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This year wiTnessed heavy shocks for Gulf markeTs as The reGion reeled from Global economic uncerTainTy and The arab unresT. kuwaiT financial cenTre research experTs dissecT The onGoinG Turmoil.
he region has reeled from a breathless seesaw of economic activity over the last few years. High market activity in 2009 was followed by a relatively quiet and positive 2010, only to be followed by more turmoil and high market fluctuations this year. This year has witnessed everything from natural disasters to ongoing financial shocks from the Eurozone, to GCC debt issues and the US downgrade in addition to political unrest. After rising 13 per cent during 2010, the S&P GCC Composite is down 11 per cent so far this year, for reasons not entirely corporate
GCC COMPANIES
52 / NOVEMBER 2011
or economic in nature. The substantial political turmoil that swept the region in the first and second quarters had a high impact on markets, with Arab bourses shedding roughly $45 billon in the last week of January. Unsurprisingly, Egyptian unrest exacted a particularly large impact given the countrys strong ties with GCC companies. Year-to-date, unstable Bahrain has been the worst performer, down nearly 19 per cent, while Qatar has been the best performer, stemming its losses at around five per cent. Liquidity has fluctuated wildly this year; 9M11 value traded came in at $254
billion, 11 per cent higher than 9M10, driven by strong trading in Saudi Arabia and Qatar, while Kuwait saw its trading value halved during the period. The GCC is trading more expensively than Emerging Markets, at 12x (TTM) versus 10x for MSCI EM, which places the region on par with the MSCI World/S&P 500, which are trading at the same level. Within the GCC, there is wide disparity between valuations; Kuwait is the most expensive market, trading at around 14x versus Abu Dhabi and Dubai, which are at around 8x. However, the GCC has a history of strong dividends; overall, the dividend yield is at 3.5 per cent, slightly
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debT maRKeT
Much attention has been paid to the development of regional bond markets, with Qatar and the UAE leading the way towards creating organised markets with benchmark yields and pricing guidance. With banks tending to the short-end of project financing, GCC states need to develop avenues for long-term funding to support large-scale infrastructure and development projects. Bond issuances totalled $26.4 billion in 1H11 compared with $14 billion in 1H10.
lending. The fiscal balance is expected to drop from 11 per cent of GDP in 2011 to two per cent by 2013 as spending grows at about seven per cent p.a. Real GDP is expected to grow 6.5 per cent in 2011 (boosted by high oil prices) only to fall to about 3.6 per cent in 2012 (IMF Data).
uae
RecoveRy and oppoRTuniTy The UAE has focused on repairing its image in the international community following the Dubai World debt saga and subsequent restructurings and bailouts. While Dubais debt overhang remains high (with $15 billion due in 2011 and 2012), foreign investors have proven themselves willing to particpate in debt restructuring in addition to the various bond issues by the emirates entities. While the real estate segment is not yet back to its former health, it is now in a period of consolidation. Moreover, regional political unrest, specifically in Bahrain, has given rise to opportunity for the UAE, with hotel occupancy up at the beginning of the year and some foreign entities relocating their offices from Bahrain to Dubai.
KuwaiT
RegulaToRy RefoRm 2011 has been all about regulatory reform for Kuwait. The Capital Market Authority (CMA) Law came into effect in March, which had a fairly negative effect on markets as the various concerned parties interpreted and commented on the
Much attention has been paid to the development of regional bond markets, with Qatar and the uae leading the way towards creating organised markets with benchmark yields and pricing guidance.
QaTaR
STabiliTy and gRowTh Qatar has managed to almost entirely bypass the global financial crisis and remains firmly on its growth trajectory. Real GDP growth is expected at 19 per cent for 2011 (IMF Data). Investment has remained steady at around 30 per cent of GDP while government expenditure has been growing at 15 per cent a year, surging to 24 per cent in 2010. Qatar Central Bank has made a number of directives and regulatory changes to safeguard the banking sector. Qatar is going full-steam ahead with spending plans; epitomised by the $125 billion, five-year National Development Strategy, which aims to expand infrastructure and boost the hydrocarbon sector. Qatar is also planning to invest around $25 billion in tourism over the next decade in preparation for the 2022 World Cup, the majority of which will be in hotels, in addition to the Summer Olympics in 2020 which the state is also planning to bid for.
