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Vision 2010



Market Performance 2009.....................................................4

Market Outlook.....................................................................8

UAE Economic Backdrop.......................................................11

Money Flow..........................................................................22

Technical Overview.............................................................24

Primary market activity and outlook................................28

Banking sector review .......................................................32

Real Estate Sector Review...................................................38

Telecom Sector Review........................................................44

Stock Guide...........................................................................48

Stock Briefs.........................................................................49

National Bank of Abu Dhabi....................................................................................................................... 50

Emirates NBD . ................................................................................................................................................. 51
Abu Dhabi Commercial Bank...................................................................................................................... 52
Union National Bank.................................................................................................................................... 53
First Gulf Bank............................................................................................................................................... 54
Dubai Islamic Bank........................................................................................................................................ 55
Dubai Financial Market............................................................................................................................... 56
Tamweel and Amlak Finance..................................................................................................................... 57
Emaar Properties........................................................................................................................................... 58
Union Properties............................................................................................................................................ 59
Deyaar Development.................................................................................................................................... 60
Aldar Properties............................................................................................................................................ 61
Sorouh Real Estate........................................................................................................................................ 62
Arabtec Holding............................................................................................................................................ 63
Depa Limited..................................................................................................................................................... 64
Drake & Scull International..................................................................................................................... 65
AGTHIA GROUP................................................................................................................................................... 66
DP World . ........................................................................................................................................................ 67
Aramex ............................................................................................................................................................. 68
Gulf Navigation Holding . .......................................................................................................................... 69
Air Arabia......................................................................................................................................................... 70
TAQA.................................................................................................................................................................... 71
Dana Gas........................................................................................................................................................... 72
Tabreed ............................................................................................................................................................. 73
Etisalat............................................................................................................................................................. 74
DU ....................................................................................................................................................................... 75

Appendix I (market timeline)...............................................76

Appendix II (market logistics).............................................77

January 12th, 2010 2

Vision 2010

• After a bumpy year, equity markets in the UAE recorded a gain of 23% in 2009,
according to the SC UAE Index. This performance came slightly higher than our
expectation, of a 21% gain, in our Vision 2009 report. Out of the country’s two main
exchanges, the ADX came out as the bigger winner. Despite the positive movement, UAE
markets significantly underperformed global peers and fell short of the 74% recorded by
the MSCI Emerging Markets Index in 2009.

• We expect the UAE to emerge from recession in 2010, driven by strong growth in Abu
Dhabi. We expect real GDP growth of 2.5% YoY this year, up from - 3.5% YoY in 2009. We
forecast nominal GDP at AED927.2bn this year, up 10.3% YoY. Inflation is expected to
remain contained at under 1%.

• Abu Dhabi will benefit from a recovery in oil prices and output this year, as well as
strong growth in the non-hydrocarbon sector, which will be supported by government
investment and spending. We expect real GDP growth in Abu Dhabi of 4.1% YoY in 2010,
up from -2.7% YoY in 2009.

• We expect Dubai’s economy to contract 0.4% YoY in 2010, an improvement on the

5% YoY contraction we estimate for 2009, as the key construction and real estate sector
continues to be a drag on growth in the emirate.

• News flow about the Dubai debt story, and mainly the Dubai World’s debt restructuring,
will be the main driver for stocks throughout 2010, especially during the first half of the
year. Having said that, we expect that the outcome of these negotiations will not be
too hostile to creditors. On that note, and taking into account the continued economic
recovery (mainly driven by Abu Dhabi’s economy) we expect the UAE markets to witness
another positive year.

• We expect the UAE markets to record gains of around 20 to 25% in 2010. The favorable
valuation parameters of the market at current levels compared to the market’s own
history, as well as to regional and global peers, will prove to be core catalysts for the
market in 2010. We also believe that our forecast will be supported by corporate earnings
growth (expected to record a growth c .17% coming from a low base in 2009) , some
other positive corporate news flows, and improved investor sentiment post Dubai World’s
debt issue resolution.

• We acknowledge several risks to our expectation, mainly the possibility of a negative

outcome or a prolonged negotiation between Dubai World and its creditors, and its
harmful effects on investors’ sentiment, the banking sector, as well as the whole economy.
Further, the UAE, which has proven to be correlated with global markets, could suffer
another blow if a sell-off in global equity market occurs. The same could be said about a
correction in oil prices, or further structural threats in the real estate sector which could
put some of the top developers (or contractors) at risk.

January 12th, 2010 3

Vision 2010

Market Performance 2009

After a bumpy year, equity markets in the UAE recorded a gain of 23% in 2009, according
to the SC UAE Index. This performance came slightly higher than our expectation, in our
Vision 2009 report, of a 21% gain. Out of the country’s two main exchanges, the ADX
came out as the bigger winner with the ADX General Index (ADXGI) gaining 14.8% versus
the DFM General Index’s (DFMGI) 10.2% rise in 2009. It is worth mentioning that the
discrepancy between the SC UAE Index and DFMGI/ADXGI is mainly due to the fact that
the SC UAE Index does not take into account names that are illiquid and may hinder the
index performance; such as MashreqBank, Amlak and Tamweel. In addition to that, the SC
UAE index includes names such as DP World.

Despite the positive movement, UAE markets significantly underperformed global peers
and fell short of the 74% recorded by the MSCI Emerging Markets Index in 2009. We note
that this positive movement also came from a very low base, post 2008’s staggering 66%
drop in the SC UAE Index.
MSCI EM vs. SC UAE Index






Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10
MSCI EM Index SC UAE Index rebased
Source: Bloomberg, SHUAA Capital

We believe the key drivers of the market performance for the year included:
• Strong support of the Government of Abu Dhabi to the Government of Dubai
• Strong support of the Federal Government to the UAE banking sector
• A strong rally in oil prices which saw a 137% rise in 2009
• A slowdown in the real estate price correction
• Improving investor sentiment globally which resulted in high gains by global

The majority of UAE large caps ended the year positively. While 17 out of the largest
listings actually outperformed the SC UAE Index’s gain, 33% fell short and 19 listings
ended the year in the red. The best performing stock was Aramex which recorded an 80%
gain as investors searched for companies that would be affected less than others during
tough times. First Gulf Bank followed with a 79% gain backed by attractive fundamentals
and share buy-back activity. Also, and not surprisingly, foodstuff and beverage producer
Agthia emerged as the third top performer, having gained 74%, as it benefited from its
‘recession proof’ nature.

The most interesting component of the rise though was Dubai based real estate
stock, Emaar Properties. The stock saw a gain of 71% during 2009, placing it fourth in
our performance ranking. We note that Emaar had finally managed to come out of a
significant underperformance it had experienced in 2007 and 2008, proving investor
appreciation of the company’s project delivery track record and continued improvement
in its transparency and investor relations, as well as a lack of a heavy debt burden
compared to other Dubai based developers. The country’s largest listing, Etisalat,
outperformed the SC UAE Index and gave investors a 34% return in 2009, on top of its
cash dividend payouts of AED 0.6/share. We believe this performance was understated
due to Etisalat’s less liquid nature and the inability of non-UAE nationals to own the stock.

January 12th, 2010 4

Vision 2010

Looking at the decliners, we realize that banks constituted the majority. Nine out of the
nineteen decliners were banks as they continued to suffer from heavy provisioning from
bad loans and a slowdown in their core operations.

UAE large cap Performance 2009


Emaar Properties
Waha Capital
Dana Gas
Dubai Financial Market
Abu Dhabi Aviation
SHUAA Capital

National Bank of Abu Dhabi

SC UAE Index
Drake & Scull
Arabtec Holding
RAK Properties
Abu Dhabi National Hotels
DP World

Abu Dhabi National Insurance

Oman Insurance Company

Finance House
Air Arabia
Dubai Investments Company
Emirates NBD
Union Properties
Bank of Sharjah
Commercial Bank International
National Marine Dredging

Commercial Bank of Dubai

Sorouh Real Estate

Gulf Cement

Union Cement
National Bank of Umm Al-Qaiwain
Arkan Building Materials

Gulf General Investment Company

First Gulf Bank

Union National Bank

Dubai Islamic Bank

Abu Dhabi Islamic Bank

Sharjah Islamic Bank

Abu Dhabi Commercial Bank


United Arab Bank

RAK Bank


Source: SHUAA Capital

Revisiting the rally…..A story in three acts

In an attempt to deconstruct the market movement in 2009, we now go back and

look into the overall UAE performance in a little bit more detail. We divide the UAE
performance for the year into three stages.

Act 1……..the decline continues

The start of 2009 saw the continued selling pressure which was initiated in mid-2008.
From January 1st 2009 to the 4th of February, UAE markets fell a further 16% as they
remained infested by a negative investor sentiment, inability to tap debt markets globally,
declining oil prices, correlation with global markets and a harsh domestic real estate
decline. The worst performer during that period was none other than Dubai-based
contractor, Arabtec Holding. The stock fell a whopping 66% in just over one month as
investors avoided any exposure to real estate stocks. Aldar Properties, Sorouh Real Estate,
Union Properties and Emaar Properties suffered similar fates with respective declines of
48%, 37%, 22% and 20%.

Act 2………..Government acts and global markets begin to recover

The main turning point for UAE equities came on the 4th of February when the
Government of Abu Dhabi showed its support to five Abu Dhabi banks by injecting AED
16 bn of fresh capital through Tier 1 notes. This move came on top of support previously
shown by the Ministry of Finance and the Central Bank. The cash injection somewhat
helped to relieve the wound to investor sentiment, causing a slight market gain.
The bigger boost to the market however came on the 22nd of February, with the UAE’s
Central Bank fully subscribing to a USD 10 bn bond issued by the Government of Dubai.
At the time when investors were skeptical about Dubai’s debt situation and its ability to
meet requirements, this came as a massive catalyst to markets. The SC UAE Index gained
a whopping 6% the next day and markets started to show signs of life again. The cherry
on top was an accelerated global market recovery, which only gave more comfort to

The continued government support, coupled with a global rally, caused the SC UAE
Index to gain 63% from the 4th of February till the 24th of November, when yet another
supportive measure came in the form of a USD 5 bn bond issuance by Dubai that was
fully subscribed for by two Abu Dhabi banks (majority controlled by the Abu Dhabi
government). We also note that international investors, who were seeking value in UAE
blue chips, led the market rally. The rally was then reinforced by local investors (and some
international) who began picking up the smaller UAE listings, causing them to catch up
with the blue chips; creating a lead-lag effect between large-cap blue chip companies
and small-cap names.

January 12th, 2010 5

Vision 2010

The best performing stock over the period was Arabtec, gaining over 300%. This was
followed by the Dubai Financial Market and Aldar Properties, which recorded gains of
177% and 169%, respectively.

Act 3……...Dubai debt woes intensify

The final leg of the UAE’s 2009 performance was, to say the least, the most interesting one.
Two key events gave investors the rollercoaster of a lifetime.
The first event occurred on the 24th of November – only a few hours after the
Government of Dubai had issued the USD 5 bn bonds mentioned earlier – when Dubai
World, a government owned entity, announced it will be asking its creditors and bond
holders for a ‘standstill’. The announcement immediately caused a massive sell-off in the
UAE, wiping out nearly all previous gains recorded from the beginning of the year and
dropping 24% in ten days before the selling pressure eased.
The second event took place on the 14th of December when the Abu Dhabi Government
said it would lend the Government of Dubai USD 10 bn to help meet its debt obligations
and caused the tides to turn again and assisted markets to recover some of the losses
they suffered earlier.

SC UAE Index

Act 1 Act 2 Act 3























SC SHUAA Capital
UAE Index

Corporate earnings trends

Although quarterly earnings in 2009 may have recovered from the sharp dip of Q4 08,
they have yet to reach the levels witnessed in the first nine months of 2008. Corporate
earnings reverted to some sort of normalcy witnessed in the past years. We noticed
that 2008's gains from revaluation, fair value gains, investment income and other non-
operational items were somewhat reversed in starting Q4 2008.
Q4 08 took the biggest hit as most companies across sectors not only suffered from
a slowdown in their operations or losses in their investment portfolios, but also took
hefty provisions and write-offs. This was certainly the case in the banking sector and the
investment sector, which when combined, drove the earnings down by AED 6.76 bn
when compared to Q3 08. The real estate and construction sector alone dragged earnings
down by approximately AED 5.2 bn in Q4 08. The telecom sector was the only one that
witnessed a growth in Q4 08, with the two telecom operators (Etisalat and DU) reporting
a composite growth of 11% QoQ.
Coming from a low base, Q1 09 earnings represented a strong QoQ recovery. The banking
sector saw QoQ growth of c. 640%. Further, the real estate sector returned to profitability
after the losses it had suffered in the last quarter of 2008, which were mainly attributed to
the AED 1.8 bn loss Emaar Properties incurred in Q4 08. Etisalat also helped boost Q1 09
earnings as it recorded an 18% QoQ earnings growth.
Recovery of the equity markets in the second quarter of 2009 drove profits upwards
for some sectors, mainly investment companies and insurance companies. However,
Emaar Properties suffered an AED 1.3 bn net loss in Q2 09 due to a write-down of AED
1.8 bn with regards to its US subsidiary. This loss was cancelled out though with Aabar

January 12th, 2010 6

Vision 2010

Investment’s net profit of AED 1.5 bn for the quarter (after restating). All in all, Q2 09
aggregate earnings posted a QoQ growth of 14%, resulting in the strongest quarter
during 2009.
After coming from a high base, the third quarter of 2009 saw aggregate earnings drop by
7% QoQ. This was seen despite the return of Emaar to profitability, with a profit of AED 655
mn, and a strong quarter for the logistics and transportation sector, which witnessed net
income growth of 47% QoQ.
Looking at our estimates for Q4 09, we expect earnings to slightly drop from the strong
levels seen in the third quarter. The drop is expected to stem mainly from the banking
sector, due to a drop in core operations and the anticipation of further provisions.

Aggregate quarterly earnings (AED mn)

Q1 08 Q2 08 Q3 008 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09e

Source: SHUAA Capital

January 12th, 2010 7

Vision 2010

Market Outlook
2009 was marked by the reality of a worsening economic situation hitting home,
manifested by negative corporate news flow, such as a decrease in earnings, as well as
poor economic indicators (such as layoffs, project cancellation, reducing productivity…).
The correction in real estate prices did cascade on the whole economy, and more
specifically on the banking sector. As the year evolved, investors started to reasonably
price in the negative news flow associated with the real estate crash as well as the
slowdown in economic activity; the market started to stabilize and commenced its path
to recovery. However by year end, the Dubai World’s announcement came as a shock to
the market, erasing most of the year’s gain, and we believe that throughout the first half
of the year, investors have turned their attention and expectations on the Dubai World’s
debt negotiation outcome and the whole Dubai debt story in general, its effect on the
real estate story, the banking sectors, and the overall economy.

As such the Dubai debt story and more specifically, the Dubai World’s restructuring
outcome will be the main driver for the market, in our view. At this point, with
negotiations on the restructuring of USD22bn of Dubai World’s debt still at an early stage,
all options remain on the table. Although we opt not to speculate on the outcome of the
restructuring, especially concerning the refinancing terms or the level of haircuts (if any),
we note that the Dubai government (and not the commercial entity) is in charge of the
restructuring and negotiation of Dubai World’s debt. As such, we believe that the final
resolution would take into account the ‘bigger picture’ with regards to the following: (1)
there are several government related entities (GREs) that will need to tap international
markets to refinance debt falling due in 2010-11; (2) how much local banks and
contractors are negatively affected by the outcome of the restructuring, which could have
significant repercussions and jeopardize local economic recovery; (3) a resolution that is
considered ‘hostile’ by foreign banks would drastically affect the ability of all Dubai based
entities to raise foreign capital in the near future.

Having said that, we note that the weak disclosure of economic indicators in the
UAE (in depth, coverage, and frequency) and, to a certain extent, the weak corporate
communication (especially related to the leverage and financial situation of some
quasi-governmental entities), is pushing investors to price in the worst possible scenario.
This is why we believe that towards the second half of the year, as the Dubai World’s
restructuring story is resolved, most of the uncertainty that resulted from the restructuring
will disappear, investors’ forecasts will be adjusted and the market will move to steadily
price in better (or less bad) times ahead.

Interestingly enough, unlike the end of 08 and the beginning of 09, the risk appetite
of investors (mainly foreign investors) remains high despite the Dubai World’s debt
restructuring. This is particularly manifested in the somewhat immediate recovery of the
market post the payment of the Nakheel 09 Sukuks (and the corresponding Abu Dhabi
support) as well as the current high level of foreign ownership in blue chip stocks. While
foreigners were net sellers after the ‘standstill‘ announcement, they came back to the
market after the payment of the Nakheel 09 Sukuks, picking up their usual suspects or
preferred names both in Dubai and in Abu Dhabi.

Bottom line: news flow about the Dubai debt story, and mainly the Dubai World’s debt
restructuring, will be the main driver for stocks throughout 2010, especially during the
first half of the year. At this point, uncertainty concerning the possible outcome of the
debt restructuring, and its repercussion on capital markets as well as the local economy,
remains high, making any forecast risky and highly sensitive to our set of assumptions.
Having said that, we expect that the outcome of these negotiations will not be too hostile
to creditors (for the reason explained above). On that note and taking into account the
continued economic recovery (mainly driven by Abu Dhabi’s economy), we expect the
UAE markets to record gains of around 20 to 25% in 2010.

January 12th, 2010 8

Vision 2010

We acknowledge several risks to our expectation, mainly the possibility of a negative

outcome or a prolonged negotiation between Dubai World and its creditors, and its
harmful effects on investors’ sentiment, the banking sector, as well as the whole economy.
We also acknowledge that during the negotiation, and prior to reaching an agreement,
we might witness negative announcements by both parties, as part of a tactical move or
strategy to achieve better terms. Such an announcement could significantly hurt markets.

Further, the UAE, which has proven to be more correlated with global markets, could
suffer another blow if a sell-off in global equity market occurs. The same could be said
concerning a correction in oil prices, as a severe correction will effect both fiscal strength
of the region (the UAE to a lesser extend as the breakeven oil price is low), and would hurt
both local and foreign investors’ confidence, putting further pressure on local markets.
Some local factors would also constitute risk; mainly, another real estate correction which
could put some of the top developers (or contractor) at risk. We note, however, that even
though we believe that the severe real estate correction has been priced in investors’
forecasts, the news of a top developer blow-up would heavily weight on the market.

Earnings Outlook:

We expect aggregate earnings to have shrunk by c. 20% in 2009, pulled down mainly
by weaker results in real estate companies. Slower balance sheet growth in the banking
sector as well as deterioration in the asset quality resulted in higher provisioning and a
decrease in earning by about c.14% in 2009. On the other hand, the telecommunications
sector remained resilient with earnings slightly improving.

In 2010, and coming from a low base, we expect aggregate earnings to start recovering
and record an aggregate growth of c. 17%, driven mainly by higher results for the real
estate companies. However, we would like to note that these real estate companies
(especially Emaar) have incurred large write-offs in 2009, contributing to the slump in
aggregate earnings of 2009, and resulting in the high growth in 2010 . The banking sector
will continue to witness a slower balance sheet growth as well as deterioration in the asset
quality. However, given the earnings contraction that this sector has witnessed in 2009,
we expect a meagre single digit earning growth in 2010. We would like to point out the
substantial difference between our forecasts for Abu Dhabi banks and Dubai banks. Abu
Dhabi banks will witness double digit growth while Dubai banks will suffer either from
continued decrease in earnings or a relatively flattish forecast. The telecommunications
sector will again remain resilient with earnings affected only slightly.

Valuation Parameters:

We believe that favorable valuation parameters of the market at current levels compared
to the market’s own history, as well as to regional and global peers, will prove to be a core
driver of the market in 2010. We also believe that our equity market performance forecast
will be supported by corporate earnings (discussed above), some other positive corporate
news flows and improved investor sentiment post Dubai World’s debt issue resolution. All
in all, those will eventually lead to an expansion in valuation parameters.

Comparing the UAE market with the MSCI EM universe reveals that the UAE market is
trading at a severe discount. Therefore, we believe that the UAE markets represent a
persuasive investment case when compared to other emerging markets. Our earnings
forecast discussed above, implies a forward PE of 7.9x 2010 earnings for the UAE markets
as a whole, a 43% discount to the MSCI EM which currently trades at a forward PE of 13.8x
2010 earnings.

Comparing the market to its historical valuation using the 12 month trailing PE multiple,
shows aggregate earnings multiples in 2009 have been acutely depressed. Current 12m
trailing multiples stand at 9.3 times. These valuations are sharply below the historical
average of 14.6 times, and 13.4 times for the adjusted average, where we opt to remove
‘off-the-chart’ levels witnessed mainly in 2005 and early 2006.

January 12th, 2010 9

Vision 2010

UAE 12m trailing PE series


O 0

O 5
Ja 1

Ja 6
Ap 2

Ap 7
Au 1

Au 6
Se 3

Se 8


Fe 8


M 4



De 4


De 9

























UAE Moving Trailing Market PE ratio Average Adjusted Average

Source: SHUAA Capital

Decomposing the forecast: a bottom-up view

Our expectations of a continued market recovery in 2010 and an expected gain of around
20 to 25% are mainly based on our bottom up view, however we expect a differential
between listed companies this year.

During the rally at the beginning of 2009, investors and mainly foreign investors picked up
the blue-chip high quality stocks that were trading at deep discounts. After a strong rally
in these stocks, investors began looking at other stocks, which by comparison, started to
look cheap. Speculators, on the other hand, picked up and pushed the valuation of some
small caps and even some of the most fundamentally challenged stocks. This lead-lag
phenomenon, where the top quality names and blue-chip stocks head started the market
rally before the rest began to follow, is expected to be seen in 2010. We expect our top
picks in the UAE to lead this rally.

In our bottom-up view, we expect real estate and construction stocks to have a
mixed performance in 2010 with stocks having exposure to the Abu Dhabi market
outperforming the rest; specifically Aldar Properties and Arabtec (especially post Aabar
acquisition and the potential Abu Dhabi contracts award). In the banking sector, the
discrimination between Dubai and Abu Dhabi names will be even more severe, as we
expect names such as FGB, UNB and NBAD to perform well this year, whereas DIB and
ENBD to be on the opposite side of the spectrum. We continue to favor the defensive
stocks, particularly Etisalat with its resilient earnings. Similarly we expect, and despite last
year’s performance, Air Arabia to outperform the market this year.

Risks to Monitor:

Although we believe in the case for a recovery of 20%-25% by the equity benchmark (SC
UAE index) this year, there are a number of factors or potential developments that should
be monitored closely, as they may have a detrimental effect on the performance of the
market going forward. They include:
• A negative outcome or a prolonged negotiation concerning the Dubai World debt
restructuring with its creditors (please refer to this discussion at the beginning of
the section);
• A wave of sell-off in global equity markets, that would cause damage to investors
sentiment and renew selling pressure in the UAE markets;
• A steep decline in global oil prices, which might act as a dampener on headline
economic growth figures and general investor sentiment;
• A worse than expected deterioration in commercial bank’s asset quality, as the
provisions due to the real estate crash but more important the Dubai Worlds’ debt
intensify (we are expecting average NPL/Gross Loans to reach 8% by year end);
• The curse of the Middle East is chronic instability in evolving forms, and the main
geopolitical risk affecting the Gulf for 2010 is deterioration in the nuclear standoff
between Iran and the UN or the US as well as internal instability in Iran; not to men-
tion the ever-present possibility of a terrorist attack by Islamic fundamentalist.

January 12th, 2010 10

Vision 2010

UAE Economic Backdrop

UAE was not immune from the global slowdown in 2009…

At the peak of the financial crisis in Q4 2008, many observers had predicted that the
UAE and the rest of the GCC would be relatively immune from the effects of the global
slowdown as a consequence of their considerable fiscal reserves that could be deployed
to support the local economies. This has indeed been the case in countries such as Saudi
Arabia, where real GDP growth was slightly positive last year, even with a substantial
contraction in oil output.

The UAE’s case, however, is more a tale of two economies: Abu Dhabi owns almost all
of the country’s oil resources, and according to our estimates has managed to sustain
non-hydrocarbon growth of about 4% YoY in 2009 by increasing government spending to
compensate for the drop in private consumption and investment. As a result, we believe
overall GDP growth in Abu Dhabi was in the region of -2.7% YoY last year, once the decline
in oil output (which accounts for about half of Abu Dhabi’s real GDP) is taken into account.

