Waiting for the Dust to Settle
Platt, Gordon, Global Finance
Financial services firms in the GCC region are poised to take advantage of an impending global recovery.
The global economic and financial crisis arrived late in the six nations of the Gulf Cooperation Council and appears to be leaving early. Like a powerful sandstorm, it whipped up a lot of dust and left some stunned victims in its wake. But global investors who fled in the second half of 2008 are returning, and liquidity conditions have improved, although credit growth remains subdued.
Elias Bikhazi, chief economist at National Bank of Kuwait, the largest Kuwaiti bank, says most of the GCC economies should begin to recover in 2010, following a flat-to-down year in 2009. "The outlook is improving," he says. "Financial markets have stabilized, although there is still a long road to travel before trend growth returns for the world economy."
Kuwait's gross domestic product likely will decline by 4% to 5% in 2009, Bikhazi forecasts. "The UAE also could show negative growth this year, with the remaining GCC economies relatively flat, except for Qatar, which is growing faster than the rest because of die expansion of its LNG [liquefied natural gas] exports," he says. When global growth resumes, this will feed through to local economies through higher oil-export revenues, he says.
"Economic circumstances have forced us to re-prioritize," says Adel EI-Labban, chief executive of Bahrain-based AUB Group and managing director of Alili United Bank (AUB). "It is very tempting to go bottom-fishing, but there is simply too much dust in the air. We have to wait for the dust to settle," he says.
In line with its strategy to become a leading pan-Gulf provider of comprehensive financial services, AUB had been on a schedule of completing one acquisition every 18 months. The latest was in December 2007, when it bought a 35% stake in AhIi Bank-Oman. "We don't plan to make any acquisitions in the coming year," EI-Labban says.
Talal Al-Zain, chief executive of Mumtalakat, the holding company for the non-oil assets of the government of Bahrain, says 2009 is going to be a year of domestic investments for the fund. Mumtalakat's holdings include national carrier Gulf Air, Bahrain Aluminum, several real estate companies and motorsports venue Bahrain International Circuit (BIC). Altogether, the sovereign wealth fund has slakes in 35 companies. "We are dedicated to creating a global portfolio of investments balanced across different sectors and markets to deliver long-term growth through economic cycles," Al-Zain notes.
The fund is in no hurry, however, to rush into global markets for fear of missing opportunities in distressed sectors, Al-Zain says. "We don't think this is a risk," he explains. "We believe that there is still time for some good opportunities, so we're keeping a watching brief, and we will resume international acquisitions when valuations have bottomed out."
Al-Zain, who is also chairman of Gulf Air, says the airline has been through a tough period in the past few years. "However, we are well on the way to rehabilitating the brand and focusing on our strong Middle East network, ensuring connectivity to major financial cities, and building our reputation around friendly service," he says. "We are in the process of re-fleeting Gulf Air, as we see this as the perfect time to do so."
Mumtalakat is increasingly looking at how to maximize the cross-nwketing potential of its assets. In April, at the Bahrain Grand Prix, it announced a $1 billion development, known as @bahrain, co be built alongside the BIC. "Some of the services on oner will include a racing club, where members can house their performance sports cars, have them maintained and drive them on the BIC," Al-Zain says. The development will also include a convention center, hotels and an indoor arena.
The fund also holds a 30% stake in UK automaker McLaren, which has a Formula One racing team. "We are excited about McLaren's plans for a new road sports car," Al-Zain says. …