Late one night in November 2010, a plane carrying dozens of Colombian men touched down in this glittering seaside capital [Abu Dhabi]. Whisked through customs by an Emirati intelligence officer, the group boarded an unmarked bus and drove roughly 20 miles to a windswept military complex in the desert sand.
The Colombians had entered the United Arab Emirates posing as construction workers. In fact, they were soldiers for a secret American-led mercenary army being built by Erik Prince, the billionaire founder of Blackwater Worldwide, with $529 million from the oil-soaked sheikdom.
By Mark Mazzetti and Emily B. Hager for The New York Times, Secret Desert Force Set Up by Blackwater, May 2011
For any expatriate who has spent time in the United Arab Emirates, the luxury lifestyle soon gives way to a seedy underworld, which is only a paradise for fugitives on the run.[caption id="attachment_1280" align="alignright" width="223"] Erik Prince[/caption]
The UAE, after all, is “an autocracy with the sheen of a progressive, modern state”, according to the New York Times’ reporters who exposed Erik Prince, the founder of Blackwater, and his secret army.
But for the Colombians he recruited for the battalion intended to beef up the UAE’s military presence, Abu Dhabi is the “Arabian Dream” offering a better quality of life.
Prince, who had already been a driving force in the boom in wartime contracting that began after the September 11, 2001, attacks, was hired by the crown prince of Abu Dhabi, Sheikh Mohamed bin Zayed al-Nahyan, to put together a squad of foreign troops for the UAE.
He outsourced critical parts of the UAE’s defense to mercenaries from countries including Colombia and South Africa, in a plan said to have been drafted months before the so-called Arab Spring revolts that many experts believe are unlikely to spread to the UAE. But Iran was a particular concern.
The mercenaries live in a training camp, located on an Emirati base called Zayed Military City:
It is hidden behind concrete walls laced with barbed wire. Photographs show rows of identical yellow temporary buildings, used for barracks and mess halls, and a motor pool, which houses Humvees and fuel trucks.
Secret Desert Force Set Up by Blackwater, May 2011
It does not sound like much, but for these imported soldiers, joining the operation was an opportunity to earn a lot of money and see a new part of the world.
This week, Columbia’s daily newspaper EL TIEMPO, gained exclusive access to some of the Colombian paramilitaries who spoke of the “Arabian Dream” in the UAE.
For the 1,400 Colombian troops in Abu Dhabi, the UAE offers “not just a medal, but a proper paycheck”, according to a translation of the Spanish article.
“Why did we decide to leave? That’s what people ask us. The response is easy: Quality of life,” they [the troops] say.Colombianos en busca del sueño árabe, El Tiempo, February 2013
One officer describes the stark difference in quality of life. In Columbia, he received a bonus of 800,000 pesos ($448.8). In Abu Dhabi, he has a salary of $3,000, receives housing, food and healthcare free. He has also learnt English, and in the evenings, he and his colleagues travel in buses into the city centre, where they can buy food and supplies. They get weekends off.
The long weeks of combat, sleepless nights, patrolling and watching for landmines were left behind, the officers told EL TIEMPO.[caption id="attachment_1290" align="alignleft" width="580"] UAE training camp where foreign troops are stationed, courtesy of New York Times[/caption]
Reflex Responses, a company known as R2 and contracted by the UAE government to train and recruit the troops, spends roughly $9 million per month maintaining the battalion, which includes expenditures for employee salaries, ammunition and wages for dozens of domestic workers who cook meals, wash clothes and clean the camp, according to the NYT report.
The Colombians “never wanted for anything”, said Calixto Rincón, a 13-year veteran of Colombia’s National Police force who is now back in Colombia after serving as a mercenary in the UAE.
The UAE and American leaders even arranged to have a chef travel from Colombia to make traditional soups.
“Here, you can’t look at the women like in Colombia, because you can end up in jail,” one officer told EL TIEMPO. “A wrong glance can create offense, which gets reported to the police”.Meanwhile another told the New York Times: “We didn’t have permission to even look through the door. We were only allowed outside for our morning jog, and all we could see was sand everywhere.”
But even this grievance was addressed by the American trainers.
One evening, the NYT reporters wrote, “after months stationed in the desert, [the troops] boarded an unmarked bus and were driven to hotels in central Dubai. There, some R2 executives had arranged for them to spend the evening with prostitutes.”
Do not be surprised if Egypt’s central bank governor Farouk El Okdah leaves his post in the early part of next year. Even though he yesterday vehemently denied that he planned to resign, his retirement has been on the cards for months (not just rumours but who is likely to replace him).