Hydrocarbons still account for about 60% of Abu Dhabi’s GDP


Mining & quarrying*
Construction, real estate
services & business services
10% 64%
Wholesale, retail
trade and services
Financial services

*Hydrocarbons have a slightly higher portion of nominal GDP in 2008 due to high oil prices.
Source: National sources, SHUAA Capital analysis

Abu Dhabi’s growth is set to recover in 2010

% YoY
- 1.0
- 2.0
- 3.0
- 4.0 2007 2008 2009e 2010f 2011f

Source: National sources, SHUAA Capital analysis

Dubai, however, has relatively little in the way of natural resources and no associated fiscal
surpluses, leaving it a lot more vulnerable to the global recession. Unlike its neighboring
emirate, Dubai has relied on the debt to finance its economic growth and diversification
effort, and thus felt the full blown effect of the global financial crisis. The combination
of the burst of Dubai’s real estate bubble, the shutdown of global credit markets, the
high debt levels of the various Dubai Inc entities, as well as the job losses and resulting
population decline has resulted in the ‘perfect storm’, pushing Dubai into a severe

January 12th, 2010 11

Vision 2010

Different dynamics driving the construction sectors of Dubai and Abu Dhabi

Dubai’s construction and real estate market was particularly vulnerable to correction
in 2009. Activity was driven to a large extent by speculative demand for property
and financed by debt. As a result, the sector suffered a double whammy last year:
the sharp drop in demand for accommodation as the economy slowed, jobs were
lost and expatriates returned home combined with the credit crunch that made
mortgages and building financing nearly impossible to secure. As a result of the
decline in demand as well as new supply of both office and residential units, many
projects that had been scheduled to commence in 2009 and 2010 have either
been delayed or cancelled. Given that construction and real estate accounts for a
significant portion (at least 25% but probably higher in our view) of Dubai’s economy,
the contraction in these sectors is a key driver of our negative growth forecasts for
the emirate.

Abu Dhabi’s GDP growth has not been as badly hit by the slowdown in construction
and real estate as Dubai’s largely because activity is driven more by fundamental
demand and supply dynamics rather than speculation. There is a real shortage of
accommodation in Abu Dhabi that is reflected in the increase in housing rents (albeit
at a slower rate) in the emirate last year. As a result, the construction sector was not
affected by the vast scaling down or cancellation of projects as was the case in Dubai.

Using the available official 2008 GDP statistics for Dubai as a starting point (see Box 2 for
a note on this), we estimate that the emirate’s GDP contracted by 5% YoY in 2009. This
is based on our assumption that construction and real estate services, which together
account for about 25% of GDP, declined by 10% YoY in real terms. We also expect to
see a substantial contraction in the wholesale & retail trade sector, which accounts for a
substantial proportion of Dubai’s economy, as well as negative growth in manufacturing,
financial services and tourism.

Dubai’s economy is likely to have contracted sharply in 2009

% YoY








-6.0 2007 2008 2009e 2010f 2011f

Real GDP growth
Source: National source, SHUAA Capital

For the UAE as a whole then, bearing in mind that Abu Dhabi accounts for about 55%
of the UAE’s total output compared with Dubai’s 33% share, we estimate GDP growth of
-3.5% YoY in 2009, as a result of the decline in oil output as well as the sharp contraction in
Dubai’s construction and service-based economy.

January 12th, 2010 12

Vision 2010

…but the outlook for this year is better

Looking ahead to 2010, we expect Abu Dhabi to lead the way on the growth front as a
result of a recovery in both the oil and non-oil sectors with GDP growth of 4.1% YOY. We
expect oil production to expand as the global economy recovers and the government
continues to invest in increasing capacity in the sector. The non-hydrocarbon sectors
will continue to be supported by increased government spending as the Abu Dhabi
authorities pursue their longer term strategy of diversifying the economic base of the
emirate away from oil. As oil revenues to the emirate’s coffers picks up on the back of
higher anticipated oil prices, and given the significant fiscal surpluses accumulated since
2004, Abu Dhabi is in a strong position to support economic growth in the emirate, and
indeed in the UAE as a whole, over the next few years.

Despite the expected strong macroeconomic fundamentals in Abu Dhabi, GDP growth
for the UAE is likely to be dragged down somewhat by Dubai. With so much of Dubai’s
economy dependent on consumer demand and private investment, and without the
deep pockets to fund increases in government spending, it is hard to see where economic
growth in Dubai will come from in 2010. To the extent that the global economy – and
consumer sentiment – recovers this year, Dubai should see tourism, trade and financial
and retail services expand, especially off 2009’s low base. However, we still expect output
in the key construction and real estate sectors to decline, limiting annual GDP growth in
Dubai to -0.4% in 2010.

As a result, our base case scenario is GDP growth for the UAE at around 2.5% YoY in 2010,
rising to 3.7% YoY in 2011 as the global economic backdrop continues to improve and
private consumption and investment gain momentum.

Hydrocarbons account for about a third of UAE's Nominal GDP (2008)


Mining and quarrying*
Construction and real
estate services
Wholesale and retail trade
15.9% Financial services
Transport, storage &
12.1% Other
*Hydrocarbons have a slightly higher portion of nominal GDP in 2008 due to high oil prices.
Source: National sources, SHUAA Capital analysis

UAE’s growth to be driven by Abu Dhabi

% YoY






-4.0 2008 2009e 2010f 2011f

Real GDP

Source: National sources, SHUAA Capital analysis

January 12th, 2010 13

Vision 2010

It’s all in the numbers, and the UAE’s national data may not fully capture
economic trends.

Although we have used official statistics as a starting point for all our analysis and
forecasting, we do have concerns over the extent to which these statistics accurately
reflect what is going on in the economy. We recognize that the statistical agencies
in the UAE are relatively young, but there are inconsistencies and significant gaps
in the data published by the various economic and financial authorities that make
forecasting variables such as growth and inflation difficult.

With regards to the GDP data for example, there is no breakdown of the expenditure
side of national accounts, which makes it difficult to determine the extent to which
the economy has been driven by private consumption and investment, or by the
government. Furthermore, the production data for GDP appears to under-reflect the
contribution of key sectors such as construction and tourism in Dubai, and we also do
not have tremendous confidence in the GDP deflators used at the national level.

If, as we suspect, the construction, real-estate and business services sectors account
for substantially more than the reported 25% of Dubai’s economy, then the risks
to our GDP growth estimate for 2009 and indeed our forecast for 2010 are on the
downside, as we do not expect to see a rapid recovery in these key sectors over the
next year or two.

Another glaring anomaly in the statistics is the housing component of inflation in

Dubai, which accounts for almost 40% of the consumer price index (CPI). In 2008,
the official statistics show housing inflation of just under 7% YoY, which we believe is
on the low side. Our estimate of average inflation in Dubai for 2008 is closer to 15%
YoY, rather than the 10.8% reported officially. Even more astounding is that in 2009,
the official housing component registers inflation of 2.7% in Jan-Aug 2009 over the
same period 2008. Estimates from property advisory firms show declines of 30-
45% in housing rentals in Jan-Sep 2009, with most of this coming in 1H09. Our own
estimate for Dubai’s inflation in 2009 assumes an average decline in housing of 20%
for the year (for inflation purposes, bearing in mind that most rental leases are for 12
months), and is thus substantially lower than the reported headline inflation data
year-to-date. The impact of this difference is also reflected in our lower estimate for
overall UAE inflation for 2009.

Inflation: How low will it go?

The silver lining of the 2009 recession has been the sharp drop in inflation. Official data
shows that CPI inflation has dropped to 1.7% YoY for the UAE as a whole in Jan-Nov 2009
from an average of over 12% YoY in 2008, and we expect the official data will remain at
this level for 2009 as a whole.

Average annual inflation in Abu Dhabi has dropped from almost 15% in 2008 to just 0.85%
YoY in the first 11 months of 2009, driven by sharply lower food and clothing prices. The
shortage of housing in Abu Dhabi has meant that housing costs continued to rise in the
emirate last year, albeit at a much slower pace.

Dubai, however, is a different story. Our research shows rents have dropped between
30 and 45% on average in the first three quarters of 2009, with the biggest declines
registered in H1 09. Despite this, the housing component of Dubai’s CPI shows inflation
of over 2.7% YoY in Jan-Aug 09. Based on our own adjustments to the housing index, we
estimate Dubai experienced deflation of 6.3% YoY on average in 2009, which suggests
overall UAE inflation was close to zero, rather than the 2% YoY official estimates suggest.

January 12th, 2010 14

Vision 2010

Dubai CPI component weights (%)

Housing, utilities & fuels 43.70
Food & non-alcoholic beverages 11.08
Transport 9.08
Miscellaneous goods & services 6.15
Communication 6.00
Clothing & footwear 5.52
Restaurants and hotels 5.48
Recreation and culture 4.24
Education 4.09
Furnishing, household equipment & maintenance 3.34
Health 1.08
Alcohol & tobacco 0.24
source: Dubai Statistical Centre

Looking ahead to 2010, we expect inflationary pressure to remain low. We expect average
inflation of around -0.5% YoY in Dubai this year, on the back of continued, albeit slower,
declines in housing costs. We expect the annual CPI in Abu Dhabi to rise 1.5% on average
this year, and overall inflation in the UAE to remain close to zero. As domestic demand
recovers in 2011, and the pace of growth accelerates, we believe inflation will pick up
across all emirates, but we do not expect to see a return to double digit inflation in the

Inflation is likely to remain contained

% YoY



2008e 2009e 2010f 2011f


Abu Dhabi Dubai UAE
Source: National sources, SHUAA Capital analysis

Liquidity injections have helped to stabilize the financial sector

Monetary policy in 2009 has focused on stabilization of the financial sector as

international and domestic credit markets seized up, especially during H1 09. Deposits
in all banks, including local branches of international banks, were guaranteed by the
government and AED50bn of liquidity was deposited into the banks at the height of the
credit crunch. An additional AED20bn could still be deployed to boost liquidity in the
sector if the authorities deem this necessary.

Nevertheless, there has been a sharp decline in both broad money (M2) and private sector
credit growth in 2009 as banks appear to have become more risk averse. An analysis of the
consolidated banks’ balance sheet shows up 2 interesting trends:

1. Banks’ cash and deposits at the central bank have grown almost 20% in the first 8
months of 2009, while domestic credit growth has been just 3.5% over the period. This
suggests that banks are somewhat unwilling to lend and prefer to keep more of their
assets in cash.
2. Within total credit growth, loans to the public sector, ie government and official
entities, has soared by almost 25% in the year to August 2009, whereas bank loans to
the private sector have remained almost flat over the same period. This suggests that
whatever liquidity is available is being swallowed by the public sector at the expense
of individuals and private businesses.

January 12th, 2010 15

Vision 2010

Anecdotal evidence suggests lending criteria have become stricter during the course
of 2009, contributing to the sharp slowdown in the real estate sector and private
consumption and investment more broadly. That public sector credit growth has
outpaced private credit growth suggests, in our view, either a ‘flight to quality’ in that
the government is seen as a safer bet than the private sector, or a reflection of the fact
that most local banks are owned by the government prominent families and these
stakeholders have priority over whatever funds are available for lending; we favor the
latter explanation.

Public sector accounts for almost all credit growth (Jan-Aug 09)




Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09

private sector bank credit public sector bank credit

Source: National sources, SHUAA Capital analysis

We believe the outlook for credit growth in 2010 depends to a large extent on the
successful (from the banks’ perspective) resolution of the Dubai World debt negotiations,
as well as the borrowing requirements of government and official entities and global
liquidity conditions. Given the low base effects of 2009 however, we would expect to see
some recovery in private sector credit growth this year.

The UAE also made the decision in 2009 to withdraw from the planned GCC monetary
union after the announcement that the new regional central bank would be based
in Riyadh rather than Abu Dhabi as the government had hoped. Although the move
was a political decision rather than an economic one, we believe it will allow the UAE’s
authorities some flexibility with regards to monetary policy in the coming years than
might have been the case under a monetary union, although of course, the monetary
policy tools available to the central bank in the UAE are still limited by the pegged
exchange rate.

Fiscal policy is likely to remain expansionary

We believe the fiscal position of the UAE remained strong in 2009, despite an estimated
decline in hydrocarbon revenues of about 45% from the high of 2008. We expect the
consolidated budget surplus has declined from over 20% of GDP in 2008 to about 4% of
GDP in 2009.

Looking at the emirates individually, we estimate Dubai’s budget deficit widened to about
AED10bn last year, or 3.4% of the emirate’s GDP as expenditures increased by 35% YoY. A
significant portion of the spending was on infrastructure projects, but this government
stimulus was insufficient to offset the decline in private sector demand. The recently
approved 2010 Dubai budget projects a deficit in the region of AED6bn, with expenditure
budgeted to decline by 6% YoY. We believe that the Government of Dubai can easily
finance this deficit from the federal government, or by issuing sovereign paper, once the
capital market appetite for Dubai is restored conditional on the ‘friendly‘ resolution of
Dubai World’s debt negotiations.

January 12th, 2010 16

Vision 2010

With Abu Dhabi accounting for the bulk of the consolidated budget, and based on our
conservative assumption of an average USD70 per barrel oil price and a small increase
in oil output this year, the fiscal outlook for 2010 remains extremely strong. We estimate
a break even oil price of around USD55 per barrel for 2010. In our view, the government
will continue to pursue an expansionary fiscal policy to support growth in the non-
hydrocarbon sector, and we project capital expenditure to grow by almost 30% this year.
Overall, we expect the consolidated budget to post a surplus of about 6% of GDP in 2010.

Fiscal policy to support growth








2007 2008 2009e 2010f
Consolidated budget balance Non-hydrocarbon balance
Source: IMF, IIF, SHUAA Capital analysis

External balances to remain healthy

Despite the decline in the value of oil exports and the slowdown in global trade in 2009,
we still expect the UAE to post a healthy trade and current account surplus. The economic
recession in the UAE combined with lower commodity prices last year have contributed
to a reduction in imports, and we also expect net transfers to have benefited from lower
remittances abroad during last year. Overall we estimate the current account recorded
a surplus of almost USD6.8bn (3% of GDP), down from about USD22bn (9% of GDP) in
2008. We expect both the trade and current account surpluses to widen in 2010 on the
back of higher oil prices and output as well as a recovery in non-hydrocarbon exports and
re-exports as global trade picks up pace. Our forecast is for a current account balance of
about 4.3% of GDP this year, based on a conservative oil price assumption of USD70 per
barrel. If we use an oil price assumption of USD85 per barrel, the current account surplus
would rise to 9.6% of GDP.

Current account balance should post a healthy surplus in 2010





2007 2008 2009e 2010f
current account balance
Source: National sources, SHUAA capital analysis

January 12th, 2010 17

Vision 2010

Dubai’s external debt repayment profile is onerous

It would be fair to say that the uncertainty surrounding Dubai’s ability to service its
debt obligations has been the main concern for market participants in 2009, and this is
accurately reflected in the behavior of CDS spreads last year.

CDS spreads reflect concerns on Dubai’s payment capacity.





















AD Dubai

Source: Bloomberg

At this point, with negotiations on the restructuring of USD22bn of Dubai World’s debt
still at an early stage, all options remain on the table. Although we opt not to speculate
on the outcomes of the restructuring, especially concerning the refinancing terms or the
level of hair-cuts (if any), we note that the Dubai government (and not the commercial
entity) is in charge of the restructuring and negotiation of Dubai World’s debt. As such, we
believe that the final resolution would take into account the ‘bigger picture’ with regards
to the following:
• There are several government related entities (GREs) that will need to tap interna-
tional markets to refinance debt falling due in 2010.
• To the extent that local banks and contractors are negatively affected by the out-
come of the restructuring, it could have significant repercussions and jeopardize
local economic recovery.
• Similarly, a resolution that is considered ‘hostile’ by foreign banks would drastically
affect the ability of all Dubai based entities to raise foreign capital in the near future.

The payment schedule for Dubai entities over the next 2 years is indeed onerous:
notwithstanding any restructuring, we estimate about USD10bn worth of bonds and
loans are scheduled to mature in 2010. The repayment schedule rises to almost USD25bn
in 2011.

Although Dubai has been able to borrow USD25bn from the central bank and Abu Dhabi
this year, it has been made clear that any further financial assistance from Abu Dhabi will
be on a case-by-case basis and would not necessarily cover all Dubai GRE’s liabilities.
As a result, a timely and market-friendly resolution of the Dubai World debt issue is critical
for our macroeconomic outlook and forecasts. Should the outcome of the negotiations
be poorly received by creditors, or if there are further revelations of other GRE debt
obligations that cannot be met, the economic implications for Dubai will be severe.

We do believe there is a silver lining to the credit events of 2009 however. There are
indications that the authorities in Dubai have learned from the Dubai World experience
and we expect new legislation to be passed this year that will require state-owned
corporate entities to regularly report their financial positions and activities to the Dubai
government’s finance department. This increased disclosure requirement and effort to
boost transparency and internal controls within government institutions is a positive
signal for investors and should be well received by the market.

January 12th, 2010 18

Vision 2010

Population for the UAE expected to remain stable in 2010

After an expected drop of almost 3.9% (to 4.93mn) in 2009, we expect the population of
the UAE to remain broadly stable this year at 4.91mn people. In Dubai, we estimate the
population declined by almost 9% in 2009 to 1.54mn as many residents lost their jobs and
left the emirate with their families. We expect Dubai’s population to continue to decline
this year, albeit at a slower pace – we estimate another 3.6% drop to 1.49mn people. This
population drop in 2010 will be mainly the result of a decrease in construction workers,
with no or little decrease in white collar workers, in our view. In Abu Dhabi we expect the
population to have grown by 3% in 2009 (to 1.65mn) and 4% (to 1.71mn) in 2010, driven
by 4% and 5% growth in the non-hydrocarbon sector in 2009 and 2010 respectively.

The UAE is expected to undertake a population census in 2010, which should give us a
more accurate picture of the size of the population in each emirate and the country as a

January 12th, 2010 19

Vision 2010

Summary of 2010 outlook

• We expect the UAE to post real GDP growth of 2.5% YoY in 2010, after contracting
3.5% YoY in 2009. We forecast nominal GDP growth of 10.3% YoY this year, to reach

• Abu Dhabi will be the main contributor to the UAE’s growth, as oil output recovers
(3% YoY hydrocarbon growth) and the non-oil sector is supported by government
investment and spending. We expect real GDP growth in Abu Dhabi of 4.1% YoY
in 2010, up from -2.7% YoY in 2009. Abu Dhabi’s nominal GDP is forecast to reach
AED457.3bn in 2010, up almost 14% YoY.

• We expect Dubai’s economy to contract 0.4% YoY in 2010, an improvement on the

5% YoY contraction we estimate for 2009, as the key construction and real estate
sector continues to be a drag on growth in the emirate. Our estimate for 2010
nominal GDP in Dubai is AED299.8bn, up 0.6% YoY.

• A silver lining of the 2009 economic slowdown has been the sharp drop in inflation
across the UAE, as pressure on housing prices ease in Abu Dhabi and rental prices
decline outright in Dubai. We expect inflation to remain contained at 0.7% YoY for
the UAE as a whole in 2010, from an estimated 0.5% YoY in 2009 and well below the
2008 high of 14.9% YoY.

• Monetary policy has successfully stabilized the banking system in the UAE, al-
though banks appear to be more risk averse in their lending. Total credit growth
slowed right down to 3.5% in the first 8 months of 2009, and most of this has been
absorbed by the public sector (government and official entities). Although we
do expect some recovery in private sector credit growth, this depends to a large
extent on the successful resolution of Dubai World’s debt restructuring.

• Fiscal policy is likely to remain expansionary to support non-hydrocarbon growth

in 2010. The recovery in oil prices (we have conservatively assumed an average oil
price of USD70 per barrel for 2010) and output this year should result in consoli-
dated surplus in the region of 6% of GDP, higher than the surplus of 4.1% of GDP
we estimate for 2009.

• External balances for the UAE are likely to improve this year as well. Even based on
our conservative oil price assumption, we expect a current account surplus of 4.3%
of GDP, up from 3% of GDP in 2009.

• Our macroeconomic outlook is based on the assumption of a market-friendly

resolution of Dubai’s World’s debt restructuring and no further debt crises in Dubai.
We expect the Dubai government to pass legislation to improve the reporting of
GREs financial positions and activities to the budget, to increase transparency and
internal controls.

January 12th, 2010 20

Vision 2010

Macroeconomic forecast table: UAE

2008 2009e 2010f 2011f
National Income
Nominal GDP (AEDbn) 934.3 840.2 926.4 1,008.8
Nominal GDP (USDbn) 254.6 228.9 252.4 274.9
Population (mn) 5.13 4.93 4.91 5.08
GDP per capita (USD) 49,623 46,423 51,412 54,138

Real GDP Growth (%) 7.4 -3.5 2.5 3.7

Hydrocarbon growth -9.5 3.0 3.0
Non hydrocarbon growth -0.6 2.3 4.1

Monetary Indicators (% YoY)

M2 growth (eop) 19.1 8.0 9.2
Private sector credit growth (eop) 50.3 4.7 6.0
Official CPI (pavg) 12.3
Shuaa CPI estimates (pavg) 14.9 0.5 0.7 2.5

External Accounts (USDbn)

Exports 239.2 179.6 200.9
hydrocarbons 102.1 60.9 72.2
Imports 176.3 141.0 155.1
Trade balance 62.9 38.6 45.7
% GDP 24.7 16.9 18.1
Current account balance 22.3 6.8 10.9
% GDP 8.7 3.0 4.3

Fiscal Indicators (% GDP)

Consolidated budget balance 21.6 4.1 6.0
Revenue 46.6 31.0 34.0
Expenditure 25.0 26.9 28.0
Non-hydrocarbon balance -15.7 -17.6 -18.0
Source: National sources, SHUAA Capital Analysis

Macroeconomic forecast table: Abu Dhabi

2008 2009e 2010f 2011f
National Income
Nominal GDP (AEDbn) 519.9 402.4 457.4 501.5
Nominal GDP (USDbn) 141.7 109.6 124.6 136.6
Population 1.60 1.65 1.71 1.78
GDP per capita (USD) 88,680 66,637 72,824 76,779

Real GDP Growth (% YoY) 4.0 -2.7 4.1 4.1

Hydrocarbon growth 1.4 -10.0 3.0 3.0
Non hydrocarbon growth 6.4 4.0 5.0 5.0

CPI (% YoY, pavg) 14.9 0.8 1.5 2.0

source: National sources, SHUAA Capital analysis

Macroeconomic forecast table: Dubai

2008 2009e 2010f 2011f
National Income
Nominal GDP (AEDbn) 301.6 298.0 299.8 314.8
Nominal GDP (USDbn) 82.1 81.1 81.6 85.7
Population (mn) 1.69 1.54 1.49 1.53
GDP per capita (USD) 48,502 52,526 54,840 55,903

Real GDP Growth (% YoY) 5.7 -5.0 -0.4 2.9

CPI (% YoY, pavg)

Official 10.8
Shuaa CPI estimates 14.9 -6.3 -0.5 3.2

Fiscal indicators (% GDP)

Budget balance 1.75 -3.36 -2.00
Revenue 10.98 9.30 9.81
Expenditure 9.23 12.65 11.81
Source: National sources, SHUAA Capital analysis

January 12th, 2010 21

Vision 2010

Money Flow
In the UAE vision 2009, we introduced a section that tackled the investment flows in
and out of the UAE equity markets in an attempt to identify the key drivers behind their
performances. Interestingly, we have come up with certain conclusions that were quite
insightful drawing a direct link between the different categories of investors (Non-GCC,
GCC, Foreign and UAE) and the behavior of the UAE markets.

In this section, we compare the findings of 2008 with the trend in investment flows in
2009 while formulating a view for 2010.

Trends in 2008 Trends in 2009

- Foreigners were the key trend setters - Foreigners remained the key trend setters

- Locals were the ultimate source of liquidity - Locals remained the ultimate source of liquidity

- Foreigners were the largest net investors followed by the locals - Foreigners became the second largest net investor after the locals
- The effect of foreigners on the local markets in 2009 will diminish
- The impact of the foreigners remained strong
following their exit in 2008
As shown by the table above, the trends remained roughly the same for each of the key
investor categories in 2008 and 2009. This underlines the ability of foreign investors to
drive the UAE markets in various market cycles - the crash in 2008 and the following rally
in 2009.

Foreign investors remain the key trend setters in 2009

While their ability to set the direction in the UAE markets weakened in Dubai, the
foreigners have countered that trend by exhibiting an improvement on the ADXGI*. The
rate at which foreign investors captured market trends on the DFMGI** dropped to 56%
in 2009 from 60% in 2008, but increased to 63% from 59% on the ADXGI. Whether we look
at those figures in absolute or comparative terms, the conclusion remains that foreign
investors are still the primary trend setters in the UAE markets. Worth noting however is
the improvement in the ability of the local investors to capture market direction on the
DFMGI as shown by the increase from 35% in 2008 to 45% in 2009.

