Business digest

INVESTCORP:  Successful sale

Investcorp, the asset management firm specialising in alternative investments, announced the completion of the sale of US portfolio company, American Tire Distributors. ATD was acquired by Investcorp and its co-investors in 2005. The firm said in a statement that  the sale will produce a capital gain for Investcorp and its clients that invested in ATD. "We have implemented a successful strategy that has strengthened ATD's position as the leading distributor of replacement tyres in the US by rigorously applying our value enhancement model," said Mohammed al Shroogi, Investcorp's president of Gulf business. Based in Charlotte, ATD distributes replacement tyres to local, regional and national retailers. It is America's largest independent tyre distributor with 83 distribution centres serving 37 states and has 60,000 customers.

WEALTH FUND: Mumtalakat bond

Bahrain's sovereign wealth fund Mumtalakat launched a $750 million five-year bond, reopening Gulf Arab fixed-income markets that were hit by the market turmoil due to the European debt crisis in May. The issue is the first dollar issue from the region since a Dubai Electricity and Water Authority (DEWA) issue in April and was priced at 300 basis points over midswaps, a source at one of the arranging banks said. Lead managers are Deutsche, HSBC, JPMorgan and Standard Chartered. Lead managers declined to comment on order book size, but one market source said books had reached $3 billion. Last month Mumtalakat announced that its losses more than doubled in 2009 due to losses made by some of its portfolio companies.

OIL: $65 a barrel price 'crucial'

Iran's economy needs a minimum oil price of $65 a barrel and the government wants to focus on jointly-owned oilfield projects to boost state revenues, the country's oil minister said. "Over the past years, a segment of the exported oil was enough to cover the cost of running the affairs of the country, but today every barrel of exported oil must be sold at a minimum of $65 a barrel to be able to manage the country," Masoud Mirkazemi said an oil conference in Tehran. Iran is the world's fifth-largest oil producer, but struggling to develop the sector in the face of United Nations sanctions over its nuclear energy programme.

PETROL: Subsidy 'a big drain'

Imported petrol is costing Iran's government around 70 cents per litre because of hefty subsidies due to be cut in September, a parliamentary official said. "The freight-on-board price of petrol in the Gulf is 6,000-7,000 rials per litre (60-70 cents) and its freight to the city is 1,000 rials a litre," Sharq newspaper quoted as Mohammad Reza Mirtajeddini, vice president in charge of parliamentary affairs, telling a gathering of economic analysts at the government tax department. Officials have not said what the free market price for petrol will be in September but newspapers have suggested 5,000 rials per litre. Iran lacks sufficient refining capacity and must import up to 40 per cent of its consumption of the fuel, and the threat of US sanctions on suppliers to Iran has reduced the pool of firms prepared to sell to it. 

AL HABTOOR:  $700m contract talks

Dubai-based construction firm Al Habtoor Leighton Group is in discussions over a $700 million offshore project in Iraq as it seeks more business outside the difficult United Arab Emirates market, says its chief executive. Al Habtoor, an affiliate of Australia's Leighton Holding, is also eyeing a new infrastructure contract in Saudi Arabia and two in Oman by year-end, Laurie Voyer, who is also the managing director, said at the Reuters Global Real Estate and Infrastructure Summit in Dubai. Al Habtoor is in discussions over an offshore pipeline and SPM (single point mooring) project in Iraq in what would be its first contract there, and hopes to hear whether it is successful by the end of July, Voyer said. "We're putting together a business case at the moment and (getting) a better understanding what it might take to move into Iraq."

ECONOMY: Deficit cut forecast

Iraq will decrease its deficit from 18 per cent to eight per cent over the next three years, Bayan Jabor, the finance minister, said, and envisioned a substantial increase in investment as a percentage of the budget. Jabor also said in an interview on the sidelines of a Turkish-Arab economic forum in Istanbul that he will issue more bonds to finance power generation deals with General Electric and Siemens. He said the 2010 Iraqi budget was $70 billion and would increase incrementally over the next three years. "Now our budget in total is around $70 billion, in 2011 it will be $80 billion, in 2012 it will be $90 billion and in 2013 it will be $100 billion."

