The MENA WEEKLY MONITOR

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1 CONTACTS The MENA WEEKLY MONITOR Treasury & Capital Markets Bechara Serhal (961-1) Nadine Akkawi (961-1) Private Banking Toufic Aouad (961-1) Corporate Banking Khalil Debs (961-1) RESEARCH Marwan Barakat (961-1) Jamil Naayem (961-1) Salma Saad Baba (961-1) Fadi Kanso (961-1) Gerard Arabian (961-1) Farah Nahlawi (961-1) Economy p.2 MOODY S BELIEVES US POST-ELECTION SHIFT IN TRADE POLICY WOULD HAVE IMMATERIAL IMPACT ON MENA SOVEREIGNS Campaign proposals ahead of the US presidential election next month point to a risk of less proactive foreign engagement by the US, whichever candidate wins, as per a recent Moody s report on the likely credit implications for MENA sovereigns. Also in this issue p.3 Sovereign willingness to support GCC banks extremely strong, says Fitch p.3 Egypt s net foreign reserves up to US$ 19.6 billion at end-september 2016 p.4 Kuwait's consumer inflation drops to 2.9%, as per NBK p.4 Morocco GDP rises 1% year-on-year in Q Surveys p.5 BAHRAIN OUTPERFORMS THE WORLD IN MANY KEY FACTORS, AS PER BCG Bahrain outperforms the GCC and the rest of the world in dimensions such as economic stability, employment, education and infrastructure, according to a new report from BCG. Also in this issue p.5 GCC share of mobile transactions 4% higher than global average, as per Criteo p.6 21% in the UAE concerned about being targeted while 42% are actual victims of cyberattacks p.6 The UAE s real GDP growth to slow down to 1.8%, as per the EIU Corporate News p.7 UAE'S RAK PETROLEUM COMPLETES US$ 850 MILLION OFFSHORE PROJECT IN IVORY COAST UAE-based RAK Petroleum announced the completion of a four-year US$ 850 million field development program in an offshore project in the Ivory Coast. Also in this issue p.7 China's Cosco to invest US$ 400 million in new Abu Dhabi container terminal p.7 Bahrain's Diyar Al Muharraq signs US$ 366 million project finance deal p.8 Saudi's Kingdom Holding sells Four Seasons Toronto for US$ 172 million p.8 Dubai s Select launches new US$ 122 million Dubai Marina residential project p.8 GE Oil & Gas signs landmark contract with Petroleum Development Oman Markets In Brief p.9 PRICE FALLS ACROSS REGIONAL CAPITAL MARKETS Regional equity markets saw price falls this week, as reflected by a 2.3% drop in the S&P Pan Arab Composite Index, mainly dragged by Saudi equities. In parallel, MENA bond markets saw mostly downward price movements across the board following the US Congress decision to override a US President s veto of a legislation allowing 9/11 victims' families to sue the Saudi government, and on concerns about a possible contagion effect from German bank s woes. MENA MARKETS: WEEK OF Nivine Turyaki (961-1) nivine.turyaki@banqueaudi.com Bank Audi sal - Group Research Department - Bank Audi Plaza - Bab Idriss - PO Box Lebanon - Tel: research@banqueaudi.com 1

2 ECONOMY _ MOODY S BELIEVES US POST-ELECTION SHIFT IN TRADE POLICY WOULD HAVE IMMATERIAL IMPACT ON MENA SOVEREIGNS Campaign proposals ahead of the US ( Aaa/stable ) presidential election next month point to a risk of less proactive foreign engagement by the US, whichever candidate wins, as per a recent Moody s report. Outcomes could range from a continuation of the status quo to a retrenchment from trade and investment ties, and curbs on immigration. These scenarios would have ramifications beyond US borders. The Moody s report focuses on the likely credit implications for Middle Eastern and North African (MENA) sovereigns and is part of a series examining the impact of possible post-election shifts in US policies on different regions. A shift in US trade policies would not affect the MENA region materially given that the US accounts for only 7% of the region's total exports. That said, oil exporters may be indirectly affected by changes in US energy policy, as per the same source. The MENA region's exports to the US are concentrated in fuel and other commodities, which make up about two thirds of the region's exports to the US. Moreover, trade with the MENA region is relatively balanced, according to Moody's. The US had a goods deficit of US$ 28.2 billion with MENA countries in 2014, equivalent to just 4% of the overall goods deficit incurred by the US with the rest of the world. Moody s expects trade agreements to remain in place since renegotiation