% of days when net activity matched % of days when net activity matched
market direction - Dubai market direction - Abu Dhabi
70% 70%
60% 60% 59%
60% 56% 56%55%
49% 50% 45%
50% 50%
44% 42%
41% 41%38%
40% 38% 40%
30% 30%

20% 20%

10% 10%

0% 0%
Non- GCC Arab GCC Foreign UAE Non- GCC Arab GCC Foreign UAE
FY 08 FY 09 FY 08 FY 09

* Abu Dhabi Exchange General Index

** Dubai Financial Market General Index
Source: Dubai Financial Market, Abu Dhabi Securities Exchange, SHUAA Capital

Local investors are still the ultimate source of liquidity

The UAE investors have undoubtedly proved to be the ultimate source of liquidity,
consistently topping the list of investors in the local markets. As shown by the following
graphs, their contribution to the total value traded was high in 2008 and 2009, grabbing
over 60% share in both years. However, 2009 witnessed a decrease from 18% to 12%
in the foreigners’ contribution to the total value traded on the DFMGI along with an
increase from 14% to 22% and from 8% to 16% in the Non-GCC investors’ contribution
on the DFMGI and ADXGI respectively. Needless to say, the highlight here would be the
aggregate increase in the Non-GCC contribution to the total value traded in 2009.

January 12th, 2010 22

Vision 2010

% contribution to total value traded - Dubai % contribution to total value traded - Abu Dhabi
100% 100%
90% 90%
80% 80%
70% 63% 60% 70% 64%
60% 60%
50% 50%
40% 40%
30% 18% 30% 15%
20% 20% 15% 4%
10% 22% 10% 3% 16%
0% 0%
FY 08 FY 09 FY 08 FY 09
Foreign Non- GCC Arab Foreign Non- GCC Arab

Source: Dubai Financial Market, Abu Dhabi Securities Exchange, SHUAA Capital

UAE vs. Foreign Investors - two main forces at opposite ends of the trade
While the UAE investors control the liquidity in the UAE markets, their aggregate
(combining Dubai and Abu Dhabi) net contributions to the daily investment activities are
not without a match. In 2009, the foreigners have again proved to be a large contributor
to the daily net investment activities in the markets even though their contributions came
in second to the locals after having topped the list in 2008. Also, they remained a primary
source of balance to the markets by consistently taking the opposite end of the trade and
countering the effect of the other main net contributor, that is, the locals.

Net investment flows in AED mn





-10000 Non- GCC Arab Foreign

FY 08 FY 09
Non- GCC Arab 1841 641
GCC -389 9
Foreign -12675 2000
UAE 11227 -2650
Source: Dubai Financial Market, Abu Dhabi Securities Exchange, SHUAA Capital

Key takeaways
The simple comparison between 2008 and 2009 indicates that the main investor
categories have actually maintained their role over time despite the immense difference
between the markets' performances during those two years. The crash of 2008 and the
following rally in 2009 have practically proved that foreigners are and will likely remain a
major driver behind the performance of the local markets. Their investment patterns have
very much driven the rallies and corrections in the past two years while tightening the
relationship with markets elsewhere across globe. This was evidenced in 2008 and 2009
when local and global markets moved in synchrony. Having said that, we expect that
foreign investors will remain a primary force in 2010 and suspect their dynamic entry and
exit will continue to shape the up and down cycles in the markets going forward.

January 12th, 2010 23

Vision 2010

Technical Overview
Recapping 2009

What we forecasted vs. what happened

In our Vision 2009, we made the case for a bottoming phase in UAE equity markets and
argued for medium term trading zones that would be as wide as 30-50%. Below is a quick
recap and a comparison between what we forecasted in last year’s report and what had
actually taken place:

What we anticipated in the UAE Vision 2009 What really happened

- UAE indices would bottom out while experiencing 30-50% - Both UAE indices reached their lows in February 2009. The DFMGI*
intermediate term ranges gained as much as 47% in 2009 but only to retrace back ending the year
10% higher. The ADXGI** gained as much as 52% during the year but
ended 2009 only 15% higher.
- Oil prices would find support at the 35-40 range and would offer - Oil bottomed around 33 in February 2009 and gained 137% by the end
substantial upside potential thereby supporting the local markets of 2009 driving the gains in the UAE indices

- The exit of the hot foreign money was not expected to return quickly - Foreign money returned quicker than expected and maintained its role
as key driver behind the UAE markets’ performances
- The downside risk in the real estate stocks would be limited based on - Real estate stocks bottomed in February 2009 and were a major force
the fact that extreme levels of negativity were already factored into their in last year’s rally
- The correlation with global markets would decrease - The correlation showed a decrease in Q1 and Q4 2009 but remained
positively strong in between
* DFMGI: Dubai Financial Market General Index
** ADXGI: Abu Dhabi Exchange General Index

As shown by the comparative table above, the markets have practically lent themselves
to many of the arguments we have made last year and their behavior was indeed part
of the bottoming process with intermediate term gains reaching as much as 50%. One
unexpected development however was the quicker than expected return of foreign
money which helped maintain the strong positive correlation with global markets
through much of 2009. Having said that, and before we move to our expectations for
2010, it is important that we highlight the key market trends in 2009.

Key market trends in 2009

Last year’s rise was a typical bear market rally with the UAE indices reversing no more than
a third of their drop in 2008. Up until October 2009, the behavior of the UAE markets was
very much synchronized with those across the globe but then a clear decoupling trend
began to unfold. The failure of the local markets to catch up to the developed world led
by the US markets after October 2009 created a divergence that has yet to unravel. Mainly,
we identify two main parts to last years’ rally in the UAE indices:

1. The February-October up leg which triggered c. 50% rally

2. The October-to-date correction which retraced two thirds of the up leg1

These two phases had clearly shaped the bottoming process we argued for in Vision
2009, however, the question still rests in whether or not a final bottom is actually in place.
In other words: has a new bull market been borne in 2009 or was last year’s rally a bear
market reaction carrying a promise of a new low?

1 While we are limiting our discussion to technical analysis, one can not but highlight the effect and future implications of the Dubai World’s debt
‘standstill’ / restructuring plan on the equity markets.

January 12th, 2010 24

Vision 2010

DFMGI Monthly chart2

Price Price

6,000 6,000

5,800 5,800

5,600 Downward channel 5,600

5,400 5,400

5,200 5,200

5,000 5,000

4,800 4,800

4,600 4,600

4,400 4,400

4,200 The 2009 upleg reversed 4,200

less than 32% of 4,000

the prior fall in 2008 3,800

3,600 3,600

Upleg 3,400

3,200 3,200

Correction 3,000

2,800 2,800
2,600 2,600

2,400 2,400

2,200 2,200

2,000 c. 50% range for the FY 2009 2,000

1,800 1,800

1,600 1,600

1,400 1,400

1,200 1,200

1,000 1,000

Low end of the range 800

.12 .12
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2006 2007 2008 2009 2010

Outlook for 2010

Unfortunately, the question to that answer remains unclear as more evidence is required
in order to build a solid argument for either case. In our view, the markets seem to
exhibit a positive bias for 2010 that is highly dependent on how things will play out on
the international front. Mainly, we believe that the correction which began in October
provided room for short and medium term upside potential to unfold but the UAE
markets remain highly susceptible to the potential weakness in the global equity and
commodity markets. The lag between the UAE and global indices since October 2009
implies a probable catch up play by the UAE markets over the coming months. However,
this view is highly dependent on the sustainability of the rally in the US and oil markets –
an event to which we attribute a great risk.

Key market levels for 2010

Since the technical picture is not yet complete, we focus our attention on those levels
which we believe will act as key inflection points for the UAE markets in 2010 while
highlighting the global risks which could have a severe impact on their performances.

Support Resistance Target if support is Target if resistance

broken is broken
DFGMI 1600 2100 1200 3000
ADXGI 2500 3000 1800 3800

2 We have used the Dubai Financial Market General Index as a proxy for both UAE indices given that similar patterns were observed in 2009

January 12th, 2010 25

Vision 2010

DFMGI Monthly Chart

Price Price

8,100 8,100

7,800 7,800

7,500 7,500

7,200 7,200

6,900 6,900

6,600 6,600

6,300 6,300

6,000 6,000

5,700 5,700

5,400 5,400

5,100 5,100

4,800 4,800

4,500 4,500

4,200 4,200

3,900 3,900

3,600 Target if resistance 3,600

3,300 is broken 3,300

3,000 3,000

Resistance 2,700

2,400 2,400

2,100 2,100

1,800 1,800

1,500 1,500

1,200 Support 1,200

900 900

600 600
Target if support is broken
.12 .12
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2005 2006 2007 2008 2009 2010

ADXGI Monthly Chart

Price Price
6,000 6,000

5,800 5,800

5,600 5,600

5,400 5,400

5,200 5,200

5,000 5,000

4,800 4,800

4,600 4,600

4,400 4,400
Target if resistance
is broken 4,200

4,000 4,000

3,800 3,800

3,600 3,600

3,400 3,400
3,200 3,200

3,000 3,000

2,800 2,800

2,600 2,600

2,400 2,400

Support 2,200

2,000 2,000

1,800 1,800

1,600 1,600
Target if support is broken
1,400 1,400

.12 .12
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2004 2005 2006 2007 2008 2009 2010

The table and the charts above identify those levels which are expected to trigger major
directional moves. In simple terms, a break below the supports is expected to trigger new
waves of selling and push the indices to new lows whereas a move above the resistance
lines will put the odds in favor of the bulls and hint at new highs in 2010.

January 12th, 2010 26

Vision 2010

Key risks in 2010

With the above in mind, we note that even if a new up leg is to unfold, we will expect the
potential unravelling of the intermarket risks below to counter any rally in the markets:

1. correction in global markets led by the US

2. correction in oil

The US markets has witnessed an uninterrupted rally since March 2009 and the recent
signs of exhaustion indicate that a corrective wave will likely unfold in 2010. Being the
largest market in the world, we expect such an event to take a negative toll on the UAE
markets. Similarly, the strong rally in oil since early 2009 has been a key driver in last years’
rise in the local indices but with oil currently approaching extended levels, the probability
of witnessing a correction is getting increasingly higher. Needless to say, any weakness on
that front is expected to have a strong negative impact on the performance of the local
markets in 2010.

A cautious approach to 2010

In conclusion, we note that the markets currently stand on unstable ground with many
risks jeopardizing the argument for sustainable upside in 2010. The positive bias toward
the UAE markets in 2010 is highly dependent on the ability of the indices to break above
the resistance levels specified above as well as the capacity for the US and oil markets to
sustain their current rallies. That said, we should note that the probability of these risks
materializing is high indicating that the UAE markets will unlikely end 2010 above last
year's peaks.

January 12th, 2010 27

Vision 2010

Primary market activity and outlook

IPOs disappear

As we had anticipated in our Vision 2009 report, primary market activity was absent in
2009 as scarce liquidity and market worries kept potential issuers away. Furthermore,
rights issues by UAE listings were also absent. This compares to one rights issue, worth
USD 233 mn, and eight IPOs, which raised USD 1.3 bn, in 2008.
Public equity issuance


USD mn




2005 2006 2007 2008 2009
Rights issues IPOs

Source: SHUAA Capital

Debt issuances take the limelight

The dominating capital raising activity in 2009 came in the form of debt issuances, which
was also the case in 2008 where we saw debt issuances worth USD 5.5 bn in the form
of Islamic bonds, Sukuk. In all, a staggering total of USD 36.6 bn was raised from debt
issuances in the UAE during 2009. This figure includes the USD 20 bn raised by Dubai
from the UAE Central Bank and the Government of Abu Dhabi. We also mention a further
AED 16 bn (USD 4.4 bn) was raised by Abu Dhabi banks through the issuance of Tier 1
capital notes to the Government of Abu Dhabi. Also, AED 4 bn (USD 1.1 bn) was raised by
Emirates NBD in a similar issuance to the Investment Corporation of Dubai.
To sum up, the absence of IPOs and rights issues was replaced by a spree of debt raising
activities, the majority of which was subscribed for either directly or indirectly by the
Government of Abu Dhabi and the Federal Government of the UAE. We mention though
that all these issuances came before the Dubai World 'standstill' request on its debts and
we believe none of the issuances would have been possible had they come after Dubai
World's request.

Name of Issuer Type of Issuance Size of Issuance Subscriber to Tenor

(USD bn) Issuance (years)
Abu Dhabi Commercial Bank (ADCB) Conventional 1.0 public 5
Dolphin Energy Conventional 1.3 public 10
Dubai Department of Finance Conventional & Sukuk 5.0 NBAD & Al Hilal Bank 5
First Gulf Bank Conventional 0.5 public 3
Government of Abu Dhabi Conventional 3.0 public 5 & 10
Government of Dubai Conventional 10.0 UAE Central Bank 5
Government of Dubai Sukuk 1.9 public 5
Government of Abu
Government of Dubai Conventional 10.0 5
Mubadala Conventional 1.8 public 5 & 10
National Bank of Abu Dhabi (NBAD) Conventional 0.9 public 5
RAK Capital Sukuk 0.4 public 5
Tourism & Development Investment Co. Sukuk 1.0 public 5
Source: Zawya, SHUAA Capital

January 12th, 2010 28

Vision 2010

Issuance outlook for 2010

Once the Dubai World's debt restructuring negotiations are over, and assuming a
relatively investor friendly outcome is reached, the appetite for primary issuance will be
restored. After almost a year and half of absence of IPOs, we expect 2010 will see the
resurrection of Initial Public Offerings in the country. However, we believe the size of these
offerings will be smaller than most issuances we saw in 2008 and significantly smaller
than the record-size offerings we saw in 2007 (DP World, Air Arabia and Deyaar). We also
believe debt issuances (post the Dubai World's debt issues are resolved) will continue to
play a key role and their presence will be noticeable.

January 12th, 2010 29

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Vision 2010

Banking Sector Review

January 12th, 2010 31

Vision 2010

Banking sector review

2009, an eventful year

Throughout 2009 banks adopted strict means of conduct mainly involving

(1) slowing down lending growth to preserve liquidity, (2) reinforcing loan provisioning
cushions against anticipated losses and (3) tightening cost control to sustain profitability
levels. Those voluntary measures taken by most local banks were supported by efficient
government actions as evident through the successive measures initiated by the UAE
Central Bank, the governments of Abu Dhabi and Dubai, and the Ministry of Finance
(MoF). Massive liquidity injections and a conveyed 'unconditional' support from the
government provided great relief to the local banking system which, as of September
2009, displayed a highly comfortable total capital adequacy ratio of 18.0%, well above
UAE Central Bank's (CB) 11.0% requirement. Although reassuring at first sight, we believe
this standalone indicator is insufficient to clearly gauge the real health and strength of
the local banking industry, particularly after the turbulences of 2009 and anticipated
challenges of 2010.

A brief snapshot

As of November 2009 and according to the most recent statistics made available by
the CB, the UAE banking system comprised of a total of 52 banks, including 24 local
institutions and 26 foreign banks. Despite predicted consolidation in the sector during
2009, the figures remain unchanged compared to December 2008 as the global financial
turmoil forcefully led financial institutions to put their inorganic plans on hold until the
smoke clears.
Interestingly, branch network expanded to a total of 747, resulting in 54 new units, with
names like Emirates NBD, National Bank of Abu Dhabi and Dubai Islamic Bank continuing
to reinforce their retail banking platforms.

Since December 2008, the sector's asset base expanded by 6.6% to reach AED 1,552bn
(USD 423bn) by November-end 09, reassessing UAE banking industry's status as the
largest in the GCC region.

  Nov-09 assets (USD bn) Total assets/ 2009e GDP

UAE 423 194%
Saudi 370 104%
Kuwait 141 125%
Qatar 127 137%
Bahrain 58 283%
Oman* 36 66%
GCC 1,155 135%
*Latest figures as of August 09
Source: Central Banks, SHUAA Capital

With a balance sheet size of AED 291bn as of September 2009, Emirates NBD remains
the national champion, followed by National Bank of Abu Dhabi (AED 186bn), Abu
Dhabi Commercial Bank (AED 159bn), and First Gulf Bank (AED 124bn). Though highly
fragmented, the local banking industry's anticipated consolidation wave did not kick off
in 2009, and instead of reshaping the sector's landscape, the focus was shifted to ensure
the stability and quality of existing assets during the current challenging and eventful

On the funding front, customer deposits crossed the AED 1tr mark in November 09 to
AED 1,003bn, rising 8.7% year-to-date with an irregular growth pattern paced by the
successive liquidity injections of the various authorities.

January 12th, 2010 32

Vision 2010

Liquidity gap (in UAE bn)

2007 2008 Q1 09 H1 09 Q3 09 Nov-09


Saad and Al Gosaibi groups
(30) default announcement

Dubai government issues USD
5bn bonds, subscribed by Al Hilal
(50) Bank and NBAD

1/ CB puts in place a AED 50bn liquidity facility

(60) 2/ The Ministry of Finance (MoF) releases AED 50bn into
UAE banks
(70) 3/ Abu Dhabi government injects AED 16bn Tier 1 capital
in 5 AD banks
4/ Dubai government issues USD 10bn bond fully
(80) sbscribed by the UAE Central Bank

Source: UAE Central Bank, SHUAA Capital

As anticipated, debt capital markets were shut down in H1 09 requiring authorities’

intervention to boost banks liquidity. However, the second half of the year allowed only a
few Abu Dhabi players to raise long-term liquidity for a combined total of USD 2.5bn (AED

Company name Size of issue (USD mn) Size of issue (AED mn) Issue date Maturity Details
NBAD 850 3,145 Sep-09 Sep-14 +228bps over US Treasuries
Fixed coupon rate of 4.75%;
ADCB 1,100 4,070 Oct-09 Oct-14 issued under the bank's Global
Medium Term Note program
FGB 500 1,850 Nov-09 Nov-12 +285bps over US Treasuries or
+250bps over Midswaps
Total 2,450 9,065      
Source: Company data

As shown in the graph below, credit default swap (CDS) of the emirates of Abu Dhabi and
Dubai peaked at 174.8bps and 633.6bps respectively on November, 27th, 2009, in light of
the Dubai World's restructuring announcement.
Dubai vs. Abu Dhabi 5-year CDs
14/12/09: Abu
900 Dhabi provides
USD 10bn to
800 Dubai





















Abu Dhabi Dubai

Source: Reuters

Although the recent USD 10bn liquidity lifeline from Abu Dhabi has helped bring down
CDS levels by 2009-end, we believe UAE banks in 2010 will face difficulties in raising
medium and long term funds under their respective programs. As a matter of fact, Dubai's
debt burden has not only shut access to this funding alternative for the coming year, but
has also significantly elevated overall debt pricing associated with heightened risk linked
to the UAE, and Dubai specifically.

In terms of credit, and mirroring the prudential lending approach adopted by most banks,
total net loans and advances expanded at a much slower pace than deposits: +3.4%
year-to-date to AED 1,027bn (USD 280bn). This limited loan origination (of AED 33bn) was
channelled to borrowers with high creditworthiness and low risk profiles.

January 12th, 2010 33

Vision 2010

As a result, we have witnessed UAE banks' liquidity gap relaxing from a peak of negative
AED 71bn by December-end 08 to a more manageable deficit of AED 24bn by November
2009, attesting the efficiency of liquidity injections into the troubled industry. However,
we do not believe that this improvement is sustainable on the back of an expected
withdrawal of some funds for the repayment of foreign debt obligations due in December

On the profitability side, UAE listed bank's net earnings amounted to AED 16bn over 9M
09, a 17% YoY drop compared to 9M 08 levels. Net operating revenues were on the rise,
climbing 11% YoY, accentuated by improving net interest spreads (following the fall in
benchmark rates) which alleviated overall net interest revenues offsetting the relatively
limited new loans volume. This also compensated for the reported drop in non-interest
revenue streams, adversely impacted by lower fee-generation capabilities and highly
volatile investment revenues due to poor equity market performance.
While most lenders dedicated their focus to support profitability levels with aggressive
cost reduction measures (including halt of organic/ inorganic growth plans and
downsizing), their efforts went in vain to the detriment of strong rise in provisions, mainly
related to loan losses. In fact, UAE listed banks' loan-related provision expenses totalled
AED 9.5bn during the nine-month period ending September 09, up from AED 2.5bn
over 9M 08, and corresponding to a net cost of risk of 1.1% (up from 0.3% for 9M 08). This
substantial increase in provision cushions allowed banks to cover for rapidly increasing
NPLs and prepare for forthcoming challenges….

Asset quality, a key concern aggravated by Dubai's debt woes

As previously mentioned and while new financing witnessed a controlled increase over
9M 2009, Non Performing Loans (NPLs) formation accelerated affected by:

1. Strong rise in retail loans defaults (mostly unsecured personal lending) and credit
cards (particularly in H1 09), accentuated by expatriates' outflow, especially in Dubai
(estimated at -8.8% in 2009 vs. -3.9% for the UAE);
2. increase in large ticket corporate defaults (Saad/ AHAB), seen as the next 'big thing'
the banks will have to deal with moving forward.

These specific threats were put into perspective following the Saudi Saad/AHAB groups'
demise and Dubai World debt restructuring in November 09. While provisioning charges
for the two Saudi conglomerates are expected to be accounted for by 2009-end
(adhering to the central bank's guidance1), and legal recourse already being initiated, all
the upcoming concerns are now directed towards Dubai World's indebtedness and its
contagion effect on UAE lenders...

While most banks do not disclose NPL figures on a quarterly basis, we estimate the
banking system's NPL ratio to reach 3.5% by 2009-end, vs. 1.6% at the end of 2008.
In 2010, and should the central bank's recommendation on the reduction of NPL
classification to 90 day overdue (instead of the current 180 days) is put into effect, we
could see this ratio increase significantly by the end of the coming year.

Dubai World debt restructuring: stress testing the UAE lenders…a worst case

Since Nakheel 2009 Sukuks were fully repaid (with the support of the Abu Dhabi
government) we know, at this stage, that Dubai World and its related entities have an
estimated combined USD 18.7bn (AED 69.2bn) in bonds and loan obligations maturing
by 2014. While it is not feasible to assess the exact exposure of UAE banks to the troubled
group (only National Bank of Abu Dhabi came up with a clear statement on this issue),
we have chosen to consider a worst case scenario (a stress test) whereby banks would
conservatively cover for 100% of their related exposure through loan loss provisions and
investment impairments.

As instructed in November 09's press release

January 12th, 2010 34

Vision 2010

To portray this worst case scenario, we are relying on the UAE central bank's definition
of banks' large exposures. As such, should we assume that Dubai World and its related
entities (including Nakheel) are considered as one single commercial public sector entity,
UAE banks' exposure to this account should not exceed 25% of their capital base. Also, we
have decided to consider the AED 29bn payables (on Nakheel's balance sheet as of June-
end 2009) as an associated loss burden for lenders, allowing us to price in the ripple effect
the developer's default would have on related contractors and partners.

The outcome of such a worst case scenario reveals that the average NPL ratio of the
top 5 UAE lenders could deteriorate from an average 2.2% in September 2009 to a high
8.4%. ADCB and DIB would be showing distressed ratios as high as 11.4% and 11.9%
respectively, and NBAD's asset quality would be of much lesser concerns with 4.5%.

  Current/ estimated NPL ratio worst case

NPL ratio scenario
Abu Dhabi Commercial Bank 4.2% 11.4%
Dubai Islamic Bank 5.0%* 11.9%
First Gulf Bank 1.4% 8.8%
Emirates NBD 1.9% 8.9%
National Bank of Abu Dhabi 1.2% 4.5%
Average 2.2% 8.4%
Source: Company data, SHUAA Capital estimates

Regarding capital ratios, UAE banks demonstrated a highly comfortable 18% total CAR
as of September 2009 according to the central bank's data. If additional provisioning is
required as stated above, Emirates NBD, ADCB and DIB would be in a critical situation
given Tier 1 ratios below or inline with regulatory minimum requirements.

September-09 Post 100% max DW exposure write off

  Tier 1 CAR Total CAR Tier 1 Total CAR
Emirates NBD 13% 20% 5% 12%
National Bank of Abu Dhabi 16% 18% 12% 15%
Abu Dhabi Commercial Bank 14% 19% 7% 12%
First Gulf Bank 19% 19% 12% 12%
Dubai Islamic Bank 13% 12% 7% 7%
CB UAE requirements >7% >11%
Source: Company data, SHUAA Capital estimates

In this stress test, or worst case scenario, the figures give us an indication on the significant
negative impact Dubai World exposure can have on UAE's top lenders' solvency. It also
suggests that, should this worst case scenario occur, another government intervention
through direct capital injection is a necessity to prevent some local banks from failing.

Confidence must be restored through a necessary round of reforms

2009 events revealed some weaknesses in UAE's banking framework. While being a
'poor' year in terms of profitability, we believe 2009 was a wake-up call for UAE banks to
review their lending practices and risk management policies and somehow realize the
detriments of past excesses.