ZAIN: Management revamp

Kuwaiti telecom firm Zain has reshuffled its management and appointed a new chief financial officer, after completing the sale of most of its African assets. It appointed Ossama Matta as chief financial officer, Barrak al Sabeeh as chief operating officer and Haitham al Khaled as chief technology officer. All previously held different posts at the company. Zain, which closed the sale of its African assets to India's Bharti Airtel in a $9 billion deal this month, is overhauling management in line with its new strategy to concentrate on Middle East operations. It also appointed a new head for its Iraq operations.

AGILITY: New strategy

Kuwaiti logistic firm Agility, which loses its lucrative supply contract with the US military this year, will focus on the commercial sector and is not in talks to sell an Iraqi asset, its chairman said. Agility was replaced in April as the main supplier to the US military in the Gulf amid fraud allegations. The firm, which said last month it will face declining profitability over the next four quarters, said 2010 is the final option year for US government contracts which have contributed as much as 35 per cent of annual revenues. "We are going through a transitional period, and I think that it is important to concentrate on the commercial sector, because at the end of the day, this is what will stay," chairman Tarek Sultan, said after a shareholders meeting.

GALFAR: $31m water project

Oman's Galfar Construction and Engineering Company has won a $31.17 million contract to build a water distribution network in the northwest. "Galfar will build reservoirs, including trenching and pipelines to connect to all houses in the area," according to a tender board official. Galfar Engineering won contracts worth $106 million for infrastructure projects earlier in April, covering road projects and a hospital building. It reported a net loss of $2.78 million in the first quarter mainly due to a project cost increase.

ECONOMY: $260m bond issue

Oman's central bank plans to issue five-year development bonds worth $259.7 million with a four per cent coupon, according to the state-owned Oman News Agency. The subscription period will run from 28 June to 15 July for the bonds which will be issued on 26 July. The central bank head said in March that the country would likely issue $317 million in domestic bonds to replace the same amount of debt maturing in November, but did not expect to tap international markets in 2010. The sultanate's government has maintained a tight control of public debt in the past years.  The country, rated "A" by Standard & Poor's, has outstanding debt worth $655 million, according to Reuters data.

ECONOMY: Consumer prices drop

Consumer prices in Qatar fell by 0.1 per cent month-on-month in May after three months of modest rises, mainly on lower housing costs, showing the largest annual drop in three months, according to Qatar State News Agency. Price pressures are expected to rise this year as the economy is seen expanding at a double-digit rate unlike the rest of the Gulf. Consumer prices started to pick up slowly in February after eight declines in a row to book a 0.3 per cent month-on-month rise in April. Annual deflation worsened to 3.6 per cent in May, after staying at three per cent in the previous two months. "This is just a blip, a small pullback," said Farah Hersi, senior economist at Masraf Al Rayan. "We shouldn't read too much into it. The overall trend is still upward." Qatar consumer prices fell by 4.9 per cent last year, first full-year deflation since 1993, due to impacts of the global credit crunch, down from a record high of 15.2 per cent in 2008.

QIB: $343 sukuk investment

Qatar Islamic Bank (QIB) invested $343.6 million in an Islamic bond, or sukuk, issued by the Qatar central bank on behalf of the government to boost the domestic bond market. QIB, the Gulf state's second biggest lender by market value, said the investment is governed by an eight-year lease that runs until 1 June, 2018. "The government's participation in this investment initiative will directly enhance the local economy," said Sala Jaidah, the bank's chief executive. Qatar issued $2.75 billion worth of eight-year conventional Islamic bonds with a coupon of 6.5 per cent to local banks earlier in June in an effort to develop the domestic bond market, and provide a new vehicle to pool the excess liquidity in the Gulf state's banking sector.