would face significant institutional hurdles and political division in the US. The two main presidential candidates have differing positions on the US's energy policy, both of which would be marginally negative for MENA oil exporters' market share. Hillary Clinton has pledged support for renewables which, if translated into effective policy measures, would dampen demand for hydrocarbons in the US to a larger extent than currently anticipated. Donald Trump has vowed to resurrect the Keystone XL pipeline, which could reduce imports of refined oil products from MENA countries, as per the report. In general, productivity increases may lead to a further rise in US energy production over the medium term. However, Moody s expects that business considerations rather than the next administration's policy choices would be the main driver of such developments. Amongst non-energy producers, countries exporting high-value-added manufactured goods to the US are vulnerable to a shift in US policies that would incentivize on-shoring (i.e. the repatriation of jobs at overseas-based suppliers back to the US), and a focus on domestic production and sourcing. EXPORTS TO THE US AS % OF TOTAL EXPORTS (AVERAGE )* Sources: Moody's, Bank Audi's Group Research Department 2

3 US FDI flows are limited and concentrated in the energy sector which is less vulnerable than other sectors. The largest exposures are in Egypt ( B3/ stable ), the United Arab Emirates ( Aa2/negative ), Bahrain ( Ba2/negative ) and Qatar ( Aa2/ negative ), where US FDI amounted to 0.5%-0.8% of GDP in recent years. Assuming that some FDI from the US would continue, the size of the investment that would potentially be under threat is very small, according to Moody s. A tightening in US immigration policies could potentially erode the flow of remittances. Immigration has been another major focus of the US election campaign. Although with no immediate impact, a tightening in immigration rules in the US would over time dampen growth in remittances to other countries, especially if similar changes were to take place simultaneously in other developed countries. Some MENA countries benefit significantly from remittances from their US-based Diaspora. Lebanon and Jordan receive remittances from the US amounting to 2.2% and 1.0% of GDP or 4.1% and 1.8% of current account receipts, respectively. A marked slowdown in remittances would exacerbate existing large current account deficits, as per the report. SOVEREIGN WILLINGNESS TO SUPPORT GCC BANKS EXTREMELY STRONG, SAYS FITCH According to Fitch, the sovereign willingness to provide support for GCC banks remained extremely strong and no progress towards resolution has been made. Nevertheless, the sovereign ability to provide support diminished in Saudi Arabia, Oman and Bahrain with the fall in oil prices since mid-2014 and this has reduced the average issuer default rating (IDR) by one notch in these three countries in the past 12 months. In its 2016 compendium on GCC banks, Fitch says that out of the IDRs assigned by the agency to banks in the GCC region, 96% are investment-grade and 82% are driven by potential sovereign support. Just over half of viability ratings (VRs), which measure banks' individual credit profiles, are investmentgrade and risk appetite/asset quality the main shortfalls. The operating environment has become a constraint on VRs in Saudi Arabia, Oman and Bahrain following the fall in oil prices. The average VRs in Saudi Arabia and Oman were downgraded by one notch in the past 12 months. The fastest-growing banks have had less liquidity pressure than peers since Most are Islamic and benefit from strong demand for Islamic products, as per Fitch. Some are in the start-up/growth phase as recently created banks looking to gain market shares. Growth in Qatar is clearly above GCC peers as government spending has remained strong. Growth in Oman, the UAE, Kuwait and Saudi Arabia is more reasonable but still exceeds GDP growth. Bahrain is lacking economic stimulus. The report added that profitability remained strong in all countries. It mostly benefits from very cheap funding and has improved with lower loan impairment charges, as per Fitch. Higher performance ratios in Qatar, the UAE and Saudi Arabia reflect more dynamic operating environments with more lending opportunities. The lowest cost/income ratios are