In our view, 2010 is the sensible time for supervisory authorities to establish stronger
foundations for the banking industry, the main pillars of which we have identified below:

• The pressing need for a UAE Credit Bureau to enable lenders to assess borrowers'
creditworthiness. A similar database should be available in every GCC country to
aid in tracking regional banks' exposure to large accounts (such as Saad and Al

January 12th, 2010 35

Vision 2010

• The upgrading of current prudential guidelines to match international standards,

specifically regarding banks' adoption of Basel II guidelines for capital adequacy
ratio calculation. Besides, more stringent rules on NPL classification and provision
coverage policies, inline with the Central Bank's recent recommendations, would
reinforce the UAE banking system's credit risk management.

• The improvement of corporate governance and financial disclosure. This should

be complemented with measures to enforce transparency, especially from quasi-
governmental entities given their many ramifications, influence and weight in the
local economy.

2010 Earnings Outlook: revenue squeeze inevitable

Following past year's challenges, we expect 2010 to remain a difficult phase for UAE banks
as the economic recovery that we are expecting does not mean the end of the regional
liquidity shortage, nor the improvement of asset quality metrics.

Our expectations of banks' earnings profile for 2010 are based on the following key

• Aggregated customer deposits to grow by 8% in 2010, resulting in an AED 84bn

net liquidity addition for the year. In our view, this will be matched by a slower 6%
growth in lending as we suspect banks to remain selective in their lending policies;
• NPL levels to rise sharply in H1 2010, especially if the recent Central Bank's recom-
mendation on NPL classification is adopted. We expect NPL ratio to reach 6% by
June-end 2010 and up to 8% by year-end, reflecting sharper asset quality deteriora-
tion in the first half of next year. This will be matched by a net increase in provision-
ing, hence constraining bottom line growth;
• While growth in assets will be limited, net interest margins will undoubtedly be
under pressure after the staggering levels reached in 2009. The difficult access to
liquidity aggravated by the deteriorating risk profile of the UAE is expected to put
further strain on funding costs;
• Non-interest revenues are expected to be impacted by (1) prolonged volatility in
local equity markets as well as (2) difficult recovery in fees and commissions on low
• Operating expenses to remain under control in order to optimize cost structure in
face of falling revenues.
• In the end, and while we estimate banks' net earnings to fall by 15% by 2009-end,
we expect them to only recover by 8%-10% in 2010 (representing a mild recovery
from a low base). Noteworthy, this figure will, in our view, widely vary amongst UAE
banks with Abu Dhabi players being on the higher side of the bracket, with the
exception of a more troubled ADCB.

January 12th, 2010 36

Vision 2009 - UAE Equity Markets

Real Estate Sector Review

January 12th, 2010 37

Vision 2010

Real Estate Sector Review

The past year has by all measures been a de-mystifying year. For many the unbelievable
truth has turned into a reality, and at times a painfully undeniable one. Our forecast in
January 2009 that property prices in Dubai would fall by as much as 60% from their peak,
came as an unbelievable surprise for many - today those expectations have more or less

The days when new properties were rationed out by real estate developers during chaotic
launches are long gone. Bargaining power has shifted from the abundant sellers to the
relatively few buyers.

Dubai's woes proved contagious, Abu Dhabi did not escape unharmed. For all those who
hesitated, 2009 confirmed that Abu Dhabi and Dubai are one. If Dubai sneezes, Abu Dhabi
is destined to catch the cold and vice versa. Despite the stronger fundamentals in the
capital, asset values dived and transactions volumes evaporated.

Some champions of the past have faded, no longer is performance measured by size or
advertising billboards. Metaphorically, a growing distinction between the bold, the ugly
and the beautiful has emerged - all in favour of the latter. While Emaar Properties did not
escape unscathed, it certainly emerged as the undisputed property champion of Dubai.
In Abu Dhabi, Aldar Properties and Sorouh Real Estate continue to look forward towards a
slower than initially anticipated, but nevertheless a bright future.


Dubai residential segment

According to our estimates, the past year saw 22,750 units delivered, taking the total
number of residential units in Dubai up to 357,700 units. Even more interesting, our
detailed analysis of Dubai's projects, construction progress, and handover activity revealed
that 2010 is going to perhaps see an even greater number of deliveries than 2009. We
expect over 26,650 apartments and villas to reach the market over the course of the next
12 months in Dubai, rendering 2010 deliveries among the highest since the construction
boom took-off. Consequently, the total number of housing units is expected to reach an
estimated 384,350 before year end.

While we had previously assumed 2010 would see fewer deliveries than 2009, the
economic shock in late 2008 and the beginning of 2009 caused some leading developers
to delay a higher number of 2009 projects than we initially had anticipated. Just like
developers continued to drag their feet with construction progress, property buyers
extended the handover process as some went scrambling for that last payment. The
second part of 2009 saw renewed optimism and most developers picked up pace on
projects already at an advanced stage, pushing more units across to 2010.

Dubai residential supply and demand 2008-2011

450,000 100%

400,000 90%
Cumulative residential units

350,000 80%
Residential occupancy

100,000 20%
50,000 10%
- 0%
2008 2009E 2010F 2011F
Cumulative supply Cumulative demand Estimated occupancy

Source: SHUAA Capital

January 12th, 2010 38

Vision 2010

In the absence of a solid economic recovery in Dubai, local companies are expected to
resume the process of unwinding their operations to a level that is more consistent with
the prevailing market conditions, leading to further lay-offs and a further population
decline. SHUAA Capital's economics team forecasts Dubai's population will shed some
3.6% in 2010, which when coupled with the additions we expect to witness in the
residential market this year can only lead to one thing; increased vacancy rates. As the gap
between supply and demand continues to widen, and liquidity remains both restrained
and subjected to high interest rates, it is highly unlikely to witness a sustainable recovery
in asset values, in 2010.

In fact we expect rents and asset values to lose a further 10%, to converge on average
rents between AED 55-60 annually per sqft and an average selling price of AED 800-850
per sqft. Just like International City and Discovery Gardens will rent and sell significantly
below the average, Downtown Burj Khalifa will remain well above the average prices
mentioned above.

We expect the new supply to apply downward pressure on all areas, despite the growing
qualitative disparity in Dubai. While we recognise all areas are not equal, it is evident from
our analysis that the expected 2010 supply is spread across Dubai's key communities.
Focus this year will be on the growing popularity of the downtown area, and how it will
integrate and be impacted by the spike in supply from within and from its peripheries.
The central cluster of Downtown Burj Khalifa, Business Bay, DIFC and Sheikh Zayed Road is
expected to see almost 7,000 units delivered over the coming twelve months.

Dubai office segment

While falling asset values in the residential segment were at the centre of attention, in
the shadows the office segment faced an even steeper decline over the past year. A
look at the ongoing construction in this part of the real estate market reveals that 2010
will see the delivery of another 6.8mn sqft of office space. Despite project delays and
cancellations, there seems to be a further 2.8mn sqft slated for 2011 delivery.

Dubai office supply and demand 2008-2011 (sqft)

55,000,000 100%
50,000,000 90%
45,000,000 80%
40,000,000 70%
Office occupancy
Cumulative GLA

15,000,000 30%

10,000,000 20%

5,000,000 10%
- 0%
2008 2009E 2010F 2011F
Cumulative Supply Cumulative demand Occupancy rates
Source: SHUAA Capital, Colliers International

The growing supply coupled with our 2010 GDP forecasts, which still show a slowdown
in 2010 for Dubai, implies that the Dubai office market is destined to see even higher
vacancy rates in the days to come. The lay-offs and the resulting population decline over
the past year coupled with 2009 supply have already knocked-down occupancy rates
from the 90-95% range closer to the 70-75% level. In 2010, we expect the downward spiral
in occupancy rates to settle around the 60%-65% level, which we believe is a clear signal
that no near-term market wide recovery in rents and selling prices is in the making.

Average rents are expected to lose another 10-15% from the current levels of AED
180-200 per sqft annually, as more office space approaches completion around the city.
Average property price are expected to witness a similar fate as more properties approach
completion especially in Business Bay, TECOM and Jumeirah Lake Towers.

January 12th, 2010 39

Vision 2010

Abu Dhabi

Abu Dhabi residential segment

Abu Dhabi's residential property market is expected to continue witnessing a shortage

of residential properties for the foreseeable future. The reasons are very simple; relatively
strong economic growth, resulting in further growth in population and by extension
demand for property, in a market where both existing vacancies and new supply are

Abu Dhabi residential supply and demand 2008 - 2011

400,000 100%

350,000 90%
Cumulative residential units


Residential occupancy
250,000 60%
200,000 50%

150,000 40%
50,000 10%
- 0%
2008 2009E 2010F 2011F
Cumulative supply Cumulative demand Estimated occupancy
Source: SHUAA Capital

We expect the Abu Dhabi real estate market to see 23,000 units delivered over the
next two years, a figure that is significantly short of what local developers were setting
the ground for at the onset of the emirate's property boom. However, the slow start
in the initial two years (2005-2006) meant the Abu Dhabi market's take-off and actual
construction boom was delayed into 2007 and 2008. What was initially perceived as
a disadvantage, turned into the exact opposite. The initial delay and limited progress
relative to announced ambitions provided Abu Dhabi developers with greater flexibility in
rescaling their projects, which helped the emirate avert an over-supply situation.

Average rents for new leases lost an estimated 20% from the peak in mid-2008 till 2009
year-end, to reach an estimated average annual rate of AED 100-120 per sqft - a level we
expect will be maintained in the coming year.

Apartment prices which retreated some 40% from the peak, reached an estimated
average price of AED 1,000 per sqft in 2009. We expect the stronger 2010 economic
growth, improved sentiment coupled with the reality of supply shortage to boost asset
values by around 10-15% on foreign ownership zone properties on Al Reem Island and to
a lesser extent Al Raha Beach.

January 12th, 2010 40

Vision 2010

Abu Dhabi office segment

The majority of the capital's office stock remains significantly below international
standards. Most office buildings in Abu Dhabi are not purpose-built, lack sufficient parking
facilities and adequate services. Much of the existing office stock consists of converted
residential buildings. The concept of zoning and clustering is almost non-existent, with
most commercial buildings situated within a congested mosaic of residential areas. In all
honesty, not much has changed over the past year.
Abu Dhabi office supply and demand 2008 - 2011 (sqft)
30,000,000 100%

Office occupancy
Cumulative GLA

15,000,000 50%
- 0%
2008 2009E 2010F 2011F
Cumulative Supply Cumulative demand Occupancy rates
Source: SHUAA Capital, Colliers International

Supply of new office space in the capital remained limited during 2009 and occupancy
rates stayed in the 95-98% range. Nevertheless both rental rates on new leases and
asset values retreated 15-20% and 35-40% respectively, as the market made a relative
adjustment to neighbouring Dubai.

Just like in Abu Dhabi's residential market, the crisis meant re-scaling of development
plans, leading to the cancellation of much of the anticipated medium to long-term office
supply. The only certain deliveries over the next couple of years, are the current projects
under construction. It is estimated that the next two years will see 6.2mn sqft of net
leasable area reaching the Abu Dhabi market.

Going forward, we expect rents for high-grade office space to stabilise around the current
levels of AED 260-310 per sqft. Property values in the relatively small parts of the freehold
zones approaching completion, are expected to witness moderate growth of around
5-10% to reach AED 1,470-1,540 per sqft. Abu Dhabi contrary to Dubai, is expected to
record strong growth in both GDP and population, leading local, regional and global
companies to scramble for growth opportunities by shifting capacity to the capital.

January 12th, 2010 41

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Vision 2010

Telecom Sector Review

January 12th, 2010 43

Vision 2010

Telecom Sector Review

2009: UAE telcos resilient… but not immune!

The UAE telecom sector continued to deliver top line growth in 2009 albeit at a much
slower pace compared to the high growth rates achieved in past years, but still ahead
of expectations. Despite a challenging year marked by economic slowdown, job losses,
population decline, and a tough business environment, the telecom sector’s 9M 09
revenues grew 7% over the same period last year to reach AED 23.4bn. This compares to
27% revenue increase in 2008, and a compound annual growth (CAGR) of 29% for the
2005-2008 period. For 9M 09, growth was still driven by the mobile and broadband data
segments. Etisalat UAE, the incumbent with the lion market share, managed to deliver
2.6% top line growth for 9M 09.

UAE telecom revenues (in AED mn)

30,000 9M 09/9M 08:





2006 2007 2008 2009e 9M 08 9M 09
Etisalat DU

Source: Company reports, SHUAA Capital estimates

Both telecom stocks proved to be good investments in 2009, outperforming by a wide

margin the ADX (14.8% return in 2009), DFM (+10.2%), and SC UAE index (+22.9%).
Etisalat’s stock appreciated by 34% last year. Factoring the dividend, Etisalat delivered a
total return of 40% in 2009. Du’s share price increased by 34% in 2009. At this time, Du
does not pay a dividend.

UAE telcos: YoY % growth of quarterly domestic revenue


30.0% 25.8%

0.0% -3.9%

Q1 09 Q2 09 Q3 09

Etisalat UAE Du
Source: Company reports

UAE mobile market continues to set new records

As of Q3 09 the UAE mobile market counted 9.8mn active subscribers for an estimated
179% penetration rate, up from 162% in December 08. For the 9M 09 period, Etisalat and
Du added approximately 776,000 subscribers, with net additions surprisingly accelerating
in Q3 09 versus H1 09. We believe that the well established multiple SIM card ownership
phenomenon continues to fuel subscriber growth.

January 12th, 2010 44

Vision 2010

UAE mobile market indicators

Active mobile subscribers (‘000) and penetration rate Total quarterly net additions (‘000)
12,000 190% 700

10,000 180% 600

8,000 170%
6,000 160%
4,000 150%

2,000 140% 100

0 130% 0
Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09
Etisalat Du Penetration rate (active) -100 Du Etisalat

Source: Company reports, SHUAA Capital estimates

The subscriber battle: Du clear winner!

YTD, Du emerged as the clear winner for subscriber growth. The second operator grabbed
83% share of net additions for the 9M09, up from 63% over the same period last year on
the back of successful promotions. Du increased its share of UAE active mobile subscribers
to 32% as of September 09 from 28% at the end of 2008.

The revenue battle: paints another picture

In terms of revenue share, the picture is different. So far, Etisalat has been successful in
retaining high spending customers, with an estimated ARPU more than double than Du’s
USD 28 (AED 103). The difference largely explains the discrepancy between subscriber
market share and revenue share of the two players. We estimate that Etisalat commands
a revenue share of more than 80% of UAE mobile market, compared to a 68% subscriber
share as of September 09.

Slowdown more apparent in fixed-line subscribers

While UAE economic slowdown and population decline is less apparent with the reported
776,000 growth in mobile subscribers for the 9M 09 period, fixed-line subscriber statistics
are more revealing in this area. UAE landline subscriptions decreased by 32,000 for the
9M 09. It is worth mentioning that this is the first time that the country records a drop in
landlines. Note that the decline in fixed-line subscriptions is partly due to fixed-to-mobile
substitution trend. The boom in UAE economy and population until 2008 fuelled a steady
growth in landline subscribers, more than offsetting the impact of customers deciding to
go ‘wireless only’.

UAE fixed-line subscribers (‘000) and penetration rate

1,600 31%

1,400 30%


200 25%

0 24%
2001 2002 2003 2004 2005 2006 2007 2008 Q3 09
Etisalat Du % penetration of population

Source: Company reports, SHUAA Capital estimates

January 12th, 2010 45

Vision 2010

As of September 09, total fixed-line subscribers in the UAE reached 1.47mn with Etisalat’s
and Du’s market shares at respectively 89% and 11%.

We estimate total broadband subscribers (including USB modem mobile broadband

subscribers) have reached 772,000 in Q3 09, increasing by 33% YoY. Broadband
penetration increased to 14% of the population in Q3 09, up from 11% at the end of 2008.
Etisalat’s and Du’s market shares were of respectively 92% and 8% as of September 09.

UAE broadband subscribers (‘000) and penetration rate

900 16%

800 14%
700 12%

200 4%

100 2%

0 0%
2001 2002 2003 2004 2005 2006 2007 2008 Q3 09
Etisalat fixed broadband Etisalat mobile broadband
Du fixed broadband % penetration of population

Source: Company reports, SHUAA Capital estimates

While as of February 2007, the mobile sector in the UAE is fully competitive, the situation
is different in fixed services. So far, Etisalat and Du have not been competing for landline
and broadband services in overlapping areas. Du has concentrated on certain Dubai
free zones and new areas where it is the sole telecom services provider. This is about to
change, with the Telecom Regulatory Authority (TRA) keen on promoting competition in
fixed services across the country via infrastructure sharing.

January 12th, 2010 46

Vision 2010

Outlook: Our top 10 predictions for 2010

1. In the near future, population growth will no longer be a tailwind for UAE telcos as
was the case until 2008.

2. Mobile data and other value-added services, broadband Internet, triple-play services
through fiber-to-the-home will be the growth drivers of the sector.

3. Introduction of mobile number portability (MNP) is expected by Q2 10. In other

markets, notably in neighbouring Saudi Arabia, MNP has not been a needle mover
for various reasons. Based on anecdotal evidence, customers in KSA willing to switch
found it less of a hassle to buy a new SIM card from an alternative operator than going
through the tedious process of transferring their existing line. Will the UAE prove to be

4. Since 2007, UAE mobile sector is fully competitive. This year, we foresee more
competition for fixed services. Infrastructure sharing is on the agenda, with a gradual
implementation expected in the second half of 2010, which will allow operators to
compete in each others territories for fixed services.

5. The TRA is expected to unveil soon a VoIP (voice over Internet protocol) policy. We
believe that the TRA will allow VoIP services only through the two licensed telecom
operators, and not through other players such as Skype. This will allow both Etisalat
and Du to offer their customers VoIP plans for international long distance calls at a
slight discount to current rates.

6. MNP, Infrastructure sharing, VoIP… The TRA’s and operators’ plate appears full for 2010.
Expect delays in the implementation of these initiatives.

7. We expect the UAE telecom sector to remain a two-player market for the foreseeable
future. We don’t expect a third mobile operator anytime soon. The UAE telecom sector
will remain attractive for investors as one of the few remaining duopolies.

8. We don’t expect a change in foreign ownership rules in UAE telecom sector in 2010.

9. We don’t expect a change in Etisalat’s 50% royalty rate in 2010.

And finally,

10. We forecast the UAE telecom sector to deliver another year of mid-single digit revenue
growth in 2010. Specifically, we forecast Etisalat’s UAE operations to achieve low single
digit revenue and EBITDA growth. On the other hand, we project Du to deliver 18%
revenue growth and 38% EBITDA growth.

January 12th, 2010 47

Vision 2010

Stock Guide
Sector Company Stock info Performance Valuation
Frn Closing Price performance 2009 Avg. daily traded Mkt Cap USD
Listing RIC Code 000' # of shares PE 09e PE 10e P/B
limit (AED) (%) USD (000') (000')
National Bank of Abu Dhabi ADX NBAD.AD 25% 2,174,275 12.40 38.5 804 7,340,524 8.2 7.0 1.7
Emirates NBD DFM ENBD.DU 5% 5,557,775 2.95 6.4 519 4,463,894 3.9 4.8 0.6
RAK Bank ADX RAKB.AD 20% 962,033 4.50 -13.3 33 1,178,673 6.1 - 1.7
National Bank of Umm Al Quwain ADX NBQ.AD 0% 1,452,000 3.41 -42.9 27 1,348,068 11.3 - 1.7
Abu Dhabi Commercial Bank ADX ADCB.AD 25% 4,810,000 1.58 -11.2 1,272 2,069,155 12.8 - 0.7
Mashreq Bank DFM MASB.DU 0% 161,026 91.00 -65.5 1 3,989,583 9.8 - 1.3
Commercial Bank of Dubai DFM CBD.DU 0% 1,764,807 3.70 10.9 38 1,777,828 6.5 - 1.2
Commercial Banks
Union National Bank ADX UNB.AD 40% 2,062,500 3.20 58.6 453 1,796,945 6.0 5.7 0.8
First Gulf Bank ADX FGB.AD 15% 1,375,000 16.15 79.1 2,125 6,045,972 7.0 6.1 1.6
Commercial Bank International ADX CBI.AD 20% 1,340,015 1.50 -9.1 191 547,257 30.7 - 1.2
InvestBank ADX INVB.AD 20% 1,155,000 2.20 -17.8 124 691,824 8.4 - 1.4
United Arab Bank ADX UAB.AD 49% 996,401 6.00 20.4 30 1,627,708 22.0 - 3.7
Bank of Sharjah ADX BOS.AD 30% 2,000,000 2.20 5.5 340 1,197,963 8.6 - 1.1
Ajman Bank DFM AJBNK.DU 49% 1,000,000 0.90 1.1 3,254 245,038 N/A - 0.9
Abu Dhabi Islamic Bank ADX ADIB.AD 0% 1,970,588 2.90 9.0 691 1,555,911 6.1 - 0.7
Islamic Banks Sharjah Islamic Bank ADX SIB.AD 20% 2,310,000 0.96 13.3 421 603,774 7.3 - 0.5
Dubai Islamic Bank DFM DISB.DU 15% 3,617,505 2.32 46.8 6,603 2,285,010 6.3 9.6 0.9
Dubai Investments DFM DINV.DU 20% 3,664,775 1.00 8.9 5,166 997,788 3.3 - 0.5
Dubai Financial Market DFM DFM.DU 49% 8,000,000 1.88 50.4 20,995 4,094,857 42.7 - 1.9
Waha Capital ADX WAHA.AD 49% 1,575,000 0.91 73.7 2,655 390,223 47.4 - 0.8
Non-bank financials
SHUAA Capital DFM SHUA.DU 49% 1,065,000 1.48 38.3 612 429,143 N/A - 0.8
Gulf General Investment Company DFM GGIC.DU 49% 1,791,000 1.10 -72.8 254 536,388 6.6 - 0.6
Finance House ADX FH.AD 0% 220,000 5.80 3.8 105 347,409 11.0 - 1.8
Abu Dhabi National Insurance ADX ADNI.AD 25% 375,000 8.99 8.3 14 917,871 122.6 - 1.6
Al Khazna Insurance ADX AKIC.AD 25% 400,000 0.96 7.9 41 104,550 3.9 - 0.5
Emirates Insurance ADX EIC.AD 0% 120,000 7.48 15.1 4 244,385 13.7 - 0.9
Oman Insurance DFM OIC.DU 0% 381,713 11.00 4.8 1 1,143,194 17.8 - 2.5
Al Ain Ahlia Insurance ADX AAIC.AD 0% 15,000 65.00 -31.9 11 265,458 14.6 - 0.8
Insurance National General Insurance DFM NGIN.DU 0% 133,888 9.16 -8.4 0 333,908 17.3 - 3.9
Aman DFM AMAN.DU 15% 200,000 0.97 3.2 949 52,819 5.5 - 1.1
Methaq Takaful ADX METH.AD 25% 150,000 3.29 14.2 839 134,362 32.0 - 2.9
Takaful Emarat DFM TKFE.DU 25% 150,000 1.20 17.6 8,280 49,008 N/A - 1.2
Abu Dhabi National Takaful ADX TKFL.AD 0% 66,000 5.20 -35.0 11 93,441 N/A - 3.4
Salama Islamic Arab Insurance DFM SALAMA.DU 25% 1,100,000 0.87 11.5 2,653 260,557 11.1 - 0.7
Emaar Properties DFM EMAR.DU 49% 6,091,239 3.86 70.8 41,422 6,406,519 76.6 7.8 0.8
Union Properties DFM UPRO.DU 15% 3,366,857 0.68 3.8 5,560 623,832 N/A 4.6 0.4
Deyaar DFM DEYR.DU 0% 5,778,000 0.58 16.0 6,682 913,144 11.8 11.2 0.4
Aldar Properties ADX ALDR.AD 40% 2,577,895 4.91 25.9 14,207 3,448,900 7.3 4.5 0.7
Sorouh Real Estate ADX SOR.AD 15% 2,500,000 2.57 -19.7 10,827 1,750,681 10.5 8.0 1.1
Real Estate &
RAK Properties ADX RPRO.AD 49% 2,000,000 0.59 15.7 5,767 321,272 4.9 - 0.4
Arabtec DFM ARTC.DU 49% 1,196,000 2.68 18.6 23,586 873,373 4.7 5.0 1.3
Abu Dhabi National Hotels ADX ADNH.AD 25% 1,000,000 3.80 15.2 122 1,034,605 7.6 - 0.5
National Hotels & Tourism ADX NCTH.AD 0% 110,000 8.75 52.9 7 262,055 7.0 - 1.4
Depa ($) NASDAQ Dubai DEPA.DI 49% 614,726 0.53 3.9 189 325,805 4.2 5.1 0.7
Drake and Skull DFM DSI.DU 49% 2,147,378 0.90 21.6 9,346 526,665 6.3 6.8 0.8
Julphar ADX GPHI.AD 49% 685,915 1.83 49.5 46 341,753 8.5 - 0.9
Damas ($) NASDAQ Dubai DAMAS.DI 49% 989,228 0.23 -67.6 42 224,555 N/A - 0.4
Abu Dhabi Shipbuilding ADX ADSB.AD 25% 211,992 3.85 11.0 4 222,214 6.4 2.7
Foodco Holding ADX FOOD.AD 49% 100,000 3.30 10.0 3 89,847 15.9 1.2
Light Industries
Agthia ADX AGTH.AD 25% 600,000 1.84 74.3 880 300,580 10.3 10.0 1.2
R.A.K. Ceramics ADX RKCE.AD 49% 614,217 1.48 17.1 45 247,500 3.5 0.5
Abu Dhabi Nat. Building Materials Co. ADX BILD.AD 25% 300,000 2.11 -19.8 24 172,343 11.0 1.6
Arkan Building Materials ADX ARKN.AD 0% 1,750,000 2.31 -63.3 956 1,100,629 N/A 2.6
Union Cement & Associates plc. ADX UCC.AD 49% 669,438 1.68 -43.1 7 306,204 8.7 0.8
Gulf Cement ADX GCEM.AD 49% 821,097 1.60 -29.2 103 357,689 9.2 0.8
Cement RAK Cement ADX RKCC.AD 49% 484,000 1.01 21.7 1,929 133,094 5.8 0.6
Fujeirah Cement ADX FCI.AD 49% 355,865 3.00 -23.3 - 290,668 9.1 1.1
Sharjah Cement ADX SCID.AD 49% 502,689 3.75 0.0 - 513,241 14.2 1.3
National Maritime Dredging ADX NMDC.AD 5% 200,000 8.50 -9.1 41 462,850 5.4 1.0
Aabar Petroleum ADX AABAR.AD 40% 3,128,000 2.28 27.2 3,640 1,941,746 3.5 0.6
DP World ($) NASDAQ Dubai DPW.DI 40% 16,600,000 0.43 10.3 2,791 7,138,000 25.2 24.3 1.0
Aramex DFM ARMX.DU 49% 1,331,000 1.57 98.5 3,238 568,943 11.8 13.4 1.4
Transportation & Gulf Navigation DFM GNAV.DU 20% 1,655,000 0.59 -7.8 3,902 265,853 71.7 59.9 0.6
Air Arabia DFM AIRA.DU 49% 4,666,700 0.92 3.4 7,388 1,168,930 10.2 9.1 0.8
Abu Dhabi Aviation ADX ADAV.AD 0% 404,352 2.50 48.8 61 275,227 8.6 0.8
Taqa ADX TAQA.AD 0% 6,225,000 1.18 14.6 1,753 1,999,918 12.0 11.3 0.9
Utilities Dana Gas ADX DANA.AD 49% 6,000,000 0.94 62.1 6,200 1,535,571 17.9 40.4 0.7
Tabreed DFM TABR.DU 49% 1,213,380 0.81 55.8 3,133 267,592 11.9 8.4 0.4
Etisalat ADX ETEL.AD 0% 7,187,400 11.05 34.5 2,311 21,623,450 8.7 8.7 2.3
Du DFM DU.DU 22% 4,000,000 2.91 34.1 1,043 3,169,158 46.8 31.5 4.3
Total 216,773 110,364,893