PROPERTY: Developer in swap deal

Dar al Arkan, Saudi Arabia's biggest real estate developer by market value, has signed a profit rate swap agreement to lower the costs of Islamic bonds, or sukuk, worth $450 million. In February, the firm sold the sukuk, priced at 10.75 per cent, as part of efforts to fund its expansion, in the middle of a months-long freeze in Gulf fixed-income markets which was sparked by Dubai's debt woes. The developer had immediate refinancing needs with an earlier $600 million sukuk maturing in March and therefore could not postpone its February issuance. Many companies in the region have postponed issuances and have faced higher financing costs as a result. To lower the costs, Dar al Arkan said it had signed a swap agreement, compliant with Islamic law, to cover 50 per cent of the sukuk, or $225 million, it said in a statement on the Saudi bourse website. The developer did not say who the agreement was signed with.

ECONOMY: Confidence 'wavering'

Banque Saudi Fransi (BSF) says greater global economic uncertainty in light of the euro zone debt crisis and volatility in oil prices over the last two months has taken a toll on sentiment among Saudi business executives. The BSF Business Confidence Index, which attempts to gauge market sentiment on a quarterly basis, fell to 99.8 points in the third quarter, from 100.7 points in the second quarter, John Sfakianakis, BSF chief economist, said. He also said business executives have adopted greater caution in their outlooks for financial performance, bank lending, investment strategies and hiring plans. With lower oil price expectations in mind, fewer businesses are confident that sales will improve in the coming two quarters, Sfakianakis said. More executives are choosing cash and bonds as their top investment picks in next two quarters, highlighting risk aversion.

SHAH PROJECT: Shell in the frame

The United Arab Emirates would like Royal Dutch Shell to step in as its partner at the $10 billion Shah gas project after US major ConocoPhillips withdrew, industry sources in the UAE say. Agreeing terms would be the biggest issue in coaxing Shell into taking on the project to produce sour gas in the UAE, the world's third-largest oil exporter, sources said. Shell lost out in the auction for the project in 2007-2008, after long being regarded as the frontrunner and spending substantial resources on preparing its bid. "ADNOC approached Shell," a UAE-based industry source said. "Shell might not take on the project as a pride issue because they were rejected before. But if there is talk of money... I think there will be a compromise." Conoco pulled out of the project in April, part of a global company strategy change to focus on oil and gas exploration and production and move away from refining and processing. The Shah project is to produce gas, but it also requires multi-billion dollar investment in gas processing facilities of the type that Conoco wants to avoid. The UAE has said that it will proceed regardless of Conoco's exit, but that it was looking for another international partner to help execute the complex project.

NBAD: Retail growth to surge

National Bank of Abu Dhabi (NBAD) expects its retail revenue to increase by up to 20 per cent this year due to higher lending, Saif al Shehhi, senior general manager of domestic banking, said. Interest rates on deposits could edge up by 0.5 per cent in the second half of this year, he said. Currently, revenues from retail banking account for about 20 per cent of the bank's total revenues. "Consumer lending has increased by 15 to 20 per cent this year and that will contribute to growth in our retail business. We will see retail's share up by five to 10 per cent this year," he said.

ECONOMY: Blow for UAE and  Qatar

MSCI has maintained the United Arab Emirates and Qatar stock markets as frontier markets in its 2010 annual market classification review, dashing market hopes for an upgrade to emerging market status. MSCI, which is a leading provider of investment decision support tools to investors globally, says both the UAE and Qatar would need to move away from the frequent use of dual account structures, such as separate custody and trading accounts, which are incompatible with general emerging market standards. The use of segregated accounts by institutional investors "results in the significant operational burdens of having to transfer shares from one account to the other prior to trade," it said. The firm also cited stringent foreign ownership limits in both GCC markets for its decision to maintain frontier status.