Yesterday Zawya Dow Jones reported Hisham Ramez, who was the former deputy central bank governor, is to take El Okdah’s place. But analysts regarded the fact that El Okdah had attended a cabinet meeting this week as proof he was not leaving.
That is poor judgement considering his move will have been planned for months, and an announcement of resignation or retirement is not likely to be followed by a swift departure. It is also likely that El Okdah does not want his departure to appear political amid the tumultuous situation in Egypt. The sensitivity of the situation means the leak to the local press must be managed with impassioned denials.
Management changes are however dwarfed by a more serious development at the central bank, as Noha Moustafa of Egypt Independent explains:
The most critical development within the Central Bank will be the impending amendments to the law governing its activity, which experts are concerned will infringe on its independence.
State-run Al-Ahram reported early in December that President Mohamed Morsy plans to issue a decree to amend the statutes that govern the bank and its officials, giving himself the authority to appoint members of its governing board.
The modifications reduce the number of board members and give the president the right to nominate the next CBE governor without the usual recommendations from the prime minister.
The amendments may also affect the positions of the some of the bank’s board members (all well known in the Egyptian business community), Moustafa points out:
Due to their current posts, some of the bank’s board members that may be affected by the changes include both Amer and Barakat, as well as chairman of Banque Misr Abdel Salam al-Anwar, former chairman of HSBC Egypt Mona Zulfacar [the chair of EFG Hermes], legal expert and board member of EFG-Hermes Alaa Saba [former CEO at Beltone] and economic expert Ziad Bahaa Eddin, who is also the former head of the Egyptian Financial Supervisory Authority.
The central bank has been lauded for its work in the last decade including a smooth flotation of the currency and the elimination of a black market. But these amendments, if eventually passed, will likely pit the new governor against the president in a battle for independence.
For those expecting President Morsi to enact his long-awaited reform plans, here is evidence that it is now or never:
Egypt’s budget deficit increased to LE80.7 billion ($13 billion) during the first five months of the current fiscal year 2012/13, which starts in July, the Ministry of Finance reported on Sunday in a bulletin, Ahram Online reported.
The same period of last year witnessed a budget deficit of LE58.4 billion ($9.5 billion).
That means, since Mohammed Morsi has been in power, the budget deficit has widened by almost 37%.
Supporters say Morsi is planning to implement nationwide subsidy reforms and tax hikes after the parliamentary elections (which should start in two months from the referendum passing, but nothing has been formally announced). But wasn’t Morsi’s presidential campaign resting on the Renaissance Project and all the economic boosts that he claimed would come with it after he was elected? What’s happened to that? We have not heard anything related to the project for months and months.
Morsi, in the context of his dogged determination to go ahead with the constitution, already has a slim mandate to enforce tough austerity measures. But the more he waits, the less people he will please. It’s now or never.
The one silver lining for Egypt, as Rebel Economy has pointed out before, is its 83 million consumer market. That has brought the Gulf banks to Egypt to snap up banking assets ripe for picking, despite the political risk.
Now Egypt’s supermarkets are looking attractive too. Reuters reports:
Dubai’s Majid Al Futtaim (MAF), is in talks with Egypt’s Mansour Group, owned by billionaire Mohammed Mansour, to buy its supermarket business in a deal valued at $200 million to $300 million, three sources aware of the discussions said.
Mansour Group, also the largest distributor of General Motors cars in Egypt, is aiming to sell supermarket chain Metro and discount grocery store Kheir Zaman, the sources said, speaking on condition of anonymity as the matter is not public.
These “Egypt bulls” see low valuations after the revolution and are willing to take the risk of the political situation. It’s always been said that retail is a defensive market because the sector is able to weather any crisis. After all, no matter what people will always shop.
Egyptian private equity outfit, Citadel Capital, has appointed petroleum industry veteran, Mohamed Shoeb, as Managing Director of its energy division.
It is the latest sign of how Citadel is quietly moving toward filling a gap in the energy market which is likely to be left after a reform of the country’s energy subsidies.
Shoeb is the former head of the state-run gas company, Egyptian Natural Gas Holding Company (EGAS), and prior to that was the vice Chairman for operations at the state oil company, Egyptian General Petroleum Corporation (EGPC).
The problems attached to both companies do not reflect kindly on Shoeb; EGAS was at the centre of a politically controversial cancellation of a gas contract to Israel, while EGPC is facing a potential bail-out from Egypt’s banks because of a mounting debt pile to foreign oil companies and banks for energy exploration.