Saudi aRabia
Spend, Spend, Spend The kingdom has launched a spending spree to boost infrastructure in the face of rising demand as well as ratcheting up social welfare spending to counteract unrest and unemployment. The $385 billion, five-year development plan is expected to spur economic activity by encouraging construction/real estate projects which, in turn, should spur bank
regulations. The market has also been consumed with the various Zain deals; the telecom company was subject to a proposed 46 per cent stake acquisition by the UAEs Etisalat (who walked away from the deal in February), this was followed by a proposed acquisition of Zains 25 per cent stake in Zain Saudi by Batelco and Kingdom Holding for $950 million (that deal also dissolved in late September). Overall, the Kuwait market has reacted mostly to local cues rather than regional or international ones.
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SecToR focuS
banKS Banks continue to be the bedrock of GCC markets, accounting for the majority of market cap and corporate earnings. Lending has remained muted over the last few years as banks became cautious in the aftermath of the financial crisis and the resulting sovereign debt issues in 2010 dampened confidence. Broadly speaking, GCC banks have upped provisions over the last two years to counteract rising non-performing loans, which are hovering at around six to eight per cent. However, a turnaround seems imminent for the sector; 1H11 net income for GCC banks was up 20 per cent while provisions were down 18 per cent. Deposits continue to outpace loans, rising 10 per cent in 1H11 (YoY) versus a six per cent growth in loans. TelecomS Revenue growth remains weak for regional telecoms as markets surpass saturation points, competition intensifies and ARPUs decline. All GCC markets exceed 100 per cent mobile penetration, with differentiation now coming in the bundling of various services in addition to the broadband segment, which should continue to see positive growth due to the myriad smartphones and tablets that
are coming to market. Many of the larger firms are flush with cash and have been looking for acquisition targets to boost revenue growth, a practice we expect to continue as competition intensifies. The regions telecom firms, in general, constitute excellent yield plays, averaging about five per cent.
2010 to tenth place by September 2011 as the stock took a beating in 2011. by RevenueS Chemicals and utilities had a good showing on the back of high commodity prices and market uncertainty in the first half of the year. SABIC retained its top position, bringing in $25 billion in revenues in 1H11 as oil prices soared. Furthermore, seven of the top ten firms are from Saudi Arabia, while the UAE has a showing from two firms. Telecoms also did well, as four of the top players in the sector saw high revenues. by eaRningS Chemicals also reigned supreme in terms of bottom-line results; SABIC and Industries Qatar turned in a combined $5.3 billion in net profits for the half year. The remaining eight firms were evenly split between telecoms and banks with Kuwaits Wataniya taking third on account of extraordinary earnings in 1Q11. Wataniya was also the only Kuwaiti firm to make an appearance; the remaining slots were divided between Saudi Arabia and the UAE. Qatar National Bank was the highest earning GCC bank, with net income of $966 millon in 1H11. by liQuidiTy Given the trend in liquidity in 2011, Saudi Arabian firms topped the list of most liquid stocks, taking all top 10 spots. SABIC ranked first, with $31 billion traded in 9M11, followed distantly by Saudi Kayan Petrochemicals at $9.7 billion. The majority of trading was in industrials/chemicals, followed by banks and telecoms.
