would have the capacity to produce up to 400,000 metric tons per year of rubber-including halobutyl, styrene butadiene, polybutadiene and EPDM-thermoplastic specialty polymers and carbon black to serve several local markets, the Middle East and Asia.

The facility is in the process of being complete and would go through a rolling startup throughout 2016 with the facility expected to be fully commercialized by the second quarter.

The carbon black unit started production in December. The other units are in the process of being completed. Once that phase is finished, the facility would undergo an extensive product testing phase to gain the necessary approvals to validate their products, gain customer approvals and finally begin production of commercial volumes.



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EQUITY MARKETS INDICATORS (JANUARY 10, 2016 TILL JANUARY 16, 2016)

Sources: S&P, Bloomberg, Bank Audi's Group Research Department

CAPITAL MARKETS_____________________________________________________________________________EQUITY MARKETS: RISING OIL PRICE CONCERNS DRAG MENA STOCK MARKETS LOWER

MENA stock markets extended their plunge during this week, as reflected by a 5.6% slide in the S&P Pan Arab Composite Index, amidst lingering global growth concerns, an extended oil price slump and fears about a prolonged era of weaker oil prices on speculation that international sanctions against Iran would be lifted early this year, a move that effectively took place on January 16, 2016, sparking fears across the region of an oil glut in an already oversupplied global oil market.

The Egyptian Exchange led the retreat in the MENA region this week, registering sharp price falls of 15.7% in the S&P Egypt index to reach its lowest level in 30 months. This came within the context of a massive exit of foreign market players amidst weaker investor sentiment across the globe after China guided the Yuan lower, sparking concerns over a global economic slowdown, and tracking declines across regional stock markets amidst growing fears over a prolonged era of weak oil prices given the impending resumption of Iranian oil exports into an already flooded market. Orascom Construction, the largest stock by market capitalization, posted a 9.0% weekly plunge in its price to close at LE 54.29. CIB’s share price shed 17.1% to LE 31.53. Talaat Moustafa Group’s share price plummeted by 16.4% to LE 5.42. Telecom Egypt’s share price fell by 13.4% to LE 5.76. EFG-Hermes’ share price went down significantly by 16.9% to LE 6.98.

The heavyweight Saudi Tadawul, with a market capitalization accounting for 38% of the total regional market capitalization, extended its downward trajectory during this week, registering a 5.8% drop in prices as per the S&P Saudi Index, bringing its year-to-date price decline to 15.3% as compared to a fall of 17.7% in the full-year 2015. This came within the context of a tightfisted 2016 budget based on an oil price of circa US$ 40 per barrel, while the latter fell below the US$ 30 threshold at the end of this week amidst rising global growth concerns and growing worries about flooding Iranian oil in an already oversupplied global oil market in case international sanctions against Iran are lifted, a move that effectively took place on January 16, 2016 after the International Atomic Energy Agency confirmed that Iran had complied with the terms of a deal aimed at scaling down its nuclear program.

Under these conditions, petrochemicals stocks were a drag to the index. Petro Rabigh’s share price plummeted by 9.0% to SR 9.36. Saudi Kayan petrochemical Company’s share price dropped by 4.2% to SR 5.75. Sahara Petrochemical Company’s share price shed 5.9% to SR 9.11. Also, NCB, the heaviest



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banking stock by market capitalization, registered an 11.3% plunge in its share price to close at SR 40.69, though the bank posted a 5% rise in its 2015 net profits to SR 9 billion. Al Rajhi’s share price declined by 2.6% to SR 48.69. Samba’s share price decreased by 4.4% to SR 19.14.

The UAE equity markets registered a 5.2% slump in prices week-on-week, driven by global growth concerns and a 14.7% plunge in Brent oil price to reach US$ 28.94 (its lowest level since 2003) amidst growing worries about the prospects of the global oil market and rising speculation about lifting international sanctions against Iran early this year. In Dubai, ENBD’s share price dropped by 2.9% to AED 6.800. Commercial Bank of Dubai’s share price fell by 4.8% to AED 6.00. Emaar Properties’ share price tumbled by 10.7% to AED 4.580. Emaar Malls’ share price shed 9.5% to AED 2.390. In Abu Dhabi, NBAD’s share price went down by 5.3% to AED 7.30. Union National Bank’s share price dropped by 4.8% to AED 4.40. Aldar Properties’ share price closed 8.3% lower at AED 2.00. Dana Gas’ share price fell by 4.1% to AED 0.47.