recorded at banks that focus on large deals or have small, if any, branch networks. Last but not least, impaired loans ratios benefited from strong growth and loan restructuring (notably in the UAE) but are expected to worsen if oil prices remain low for longer. EGYPT S NET FOREIGN RESERVES UP TO US$ 19.6 BILLION AT END-SEPTEMBER 2016 Egypt s net foreign reserves rose to US$ billion at the end of September 2016, jumping from US$ billion at the end of the previous month, as per the Central Bank. Egypt had roughly US$ 36 billion worth of reserves before its 2011 uprising ushered in a period of political turmoil. The International Monetary Fund last month agreed in principle to grant Egypt a US$ 12 billion three-year facility to support a government reform program aimed at reducing the budget deficit. Board-level approval depends on the government securing US$ 5-US$ 6 billion in bilateral financing in the first year. 3

4 The Central Bank did not immediately explain the jump in reserves, but Egypt last month received the first US$ 1 billion tranche of a US$ 3 billion World Bank loan aimed at supporting the government s reform program and finances. The United Arab Emirates also agreed in August to provide Egypt s Central Bank with a US$ 1 billion deposit for six years, while the government is in advanced talks with Saudi Arabia to secure a new deposit worth US$ 2 billion-us$ 3 billion that would go towards that requirement. Egypt s Central Bank governor previously said that he would consider floating the pound, which is currently managed within a tight band to the dollar, should net foreign reserves exceed US$ 25 billion, as per Reuters. It is also expected that the Egyptian Central Bank could devalue the currency in the near future in an effort to close the gap between the official exchange rate of about LE 8.8 to the dollar and the black market rate that has fluctuated at levels weaker than LE 13 pounds in recent weeks. KUWAIT'S CONSUMER INFLATION DROPS TO 2.9%, AS PER NBK Inflation in consumer prices in Kuwait retreated slightly to 2.9% year-on-year in August, according to an NBK economic report. The pace remains near 3.0%, the average of the last three months, and of the first eight months of the year. According to the report, the small dip in August was mainly due to a decline in food prices. Food inflation slid into negative territory in August as global food prices remained in decline. However, core inflation edged higher, from 3.5% year-on-year in July to 3.7% year-on-year in August as inflation in furnishings and household maintenance, clothing and footwear and gathered some momentum, as per the report. NBK expects CPI numbers to firm up as early as September when the report would incorporate the recent increase in gasoline. As a result, the report projects an annual average inflation rate of 3.4% in 2016, slightly higher than the 3.3% reading in Local food prices slipped into deflationary territory in August as global food prices continued to decline, in addition to a decline in local food inflation of 0.2% year-on-year, as per the report. Local food prices have been weighed down by the sustained weakness in international food prices. According to the report, both furnishings and household maintenance inflation, and inflation in clothing and footwear gathered some pace in August. Inflation in the furnishings and household segment rose from 2.6% year-on-year in July to 3.0% yearon-year in August. After almost two years of sub-1% year-on-year rates, clothing and footwear inflation accelerated from 0.5% year-on-year in July to 1.3% year-on-year in August, as per the report. According to the report, the acceleration can be attributed to the higher demand for goods in this segment during the summer holiday season and in preparation for the new academic year in late August. MOROCCO GDP RISES 1% YEAR-ON-YEAR IN Q Morocco s economy grew 1% year-on-year in the third quarter of 2016, compared to 4.8% in the same period in 2015, as a severe drought hit the dominant farming sector, according to the planning agency. According to the report, gross domestic product (GDP) growth is expected to slow to 0.8% in the fourth quarter of 2016, down from 5.1% growth recorded in the same period a year ago. Agricultural output fell by 11.1% in Q3 after North Africa s worst drought in decades, as per the same source. This year s