Top TenS
Most stocks have performed poorly in 2011 due to wild market fluctuations, economic uncertainty and political unrest. Consequently, all but two large caps are in the red on a YTD basis. The only gainers for the year have been SAFCO and Qatar National Bank, which are up 16 per cent and six per cent, respectively. by maRKeT cap There was a bit of a shake-up in terms of rankings by size among GCC stocks. The top two remain the same; SABIC at $74 billion (as of September 2011) followed distantly by Al Rajhi Bank at $27.7 billion. However, the third ranking has been usurped by Qatar National Bank, whose market cap surged to $24.9 billion from just under $20 billion at the end of 2010 due to a 25 per cent rights issue in early 2Q11. Also notable is Zain Group, which fell from third place at the end of
This research was conducted by M.R. Raghu, head of research, and Layla Al Ammar, assistant manager, from Kuwait Financial Centre (Markaz). Markaz is an investment company offering asset management, corporate finance and private banking services. research@markaz.com
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CompANy Saudi Basic Industries Corporation Saudi Kayan Petrochemical Company Alinma Bank Al Rajhi Bank Yanbu National Petrochemicals Company Saudi Arabian Mining Company (Maaden) Rabigh Refining & Petrochemical Company Saudi Mobile Telecommunications Company Etihad Etisalat Company National Industrialization Company
CompANy Saudi Basic Industries Corporation Saudi Telecom Company Rabigh Refining & Petrochemical Company Emirates Telecommunications Corporation Qatar Telecom (QTel) Q.S.C. Saudi Electricity Company Abu Dhabi National Energy Company PJSC Savola Group Company Etihad Etisalat Company National Industrialization Company
1H11 ($mn) 25,055 7,188 6,048 4,348 4,246 3,642 3,424 3,188 2,563 2,559
CouNTRy Saudi Arabia Saudi Arabia Saudi Arabia UAE Qatar Saudi Arabia UAE Saudi Arabia Saudi Arabia Saudi Arabia
SeCToR Chemicals Telecom Chemicals Telecom Telecom Utilities Utilities Consumers Telecom Conglomerate
CompANy Saudi Basic Industries Corporation Industries Qatar Q.S.C. National Mobile Telecom Company KSS Saudi Telecom Company Qatar National Bank SAQ Al Rajhi Bank Emirates Telecommunications Corporation Samba Financial Group Emirates NBD PJSC Etihad Etisalat Company
1H11 ($mn) 4,211 1,145 1,113 1,021 966 945 929 593 587 577
CouNTRy Saudi Arabia Qatar Kuwait Saudi Arabia Qatar Saudi Arabia UAE Saudi Arabia UAE Saudi Arabia
SeCToR Chemicals Chemicals Telecom Telecom Banks Banks Telecom Banks Banks Telecom
CompANy NAme yTd peRfoRmANCe peR CeNT Saudi Arabian Fertilizers Company 16.17 Qatar National Bank SAQ 6.33 Etihad Etisalat Company -2.71 Saudi Electricity Company -2.86 Emirates Telecommunications Corporation -5.00 Industries Qatar QSC -10.87 Riyad Bank -11.28 Saudi Basic Industries Corporation -12.41 Kuwait Finance House KSC -16.21 Al Rajhi Bank -16.87
CouNTRy Saudi Arabia Qatar Saudi Arabia Saudi Arabia UAE Qatar Saudi Arabia Saudi Arabia Kuwait Saudi Arabia
SeCToR Commodities Banks Telecom Utilities Telecom Chemicals Banks Chemicals Banks Banks