However, the former EGAS head brings experience and knowledge of the nation’s state energy industry (and its specific challenges) that would be hard to find elsewhere. Importantly, he has deep connections in the sector that will come in very useful for Citadel at a time when its most high-profile investments are in the energy market. These include:
– a $3.7 billion financing package for the Egyptian Refining Company project
– A joint venture with Qatari investors to import liquefied natural gas into Egypt from mid-2013
UPDATE – This morning Citadel Capital sent a statement saying it had sold one of its investments, in a further sign that the private equity firm is focusing its strategy around five sectors including energy and transportation.
Its portfolio company National Petroleum Company Egypt Ltd. sold National Petroleum Company Shukheir Marine Ltd. to Sea Dragon Holding Ltd., a subsidiary of Canada’s Sea Dragon Energy.
“This transaction is the first of a number that will see us exit non-core portfolio and platform companies as part of our transformation over the coming three years into an investment company,” said Citadel Chairman Ahmed Heikal.
A spat between EGPC and Centamin’s Sukari goldmine appears to be almost resolved after customs authorities on Sunday allowed an export shipment of 1,600 kilograms of gold to the Netherlands, Egypt Independent reports.
Shipment had been halted by Egyptian customs because the petroleum and finance ministries had said Centamin owed the authorities back-dated payments for fuel. Centamin denied this and said its payments were up to date.
Josef El Raghy, chairman of Centamin, has faced labour strikes and fuel shortages that have forced the firm to halt production twice this year.
It’s a stark reminder of both a highly bureaucratic state where the lack of a signature can halt valuable exports that could shut a company down, and how fuel shortages at EGPC have the potential to trickle into important industries across Egypt.
One clear characteristic of the Morsi administration’s economic programme is its resemblance to Mubarak-era projects. The following is no exception. Egypt Independent reports:
Prime Minister Hesham Qandil has tasked the agriculture, irrigation, electricity and investment ministries to begin implementing a project the government hopes will reclaim and cultivate a million new acres of farmable land over four years
Land would be sold to private companies for a small fee under the BOT scheme, granting them use anywhere between 20 to 25 years. Products used by private companies in the production of renewable energy sources would not be subject to taxes or customs duties.
There’s one aspect of Egypt’s business climate that will keep attracting buyers despite the uncertainty and political turmoil – that is the nation’s 83 million consumers; a goldmine for a business that wants to gain a strong foothold in the Middle East quickly.
For European banks that have been hit by the Eurozone crisis, restructuring plans are underway, and that means offloading assets it can’t afford.
French bank Societe Generale is the latest to sell its Egyptian unit. Yesterday afternoon it agreed to sell its Egyptian asset (NSGB) to Qatar National Bank as part of a larger restructuring plan for about $2 billion. A hefty sum considering most economists are putting a black mark against Egypt.
There’s more acquisitions on the way. BNP Paribas is seeking bids for the sale of its Egyptian retail arm, which is expected to generate between $400 million and $500m, and last year Standard Chartered came close to acquiring the Egyptian assets of Greece’s Piraeus Bank.
QNB didn’t over pay, says Emad Mostaque, strategist at investment bank Religare Noah in an emailed note this morning. But that’s good news, he explains:
Soc Gen agreed to sell their 77% stake in NSGB to QNB at 35.54 EGP for $1.97bn, valuing NSGB at $2.7bn.
This is well below the close price of 39.35 EGP, but in line with the 6 month average price. The acquisition at this price is clearly positive for our Top Pick QNB, who will take the lead in the funding of the $20bn of FDI in Egypt promised by Qatar.
It shows continued conservatism from Qatar on not overpaying for acquisitions by its national champions, something we have recently been a bit worried about.
Elsewhere the news isn’t as rosy for Egypt. Gold miner Centamin has said it would would suspend operations at its only producing mine, located in Egypt, due to a short-fall in working capital and the inadequate availability of diesel at the mine.
The company said fuel supplies to the gold mine had reached critical levels.
The problem started because apparently Centamin owes about $65 million for diesel supplied from the Egyptian government between Dec 2009 and Jan 2010. Egypt said it wouldn’t supply additional diesel until the payment was made. Centamin says the claims are “illegal”.
EGPC has had a multitude of disasters related to the country’s expensive energy subsidy system. Debts are rising to international/local oil companies and banks and high-ranking executives in the energy sector say EGPC is about to be bailed out by the state-run bank National Bank of Egypt.