January 12th, 2010 48

Vision 2010

Stock Briefs

January 12th, 2010 49

Vision 2010

National Bank of Abu Dhabi Outstanding recommendation:

Company overview

Incorporated in 1968 and listed on ADX since 2000, National Bank of Abu Dhabi (NBAD)
is the largest bank in Abu Dhabi and second largest in the UAE with assets worth AED
Country UAE 186bn as at September 09. Commonly referred to as Abu Dhabi’s prime lender, NBAD is
Exchange ADX 70% owned by the Abu Dhabi Investment Council (ADIC) which not only provides it with
a strong competitive edge in terms of business generation, but also delineates the bank’s
Sector Banking & Financial
Services low risk profile due to this historical affiliation to the sovereign.
Foreign Investor Limit 25% NBAD offers a wide range of conventional, Islamic, and investment banking services and
Share Price as at enjoys the second largest distribution network in the country with 95 branches across
31/12/2009 (AED) 12.4 the UAE’s seven emirates and 325 ATMs. It also enjoys the largest international network
2009 % Change 52% amongst local banks, cemented via operations in Egypt, Kuwait, Bahrain, Sudan, Libya and
Jordan and further in the UK, France, US, Switzerland and most recently in China.
52 week high 14.50
While the bank’s long term strategy is to become a leading Arab bank, NBAD intends to
52 week low 6.50 strengthen its MENA footprint by significantly enhancing its network in Egypt and Oman
in the medium term.
Mkt Cap (AED'000) 26,961,010

Mkt Cap (USD'000) 7,340,524 Financial and operating highlights

Number of outstanding 2,174,275
shares ('000) During 9M 09, NBAD generated net earnings of AED 2,591mn, a 10% rise compared to 9M
Free Float 30% 08’s ‘clean’ figure of AED 2,362mn. While witnessing strong growth in assets compared to
PE 09e 8.2x peers as well as improved margins, the bank’s profitability was constrained by lower non-
interest revenues, strong increase in provisioning (+143% YoY), and rising costs as a result
PB Current 1.7x
of an ongoing branch roll-out.
Average daily traded 804 On the balance sheet side, customer deposits grew 7% year-to-date to AED 111bn. This
value (USD'000)
was matched by a strong 15% expansion in loans to AED 128bn (over December 08)
hence leading to a loans-to-deposits ratio of up to 116% from 108% as of December 08.
The bank’s asset quality metrics remained robust as NPL ratio came out low at 1.2% (vs.
1.0% in FY08) with coverage ratio at 146%. For Q4 09, we expect NBAD to generate net
Share Ownership earnings of AED 694mn, down 24% QoQ mainly on an estimated precautionary provision
hike. We are hence forecasting FY09 net earnings to touch AED 3.3bn, a 15% increase from
Free Float,
29.5% a ‘clean’ AED 2.9bn FY08 figure.

Recent developments and outlook

In September 09, NBAD was able to raise USD 850mn five-year medium term notes under
its existing USD 5bn EMTN program. In addition, its liquidity was strengthened with USD
Abu Dhabi
132mn issues in three private placements in H2 09.
Council, 70.5% Moving forward, we believe NBAD will continue to report solid balance sheet growth
benefiting from the Abu Dhabi government’s support both on the funding and lending
sides. Although we legitimately expect some pressure on the bank’s asset quality, it will, in
our view, be less acute than peers, given NBAD’s high government exposure.
As a matter of fact, we view NBAD as the most defensive stock in the UAE banking

14,000 25.00
Closing price (AED)
Avg. daily traded value (AED '000)

8,000 15.00

6,000 10.00
- -

Average Daily Traded Value Closing Price (Last Trade)

January 12th, 2010 50

Vision 2010

Emirates NBD Outstanding recommendation:

Company Overview

Emirates NBD (ENBD) emerged in 2007 from the merger of two flagship Dubai-based
banks: Emirates Bank International and National Bank of Dubai. With an asset base of
Country UAE AED 291bn as of end of September 09, ENBD is by far the largest bank in the GCC region,
Exchange DFM enjoying the widest distribution network with 129 branches and over 650 ATMs spread
across the UAE. The banking group also operates in Saudi Arabia, Qatar, the UK, and Jersey
Sector Banks (Channel Islands), and has representative offices in India, Iran and Singapore.
Foreign Investor Limit 5% It offers a variety of banking products and services based on a fairly diversified business
Share Price as at model covering wholesale and consumer banking, wealth management, private banking,
31/12/2009 (AED) 2.95 consumer finance, and investment banking, to name just a few.
2009 % Change 6% Over the next three to five years, the bank plans to increase its retail network to 200
branches in the UAE and open 10 branches in Saudi Arabia.
52 week high 4.70

52 week low 2.68 Financial and operating highlights

Mkt Cap (AED'000) 16,395,436
Over 9M 09, Emirates NBD’s profitability dropped 32% YoY to AED 3,164mn, strongly
Mkt Cap (USD'000) 4,431,199 affected by steep rise in both loan loss provisions and impairments on investment
Number of outstanding 5,557,775 securities. Customer deposits added 13% over December 08 levels to AED 184bn, while
shares ('000) loan book growth was limited to 4% year-to-date, adherent with the bank’s conservative
Free Float 39% lending strategy. At these levels, ENBD managed to improve its liquidity profile as it
PE 09 Annualized 3.9x displayed a ‘plain vanilla’ loans-to-deposits ratio, down to 118% from a peak of 129% as
of December 2008. On asset quality and inline with management’s expectations, NPL
PB Current 0.6x
ratio went up to 1.9% by the end of September 09 (vs. 1.0% in FY08) with coverage ratio
Average daily traded 519 down to 109% from 118% in FY08. On the expenses front, operating costs increased
value (USD'000)
5% YoY, highlighting an improved 9M 09 cost efficiency ratio of 32%, vs. 38% the same
period last year. In terms of capital adequacy ratio, the bank strengthened it to 19.9% as of
September 09 compared to 11.4% as of December 08, with Tier 1 at 12.7%.

Share Ownership Recent developments and outlook

Juma Almajid,
Free Float, 5.3%
39.0% Over the past year, Emirates NBD achieved important milestones in its integration process,
with the final steps being the completion of the legal merger of Emirates Bank and NBD
(into one legal entity) and the rebranding across all branches. Being the largest UAE bank
with heavy exposure to Dubai and its related entities, ENBD is expected to face great
challenges in 2010. As such, the bank intends to focus its strategy on (1) balance sheet
optimisation through prudent lending growth and active funding management, (2)
profitability improvement via maximisation of yields and reinforcement of fee income, and
Government , (3) risk management enhancement.
Despite a relayed clear and focused strategy, we believe the aggravation of Dubai’s debt
woes are going to threaten ENBD’s profit generation capacity for at least the coming year.
Substantial write-downs, deterioration in asset quality and liquidity constraints being the
considered risks, we retain a cautious stance on ENBD stock.

16,000 14.00
Avg. daily traded value (AED '000)

Closing price (AED)

14,000 12.00
12,000 10.00
4,000 4.00
2,000 2.00
- -














Average Daily Traded Value Closing Price (Last Trade)

January 12th, 2010 51

Vision 2010

Abu Dhabi Commercial Bank Outstanding recommendation:

Company overview

Abu Dhabi Commercial Bank (ADCB) was formed in 1975 following the merger of Khaleej
Bank, Emirates Commercial Bank, and Federal Commercial Bank. As at September 09, the
Country UAE bank was able to maintain its rank as the third largest listed UAE bank in terms of assets
Exchange ADX worth AED 159bn. However, its profitability was strongly hit by the sharp deterioration of
its asset quality with 9M 09 earnings almost halved YoY.
Sector Banking & Financial
Services Over the years, ADCB grew to become a well-diversified banking institution offering
Foreign Investor Limit 25% corporate, retail and investment banking services along with brokerage, private banking
Share Price as at and wealth management. Its distribution network consists of 48 branches across the UAE
31/12/2009 (AED) 1.58 complemented with two in India. As of September 2009, the bank employed 2,547 people
2009 % Change -11% and served over 300,000 retail and 13,000 wholesale customers.
Islamic banking being one of the bank’s key area of focus, ADCB acquired 25% of one of
52 week high 2.74
Asia’s top Islamic lenders in 2008, Malaysia’s RHB Capital Berhad, and a specialized local
52 week low 1.27 subsidiary (Abu Dhabi Commercial Islamic Finance) was incorporated in H1 09.
Mkt Cap (AED'000) 7,599,800
Financial and operating highlights
Mkt Cap (USD'000) 2,069,155
Number of outstanding 4,810,000 ADCB’s 9M 09 net earnings declined 48% YoY to AED 683mn. This significant decline was
shares ('000) mainly the result of the recognition of AED 1.2bn loan loss provision charges during the
Free Float 35% period (vs. AED 426mn over 9M 08) as a reflection of pressure on the bank’s loan quality,
PE 09e 12.8x which included a sizeable exposure to Saad/ AHAB groups. On the other hand, the bank
was able to significantly grow its top line as evident in a 17% YoY growth in net operating
PB Current 0.7x
income. On the balance sheet, customer deposits stood at AED 83bn as of September
Average daily traded 1,272 09, a 1.0% year-to-date drop. On the contrary, net loans increased 7.3% since December
value (USD'000)
08 to AED 116.7bn, hence tightening loans-to-deposits ratio further from 129% to 140%
by Q3 09-end. This high level is explained by the bank’s strong reliance on borrowings,
reinforced with a recent USD 1bn five-year bond issuance (under the bank’s USD 7.5bn
Global Medium Term Note Program). Asset quality indicators sharply deteriorated during
Share Ownership the period with NPL ratio peaking at 4.2% (vs. 1.1% in December 08) and the coverage
ratio brought down to 52% (from 179% in FY 08). Given obvious downside risks, we
Free Float,
35.2% expect ADCB to post a net loss of AED 88mn in Q4 09, bringing total FY 09 bottom line to
an estimated AED 596mn, down 52% YoY.

Recent developments and outlook

ADCB was able to deliver top line growth in the difficult operating environment of 9M 09
Abu Dhabi as a result of higher net interest revenues and increasing contribution from its Malaysian
Council, 64.8% associate. The additional long term liquidity recently raised as well, as a high total capital
ratio (19.4% by September 09) should provide the bank with some support to enhance
lending capabilities. Nonetheless, these positives are overshadowed by serious concerns
about the bank’s ability to recover healthy asset quality ratios, especially in light of the
very low provision coverage ratio displayed by the end of Q3 09. In addition, we suspect
the bank to have one of the highest exposures to Dubai World amongst Abu Dhabi
banks, which could put further strain on its balance sheet solidity. Therefore, we reiterate a
cautious outlook on the stock for 2010 as it presents, in our view, the highest risk profile in
the Abu Dhabi banking universe.
35,000 7.00
Avg. daily traded value (AED '000)

Closing price (AED)

30,000 6.00
25,000 5.00
20,000 4.00
15,000 3.00
10,000 2.00
5,000 1.00
- -

Average Daily Traded Value Closing Price (Last Trade)

January 12th, 2010 52

Vision 2010

Union National Bank Outstanding recommendation:

Company overview

Union National Bank (UNB) was established in Abu Dhabi in 1982 and is the sole joint
bank between the governments of Abu Dhabi and Dubai which are respectively holding
Country UAE 50% and 10% stake in the bank. With assets of AED 76bn as of September 09, UNB is
Exchange ADX ranked seventh among the listed UAE banks in terms of total assets, and sixth in terms of
profitability with 9M 09 earnings of AED 932mn.
Sector Banks & Financial
Services The bank’s main areas of expertise are conventional and Islamic banking (via its specialized
Foreign Investor Limit 40% arm Al Wifaq Finance Company) as well as investment banking (through its subsidiary
Share Price as at Union Brokerage). In the UAE, UNB’s operations are catered by a network of more than
31/12/2009 (AED) 3.19 42 branches and 135 ATMs. In addition, the bank’s footprint in the broader MENA region
2009 % Change 59% materialized in 2006 when it acquired a 95% interest in Alexandria Commercial and
Maritime Bank, later renamed Union National Bank Egypt. In July 2009, the bank widened
52 week high 4.70
its presence by opening a representative office in China, at the Shanghai World Financial
52 week low 1.31 Centre.
Mkt Cap (AED'000) 6,600,179
Financial and operating highlights
Mkt Cap (USD'000) 1,796,945
Number of outstanding 2,062,500 On a ‘clean’ basis, UNB recorded a drop of 11% YoY in 9M 09 net profit to AED 987mn (vs.
shares ('000) AED 1,109mn for 9M 08). This negative performance was attributable to a heavy 18% YoY
Free Float 40% plunge in non-interest revenues driven by a significant slump in the fee business, inline
PE 09e 6.0x with the reported halt in loan origination. Indeed, September 09 loans came quasi-flat
compared to December 08 levels at AED 50.7bn while non-performing loans witnessed a
PB Current 0.8x
strong 84% year-to-date increase. Nonetheless, UNB still displayed a competitive NPL ratio
Average daily traded 453 of 1.3% in Q3 09, with coverage ratio maintained above 105%. On the liquidity front and
value (USD'000)
after irregular growth, customer deposits stood at AED 54.7bn as of September-end 09, a
notable 10.5% year-to-date growth. As a result, loans to deposits ratio significantly relaxed
to 92.7% (vs. 101.9% at December 08). We are estimating UNB’s Q4 09 net income to total
AED 171mn, a 52% QoQ decline mainly on higher provision charges expected at AED
Share Ownership 188mn (vs. a mere AED 31mn in Q3 09).
Free Float,
Recent developments and outlook

Despite a drop in profitability during the year, UNB’s 9M 09 results highlighted (1) the
improvement of its liquidity position, (2) the sustainability of competitive asset quality
indicators despite the strong rise in NPLs witnessed throughout the year, and (3) the
Abu Dhabi enhancement of its capital base with CAR reaching 17.1% by the end of the 9M 09 period.
Council, 50.1%
The bank’s current financial profile suggests a low risk profile and a relative resilience
to the economic slowdown. In addition, the bank’s successful operations in Egypt are a
Corporation of
Dubai, 10.00%
growing revenue contributor and one of UNB’s key strengths. Based on current valuation
levels, we are rating the bank as a BUY.
20,000 10.00
Closing price (AED)
Avg. daily traded value (AED '000)

18,000 9.00
16,000 8.00
14,000 7.00
12,000 6.00
10,000 5.00
8,000 4.00
6,000 3.00
4,000 2.00
2,000 1.00
- -













Average Daily Traded Value Closing Price (Last Trade)

January 12th, 2010 53

Vision 2010

First Gulf Bank Outstanding recommendation:

Company overview

Headquartered in Abu Dhabi, First Gulf Bank (FGB) was established in 1979 and listed
on ADX in 2002. The ruling family of Abu Dhabi has been the bank’s main shareholder
Country UAE since 1996 and currently holds a 61% stake. Highly capitalizing on strong corporate
Exchange ADX relationships and robust shareholder support, the bank became one of UAE’s flagship
players while enjoying the fastest-growing business as evident through the staggering
Sector Banking & Financial
Services 72% (2003-2008) CAGR recorded by total assets. As of September-end 09, FGB was the
Foreign Investor Limit 15% UAE’s fourth largest lender with total assets of AED 124bn and ranked third in terms of net
Share Price as at profit with 9M 09 bottom line reaching AED 2.3bn.
31/12/2009 (AED) 16.15 FGB’s core banking activities include corporate banking, treasury and investments, retail
2009 % Change 79% and Islamic banking as well as corporate finance. Core revenues are supported by other
income streams generated by its two subsidiaries (involved in property development and
52 week high 19.75
private equity) and three associate companies. The bank’s network currently comprises
52 week low 6.55 of 19 branches in the UAE supplemented by a presence in Singapore, UK, Libya (with the
opening of First Gulf Libyan Bank) and Qatar since the receipt of regulatory approval in
Mkt Cap (AED'000) 22,206,250
January 2009.
Mkt Cap (USD'000) 6,045,972 Under its one-year 10% share buy-back program (launched in November 2008) the bank
Number of outstanding 1,375,000 managed to acquire a total of 21 million shares with 116.5 million shares remaining. The
shares ('000) bank recently requested for the program to be extended for another year. In November
Free Float 88% 2009, the bank was able to raise USD 500mn three-year senior unsecured notes under its
PE 09e 7.0x USD 3.5bn EMTN program, priced at 285bps above US Treasuries.
PB Current 1.6x
Financial and operating highlights
Average daily traded 2,125
value (USD'000)
Over 9M 09, FGB posted a bottom line of AED 2,275mn (excluding the AED 181mn
gain on sale of property), a 9% increase over 9M 08 ‘clean’ earnings. This performance
was mainly achieved on the back of continuous balance sheet growth combined with
improving interest margins, sustainability of the fee business and tight cost control.
Share Ownership Customer deposits reached AED 89.4bn as of September 09, adding 21% year-to-date
Free Float, while loans expanded 13% over the same period to reach AED 90.0bn. At these levels,
27.0% FGB relaxed its loans-to-deposits ratio from 107% in FY 08 to 101%. During 9M 09, NPLs
increased by 160% to reach AED 1,276mn, pushing up NPLs/ Gross Loans ratio to 1.4%
from 0.6% in FY 08. In parallel, provision coverage remained high at 153%. We expect FGB
to post Q4 09 bottom line of AED 713mn, bringing FY 09 ‘clean’ earnings to AED 2,988mn,
up 26% YoY.
investors, Members of the Recent developments and outlook
11.7% Abu Dhabi ruling
family, 61.3%
Despite challenging operating conditions, FGB was able to outperform most UAE players
as evident through a growing business, strong profitability levels, and competitive asset
quality indicators. Although we acknowledge lingering pressure on the bank’s asset
quality moving forward (especially given its still high direct and indirect exposures to the
property sector), we believe it is well positioned and sufficiently capitalized to manage
such stress (given a total CAR at 18.8% as of September 09).
We reiterate our positive outlook on this stock and believe the current valuation still offers
upside potential.
Closing price (AED)

70,000 30.00
Avg. daily traded value (AED '000)

60,000 25.00
10,000 5.00

- -

Average Daily Traded Value Closing Price (Last Trade)

January 12th, 2010 54

Vision 2010

Dubai Islamic Bank Outstanding recommendation:

Company overview

Dubai Islamic Bank (DIB) was established in 1975 as the first Islamic banking institution
in the GCC region. Spurred by an increasing demand for Islamic banking products and
Country UAE services over the years, the bank grew to become the sixth largest UAE listed lender as of
Exchange DFM September 09 with an asset base of AED 83bn. In terms of profitability, the bank ranked
fourth with 9M 09 net earnings at AED 1.1bn. Following an ambitious expansion plan
Sector Banks and Financial
Services in 2009, DIB’s nationwide branch network was brought to a total of 61, including three
Foreign Investor Limit 15% Express Banking locations, and over 200 ATMs. In addition to an established presence
Share Price as at in Pakistan (via DIB Pakistan), Iran and Turkey, DIB’s most recent acquisition materialized
31/12/2009 (AED) 2.32 through the purchase of a 52% stake in the Jordan-based Industrial Development Bank,
2009 % Change 47% later renamed Jordan Dubai Islamic Bank (JDIB) which is set to start operations in January
2010. Noteworthy, the bank’s core operating business is complemented by participations
52 week high 3.37
in more than 50 companies, mainly operating in financial services and real estate. Deyaar,
52 week low 1.38 one of Dubai’s real estate developers, and Tamweel, a leading UAE mortgage provider, are
part of DIB’s network.
Mkt Cap (AED'000) 8,385,987

Mkt Cap (USD'000) 2,285,010 Financial and operating highlights

Number of outstanding 3,617,505
shares ('000) Throughout 9M 09, DIB’s performance was severely affected by a strong increase in
Free Float 63% provisioning which was the main reason behind the 65% YoY decline in net earnings
PE 09e 6.3x to AED 1,121mn. On the funding side, customer deposits showed strong volatility over
2009 mainly due to large withdrawals of government-related funds and active funding
PB Current 0.9x
management to lower expenses. Loan portfolio was reported at AED 50.4bn as of
Average daily traded 6,603 September 09, down 4% year-to-date and reflecting the bank’s prudence in terms of loan
value (USD'000)
origination. DIB’s 9M 09 loans-to-deposits ratio stood at 76.2%, the lowest level amongst
UAE peers. Unfortunately, NPL figures were not being provided by the bank on a quarterly
basis yet we assume DIB’s NPL ratio was north of 5.0% at September 2009 given its large
exposure to Dubai and the local property sector. We expect the bank to post Q4 09 net
Share Ownership Saeed Ahmad
income of AED 141mn (-53% YoY), translating to FY 09 net profits of AED 1,262mn, down
Lootah , 7.2% 27% compared to FY 08 figure.