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CompANy Emirates Telecommunication Corporation National Bank of Abu Dhabi PJSC Emirates NBD Bank PJSC First Gulf Bank PJSC Emaar Properties PJSC Abu Dhabi Commercial Bank PJSC Emirates Integrated Telecommunications Co PJSC Mashreqbank PSC Dubai Financial Market PJSC Abu Dhabi Islamic Bank PJSC
mCAp ($bN) 22.2 8.3 5.9 5.8 4.6 4.4 3.7 3.4 2.4 2.1
SeCToR Telecoms Banks Banks Banks Real Estate Banks Telecoms Banks Telecoms Banks
QATAR
Top QaTaR fiRmS by mcap (as of Sept-11)
RANK 1 2 3 4 5 6 7 8 9 10
SOURCE: REUTERS EIKON
CompANy Qatar National Bank SAQ Industries Qatar QSC Ezdan Real Estate Co QSC Qatar Telecom QSC Commercial Bank of Qatar QSC Qatar Islamic Bank SAQ Masraf Al Rayan QSC Qatar Electricity and Water Co QSC Doha Bank QSC Barwa Real Estate Co QSC
mCAp ($bN) 24.9 18.7 16.5 7.1 5.4 5.2 5.1 3.8 3.5 3.2
SeCToR Banks Chemicals Real Estate Telecoms Banks Banks Banks Utilities Banks Real Estate
BAHRAIN
Top bahRain fiRmS by mcap (as of Sept-11)
RANK 1 2 3 4 5 6 7 8 9 10
SOURCE: REUTERS EIKON
CompANy Gulf Monetary Group BSC EC Bahrain Telecommunications Co BSC Arab Banking Corporation BSC National Bank of Bahrain BSC Al Baraka Banking Group BSC Investcorp Bank BSC BBK BSC United Gulf Bank BSC Gulf Hotel Group Taib Bank BSC Closed
mCAp ($bN) 5.4 1.5 1.4 1.3 1.0 0.9 0.9 0.7 0.3 0.3
SeCToR Banks Telecoms Banks Banks Banks Banks Banks Banks Consumer Services Banks
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OMAN
Top oman fiRmS by mcap (as of Sept-11)
RANK 1 2 3 4 5 6 7 8 9 10
SOURCE: REUTERS EIKON
CompANy Emirates Telecommunication Corp Ltd National Bank of Abu Dhabi PJSC Emirates NBD Bank PJSC First Gulf Bank PJSC Emaar Properties PJSC Abu Dhabi Commercial Bank PJSC Emirates Integrated Telecommunications Co PJSC Mashreqbank PSC Dubai Financial Market PJSC Abu Dhabi Islamic Bank PJSC
mCAp ($bN) 22.2 8.3 5.9 5.8 4.6 4.4 3.7 3.4 2.4 2.1
SeCToR Telecoms Banks Banks Banks Real Estate Banks Telecoms Banks Telecoms Banks
SAUDI ARABIA
Top Saudi aRabia fiRmS by mcap (as of Sept-11)
RANK 1 2 3 4 5 6 7 8 9 10
SOURCE: REUTERS EIKON
CompANy Saudi Basic Industries Corporation Al Rajhi Banking and Investment Co Saudi Telecom Com Saudi Electricity Com Saudi Arabian Fertilizers Co Samba Financial Group Etihad Etisalat Co Riyad Bank Saudi British Bank Banque Saudi Fransi
mCAp ($bN) 74.0 27.7 18.1 14.8 12.1 10.5 9.9 9.4 7.9 7.5
SeCToR Chemicals Banks Telecoms Utilities Chemicals Banks Telecoms Banks Banks Banks
KUWAIT
Top KuwaiTi fiRmS by mcap (as of Sept-11)
RANK 1 2 3 4 5 6 7 8 9 10
SOURCE: REUTERS EIKON
CompANy National Bank of Kuwait KSC Mobile Telecommunications Co KSC Kuwait Finance House KSC Gulf Bank KSC Commercial Bank of Kuwait SAK Ahli United Bank Boubyan Bank KSC Ahli United Bank BSC National Mobile Telecoms Co KSC Al Ahli Bank of Kuwait KSC
mCAp ($bN) 15.2 14.7 8.8 4.7 3.9 3.8 3.8 3.5 3.4 3.4
SeCToR Banks Telecoms Banks Banks Banks Banks Banks Banks Telecoms Banks
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100
* THE FIGURES ARE FOR DEC 2010, THEY DO NOT REPRESENT LAST YEARS guLF business RANKING.
* THE FIGURES ARE FOR DEC 2010, THEY DO NOT REPRESENT LAST YEARS guLF business RANKING.
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