In the meantime, Centamin was hit with a court case in October which declared its rights to operate the Sukari mine as illegal. It subsequently suspended gold exports pending a ruling.
Today, the company said it had obtained clearances to start exports again but it was still waiting for prior approval by the Minister of Finance.
“This approval has been urgently sought, but has not yet been forthcoming,” Centamin said.
A combination of mismanagement (on its own part for not paying for fuel, but also on the part of the Egyptian government for not approving exports) and bureaucracy has left Centamin unable to sell its gold. It’s situations like these that worry foreign investors.
Shares in Centamin are down almost by half since late October.
“Yemen is Egypt on drugs”, said one tweet yesterday as news emerged that the IMF had urged Yemen to make drastic changes to its energy subsidies which account for 8% of GDP and benefit mostly the richest.
The international bank did not hold back in its criticism of Yemen, whose energy subsidy system is appalling:
This large untargeted subsidy benefits the richest segments of the population disproportionately. Furthermore, the lower prices lead to substantial inefficiencies and smuggling, and contribute to environmental deterioration.
To further improve governance and transparency, the authorities are encouraged to further adjust these prices and launch other reforms to increase efficiency in the energy sector, while broadening the social safety net and increasing compensation for the poor through well-targeted cash transfers.
Egypt’s energy subsidies actually account for close to 10% of GDP, so perhaps it’s Egypt that’s on drugs.
If you have lived in the Gulf, this is a story that is glaringly obvious.
Some guys from Booz & Company, the consultancy firm, write in this FT article that “for the past four decades, the Gulf Cooperation Council states have shown remarkable economic growth, yet they are still challenged by a volatility they need to eradicate if they are to diversify away from oil and become powerhouse emerging economies.”
Surprise, surprise. The GCC states make a lot of money and don’t know how to spend it.
One of the many reasons the authors give for this “volatility” is the high proportion of people employed in unproductive, but highly-paid public sector jobs. Booz & Company give some interesting recommendations including enforcing value added taxes, and creating opportunities for collaboration as a block instead of outright competition.
Sounds a little too optimistic for the GCC where rivalry extends from city to city, let alone state to state.
Egypt’s government has proposed tax changes and reform of energy subsidies to cut a budget deficit running at about 11% of gross domestic product, Reuters reported in a broad story outlining all the austerity measures.
An IMF team is in Cairo to negotiate a $4.8 billion finance package for Egypt. Talks are scheduled to end on November 14. Some of the key details are as follows and mostly concern the biggest weight on the economy, i.e. energy subsidies:
– total elimination of the subsidy on 95 octane gasoline, a step that will be officially announced this week
– raising the price of natural gas piped to homes, which will come into effect next month. The price increase would be “tiny”, officials have said.
– The government has delayed a programme to use smart cards to distribute canisters of cooking gas, or butagas, by several months to ensure the system works properly
– The government would not touch the price of subsidised diesel
– The government had drafted a law to raise the sales tax on both commodities and services to 11% from 10%. That includes tax on telephone services, and sales tax on other goods such as cars, cigarettes and tobacco, beer and alcoholic drinks, non-alcoholic beer, carbonated mineral water, coffee beans, water-resistant cement and reinforced steel.
All these measures have already taken a long time to enforce, so it’s lucky Egypt’s lenders are putting up cash support.
Egypt said on Sunday it had received a third tranche of $500 million from Qatar, the same Reuters story said, part of a $2 billion loan secured by Egypt in August to help stave off a financial crisis and which Qatar is depositing at Egypt’s central bank.
The state news agency MENA quoted Egypt’s Finance Minister Mumtaz El-Saeed as saying the third tranche of the loan arrived on October 30 and that the last tranche was expected to arrive “soon” but did not give an exact date.
◊ ◊ ◊
But if donors fail to show up Egypt can rely on the thorough corruption investigators to retrieve billions of dollars and deposit in president Mohammed Morsi’s specially made “Renaissance” account (which generous citizens can also donate to..).
The only other detail in the report is that governmental authorities are working on collecting up to around $9 billion from specific persons associated with the former regime and who have been found guilty of corruption.
The report, which is quite fuzzy on details, does highlight an important fact: Mubarak and his cronies were not as rich as initially thought. In fact, to insist that the former president and his family are worth at least $70 billion only serves to glorify a regime whose biggest failing was to neglect rather than shrewdly steal mountains of cash.