Recent developments and outlook

DIB’s 9M 09 earnings showed evident weaknesses, marked by lingering uncertainties on

asset quality particularly on its high exposure to the property sector. These concerns were
mirrored through the downgrading of the bank’s credit ratings throughout the year.
Free Float,
Dubai In addition to being affected by heightened credit risks and general business slowdown,
Government ,
63.0% 29.8% the bank was displaying a total CAR of 12.1% as of September 09. Although within
regulatory requirements, this ratio is one of the lowest amongst local peers, making the
bank more vulnerable to shocks. An AED 3bn five-year capital increase (approved by
DIB’s EGM in April 2009) should provide some support to the bank’s capital. However,
a controlled balance sheet growth and a conservative lending policy are, in our view,
necessary to preserve the bank’s business until the local property market recovers, and
brighter economic prospects are seen in Dubai. For now, we are maintaining a cautious
outlook on the bank.
200,000 12.00
Closing price (AED)
Avg. daily traded value (AED '000)

160,000 10.00
140,000 8.00
100,000 6.00
60,000 4.00
40,000 2.00
- -

Average Daily Traded Value Closing Price (Last Trade)

January 12th, 2010 55

Vision 2010

Dubai Financial Market Outstanding recommendation:

Company overview

Dubai Financial Market (DFM) was established as a public institution and commenced operations
in 2000. It became a public joint stock company following its IPO in November 2006 through
Country UAE which 1.6 billion shares were offered to the public, representing 20% of DFM’s paid-up capital. The
Exchange DFM government of Dubai, via Borse Dubai, retained the remaining 80%.

Sector Banks In December 09, Kuwait’s HITS Telecom listed on DFM, bringing total number of securities listed
Foreign Investor Limit 49% on the exchange to 88, including 66 public shareholding companies, in addition to few debt
Share Price as at instruments and mutual funds. DFM’s main revenue line remains trading commission with a fee
31/12/2009 (AED) 1.88 structure of 0.2% on the total value traded on the exchange, considered on the upper range when
2009 % Change 50% compared to regional peers.

52 week high 2.75

Financial and operating highlights
52 week low 0.75
DFM reported a 9M 09 bottom line of AED 258mn, depicting a 67% YoY drop. This decline essentially
Mkt Cap (AED'000) 15,040,000
reflected an exhausted operating climate characterized by thin volumes and weak traded values.
Mkt Cap (USD'000) 4,094,857 In details, 9M 09 fee income came at AED 296mn, a 50% YoY fall, stemming from a 53% YoY plunge
Number of outstanding 8,000,000 in traded values. Trading commission remained the bulkiest contributor at 92% of total fee income
shares ('000) (vs. 93% in 9M 08). Alternatively, expenses (including G&A and amortization) remained almost flat
Free Float 20% YoY at AED 115mn leading to a 9M 09 EBIT of AED 181mn, a 63% decrease over 9M 08 EBIT of AED
PE 09e 42.7x 481mn. On the other hand, 9M 09 investment revenues amounted to AED 78mn (vs. AED 299mn for
9M 08) as the exchange suffered from weaker gains on sale of investments and absent investment
PB Current 1.9x
revaluation gains. For Q4 09, we expect DFM to report a bottom line figure of AED 94mn bringing FY
Average daily traded 20,995 09 earnings to AED 353mn (-42% YoY).
value (USD'000)

Recent developments and outlook

In November 2009, DFM announced the migration to a new trading platform, the X-Stream,
Share Ownership providing it with the ability to (1) display actual Bid and Ask prices during the pre-opening session
Free Float, rather than theoretical average prices, (2) register the closing price as the last executed transition
20.0% price, (3) introduce new financial instruments, and (4) execute over 720,000 trades per session.

On December 22nd, 2009, DFM announced that Borse Dubai and NASDAQ OMX had approved its
offer to acquire 100% of NASDAQ Dubai for USD 121mn (AED 445mn). The two exchanges will be
placed under a holding company yet will remain separated operationally as each is regulated under
different bodies: DFM under SCA (Securities and Commodities Authority) while NASDAQ Dubai
under DFSA (Dubai Financial Services Authority). Once this acquisition is completed (probably by
Borse Dubai
Limited , 80.0% H2 2010), NASDAQ OMX will be holding a 1% stake in DFM. Although we welcome such a merger,
we believe that more added value to DFM could be generated if NASDAQ Dubai equity listings are
transferred to DFM, while preserving NASDAQ Dubai for derivative products.

In 2010, we do not expect traded values to significantly expand given our regional outlook.
Consequently, we believe DFM’s profitability in the coming year will not markedly vary from that
of 2009. Furthermore, the recent turmoil caused by the Dubai World demise leads us to review
downward our general assumptions on UAE stock market development. As such, we reiterate a
cautious outlook on the stock and believe the current valuation is full.
600,000 7.00
Avg. daily traded value (AED '000)

500,000 6.00
Closing price (AED)

100,000 1.00
- -

Average Daily Traded Value Closing Price (Last Trade)

January 12th, 2010 56

Vision 2010

Tamweel and Amlak Finance Outstanding recommendation:

Mortgage market on halt

The wide correction in Dubai’s real estate sector in H2 08 was aggravated throughout
2009 by lack of liquidity in the property market. This coupled with continuing idleness of
Tamweel and Amlak, has put the emirate’s residential mortgage market on halt. As a result,
the mortgage industry marginally shrank to a calculated AED 49.3bn as at September 09
compared to AED 50.8bn at December 08, signalling (1) non-existent wholesale funding
for Tamweel and Amlak, (2) the absence of commercial banks’ lending to the residential
real estate market, and (3) stagnant mortgage demand as alertness on real estate sector

Inline with our expectations for 2009, Tamweel benefited from strong asset quality metrics
to maintain a September 09 loan book at AED 10.4bn, a mere 1% drop over December 08
levels, while affirming its leadership position in the market with a share of 30.5% (flat with
2008). On the other hand, Amlak’s exposure to high-end properties, with their valuations
suffering the most from the real estate slump, recorded an 8% drop in financing assets to
AED 9.3bn, down from AED 10.1bn at December 08, translating to a market share of 24.1%
(down from 25.5% in 2008). Obviously, with blocked access to funding in the first nine
months of 2009 and the merger being further delayed, Tamweel’s and Amlak’s combined
market share has slipped to 54.6%, down from 56.0% at December 08.

Over 9M 09, both Tamweel and Amlak’s profits remained in the red inflicted by
increasing funding costs and credit provision charges freezing their loan portfolio
revenue generation. Though both mortgage providers do not disclose NPLs figures, it is
unquestionable that both have suffered from a steep deterioration in asset quality, with
Amlak to a probably larger extent.

With the merger remaining on the swing, Tamweel and Amlak are seen to remain in a
difficult operating position in 2010 due to: (1) further drop in property prices leading to
further increase in loan-to-value indicator, (2) persistence of liquidity shortage hindering
property transaction pickup, and (3) contagion effect of the recent Dubai World
restructuring on the overall property sector. In addition, we also identified the following
endogenous factors: (1) balance sheet growth to remain frozen with no access to
wholesale funding (at least at reasonable pricing), (2) further tightening in interest spreads
on higher funding costs, and (3) more deterioration in loans’ credit quality which would
require further provisioning charges.
On another note, should the merger occur and the combined entity is granted a full
banking license (which would open up the ability to raise retail funds), we remain
sceptical on the effectiveness of such initiative amidst an overall weak and unstable
operating environment.

January 12th, 2010 57

Vision 2010

Emaar Properties Outstanding recommendation:

Company overview

Established by the Government of Dubai in 1997, Emaar has grown over the years to
become one of the largest real estate developers in the Gulf region and among the
Country UAE most recognized in the world. The company listed its shares on the Dubai Financial
Exchange DFM Market (DFM) in 2000, the same year when it offered Dubai’s first freehold properties to
foreigners. The Government of Dubai, a 32% shareholder in Emaar has supported the firm
Sector Real Estate throughout the years offering it free land which provided the company with operational
Foreign Investor Limit 49% flexibility and a low cost base. The company's current projects in Dubai include the
Share Price as at prominent Downtown Burj Khalifa, home to one of the largest malls in the world, Dubai
31/12/2009 (AED) 3.86 Mall and Burj Khalifa, the tallest tower in the world. The company's operations extend to
2009 % change 71% the wider MENA region and the Indian sub-continent.
52 week high 5.01
Financial and operating highlights
52 week low 1.74
Emaar reported revenues of AED 5.43bn for the 9M 09 period, down 40.9% YoY.
Mkt Cap (AED’000) 23,512,183
Revenues from land sales lost a staggering 68.0% YoY to reach AED 134.1mn in 9M 09.
Mkt Cap (USD’000) 6,406,589 Property sales totalled AED 3.76bn, down 53.5% YoY. Hospitality and rental revenues
Number of outstanding 6,091,239 increased by a strong 125.8% YoY, as Emaar expanded its portfolio of malls and hotels.
shares (‘000) Nevertheless, Emaar posted a net loss of AED 392.8mn in 9M 09. The main reason behind
Free Float 69% this loss was the AED 1.79bn write-off on its US operations. Moving into our Q4 09 net
PE 09E 76.6 profit projections, we expect Emaar to post net profits amounting to AED 699.8mn,
which would imply a QoQ increase of 6.9%. Emaar's FY 09 net profits would land on
PB Current 0.8
AED 307.0mn (EPS 0.05), 90% below last year's net profit. Excluding the loss from the
Average daily traded 41,422 discontinued US operations and the impairment of assets, 2009 net profits would have
value (USD’000)
been AED 2.1bn (EPS 0.34), a decline of 31% YoY.

As of 9M 09-end, Emaar sits on a gross cash position of AED 2.0bn along with debt of AED
8.15bn, implying a net debt position of AED 6.15bn.
Share Ownership
Investment Recent developments and outlook
Corporation of
Dubai, 31.2%
In December 2009, Emaar's BOD decided to reject the proposed merger with Dubai
Holding's real estate units, removing existing concerns about the merger's dilution impact
on minority shareholders. We expect 2010 to see another jump in the contribution from
the company's investment property portfolio, due to higher occupancy and new property
additions. On January 4th Emaar inaugurated the world's tallest building, the 828m high
Free Float, Burj Khalifa, with the handover of the previously sold units commencing in Q1 10. We
68.8% believe that Emaar is poised for a stronger year; with growing recurring revenue streams
coupled with property deliveries and a stronger contribution from its international

700,000 16.00
Avg. daily traded value (AED '000)

Closing price (AED)

600,000 14.00
500,000 12.00
200,000 4.00
100,000 2.00
- -

Average Daily Traded Value Closing Price(Last Trade)

January 12th, 2010 58

Vision 2010

Union Properties Outstanding recommendation:

Company overview

Union Properties (UP) was established as the real estate unit of Emirates Bank Group (EBG)
in 1987 then went public and got listed on the Dubai Financial Market (DFM) in 2000.
Country UAE UP’s core business relies mainly on real estate development for sale and lease and MEP
Exchange DFM contracting.

Sector Real Estate The company is currently building two of Dubai's most prominent properties; the Index
Foreign Investor Limit 15% Tower and Limestone House both located in the DIFC and scheduled for delivery in 2010.
Share Price as at Limestone House will be attached to a five star hotel managed by the Ritz Carlton, which
31/12/2009 (AED) 0.68 will form part of UP’s hotel portfolio. During 2009 UP began handovers of its largest
2009 % change 4% development to date Motor City, a master development with residential, office, retail and
leisure space powered by an F1 theme park.
52 week high 1.33

52 week low 0.50 Financial and operating highlights

Mkt Cap (AED’000) 2,289,463
UP's 9M 09 revenues reached AED 3.2bn, up a strong 20.9% YoY. This growth is mainly
Mkt Cap (USD’000) 623,832 attributable to the handover of residential units in MotorCity project, which, recognised
Number of outstanding 3,366,857 through the completed contract method, led to a spike in property sales revenues. UP
shares (‘000) delivered1,150 residential units within Motor City in 9M 09. Nevertheless, UP reported a
Free Float 47% 9M 09 net loss of AED 350.1mn, compared to a net profit of AED 800.7mn in 9M 08. The
PE 09 Annualized key reasons behind this loss include: 1) AED 470.6mn in valuation losses on investment
properties (AED 456.6mn gain in 9M08) and 2) AED 125.0mn in provisions related to the
PB Current 0.4
contracting business (Thermo). Excluding these revaluation losses and provisions, UP
Average daily traded 5,560 would have reported a ‘clean’ net income of AED 245.5mn in 9M 09, compared to AED
value (USD’000)
344.1mn in 9M 08. UP’s net debt position reached AED 6.79bn as of 9M 09-end, translating
into a debt-to-equity ratio of 120.6%. UP has managed to restructure AED 956.0mn worth
of short term facilities into long term obligations earlier in Q3 09 and is in the final stages
of restructuring a syndicated loan of AED 2.75bn.
Share Ownership
Recent developments and outlook
Free Float, 47.3% Emirates NBD,
While we view the continued handovers within the Motor City project as a strong positive,
we remain concerned about the undisclosed extent of client defaults and the implication
this might have on cash recovery (60% of the purchase price to be paid on handover).
UP is expected to hand over the Index Tower and Limestone House in 2010 which
should boost the property sales revenue. However, the company’s almost continuously
underperforming MEP contracting subsidiary continues to be a source of uncertainty
and losses, as is highlighted in Q3 09 provisions of AED 125mn over and above the AED
Ghobash Trading &
Investments, 5.1% 500mn booked in Q4 08. An added concern is the relatively high level of short-term debt
(AED 4.15bn). Therefore we remain cautious on the name, especially given that there is no
signs of a near-term recovery in Dubai’s real estate market.

140,000 6.00
Avg. daily traded value (AED '000)

Closing price (AED)

120,000 5.00
20,000 1.00

- -

Average Daily Traded Value Closing Price(Last Trade)

January 12th, 2010 59

Vision 2010

Deyaar Development Outstanding recommendation:

Company overview

Deyaar Development (Deyaar) is a Dubai-based real estate development company

with local and regional operations that include development, lease, management and
Country UAE brokerage of property. All of Deyaar’s activities are performed in compliance with Islamic
Exchange DFM Sharia Principles. Deyaar went through an Initial Public Offering (IPO) in May 2007 and
listed on the Dubai Financial Market (DFM) later in September of the same year. The
Sector Real Estate company was first established in 2002 as Dubai Islamic Bank’s (DIB) real estate investment
Foreign Investor Limit 0% arm which currently retains a 41% ownership in the company while 57% is held by the
Share Price as at public.
31/12/2009 (AED) 0.58

2009 % change 16% Deyaar has developed residential and commercial projects across the UAE, Lebanon and
Turkey. The majority of Deyaar’s developments comprise of properties intended for sale.
52 week high 1.01
However the company remains a key player in the area of property management, with
52 week low 0.44 900 properties under management on behalf of their owners.
Mkt Cap (AED’000) 3,351,240
Financial and operating highlights
Mkt Cap (USD’000) 913,144
Number of outstanding 5,778,000 Deyaar reported net profits of AED 212.2mn in 9M 09; down 71.9% YoY, on the back
shares (‘000) of AED 1.32bn in revenues. A 42.4% YoY decline in revenues was accompanied with a
Free Float 55% 20.9 percentage points reduction in gross margins. Deyaar booked fair value gains on
PE 09 Annualized 11.8 investment properties amounting to AED 76.5mn in 9M 09, compared to nil in 9M 08. Net
margins (NPM) continued to head south coming in at 16.0%, a 16.9 percentage point loss
PB Current 0.4
YoY. Deyaar’s investment properties include a 50% stake in a project under development
Average daily traded 6,682 in the DIFC area and land plots both locally and internationally. Deyaar closed 9M 09 with
value (USD’000)
a cash position of AED 651.6mn and a total debt of AED 1.1bn (debt-to-equity ratio of
14.1%) implying a negative net cash position of AED 408.8mn.

Recent developments and outlook

Share Ownership
Dubai Islamic Deyaar has managed to deliver six projects in 2009, with the second quarter of 2009
Bank, 41.0% witnessing the delivery of four residential projects (470 residential units) in Dubai Silicon
Oasis City and the company’s first project in Lebanon. In Q3 09, Deyaar handed over The
Citadel, an AED 700mn 41-storey commercial tower in the Business Bay area of Dubai. In
2010, the company is up for delivering six projects, and will see revenues from property
sales as the key feature on the income statement in the coming quarters and could
very well exceed FY 09 levels. As we move into FY 10, most of Deyaar’s ongoing projects
Free Float, 55.0%
will approach completion, leading property sales revenue to fade beyond next year. In
Other investors,
the absence of any major project launches, the company is left with a highly uncertain
4.0% medium-term earnings profile which would rely on property management, brokerage,
contracting and the income of the 50% stake in the DIFC properties. The contribution
from these business lines will barely cover the current level of SG&A and finance costs.

Avg. daily traded value (AED '000)

Closing price (AED)

600,000 2.50
500,000 2.00
400,000 1.50
100,000 0.50
- -














Average Daily Traded Value Closing Price(Last Trade)

January 12th, 2010 60

Vision 2010

Aldar Properties Outstanding recommendation:

Company overview

Aldar Properties (Aldar) was established in October 2004 then underwent an initial public
offering (IPO) in 2005 that raised its capital to AED 1.5bn and was subsequently listed on
Country UAE the Abu Dhabi Securities Exchange (ADX). Aldar is an Abu-Dhabi real estate developer
Exchange ADX with operations including property development for sale and leasing, land sales in
addition to property management and investment. Aldar has a current land bank close
Sector Real Estate to 50mn sqm, all of which is located in Abu Dhabi and mostly granted by the Abu Dhabi
Foreign Investor Limit 40% Government.
Share Price as at 4.91
31/12/2009 (AED) The company is currently developing two of Abu Dhabi's largest projects including the
2009 % change 26% 24mn sqm mixed-use Yas Island development and 5.2mn sqm of beach-front community
Al Raha Beach. Aldar's strategy involves the sale of land plots, off-plan property in addition
52 week high 6.65
to building a strong diversified investment portfolio.
52 week low 1.96
Financial and operating highlights
Mkt Cap (AED’000) 12,657,464

Mkt Cap (USD’000) 3,448,900 Aldar's 9M 09 revenues totalled AED 1.7bn, compared to AED 4.4bn in 9M 08. This 61.3%
Number of outstanding 2,577,895 drop YoY was mainly due to lower land sales, which retreated to AED 103mn in 9M 09
shares (‘000) compared to AED 3.63bn in 9M 08. Despite its 39.4% YoY growth, recurring revenues
Free Float 66% from investment properties, contributed a mere 5.6% of total revenues. With seven new
PE 09E 7.3 hotels gone live in Q4 09 on Yas Island and more properties commencing operations in
2010, significant rental and hospitality revenue growth is expected in 2010. The company
PB Current 0.7
recognized AED 1.61bn in fair value gains on investment properties in 9M 09, which offset
Average daily traded 14,207 the impact of lower revenues and higher SG&A expenses to produce a bottom line of AED
value (USD’000)
1.57bn for the period, down 53.3% YoY. Moving onto Q4 09, we expect the company's net
profits to reach AED 156.4mn, down 63.4% QoQ yet up 85.2% YoY. FY 09 net profits would
therefore land on AED 1.73bn (EPS 0.67), down 49.9% YoY.

Share Ownership Aldar’s cash balance retreated from AED 12.1bn in FY 08 to AED 11.0bn in 9M 09, along
Mubadala with an AED 14.3bn expansion in debt resulting in a negative net cash position of
Co., 19.0% AED 25.8bn. With most of the company’s investment properties either completed or
approaching completion, the cash burn rate is expected to slow down rapidly in the
Abu Dhabi coming quarters.
Co., 7.2%
Recent developments and outlook
National Bank
of Abu Dhabi,
The company completed the Yas Marina circuit with Abu Dhabi's first F1 Grand Prix and
Free Float, 65.7% National
Corporation for went operational with seven hotels in October 2009. Aldar is expected to complete
Tourism and Hotels, this year the Central Market Mall, the Ferrari theme park and the Links golf course. The
handovers of sold properties on Al Raha Beach coupled with their impact on the income
statement is due to begin, with Al Bandar project scheduled for delivery in Q2 2010
followed by Al Zeina and Al Muneera projects in 2011. We maintain our positive outlook
on the under-supplied Abu Dhabi real estate market and specifically Aldar Properties, the
most long-term oriented developer in the capital.

Avg. daily traded value (AED '000)

Closing price (AED)

300,000 12.00
250,000 10.00
200,000 8.00
150,000 6.00
100,000 4.00
50,000 2.00
- -

Average Daily Traded Value Closing Price(Last Trade)

January 12th, 2010 61

Vision 2010

Sorouh Real Estate Outstanding recommendation:

Company overview

Sorouh Real Estate (Sorouh) is the second largest listed real estate developer in Abu Dhabi,
established in the first half of 2005 and subsequently listed on the Abu Dhabi Securities
Country UAE Exchange (ADX) in December of the same year. The company holds a land bank of almost
Exchange ADX 60mn sqm, with around 10% in high value areas of Abu Dhabi and the remainder in the
immediate proximity to the Dubai border. Sorouh's real estate development strategy used
Sector Real Estate to be oriented towards land sales. However, the company is currently shifting focus to
Foreign Investor Limit 15% rental properties and the completion of previously sold off-plan properties.
Share Price as at 2.57
31/12/2009 (AED) The developer's major projects include Shams Abu Dhabi on Al Reem Island and Al
2009 % change -20% Ghadeer. While Shams Abu Dhabi offers high-end office and residential units, Al Ghadeer
is a middle-income housing project located between Dubai and Abu Dhabi.
52 week high 4.22

52 week low 2.03 Financial and operating highlights

Mkt Cap (AED’000) 6,425,000
Sorouh reported 9M 09 revenues of AED 2.66bn, down a 16.5% YoY. Despite revenues
Mkt Cap (USD’000) 1,750,681 from land sales losing 62.9% YoY, Sorouh managed to partially offset this decline by
Number of outstanding 2,500,000 recording property sales revenues for the first time (AED 1.27bn) as the company handed
shares (‘000) over the Golf Gardens villas and townhouses. Property sales revenues became the main
Free Float 81% revenue contributor with a 47.5% share (nil in 9M 08), leaving 43.8% to land sales revenues
PE 09 Annualized 10.5 (98.7% in 9M 08). Net profits for the first nine months of 2009 reached AED 470.0mn,
down 74.6% YoY, and implying a net profit margin (NPM) of 17.3% for the period. As of 9M
PB Current 1.1
09-end, Sorouh holds AED 4.0bn of cash with a total debt balance of AED 2.41bn, resulting
Average daily traded 10,827 in a net cash position of AED 1.59bn/AED 0.64 per share.
value (USD’000)

Recent developments and outlook

The company’s Sun and Sky Towers within Shams Abu Dhabi remain on schedule for
Share Ownership delivery mid-2010 with more than 50% of the retail podium being pre-leased. The Gate
Al Goud Financial Towers are progressing as planned with three towers rising above ground. With most of
Investment , 11.6%
the first phase of Golf Gardens completed and handed over to clients, the company is
Abu Dhabi commencing construction on Golf Gardens II. Moving into FY 10, Sorouh is expected to
Company witness a spike in unit deliveries and thus also a growth in revenues from past property
(ADIC), 7.3%
sales. However, under the current market conditions, we expect limited or no new sales
of land or property in the coming months, further suppressing Sorouh's results given that
the company has a relatively small investment portfolio and recurring cash flows to hold
onto. Nevertheless, with operations in the under-supplied Abu Dhabi market (the market
Free Float, 81.1% which we expect to recover first in the UAE), we see this well-funded company as one of
the strongest long-term real estate plays in the UAE.
Closing price (AED)

250,000 12.00
Avg. daily traded value (AED '000)

200,000 10.00

50,000 2.00

- -

Average Daily Traded Value Closing Price(Last Trade)

January 12th, 2010 62

Vision 2010

Arabtec Holding Outstanding recommendation:

Company overview

Arabtec Holding (Arabtec) was established in 2004 with the intent of acquiring a 100%
stake in Arabtec Construction, one of UAE's leading general contractors. In the same year,
Country UAE the company underwent an initial public offering (IPO) and used the proceeds to finance
Exchange DFM its acquisition of Arabtec Construction.

Sector Construction The company was among the main contractors on Burj Khalifeh, the world's tallest man-
Foreign Investor Limit 49% made structure. Arabtec's experience from large scale and technically challenging projects
Share Price as at has enabled it access to both regional and international opportunities. For that reason,
31/12/2009 (AED) 2.68 Arabtec was awarded the AED 10bn Okhta Centre contract from Gazprom Neft in Russia
2009 % change 19% and the equivalent of AED 3.5bn worth of contracts in Saudi Arabia. The company also has
operations in Qatar, Syria, Jordan and Pakistan.
52 week high 3.78

52 week low 0.71 Financial and operating highlights

Mkt Cap (AED’000) 3,205,280
Arabtec reported 9M 09 revenues of AED 5.57bn, down 13.5% YoY as Dubai -its main
Mkt Cap (USD’000) 873,373 market- experienced a slowdown. Net profits in 9M 09 reached AED 511.7mn, a decline
Number of outstanding 1,196,000 of 32.7% from 9M 08 on the back lower revenues, higher contingencies being built into
shares (‘000) margins and reduced pricing power on new contracts. We expect Q4 09 revenues to
Free Float 55% reach AED 1.83bn and produce an expected net profit of AED 169.0mn, leading to an
PE 09E 4.7 implied net profit for the year of AED 680.8mn (EPS: AED 0.57) - a 28.9% YoY decline.
PB Current 1.3
As of 9M 09-end, Arabtec had a cash balance of AED 658.3mn and a total debt of AED
Average daily traded 23,586 1.01bn, implying a negative net cash position of AED 355mn (AED 0.3 per share). Arabtec's
value (USD’000)
current backlog stands at AED 28.9bn as of 9M 09-end, equating to 3.0x FY 08 revenues
and 3.9x our FY 09 revenue projections.