Finally, the Qatar Exchange reported a 6.3% decrease in prices week-on-week amidst an extended oil price slump and lingering global growth concerns. 40 out of 43 listed stocks posted price falls, while 3 stocks recorded price increases. Barwa Real Estate’s share price tumbled by 7.4% to QR 33.25, despite news that the company has signed a US$ 444 million Sharia-compliant loan with Masraf Al Rayan. Masraf Al Rayan’s share price shed 6.6% to QR 32.70. QNB’s share price fell by 6.2% to QR 155.60, though the bank posted a 7.7% rise in its 2015 net profits to QR 11.3 billion._____________________________________________________________________________BOND MARKETS: WIDESPREAD SELL-OFF ACROSS MENA BOND MARKETS AMIDST EXTENDED OIL PRICE SLIDE AND GLOBAL GROWTH CONCERNS

A sell-off mood spread over regional fixed income markets this week, with offshore accounts better sellers of risk and the street looking to take profit on the slightest uptick, amidst rising global growth concerns and an extended oil price slide to below US$ 30 per barrel amidst rising speculation about lifting international sanctions against Iran early this year, a move that effectively took place on January 16, 2016. This was reflected by a significant expansion in the Z-spread based Audi MENA Bond Index of 16.3%. Under these circumstances, Middle East’s five-year CDS spreads expanded by 21 bps week-on-week to reach 373 bps.

In the Kuwaiti space, KIPCO’16, ’19 and ’20 posted price falls of 0.50 pt, 0.75 pt and 0.88 pt respectively week-on-week. KIPCO said it has repaid its KWD 80 million four-year bond, issued in January 2012. KIPCO said that it regularly raises funds in the local and international debt markets, and would continue to do so with the aim of diversifying its investor base and providing the company with financial flexibility. Within this context, it is worth noting that the company is on schedule to repay US$ 500 million in October 2016 to redeem bonds previously issued under a short-term Euro securities program.

In the Qatari space, sovereigns maturing between 2017 and 2042 witnessed price drops ranging between 0.25 pt and 2.75 pts over the week. Qatari Diar’20 closed down by 1.38 pt. Ooredoo papers maturing between 2016 and 2043 posted price falls of up to 2.75 pts. Standard & Poor’s affirmed the “A-” long-term corporate credit rating on Ooredoo, with “stable” outlook. At the same time, S&P lowered the short-term corporate credit rating from “A-1” to “A-2”. Ooredoo currently has significant cash balances and a comfortable debt maturity profile, leading S&P to revise its liquidity assessment to “strong” from “adequate”. At the same time, S&P’s reassessment of the company’s competitive position as “strong” rather than “satisfactory” reflects its expectation of more stable profitability in the future. The “stable” outlook reflects S&P’s expectation that the group’s operating performance would not be markedly weaker than its base-case projections.

As to papers issued by financial institutions, Commercial Bank of Qatar’17 and ’19 posted price declines of up to 0.75 pt. QIB’17 and ’20 were down by 0.38 pt and 0.25 pt respectively over the week. QNB’17 was down by 0.38 pt. Prices of QNB’18 and ’20 fell by 0.75 pt each. QNB announced that it would request its shareholders’ approval for the issuance of capital-boosting bonds to maintain its reserves above regulatory minimums and support future growth. The lender’s Board already approved issuing



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MIDDLE EAST 5Y CDS SPREADS V/S INTL BENCHMARKS

Sources: Bloomberg, Bank Audi's Group Research Department

Z-SPREAD BASED AUDI MENA BOND INDEX V/S INTERNATIONAL BENCHMARKS

Sources: Bloomberg, JP Morgan, Bank Audi's Group Research Department

Basel III-compliant bonds that could either enhance its core Tier 1 capital or its supplementary Tier 2 capital.

In Saudi Arabia, prices of SABIC’18 and ’20 fell by 1.25 pt and 1.50 pt respectively. SECO bonds saw price drops across the board, with papers maturing between 2017 and 2044 posting price declines of 0.13 pt to 4.50 pts. Dar Al Arkan’16, ’18 and ’19 witnessed price decreases of 0.63 pt, 0.75 pt and 1.00 pt respectively. Amongst financials, Banque Saudi Fransi’17 was down by 0.13 pt. Regarding plans for new issues, Islamic Development Bank invited banks to pitch for roles in arranging a potential benchmark-sized Dollar-denominated Sukuk.

In the Abu Dhabi space, sovereigns maturing in 2019 were down by 0.50 pt on a weekly basis. Mubadala papers maturing between 2016 and 2022 closed down by up to 1.00 pt. IPIC papers maturing between 2016 and 2041 registered price declines of up to 1.25 pt. In Dubai, sovereigns maturing between 2017 and 2043 saw price declines ranging between 0.88 pt and 5.25 pts. DP World’20 and ’37 were down by 1.63 pt and 3.50 pts respectively. Emirates Airline’23 and ’25 posted price falls of up to 1.13 pt.



WEEK 03

SOVEREIGN RATINGS & FX RATES

Sources: Bloomberg, Bank Audi's Group Research Department

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