◊ ◊ ◊
An eye-opening profile into the chief executive of DP World, the world’s third largest ports operator in the WSJ.
Mohammed Sharaf’s personal relationship with ships started long before he began work in the industry, when, in 1961, he was shipwrecked at just six months:
MV Dara, the ship transporting him, his mother, brothers and sister sank after an explosion, just outside the port of Dubai. The incident cost Mr. Sharaf his mother, a sister and one brother, while another brother was considered lost. He survived with a caretaker before reuniting with his family in the U.A.E.
DP World, in some ways, represents the old and new Dubai.
It is a reminder of Dubai’s beginning as a successful sea port where a tiny settlement developed from a small fishing and pearl-diving community to an oil-rich sheikhdom.
But it is also an example of over-spending and spiralling debt. The company currently has a net debt of $3.5 billion and has had to let go of some of its key assets. Last month it said it was pulling out of its operations in the port of Vostochny, the largest container terminal in Russia’s far east and one of the key gateways for the country’s container network.
Egypt’s first private-sector electricity station began operations in Alexandria yesterday in a move that appears to rattle, if not, break the mould of the seven state-run energy companies operating the nation’s power stations.
TAQA Arabia, a subsidiary of Citadel Capital, the Egyptian private equity firm, is running the $400 million station, which will have a production capacity of 11 megavolts and will be fuelled by natural gas.
Up until the early 1960s, electricity generation and distribution was practiced by private companies. But in 1978, after a transition to nationalisation, seven regional electricity distribution companies were established under the supervision of Egyptian Electricity Authority, according to the Ministry of Electricity.
Some of these companies have now been split into two, but fundamentally Egypt’s electricity power supply is state-owned.
The station was acquired by TAQA as part of a Build, Own, Operate, and Transfer (BOOT) financing scheme.
BOOT projects are used to fund large-scale public infrastructure without affecting the country’s debt profile. Private developers are allowed to recover their costs of construction through ownership and operation of the plant for a fixed period before handing it over to the state.
Citadel’s project will provide power to a particular company (the state-owned Egyptian Styrenics Production Company, according to Ahram Online), but it could signal a move toward expanding this scheme elsewhere.
Egypt’s gas shortages have caused some of the worst electricity black-outs in recent years. But with electricity demand growing, could Egypt consider limited privatisation of the electric power sector?
◊ ◊ ◊
1) Egypt expects to reach a loan agreement with the IMF by mid-December after talks this month focusing on limiting the budget deficit and a minimum level for its foreign reserves. Ahram Online reported that the loan amount, initially set at $4.8 billion has been reduced slightly to $4.5 billion.
2) The cabinet also approved a new 10% tax on major transactions on the Egyptian stock exchange, including initial public offerings (IPOs). The president said in August there would be no new taxes.
3) Finally, the cabinet approved two new tax brackets for high-income individuals. A 22% tax will be levied on individuals with annual incomes between 1 million Egyptian pounds and 10 million pounds, while annual incomes higher than 10 million pounds will be taxed at a rate of 25%. The new structure looks something like this, according to Ahram Online:
First segment (LE5,000 – LE20,000): 10 per cent
Second segment (LE20,000 – LE40,000): 15 per cent
Third segment (LE40,000 – LE1 million): 20 per cent
Fourth segment (LE1 million – LE10 million): 22 per cent
Fifth segment (LE10 million and up): 25 per cent
The move to implement taxes on corporations and individuals after previous cabinets had failed to do so signals how the current government is forced to impose hard austerity measures that were initially played down.
The decision to levy a capital gains tax comes despite repeated assertions by bourse officials that such a tax would not be “suitable” for the Egyptian market.
Last year, the finance minister at the time, Samir Radwan, proposed a 10% tax on stock dividends in the hopes of offsetting Egypt’s rising budget deficit. But the proposal was quickly rejected by investors and bourse officials and Radwan was removed in a cabinet reshuffle. How policies change.
◊ ◊ ◊
In my latest FT report, I write how escalating disputes between labour unions and employers in north Africa are threatening to derail economic recovery after the uprisings that ousted long-ruling dictators in the region.
Emboldened by the spirit of political change, thousands of workers in Egypt and Tunisia have staged a series of protests and are now in deadlocked talks with companies over demands for a minimum wage.
The piece puts together a series of examples of how the quest for a minimum wage can also be detrimental to a country’s economic fortunes. But it also shines a light on the lack of conversation between labourers and their employers.