Recent developments and outlook

Share Ownership
Riad Kamal, Last week, Abu Dhabi government-owned Aabar Investments submitted an offer to
Hashem Al Safi, acquire 70% of the shares (post-conversion) in Arabtec with the latter's management
5.7% consent. Aabar is offering AED 6.42bn for the stake through a mandatory convertible
bond at the conversion price of AED 2.3 per share. Despite the offer falling short of the
last market price on the announcement date, we believe there is more to it than the
naked eye can see. Aabar is expected to aid Arabtec in securing major contracts, from the
AED 6bn presidential palace contract all the way up to involvement in the construction
Free Float, 55.0%
of the nuclear power plants. Moreover, we believe this Abu Dhabi government stake will
Other investors, improve the odds of Arabtec successfully collecting its receivables from Dubai developers.
In addition, the cash will dramatically enhance Arabtec's financial position, allow the
company to bid for large regional contracts and facilitate acquisitions in key markets.

180,000 12.00
Avg. daily traded value (AED '000)

Closing price (AED)

120,000 8.00
60,000 4.00
- -

Average Daily Traded Value Closing Price(Last Trade)

January 12th, 2010 63

Vision 2010

Depa Limited Outstanding recommendation:

Company overview

Depa Limited (Depa) is one of the leading providers of interior contracting services in
the world. The company started providing interior contracting services in 1996 and
Country UAE subsequently decided to acquire the Italian-based contractor "Depa" in 1998, whose
Exchange NASDAQ Dubai name it carries today.

Sector Contracting This Nasdaq Dubai and London Stock Exchange listed company operates in the luxury fit-
Foreign Investor Limit 49% out sector from its Dubai headquarter, with subsidiaries and associates across 16 countries
Share Price as at including UAE, Saudi Arabia, Libya, Morocco and Singapore. Depa's operations are broken
31/12/2009 (USD) 0.53 down into three business lines: Interior contracting, manufacturing and procurement.
2009 % change 4% Depa is involved in a number of landmark projects across the MENA region and Asia
ranging from hotels, theme parks, metro stations to Burj Khalifeh.
52 week high 0.88

52 week low 0.29 Financial and operating highlights

Market cap (AED' 000) 1,195,704
Depa reported H1 09 revenues of AED 1.11bn, a YoY growth of 49.4% fuelled by increased
Market cap (USD' 000) 325,805 contribution from infrastructure work through Lindner Depa and stronger progress in
Number of outstanding 614,726 Abu Dhabi and Saudi Arabia. H1 09 net profits reached AED 91.7mn, up a strong 65.0%
shares ('000) YoY on the back of higher revenues coupled with increased income from associates and
Free Float 43% net interest income. In H2 09 we expect Depa's bottom line to reach AED 195.0mn, more
PE 09E 4.2 than double H1 09 profits and up 40.4% YoY. H2 09 net profit margin (NPM) is expected to
come in at 12.8%, 150 bps higher YoY and 446 bps above H1 09 margins. Consequently,
PB Current 0.7
we forecast FY 09 net profits to record a YoY growth of 47.4% to reach AED 286.7mn (EPS:
Average daily traded 189 AED 0.47). This company is one of only two companies in our coverage universe to post
value (USD'000)
2009 earnings growth.

As of H1 09-end, Depa had a cash balance of AED 551.7mn and a total debt of AED
315.4mn (debt-to-equity ratio of 17.3%), resulting in a net cash position of AED 236.3mn
Share Ownership or AED 0.38 per share. Depa currently has a backlog of AED 3.18bn converting into 1.6x FY
Other long term 08 revenues and 1.2x projected FY 09 revenues.
investors, 13.0% Al Mal Opportunity
Fund, 27.5%
Recent developments and outlook

Depa is aggressively pursuing new markets and contracts to compensate the impact of an
imminent decline in Dubai business; Depa's largest market. The company is set for growth
Mazrui Holdings, in markets like Abu Dhabi, Saudi Arabia, Morocco, Singapore and India. Other than that,
Depa's aggressive entry into the infrastructure has proved successful with the company
Free float, 43.0% Al Futtaim Capital, having almost completed the Dubai Metro Red Line and recently won the Green Line
contract. A major concern for the company was the lack of liquidity for its shares on the
Nasdaq Dubai platform. However, the planned merger of DFM and Nasdaq Dubai should
boost the stock's liquidity.

Avg. daily traded value (USD '000)

Closing price (USD)

1,400 1.60
1,200 1.40
1,000 1.20
200 0.20
- -

Average Daily Traded Value Closing Price(Last Trade)

January 12th, 2010 64

Vision 2010

Drake & Scull International Outstanding recommendation:

Company overview

Drake & Scull International (DSI) is a UAE-based public joint stock company engaged in
mechanical, electrical and plumbing (MEP), industrial, water and infrastructure (IWP) and
Country UAE civil contracting. The company's operations span across the UAE, Saudi Arabia, Bahrain,
Exchange DFM Sudan and more recently Thailand. DSI went through an initial public offering (IPO) in July
2008, at the peak of the UAE stock market offering 55% of its capital and finally listed on
Sector Construction the Dubai Financial Market (DFM) in March 2009.
Foreign Investor Limit 49%
Share Price as at Financial and operating highlights
31/12/2009 (AED) 0.90
% change since March 22% DSI reported 9M 09 revenues of AED 1.4bn, with the MEP business dominating the
16, 2009
revenue mix with its 59.4% share. The civil engineering business generated 22.8% of
52 week high 1.22
revenues, leaving 17.8% for the IWP business. Gross profit for the 9M 09 period reached
52 week low 0.64 AED 286.8mn, translating into a gross profit margin (GPM) of 20.5% and inline with our FY
09 projected margin of 20.8%. 9M 09 net profits reached AED 232.7mn, with a net profit
Market cap (AED' 000) 1,932,640
margin (NPM) of 16.6%. For the final quarter of the year we are projecting net profits to
Market cap (USD' 000) 526,605 reach AED 77.3mn. The implied FY 09 bottom-line would be AED 309.0mn (EPS: AED 0.14),
Number of outstanding 2,147,378 an increase of 47.2% YoY. The expected results for the year render DSI one of only two
shares ('000) companies in our real estate and construction coverage universe that are posting a YoY
Free Float 55% net profit growth.
PE 09E 6.3
As of 9M 09-end, DSI had a cash balance of AED 1.12bn and a total debt of AED 328.2mn,
PB Current 0.8
resulting in a net cash position of AED 787.6mn or AED 0.37 per share. DSI’s backlog
Average daily traded 9,346 stands at around AED 2.97bn as of 9M 09-end, equating to 1.7x FY 08 revenues and 1.6x
value (USD'000)
projected FY 09 revenues.

Recent developments and outlook

Share Ownership In H2 09, DSI executed two acquisitions; an 82% stake in Passavant-Roediger and a
Other investors, Al Mal Capital,
75% stake in Drake & Scull International Kuwait. Passavant-Roediger is a leading global
26.5% 5.2% specialist EPC provider of turnkey wastewater treatment plants. DSI Kuwait is an MEP
Khaldoun Tabari, contractor. We believe these two acquisitions are inline with the company's long term
strategy to diversify the geographic sources of the company's revenue streams through
organic and inorganic growth. The company is still evaluating target companies in
Drake & Scull
Group, 5.0% the region, with H1 10 expected to see further acquisitions. We expect FY 10 to bring
further regional contract awards which, coupled with a successful execution of the next
acquisitions, will reduce DSI's reliance on Dubai and expand its growth potential.
Free Float, 55.0%
Closing price (AED)

120,000 1.20
Avg. daily traded value (AED '000)

100,000 1.00

80,000 0.80

60,000 0.60

40,000 0.40

20,000 0.20

- -










Average Daily Traded Value Closing Price(Last Trade)

January 12th, 2010 65

Vision 2010

Agthia Group Outstanding recommendation:

Company overview

Emirates Foodstuff and Mineral Water Company, also known as the Agthia Group or
Agthia, is one of the leading UAE food and beverages companies. Established in 2004 as
Country UAE a holding company under the Abu Dhabi government's privatisation program and listed
Exchange ADX subsequently, Agthia’s product portfolio includes bottled water and beverages, flour and
feed, frozen vegetables and tomato paste.
Sector Food & Beverages Starting Q4 07 Agthia management undertook an aggressive expansion strategy with
Foreign Investor Limit 25% two acquisitions (Ice Crystal, a 5-gallon water brand in Q4 07, Al Ain Vegetable for
Share Price as at Processing and Canning in Q1 08), the set-up of a food processing unit (Al Ain Food and
31/12/2009 (AED) 1.83 Beverages) in Egypt in Q2 09, and the acquisition (H1 09) of the exclusive GCC (excluding
2009 % Change 74% KSA) distribution rights of children’s drink, CapriSun. The firm is still planning further
acquisitions in the food arena.
52 week high 2.17

52 week low 1.02 Financial and operating highlights

Mkt Cap (AED'000) 1,104,000
On the back of AED in revenues (+15.9% YoY), Agthia reported AED 95.0 mn of
Mkt Cap (USD'000) 300,580 net income in 9Mo 09 (+75..2% YoY), inclusive of a AED 6mn provision for “stock quality”
Number of outstanding 600,000 booked in Q3 09. The flour and animal feed segment generated AED 509.0 mn in sales,
shares ('000) for a gross margin of 25.8% (vs. 16.7% in 9Mo 08). The water and beverages segment
Free Float 44% recorded 9Mo 09 sales of AED 148.4 mn (+46.9% YoY), for a gross margin standing
PE 09e 10.3 at 43.4% in Q3 09 vs. 42.3% in 9Mo 08 . With the commencement of shipments from
the Egyptian plant in August, tomato paste and frozen vegetables 9Mo 09 revenues
PB Current 1.2
reached AED 37.3 mn (vs nil revenues in 9Mo 08), for a gross margin of 31.7%. Despite
Average daily traded 880 pricing pressure from international players, the outlook onthis segment revenues seems
value (USD'000)
promising in light of Agthia’s expected move into fruit puree (Q4 09E) and frozen French
fries (Q1 10E). Agthia ended Q3 09 with a AED 33 mn net cash position and Shareholder
Equity of AED 890 mn vs. net cash of AED 64 mn and Shareholder Equity of AED 871 mn in
Q2 09 and net debt of AED 174 mn and Shareholder Equity of AED 778 mn in Q3 08.
Share Ownership
Free Float,
Recent developments and outlook
2009 has so far been eventful for Agthia as (1) it ventured successfully into new high-
margin products such as CapriSun, (2) markedly grew its UAE market share in bottled-
water, and (3) started new operations from Egypt. We believe 2010 will be another year
of volume momentum for Agthia as it expands its water and beverages bottling capacity,
and diversifies its food products offering with fruit puree and French fries. On the back
General Holding of Q3 09 performance and management indications that feed prices seem to have hit
51.0% the bottom, we call for flat YoY ongoing net earnings growth in 2010. We believe Agthia
Abu Dhabi
Public Pension represents a compelling long-term play on the GCC food & beverage sector, with a major
Fund, 5.00%
UAE .exposure. We view the company’s potential announcements of acquisitions in the
GCC food & beverage sector (as per its publicly stated strategy) as a major catalyst for its
share price - recognizing that the timing of such events is challenging to predict.
70,000 3.50
Avg. daily traded value (AED '000)

Closing price (AED)

60,000 3.00
50,000 2.50
40,000 2.00
30,000 1.50
20,000 1.00
10,000 0.50
- -

Average Daily Traded Value Closing Price (Last Trade)

January 12th, 2010 66

Vision 2010

DP World Outstanding recommendation:

Company overview

DP World (DPW) was established in 2005 following the merger of Dubai Ports Authority and Dubai
Ports International. Subsequent to its November 07 listing on the Dubai International Financial
Country UAE Exchange (DIFX), DPW floated 20% of its stock to the public, while 80% of the company continues
Exchange NASDAQ Dubai to be held by the Dubai government through Dubai World. Building on its expertise DP World
successfully expanded to become the fourth largest port operator in the world, one of the “Big
Sector Container Ports four”, operating 49 terminals and 12 new developments across 31 countries. Its share of the global
Foreign Investor Limit 40% container trade is 5.9%. The operator has a current capacity of 60 mn TEU.
Share Price as at DP World focuses mainly on maintaining a strong presence and expanding into markets with high
31/12/2009 (USD) 0.43 growth potentials and with high capacity constraints. As such, DP World aims to add a total of 36.2
2009 % change 10.3 mn TEU in capacity by 2017, of which 22 mn will be in the Middle East, Europe, and Africa, and
10.4mn in The Indian subcontinent and Asia Pacific. DPW currently relies on Origin and Destination
52 week high 0.59
(O&D) container traffic vs. transshipment traffic; current breakdown of traffic is 76:24, favoring high
52 week low 0.18 yield traffic.
Mkt Cap (USD’000) 7,138,000
Financial and operating highlights
Number of outstanding 16,600,000
shares (‘000)
Est. Free Float 20% DPW delivered strong H1 2009 net profits of USD 175 mn, implying a 36.7% drop over the reported
H1 08 results. DP World’s operations were relatively more resilient to the market downturn
PE 09e 25.2x compared to its peers, due to its strong presence in some of the emerging markets with high
PB Current 1.0x economic activity.
Average daily traded DPW suffered from a 10% YoY drop in volume in H1 2009, and we forecast a 7.8% YoY decline by
value (USD’000) 2,791
year end in total throughput, which will translate into a 15.7% drop in EBITDA and a 50.6% drop in
net profits attributed to shareholders.
Middle East and Africa are two regions with the highest growth rates in throughput, and both along
with its operations in Europe) contributed to 63% of the total revenues. Revenues came c13.4%
lower than H1 08, while EBITDA and EBITDA margin reached USD 535 mn and 38.7% respectively;
17.9% and 210 bps lower than H1 08.
Share Ownership
Free Float, Recent development and outlook

We forecast sales for FY 09 to reach USD 2.9 bn, brought down by the drop in throughput along
with a substantial drop in bulk revenues. We expect EBITDA to reach USD 1.1 bn for FY 09, while
net profits to sharply fall by 50.6% in 2009 reaching USD 282.8 mn. Net debt position stands at USD
4.3 bn (debt is USD 7.8 bn vs cash of USD 3.5 bn) at year end. DP World’s debt position was briefly
put into question in late November 09 along with the rest of Dubai World’s obligation, however
following further clarifications, DPW (and its obligations) was not included in Dubai World’s debt
Dubai World ,
80.0% restructuring. However, it is important to note that DP World’s debt is mostly long-term, with USD
3.2 bn in bonds to mature in 2017 and 2034.
Recently, DP World has decided to officially proceed with the construction of the London Gateway,
which is located 25 km away from London and will have a throughput capacity of 3.5 mn TEU upon
On another front, DP World’s board is exploring secondary listing on London Stock exchange while
maintaining its primary listing on Nasdaq Dubai. This is expected to attract more liquidity and
trading, which will in turn brings the market valuation of the company to a more favorable one.

45,000 1.50
Avg. daily traded value (USD '000)

Closing price (USD)

30,000 1.00
15,000 0.50
- -













Average Daily Traded Value Closing Price(Last Trade)

January 12th, 2010 67

Vision 2010

Aramex Outstanding recommendation:

Company overview

Established in 1982, Aramex went public in 2005 on the Dubai Financial Market. Since
then, it has grown into one of the region’s leading providers of express package delivery,
Country UAE freight forwarding, and other supply chain services including document storage and 3PL.
Exchange DFM The company runs 304 offices in 192 cities in the world. Aramex has been undertaking
acquisitions in Europe, Asia and the United States. In 2006, Aramex acquired TwoWay
Sector Logistics Vanguard, a Dublin-based logistics and freight service provider, allowing the company to
Foreign Investor Limit 49% diversify their revenue dependence to a more diversified geographic distribution.
Share Price as at Aramex’s strategy of becoming the fifth global logistics and express transportation service
31/12/2009 (AED) 1.57 provider by the year 2010 has seen heavy investment in different geographical regions,
2009 % change 98.5 particularly in the Middle East, which accounts for 75% of the revenues. The company has
recently opened its state-of-the-art AED 120 mn logistics center in Dubai with an area of
52 week high 1.90
140,000 square meter.
52 week low 0.75
Financial and operating highlights
Mkt Cap (AED’000) 2,089,670

Mkt Cap (USD’000) 568,943 Aramex reported a net income of AED 134.8 mn for the first nine months of 2009, a
Number of outstanding 1,331,000 solid increase of 24% over the same period last year. The result was impressive given the
shares (‘000) current market conditions and the slowdown in business that has affected the sector. 9M
Est. Free Float 61% 09 revenues dropped 9.1%, solely from the decrease in revenues from freight forwarding,
PE 09e 11.8x which historically formed the major source of Aramex’s revenues. The express and other
services (which enjoy higher gross margins) however witnessed an increase in revenues.
PB Current 1.4x
The increase in such revenue segments, along with aggressive cost-cutting led to a
Average daily traded 3,238 growth of 5% YoY in gross profit to AED 818.5 mn for 9M 09, and to a gross margin of 57%
value (USD’000)
(compared to 49% for 9M 08). Effective cost-cutting was also applied on overhead costs,
which led to a YoY increase of 15% in its operating income to AED 152.8 mn.

Recent development and outlook

Share Ownership
Free Float,
Levant Logistics
Holdings, 9.9%
Aramex’s stock got hit badly in the beginning of 2009, given that its driven by macro
60.6% economic variables. The stock however ended the year significantly outperforming the
rest of the market. Investors understood that Aramex’s high dependence on revenues
from the Middle East (comprising 75% of the total revenues) was actually a significant
advantage Aramex had over its peers. Revenues from the Middle East dropped 2%,
compared to drops of 42%, 25%, and 20% in North America, Europe, and Asia respectively.
Furthermore, its business model, a light asset based one, rendered the company more
Other Investors,
adaptable to the industry changes.
29.5% Aramex managed to successfully shift its focus to services with higher margins, increasing
their share of the total revenues, all the while engaging in aggressive cost-cutting. The
margins will revert to their historic averages along with a recovery in global activity and
thus in revenues from freight forwarding.
We also reiterate our view that Aramex is one of the best defensive stock picks, backed
by a resilient product mix and a solid revenues stream relative to the rest of the market.
The company is in a prime position to continue ahead with its growth strategy, whether
organically or not, while consolidating its leadership in the region.

70,000 3.50
Avg. daily traded value (AED '000)

Closing price (AED)

60,000 3.00
50,000 2.50
40,000 2.00
30,000 1.50
20,000 1.00
10,000 0.50
- -

Average Daily Traded Value Average Daily Traded Value

January 12th, 2010 68

Vision 2010

Gulf Navigation Holding Outstanding recommendation:

Company overview

Gulf Navigation is an integrated shipping company that is engaged in marine commodity

transportation, vessel chartering, and shipping. The company started its operations from
Country UAE Dubai in 2003, and was listed on the DFM in February 2007. Focusing its business lines on
Exchange DFM the chartering of crude oil and liquid chemicals vessels, Gulf Navigation currently operates
a fleet of 15 vessels including one Very Large Crude Carrier (VLCC), one Suezmax crude
Sector Shipping carrier, six product / bulk carriers, and seven chemical carriers. In addition to those, the
Foreign Investor Limit 20% company owns four crew boats.
Share Price as at The company’s goal is to become a leading chemicals and oil shipping company in the
31/12/2009 (AED) 0.59 Gulf region, taking advantage of its base in Dubai and of its location in the oil-producing
2009 % change -7.8 region. Based in Dubai, Gulf Navigation opened an office in Saudi Arabia, in an effort
to benefit from its presence in the world’s largest oil producer, and one of the largest
52 week high 0.99
producers of petrochemicals.
52 week low 0.49
Financial and operating highlights
Mkt Cap (AED’000) 976,450

Mkt Cap (USD’000) 265,853 Gulf Navigation suffered heavily from the slowdown in the shipping spot rates and
Number of outstanding 1,655,000 volumes, the main forces behind the drop in net profits. 9M 09 net income dropped
shares (‘000) sharply to AED 11.62 mn, compared to AED 136.9 mn reported in 9M 08. Revenues for
Est. Free Float 61% the 9M 09 were 16.6% lower YoY reaching AED 255.6 mn, compared to AED 306.5 mn for
PE 09e 71.7x same period last year.
Revenues from chartering vessels, the main contributor to sales, decreased 16% to AED
PB Currrent 0.6x
244.5 mn for 9M 09, while revenues from shipping agencies decreased 36% YoY to AED
Average daily traded 3,902 8.4 mn. The company failed to cut costs enough to mitigate the reduction in revenues,
value (USD’000)
with operating costs increasing 49% YoY to AED 223.2 mn for 9M 09, largely from the
expansion of the company’s vessel fleet, which was not rewarded yet with an increase in

Share Ownership Global Capital

Recent development and outlook
Limited, 7.1%
Zamil Group
Holding Company,
Gulf Navigation remains vulnerable to the current environment that has affected its sector
Emirates Funds,
and its operations in particular. Although Gulf Navigation’s chemical vessels are out on
2.8% a time basis, the rest operate in the spot markets. As such, the company’s operations
were badly hit by the volatility in the spot market and by the slowdown in activities,
and might continue to do so if the downturn prolongs. Higher demand, which should
happen in parallel to a global recovery, along with better cost-cutting, should lead to the
Other Private
Free Float, Investors, 21.2% improvement of earnings and margins.
Global Fund Co.
There is no update yet on the Gulf Navigation’s USD 52 mn lawsuit against a company that
(Bahrain), 5.7%
filed for bankruptcy and reneged on a time charter contract. It is not clear whether Gulf
Navigation has fully provisioned against these losses. If so, then any successful claim of the
losses under a court ruling (, will reverse provision in the next quarters, thereby boosting
the net income.
With the exception of a robust recovery in the industry, we expect tougher times for the
shipping company in the future, as it will be hard for Gulf Navigation to overcome its
rising costs in a business facing a slow demand.