Some of the companies quoted in the report include Kraft Foods, which has commenced legal action against strikers and DP World, which shut down its Ain Sokhna port twice this year.
◊ ◊ ◊
As UAE-based Dana Gas restructures its $1 billion sukuk payment, averting a potential seizure of its Egyptian assets, the “region’s debt market barely blinked,” according to this Reuters feature on sukuk, or Islamic bonds.
Not long ago, a billion-dollar payment miss would have triggered a crisis of confidence in the market; now, it is almost ignored.
More than $6 billion was spent on campaigns that sought to prove how both candidates would attempt to turn around the deepest economic downturn since the Great Depression. It was Barack Hussein Obama’s night, and as the WSJ put it:
Mr. Obama’s victory in the bruising campaign marks a landmark in modern election history. No sitting president since Franklin D. Roosevelt in 1940 has won re-election with a higher unemployment rate, which stands at 7.9%.
The candidates emphasised the economy in aggressive campaigns that sought to reassure Americans how the country would be pulled out of its crisis.
It was in stark contrast to Egypt’s presidential campaigns, which failed to acknowledge the most pressing problems and papered over the economic challenges with vague rhetoric about social justice.
Hardly a word was muttered about the North African nation’s biggest economic challenges including the budget deficit, or how the presidential candidates would seek to reduce the almost 13% unemployment rate. The US victory shines a light on Egypt’s political inexperience and misdirected focus on religion.
◊ ◊ ◊
On that note: Egypt’s pound weakened on Tuesday to its lowest against the U.S. dollar since 2004, and traders and analysts speculated the central bank may have resumed a policy of allowing a gradual depreciation, Reuters reported. (That is despite common knowledge among traders that the Central Bank intervenes in the currency through state banks).
Egypt’s foreign reserves have hovered at about $15 billion, just above the critical level enough to cover three months of imports. But any increase in reserves has so far been superficial and down to international donors funnelling cash straight to the central bank to support the pound.
As London-based Capital Economics analysts said in a note to investors earlier this week:
Talks between Egypt and the IMF this month have focused attention back onto the external financing requirements of the region’s resource-poor economies. But so long as their oil-rich neighbours continue to drip-feed aid, we think they should be able to avoid full-blown balance of payments crises.
◊ ◊ ◊
In the clearest sign of Egypt’s energy problems, yesterday Orascom Construction Industries was forced to stop production at three fertiliser lines after the state gas company cut off supplies from a gas field for emergency maintenance.
Egypt, which is a net gas exporter, has been suffering more and more fuel shortages and electricity cuts due to growing domestic consumption. The country has had to re-direct gas for domestic use, that would have otherwise been exported.
Local media has reported talks between the Egyptian government and Qatar in the last few weeks to import liquefied natural gas to cover its needs. Algeria was also a possible contendor for the job.
It is a clear signal of how an addiction to energy subsidies has managed to infiltrate almost all parts of Egypt’s economy. Bankers tell me that the reason foreign reserves have declined, is not just to support the currency but to ensure Egypt has enough to keep importing oil and gas to keep its subsidy system running.
◊ ◊ ◊
In other news:
– Dana Gas, the first UAE company to fail to meet a bond redemption, said it had reached a restructuring deal “in principle” to repay a $1 billion sukuk, potentially averting seizure of its assets, Reuters reports.
Natural gas producer Dana, headquartered in the emirate of Sharjah, said it will cancel $80 million of the Islamic bond and sukuk holders will receive a part payment in cash from Dana as part of deal reached with an ad-hoc group of bond holders.
– Abu Dhabi Islamic Bank is set to become the first Gulf Arab company to issue a hybrid Islamic bond this week, but investors are likely to demand a big premium for the rare structure.
ADIB’s Tier 1 sukuk structure, which is expected to raise $500 million, is a different animal: it does not have a maturity date – hence it is “perpetual” – and the principal is repaid at the discretion of the issuer.
If ADIB’s issue is successful, it could pave the way for other banks in the region to follow suit, although the jurisdiction in which the bank is located will be important.
If you had all the money in the world, what would you buy?
Perhaps you would indulge in a flashy car, or treat yourself to a Bahamian island.
That is just child’s play compared to the toys members of the United Arab Emirates’ royal family have invested in (no I’m not talking about Sheikh Hamad, also know as the “Rainbow Sheikh” who owns almost every vehicle imaginable including the world’s largest caravan…).