300,000 2.00
Avg. daily traded value (AED '000)

Closing price (AED)


150,000 1.00


0 0.00

Average Daily Traded Value Closing Price (Last Trade)

January 12th, 2010 69

Vision 2010

Air Arabia Outstanding recommendation:

Company overview

The leading low-cost carrier in the MENA region, Air Arabia has been continuously expanding since
its inception in 2003. Initially starting from its Sharjah hub, Air Arabia is considered a pioneer in a
Country UAE largely untapped region, offering passengers with affordable flights to 49 destinations, and covers
Exchange DFM international air transportation, travel agency services, and air-cargo. The company established
another hub in Morocco in May 2009 to service 11 more destinations in Europe. In total, Air Arabia
Sector Airlines currently operates 21 Airbus 320 aircrafts on 60 destinations from two hubs.
Foreign Investor Limit 49%
Share Price as at Air Arabia has successfully adopted the business models of leading American and European
31/12/2009 (AED) 0.92 low-cost carriers, and customized it to optimally serve the region. The company is the biggest
2009% change 3.4 international airline to fly to India with 13 destinations and over 98 flights per week, which has been
suitable for the working expatriates in the region. The current economic climate had a minimal
52 week High 1.21
effect on the company’s passenger traffic, which increased to 2.96 mn for the first nine months of
52 week Low 0.79 2009, compared to 2.6 mn in the same period of 2008.
Market cap (AED' 000) 4,293,364
Financial and operating highlights
Market cap (USD' 000) 1,168,930
Number of outstanding 4,666,700 Air Arabia reported a 9M 09 net income of AED 336.5 mn, a drop of 10.1% compared to the same
shares ('000) period in 2008. The drop in net income stemmed mainly from a decrease in revenues as a result
Est. Free Float 55% of tight yields, which went down 1.8% YoY to AED 1.47 bn for 9M 09. Air Arabia brought in new
PE 09e 9.1x aircrafts to its fleets, which exerted pressure on the load factors (dropping from 86% to 79%) and the
net profit per aircraft (dropping from AED 143 to AED 114).
PB Current 0.8x
Average daily traded 7,388 Despite the drop in revenues, operating income increased 8% YoY to AED 214 mn in the first nine
value (USD'000)
months of 2009, while operating margins improved from 13% in 9M 08 to 14.6% in 9M 09. The
improvement in operating margin reflects mainly the reduction of fuel costs, and to efficient cost

Share Ownership Recent developments and outlook

Department of Civil
17.4% The financial results for the first nine months of 2009 reinforce our positive outlook for the company.
Al Maha Holding
The pressures on yields and on net margins have been anticipated, still Air Arabia figures are better
Company Free zone,
than that of the industry. We still forecast tighter yields and margins over the near term, especially
since the conventional carriers are narrowing the price gaps between themselves and the LCCs.
and 5,
The low fares are not sustainable going forward should fuel prices keep on increasing. Eventually
conventional carriers will have to apply fuel surcharges, thereby reinstating the price gaps between
Free Float, them and the LCCs, removing some of the pressure on Air Arabia’s yield and its competitive
54.9% Other Investors,
12.7% advantage becomes more defined.
The company still has an existing order of 48 Airbus 320s. In September, the company announced
a new joint venture agreement to launch a secondary hub in Egypt. The JV will serve as a third hub
servicing Europe, Middle East and Africa, commencing in 2010. For the near term, Air Arabia might
continue to withstand tight yields, and we estimate its FY 09 net income at 420 mn, a decrease of
18% YoY. Nevertheless, the fact remains that Air Arabia is the leading low-cost carrier in the most
underpenetrated region in the world, and it should further consolidate its position in the region in
Avg. daily traded value (AED'000)

350,000 2.50
Closing price (AED)

200,000 1.50

150,000 1.00
- 0.00















Average Daily Traded Value Closing Price(Last Trade)

January 12th, 2010 70

Vision 2010

TAQA Outstanding recommendation:

Company overview

TAQA emerged as Abu Dhabi’s investment arm in 2005 when Abu Dhabi Water and Electricity
Authority (ADWEA) transferred 90% of its shares in five independent water and power producers
Country UAE to TAQA following a privatisation program. TAQA remains Abu Dhabi’s major power and water
Exchange ADX supplier (c.85% market share), with a capacity of 8,438 MW (mega watts) in the UAE and Water
desalination capacity 594 MIGD (million imperial gallons per day). In total, TAQA possesses 12,909
Sector Utilities - Oil & Gas MW in electricity generation capacity across the UAE, Saudi Arabia, Morocco, Ghana, India, and the
Foreign Investor Limit 0% Caribbean.
Share Price as at Through alliances with international oil and gas producers such as Shell U.K., Esso, and Russian
31/12/2009 (AED) 1.18 Gazprom, TAQA diversified across the energy value chain. As at 9M 09, production capacities for oil
2009 % Change 14.6% and gas reached 136 mboed (million barrels of oil equivalent per day) and gas storage of 257 bcf
(billion cubic feet).
52 week high 2.11
Its aggressive expansion strategy allowed TAQA to become a global energy player and grow its
52 week low 0.84 assets by c.80% to AED 93.1bn today from AED 51.8 bn in 2006.
Mkt Cap (AED'000) 7,345,500
Financial and operating highlights
Mkt Cap (USD'000) 1,999,918
Number of outstanding 6,225,000 The company’s revenues are driven by its high dependence on commodity prices. In 9M 09, TAQA
shares ('000) recorded a drop of 25% YoY in oil and gas revenues to AED 4.63bn (contributing to 37.1%of total
Free Float 28% revenues vs. 47.4% in 9M 08) on the back of lower average crude oil prices, USD58 /bbl (vs. USD 112/
PE 09e 12.0x bbl in 9M 08) and lower natural gas prices USD 3.85/ mmbtu (vs. USD9.75 /mmbtu in 9M 08).
Electricity and water revenues, contributing to 36.6% of total revenues vs. 30.9% in 9M 08, benefited
PB Current 0.9x
from the Tolling contract acquired in December 08 in the U.S. and the expansion of the local plant.
Average daily traded 1,753 This resulted in a 13% YoY rise in the segment's revenues to AED 4.57bn in 9M 09.
value (USD'000)
As of September 09, TAQA reported AED 63.8bn in total interest bearing debt and cash position of
AED 4.3bn with access to AED 13.3bn in undrawn facilities. The aforementioned will allow TAQA to
meet its shorter term obligations. The company announced a target debt to total capital ratio of
70% compared to the current gearing of 84%.
Share Ownership
Free Float, Recent developments and outlook

9M 09 marked the end of TAQA's aggressive expansion strategy with the new management
onboard. The company’s inorganic growth will only be tied to smaller acquisitions with attractive
opportunities. Important acquisitions were made under the old management such as the EUR
285mn DSM Energie acquisition, the purchase of new exploration blocks in the North Sea, and the
investment of EUR 800mn in the Bergermeer Gas Storage project. Going forward, the company
Farm Owners' Abu Dhabi Water announced the following in light of its new strategy: i) the commencement of production from
Financial Support and Electricity
Fund , 21.1% Authority,
a new oil well in the North Sea with 10,000 boed (barrels of oil equivalent per day) in production
51.05% capacity, ii) the construction of the Bergermeer project in mid-2010 expected to be the largest gas
storage facility in the world, and iii) expansion plans in downstream operations in Ghana, Morocco,
and the UAE, boosting production capacity by more than 2,000 MW.
The company's outlook remains tied to commodity prices. Any improvement on this front and
capacity additions on the downstream operations will boost TAQA's topline. We believe that the
new integration strategy will benefit the company in the long term while maintaining caution on
the stock until implementation becomes clearer.

100,000 4.00
Closing price (AED)
Avg. daily traded value (AED '000)

90,000 3.50
60,000 2.50
50,000 2.00
40,000 1.50
10,000 0.50
- 0.00

Average Daily Traded Value Closing Price (Last Trade)

January 12th, 2010 71

Vision 2010

Dana Gas Outstanding recommendation:

Company overview

Dana Gas (Dana) was established in 2005 by Crescent Petroleum (Crescent) as the first
private-sector natural gas company in the region. Dana's business model spans across the
Country UAE energy value chain with activities in the upstream gas exploration and production (E&P),
Exchange ADX midstream transmission, and downstream operations into gas-related industries and
Sector Oil & Gas With its prime UAE project suffering from delays, the company relies on its presence in
Foreign Investor Limit 49% Egypt and the Kurdistan Region of Iraq (KRI). Operations in Egypt commenced through
Share Price as at the acquisition of Centurion Energy International in 2007, which has E&P projects in
31/12/2009 (AED) 0.94 Tunisia and Nigeria. The KRI project is a joint venture with Crescent Petroleum that
2009 % Change 62% commenced operations in 2007, with aims to explore, produce and distribute natural
gas from Khor Mor field and also appraise the Chemchemal field for potential natural gas
52 week high 1.32
52 week low 0.52
Financial and operating highlights
Mkt Cap (AED'000) 5,640,000

Mkt Cap (USD'000) 1,535,571 For the 9M 2009, Dana Gas reported AED 909 mn in gross revenues, a 0.9% YoY rise, driven
Number of outstanding 6,000,000 positively by additional oil and gas production, an increase of almost 1.2 mn barrels of oil
shares ('000) equivalent. Revenues were negatively affected by drops in LPG and condensate prices.
Free Float 80% Revenues from Egypt rose 5% YoY and contributed 82% of net revenues (net of royalties)
PE 09e 17.9x while KRI’s contribution reached 16%. Gross profit and EBIT margins -excluding exploration
cost- improved compared to 9M 08, reaching 58.5% and 20.1% in 9M 09 from 47.8% and
PB Current 0.7x
15.3% respectively, reflecting effective implementation of cost control measures.
Average daily traded 6,200 EBITDAX (earnings before interest, taxes, depreciation, amortization, and exploration)
value (USD'000)
reached AED 408 mn, implying an increase of 11% YoY. Dana Gas' bottom line reached
AED 282mn in 9M 09 (the figure includes one off items including exploration write-offs,
gain on sale of Pearl petroleum) compared to AED 85 mn in 9M 08.

Share Ownership Recent developments and outlook

Company, The year marked massive expansions in production capacities for Dana Gas Egypt
20.4% with the discovery of nine new wells, allowing the company to reach its 40,000 boed
(barrels of oil equivalent per day) target daily production, an increase of 20% over that
of 2008. Additionally, Dana Gas inked a deal with Crescent Petroleum, Austrian OMV and
Hungarian MOL to develop the Kurdistan gas network. Upon completion, more than
3 bcfd (billion cubic feet per day) will be pumped from the KRI region to regional and
Free Float,
European destinations. Current production stands at 90 mcfd (million cubic feet per day).
79.6% Total investments in the new project are estimated at USD 8bn. Dana Gas is also currently
assessing the possibility of establishing a gas-based industrial city in Yemen.
In the short term, we believe volume increases in Egypt coupled with rising crude oil
prices will be the major drivers for growth. Additionally, the ramp-up in production from
the KRI is expected to enhance profitability.
Further clarity on the company's new Kurdistan project and any developments in the
UAE-Iran project remains the main long-term driver for the stock.,
Avg. daily traded value (AED '000)

180,000 3.00
Closing price (AED)

120,000 2.00
60,000 1.00
- 0.00

Average Daily Traded Value Closing Price (Last Trade)

January 12th, 2010 72

Vision 2010

Tabreed Outstanding recommendation:

Under Review
Company overview

Tabreed is the largest district cooling provider in the UAE. The company operates in four
segments: chilled water, contracting, services, and manufacturing, to ensure access of
Country UAE buildings to district cooling schemes.
Exchange DFM As a result of its expansion plan set in 2008, Tabreed’s customers grew to encompass
residential, commercial, and governmental sectors. Its reliance on its initial customer, the
Sector Utilities - Oil & Gas UAE Armed Forces, is decreasing, with the latter’s estimated demand on Tabreed’s total
Foreign Investor Limit 49% capacity, ~454,000 TR (tons of refrigeration), declining to 41% in 2009 compared to 53% in
Share Price as at 2007.Tabreed has established presence in all GCC member countries plus Jordan through
31/12/2009 (AED) 0.81 several joint ventures. Total cooling capacity outside the UAE is 37,000 TR and more than
2009 % Change 56% 250,000 TR in pipeline additions.
In August 2009, S&P downgraded its long term credit rating on Tabreed to BB- on the back
52 week high 1.17
of high refinancing risk and tightening liquidity position.
52 week low 0.42
Financial and operating highlights
Mkt Cap (AED'000) 982,838

Mkt Cap (USD'000) 267,592 The first nine months of 2009 marked a return to the company’s dependence on the
Number of outstanding 1,213,380 core chilled water business. The segment's revenues in 9M 09 contributed 45% of the
shares ('000) period's total, a significant rise from the 32% contribution recorded in Q1 09, and 39% in
Free Float 87% H1 09. Total revenues reached AED 570.7mn representing a 15% YoY rise due to capacity
PE 09e 11.9x additions.
Tabreed achieved an operating income and EBIT margin of AED 139.0 mn and 24.3% in
PB Current 0.4x
9M 09 respectively, compared to AED 120.0 mn and 24.1% in 9M 08. Bottom line in 9M
Average daily traded 3,133 09 was AED 54 mn, implying a 10% rise over 9M 08. We estimate the bottom line to reach
value (USD'000)
AED 29mn in Q4 09 taking FY 09 net profits to AED 83 mn.
Tabreed's total assets reached AED 8.1bn and a total debt of AED 3.7bn (including
liabilities under convertible debt) as at September 09. The company recorded a net debt
to equity ratio to 1.23x compared to 1.08x in June 09 and 0.78x in September 08.
Share Ownership
Mubadala Recent developments and outlook

General Pension and

Throughout 9M 09, Tabreed managed to obtain more than AED 1.3bn in credit facilities,
Social Security,
mitigating concerns on the company's abilities to acquire necessary financing to fuel its
growth. Consequently, a portion of the finances was used to repay its USD 100mn Sukuk
General Investments
FZE , 5.92% that matured in March 2009.
Free Float,
86.7% On the operational front, Tabreed commissioned three new plants in 2009: Yas Island,
UAE University in Al Ain, and Tabreed 7 at the Zayed Military City, with a total refrigeration
capacity of 53,000 TR, thereby increasing Tabreed’s gross capacity by 16% to 395,100 TR for
9M 09.
Going forward, Tabreed will need to fund its capital expenditures on the estimated
114,875 TR in additional capacity for 2010 bringing back refinancing concerns. Despite
this, we expect the full ramp-up of new capacities and the estimated new additions in
2010 to contribute positively to Tabreed’s operating performance in the long term.

Avg. daily traded value (AED '000)

Closing price (AED)

70,000 3.00
30,000 1.50

20,000 1.00
10,000 0.50
- -

Average Daily Traded Value Closing Price (Last Trade)

January 12th, 2010 73

Vision 2010

Etisalat Outstanding recommendation:

Company overview

Etisalat was until February 2007 the sole telecom services provider in the UAE. As the
incumbent operator, Etisalat UAE provides mobile, fixed-line, Internet, data and cable
Country UAE TV services. Despite operating as a monopoly for 30 years, Etisalat has built a modern
Exchange ADX telecom infrastructure, one of the most advanced in the region and has often been the
first to market new services. In addition, the operator holds interests in 18 other countries
Sector Telecom Services including Saudi Arabia and Egypt.
Foreign Investor Limit 0%
Share Price as at Financial and operating highlights
31/12/2009 (AED) 11.05

2009% change 34% As of September 09, Etisalat’s UAE subscriber base included 7.44mn mobile subscribers
of which 90% are estimated active, 1.31mn fixed-line subscribers and in excess of 600,000
52 week High 12.55
fixed broadband subscribers.
52 week Low 7.89
For 9M 09, Etisalat delivered 9% YoY net profit growth (after adjusting for AED 892mn
Market Cap (AED' 000) 79,420,770
gain on sale of Mobily shares in Q2 08). Etisalat's consolidated revenues reached AED
Market Cap (USD' 000) 21,623,450 22.1bn for 9M 09, 6% higher than 9M 08. YTD, Etisalat’s top line growth was driven by
Number of outstanding 7,187,400 international operations, as the UAE revenue increase was less than 3% YoY for 9M 09. Fully
shares ('000) consolidated international operations contributed to 13% of reported revenue in Q3 09,
Free Float 40% up from 10% in Q3 08. Consolidated EBITDA for 9M 09 reached AED 14.9bn, increasing by
PE 09e 8.7x 8% YoY. The group’s consolidated IFRS-adjusted EBITDA margin expanded to 67.3% from
66.2%in 9M 08. As a whole, the profitability of international operations improved YTD. We
PB Current 2.3x
estimate that Etisalat Egypt’s (the largest contributor to international segment) EBITDA
Average daily traded 2,845 margin approached 20% for 9M 09, ahead of our expectations. UAE EBITDA margin stood
value (USD'000)
at 74.0% for 9M 09, resilient due to cost discipline and higher than the 72.7% achieved in
9M 08.

Recent developments and outlook

Share Ownership
Free Float
After remaining on the sideline for most of 2009, Etisalat acquired in October Millicom's Sri
40% Lankan assets for USD 155mn in cash. The transaction implies 7.4x 2009E EBITDA, in line
with acquisition multiples in Asia. The launch of Indian operations has been pushed to
Q1 10. In the MENA region, Etisalat submitted a bid to acquire the third integrated license
in Libya and continues to study opportunities to expand in Iraq. Etisalat's balance sheet
remains solid with a net cash position of AED 9.8bn or AED 1.36 / share as of Q3 09.

UAE Three years after the end of its monopoly, Etisalat remains the dominant operator in
60% the UAE with a 68% mobile subscriber market share (more than 80% revenue share),
and c.90% market share in fixed-line and broadband segments. So far, Etisalat has been
successful in retaining high spending customers, with an estimated mobile ARPU more
than double than that of the second operator. We expect competition to step up in the
UAE, following 1) major Capex by Du to upgrade its 3G network, 2) introduction of mobile
number portability, expected by Q2 10, and 3) gradual implementation of infrastructure
sharing as of the second half of 2010, which will allow operators to compete in each
others’ territories for fixed services.
100,000 20.00
Closing price (AED)
Avg. daily traded value (AED '000)

90,000 18.00
80,000 16.00
70,000 14.00
60,000 12.00
50,000 10.00
40,000 8.00
30,000 6.00
20,000 4.00
10,000 2.00
0 0.00

Average Daily Traded Value Closing Price(Last Trade)

January 12th, 2010 74

Vision 2010

DU Outstanding recommendation:
Company overview

Emirates Integrated Telecom Company, better know as Du, is the number two integrated
telecom operator in the UAE offering both mobile and fixed services. In the fixed segment,
Country UAE Du is the sole provider of triple-play landline-Internet-Pay-TV services by deploying a fibre-
Exchange DFM to-the-premise (FTTP) infrastructure to residential and business customers in select Dubai
new areas and free zones.
Sector Telecom Services

Foreign Investor Limit 22% DU launched mobile services in February 2007 - breaking Etisalat's 30-year monopoly- and
Share Price as at wireline services in July 2007 under the 'Du' banner.
31/12/2009 (AED) 2.91

2009% change 34% Financial and operating highlights

52 week High 4.09
By Q3 09 Du had 3.1mn active mobile subscribers, increasing its market share to 32%
52 week Low 1.78 from 25% in the same period last year. As of September 09, Du had 160,000 landline
subscribers, 65,000 broadband subscribers, and 69,000 pay-TV subscribers.
Market Cap (AED' 000) 11,630,810

Market Cap (USD' 000) 3,169,158 Du's 9M 09 revenues reached AED 3.81bn, 40% higher than the same period last year with
Number of outstanding 4,000,000 the mobile segment continuing to drive growth. Mobile segment represented 71% of
shares ('000) total revenue in Q3 09. EBITDA for 9M 09 reached AED 677mn (before one-time items), 5x
Free Float 20% the EBITDA reached of 9M 08 as the margin expanded to 18% from 5% during the same
PE 09e 46.8x period last year. Du's net profit for 9M 09 reached AED 160mn including a royalty provision
of the same amount, versus a loss of AED 74mn in 9M 08. Du recognizes a potential
PB Current 4.3x
royalty charge of 50% on net profit. However, the company is still awaiting a decision from
Average daily traded 1,043 the regulator on the effective royalty rate.
value (USD'000)

Recent developments and outlook

Major CAPEX, projected at AED 2.25bn in 2009, and a similar amount budgeted for 2010
Share Ownership to mainly upgrade the mobile network, including an expansion of 3G coverage to 90%
Free Float UAE of population by the end of 2010, will allow the company to compete more effectively
20.3% Government
40% with Etisalat. Population growth will no longer be a tailwind for UAE telcos as was the
case until 2008. This said, 2010 could turn out as a watershed year for Du: 1) Introduction
of mobile number portability, expected by Q2 10, will present an opportunity for Du to
convince Etisalat mobile subscribers to switch to its network, 2) Infrastructure sharing is
on the agenda, with a gradual implementation as of the second half of 2010, which will
Tecom allow Du to expand fixed services in new territories. Du has been successful in growing
its subscriber share of UAE mobile market. However, according to our estimates, Du's
ARPU at USD 28 (AED 103) is approximately half of that of Etisalat. A key factor to monitor
Development in 2010 will be the company's success in stimulating usage on its network or convincing
more customers to use the Du line as a primary line instead of a second SIM card. Finally, a
favorable decision by the regulator that would allow Du to pay a royalty rate below 50% in
the first few years, would act as a catalyst for the stock.

100,000 8.00
Avg. daily traded value (AED '000)

Closing price (AED)

90,000 7.00
60,000 5.00
50,000 4.00
40,000 3.00
10,000 1.00
0 0.00

Average Daily Traded Value Closing Price(Last Trade)

January 12th, 2010 75

Vision 2010

Appendix I (market timeline)

Pre - 1970 Establishment of NBAD and NBD- acting as both Central banks and Commercial banks

1972 Union of the UAE established

1981 Petrodollars channeled into Al Manakh market in Kuwait triggering massive equity market bubble

1982 Collapse of Al Manakh in Kuwait and shelving of exchange in the UAE.

1991 Gulf War causes collapse in equity prices

1995 First recent IPO in UAE- Dubai Investments Company

1997 First recent IPO of a bank- ADIB

IPO of Emaar Properties
First mutual fund launched by Emirates Bank International

1998 UAP OTC market bubble bursts

2000 Dubai Financial Market established

Abu Dhabi Securities Market established
ESCA establishment

2001 Oil prices embark on an upsurge.

2002 IPO of Amlak Finance after four years of inactivity in primary market

2003 Petrodollars funneled into equity and real estate markets

2004 SC UAE rises 103%

2005 UAE market cap crosses USD 100 bn mark.

UAE markets raise nearly AED 45 bn in new equity
UAE 3rd exchange setup- DIFX
UAE market peaks on Nov 10th- up 132% and market cap USD 232 bn

2006 UAE market crashes

DFM goes public- first regional stock exchange to IPO
Oil prices record a high above USD 75
SC UAE down 52% from its peak to low on Dec 4th

2007 UAE markets rebound

Oil prices reach USD 98.
DP World lists its shares on the DIFX in what becomes the largest IPO in the region.

2008 Increase of correlation with global markets

Oil prices reach USD 147
Increase concern about Dubai’s debt
Dubai real estate prices begin to correct
UAE market crashes
Oil free falls to USD 34

2009 Dubai issues USD 10 bn bonds to the UAE Central Bank

UAE banks exposure to Saad and Gosaibi at USD 2.9bn
Dubai issues USD 5 bn bonds to NBAD and Al Hilal Bank
Dubai World Requests a 'standstill' on its debts from creditors
Dubai issues USD 10 bn bonds to the Government of Abu Dhabi
Dubai World fully pays off Nakheel 09 Sukuk on maturity
Oil increased 93% since the beginning of the year
Dubai Financial Market acquired Nasdaq Dubai for USD 121 mn

January 12th, 2010 76

Vision 2010

Appendix II (market logistics)


Emirates Securities and Exchange Emirates Securities and Exchange

Governing Body Dubai Financial Services Authority
Commission Commission
Trading Days Sunday to Thursday Sunday to Thursday Sunday to Thursday
Trading Hours 10:00 - 14:00 10:00 - 14:00 10:00 - 16:45
Settlement Period T+ 2 T+ 2 T+ 3
Trading Mechanism Electronic Electronic Electronic
Daily fluctuation limits 15% 10% 10%
Trading currency AED AED AED & USD
Short selling n/a n/a covered short selling
Short lending n/a n/a n/a
0.15% to broker 0.15% to broker n/a
0.05% to market 0.05% to market 0.06% to market
0.025% to Authority 0.025% to Authority n/a
0.05% to Clearing 0.05% to Clearing 0.01% to Clearing
AED 50,000 AED 25,000 USD 5,000
Brokerage Membership fees
AED 100,000 AED 125,000 USD 10,000
n/a n/a n/a
Taxation n/a n/a n/a
n/a n/a n/a
number of licensed brokers 99 100 26
66 equity listings 68 equity listings 17 equity listings
7 debt instruments 1 debt instrument 10 debt instruments
number of listings islamic securities 4 mutual funds 9 7 structured products
mutual funds 15 2 mutual funds
21 islamic securities
phone number (04) 305 5555 (02) 627 7777 (04) 361 2222

January 12th, 2010 77

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Vision 2010

Head of Research / Chief Economist

Mahdi H. Mattar, Ph.D.

+9714 3199 839

Economics Heavy Industries and Utilities Real Estate, Construction and

Construction Materials
Khatija Haque Mahdi H. Mattar, Ph.D.
+9714 3199 752 +9714 3199 839 Roy Cherry +9714 3199 767
Hala Fares
Strategy +9714 3199 713 Taher Safieddine +9714 3199 715
Ahmad M. Shahin
+9714 3199 742 Telecommunications, Media and Technology Technical Analysis

Jafar Shami Simon Simonian, CFA Adel Merheb

+9714 3199 714 +9714 3199 763 +9174 3199 793

Jessica Estefane Data

Commercial Banks and other +9714 3199 834
Financial Services Ahmad M. Shahin
+9714 3199 742
Sofia El Boury Consumer, Retail and Pharma
+9714 3199 716 Laurent-Patrick Gally Nicole Chamat
+9714 3199 712 +961 1 974 479
Ghida Obeid
+9714 4283 536 Transportation and Logistics Design

Mahdi H. Mattar, Ph.D. Kareem Z. Murad Jovan Ruseski

+9714 3199 839 +9714 3199 757 +9714 3199 759

Client Services: Sales Trading Desk:

800 SHUAA (74822) – UAE only +971 (4) 319-9700
800 124 7482 - Saudi Arabia only +971 (2) 409-0777
+971 (4) 319 9603 – International

January 12th, 2010 79

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