Sheikh Tahnoon Bin Zayed Al Nahyan, one of the 19 sons of the founder of the UAE and an apparently avid chess player, decided to finance the Hydra Project, a chess machine so powerful it would dominate the computer chess world and “finally have an accepted victory over humans“.
The chess machine, designed by Dr Christian “Chrilly” Donninger, was financed by PAL Group, part of the group of companies under Royal Group, the UAE conglomerate chaired by Sheikh Tahnoon.
In 2005, “Hydra [was] widely considered to be the world’s strongest chess player,” according to a New Yorker article published at the time.
But all’s well that ends well and Hydra played its final game in June 2006. The sponsors decided to end the project, perhaps because Sheikh Tahnoon got bored of his toy.
He has some other fun investments up his sleeve, and none other than robots.[caption id="attachment_962" align="alignright" width="580"] Reem Robot, PAL Robotics[/caption]
PAL Robotics, an offshoot of Pal Group, has spent more than $50 million and three years developing the Reem robot in Barcelona. The “all-purpose” robot can work in a hospital, hotels, museums or airports, according to a report in The National newspaper.
The “humanoid service robot” will cost “several thousand dollars” though the company says it hopes to reduce the price to make it more competitive.
It sounds like a recycled invention from Japan, but in a world where million dollar traders are being replaced with machines at international investment banks, anything is possible.
The Syrian National Council (SNC) says it has received over $20 million in aid from Libya since it was founded in October 2011. That’s half of the $40.4 million the opposition group has amassed since August 2011.
As Borzou Daragahi of the FT put it: “The top financier of the Syrian opposition is no Arabian Peninsula oil kingdom or cloak-and-dagger western spy outfit, but struggling, war-ravaged Libya, which is itself recovering from a devastating civil conflict.”
Qatar gave $15 million, while the United Arab Emirates gave $5 million.
But why is Libya supporting Syria? Some indications here from Daragahi:
Oil-rich Libya has emerged as one of the Syrian uprising’s firmest and earliest backers. Perhaps dozens if not hundreds of veterans of the Nato-backed rebel insurgency against Colonel Muammer Gaddafi have travelled to Syria to fight against the regime of President Bashar al-Assad. Its interim foreign minister said earlier this year that his governmentcould not prevent or condemn Libyans heading to Syria to fight.
Despite this quite detailed release from the SNC, the balance sheet, if true and accurate, also exposes how little money the opposition group has. Other details that emerged from the financial document, which apparently is an attempt by the SNC to look more transparent, show the group has just $10.7 million in its bank account.
While Egypt is getting multi billion-dollar easy loans funnelled straight to it almost two years after a popular uprising forced the former president to step down, the SNC has to manage with just a fraction of that. Egypt may be a strategically important country in the Middle East that is too big to fail, but in the bloodiest uprising that the Middle East has seen since the beginning of the last year, Syria will need much more than just $20 million if it is to beat the Assad regime.
◊ ◊ ◊
In the latest sign of Egypt’s energy troubles, Egypt’s state-owned Egyptian Natural Gas Holding Company (EGAS) has postponed the closing date for international companies to present their bids for 15 oil and gas concessions by three months due to weak interest in the tender.
After all, would you do business with someone if you couldn’t guarantee you would get paid?
EGAS has pushed back the deadline for bidding to February 13 from November 14, a posting on the company’s website showed without elaborating, Reuters reported.
Oil minister Osama Kamel had revealed on a Monday late night talk show that “the interest wasn’t at the level that we wanted.”
Oh dear. It’s the second controversial delay of a tender after the other main state-run energy firm Egyptian General Petroleum Corporation (EGPC) pushed the closing bid for its tender to March 29, from January 30, to allow more companies to take part.
EGPC is due to announce the results of its latest bid round some time this week, around seven months after the closing date.
The main problem is that Egypt’s energy supplies are overstretched because of rising domestic demand (from inefficient subsidies) and rising debt levels (also partly because Egypt sells what would be quite expensive energy at subsidised prices).
Earlier this week there were some moves made to test ration cards in four Egyptian provinces that limit the amount of subsidised energy distributed, but the country needs to move fast on implementing reforms before companies that explore for oil and gas decide they can no longer do business with an indebted country.
◊ ◊ ◊
The impact of Egypt’s oil troubles are not just limited to the North African nation. Many energy companies are owed billions of dollars in overdue payments from Egypt’s state-run energy firms and those oil companies that aren’t able to restructure the debt are having problems of their own.
UAE-based Dana Gas, for instance, last week missed a $920 million Islamic bond redemption, but said today it was still negotiating a standstill agreement with a creditors’ committee.
Dana, which became the first UAE company to miss a bond redemption, started encountering problems after the company was hit by payment delays on the gas it supplies to Egypt and Iraq’s Kurdistan region.
◊ ◊ ◊
All change at the helm as top Abu Dhabi banker Khalifa Mohammed al-Kindi becomes the new chairman of the UAE’s central bank, Reuters reports.
Al-Kindi is what you would call a banking celebrity. He started his career at the Abu Dhabi Investment Authority (ADIA), one of the world’s largest sovereign wealth funds and is a former chairman of National Bank of Abu Dhabi, the UAE’s top lender by market capitalization.
He’s a fitting man for a role that will see him head board meetings, have the final say on policy decisions, and other very important things that big bankers do.
The new chairman, whose position has not been formally announced yet, will probably also have to deal with several moaning state companies, after Abu Dhabi last month decided to issue a new directive that will rein in boom-year borrowing that has triggered bailouts of state-linked companies and losses.
Yesterday, Egypt’s president Morsi surprised us again by announcing he had opened an account named “Egypt’s Renaissance” and was urging citizens and expat Egyptians to donate to boost the economy. What a utopian idea? Here are some issues related to the move:
– a desperate plea that is unlikely to garner a huge amount of money (does President Morsi expect citizens to donate billions of dollars to narrow the deficit?)
– most Egyptians don’t have a bank account (Nine out of 10 adult Egyptians don’t have a bank account, the Middle East’s lowest ratio apart fromYemen) immediately limiting the move to a few, basically well-off Islamists who voted for Morsi or well-off liberals, who are among the few that are not disgruntled with the Islamist-dominated government.
– The ministry of finance press release suggests that this account will also be used to deposit public cash that was pilfered by members of the former regime and recovered from abroad. Investigations reveal, however, that the Hosni Mubarak family were worth only several hundred millions of dollars, not billions. In fact, there is only about $1.2 billion in assets frozen abroad which authorities are trying to retrieve. All this suggests that a) it will take a long time to retrieve frozen assets, and related assets from other former regime members, b) that the amount abroad is relatively paltry and will not “save” Egypt.
– Final thought – this account reflects another move that will soon be forgotten. As Ahram Online points out, it is not the first scheme of its kind. In March of last year, the finance ministry opened a similar account at the Central Bank (account no. 25-01-2011) for citizens’ financial donations, but the total donations made was never announced (probably because there was none).
The government also tapped into patriotic appetites and attempted to sell land to expat Egyptians. That programme was expected to pump $2.5 billion into Egypt’s treasury pot and alleviate pressures on the currency. No concrete news on that yet.
◊ ◊ ◊
London-listed gold miner Centamin, which has its focus in Egypt, said this morning it was confident a court case which questioned its right to mine gold in Egypt will be resolved through an appeal process.
Last week an Egyptian court ruled that licence to operate Centamin’s Sukari gold mine was invalid. Rebel Economy described it as a partial win by the labour movement, which has held successive strikes and demonstrations against company management.
The whole case is falling apart day by day, as the oil minister and the Egyptian Mineral Resources Authority backs Centamin and supports a fast overturning of the ruling.
The court issued its ruling without having been presented as evidence with the contract signed in 2005 with the then oil minister giving the company operational rights in an additional 160km2 area, Oil Minister Osama Kamal said in an interview with Bloomberg.
Though an appeal was very likely, this case epitomises the difficulty of proving beyond doubt that a transaction was invalid. Even if the ruling is accurate, there is bound to be pressure from the government to overturn the ruling. It will be a test of how effective lawyers can be in questioning complex financial transactions.
◊ ◊ ◊
David Cameron, the UK’s Conservative prime minister, will land in the United Arab Emirates today as he begins a three-day tour of the Gulf in an attempt to rescue faltering trade alliances, the FT reports.
The delicate ties between the UK and Gulf were damaged when Britain was criticised for failing to “take a tougher line against Islamists, who have grown steadily in political power in the Middle East as dictators have been toppled over the past two years,” the report says.
But the trip “will sidestep concerns over regional security and human rights as [Mr Cameron] pushes British military exports in an effort to get the UK economy moving again.”
Although the prime minister is expected to raise issues such as Saudi Arabia’s record on suppressing minorities and political opponents, the overwhelming focus of the trip will be commercial.
Just in case you didn’t know, the priority for the US and UK is mostly commercial and not in the interests of human welfare.