cereal harvest is expected to drop by 70% to 3.35 million tonnes from 2015 s 11 million tonnes. Agriculture, the economy s biggest sector, accounts for more than 15 % of Morocco s output, as per the same source. The non-agricultural sector grew 2% year-on-year in Q3 2016,up from 1.4 %in the previous three months. Furthermore, the finance ministry expected GDP growth of less than 2% this year compared to around 5% in The central bank expects 2016 growth to come in at 1.4%. Domestic consumption has been an important engine of growth in the North African kingdom. It is worth noting that remittances have risen over the past four years by 3-4% annually on higher growth in Europe. 4

5 SURVEYS BAHRAIN OUTPERFORMS THE WORLD IN MANY KEY FACTORS, AS PER BCG Bahrain outperforms the GCC and the rest of the world in dimensions such as economic stability, employment, education and infrastructure, according to a new report from The Boston Consulting Group (BCG) entitled The report, titled The Private-Sector Opportunity to Improve Well-Being: The 2016 Sustainable Economic Development Assessment. The findings are based on BCG s latest study of worldwide economic growth trends using the firm s Sustainable Economic Development Assessment (SEDA). The fact-based, comprehensive analysis measures the relative well-being of 163 countries, including Bahrain, through ten key areas, including economic stability, health, governance, and environment. SEDA scores countries in two ways: the current level of well-being and recent progress in well-being from 2006 to It also assesses how countries convert wealth and growth into well-being. As to the current-level Sustainable Economic Development Assessment (SEDA) scores, the dimensions in which Bahrain lags behind other GCC countries include income, employment, health and environment, as per the report. According to the report, Bahrain showed the strongest recent progress scores in education and infrastructure compared to the GCC region and the rest of the world. In addition, the analysis shows that Bahrain has not effectively converted its wealth into well-being. The report also discusses the need for the private sector to contribute to improving a country s wellbeing, and specifically looks at the role of the banking sector at creating financial inclusion. GCC SHARE OF MOBILE TRANSACTIONS 4% HIGHER THAN GLOBAL AVERAGE, AS PER CRITEO The share of mobile transactions in the GCC at 43% is 4% higher than the global average of 39% according to a new study by Criteo, a performance marketing technology company, entitled H State of Mobile Commerce Report. The report offers insights into consumer shopping habits and forecasts predictions for mobile commerce across the globe. According to the report, the GCC is currently the second in the world in terms of Smartphone share among mobile transactions as well as having the 4th highest share of mobile transactions globally after Japan, the United Kingdom and South Korea. The smartphone continues to expand its prominence as features like fingerprint recognition make transactions effortless while tablet purchasing steadily declines, as per the report. The report also found that as more retailers design mobile-friendly sites, mobile transactions are steadily increasing. Top retailers are building intuitive and useful shopping apps that give consumers a seamless way to shop on mobile devices. Brands that can deliver a feature-rich environment as well as create a unified, consistent and relevant experience for shoppers would succeed in driving retention and conversion rates, as per the report. According to the report, retailers with a sophisticated mobile application presence saw up to 54% of their mobile transactions generated in app in Q2 2016, an increase from 47% in Mobile applications saw higher order values than desktop and mobile web, with an average of US$ 127 spent in-app compared to US$ 100 on desktop and US$ 91 on mobile web, according to the report. 5

6 21% IN THE UAE CONCERNED ABOUT BEING TARGETED WHILE 42% ARE ACTUAL VICTIMS OF CYBERATTACKS Kaspersky lab launched its Kaspersky Cybersecurity Index the first global index to measure the current cyber threat levels faced by internet users. The survey was carried out by Kaspersky lab and B2B international in different countries and evaluates how internet users behave online, what their concerns are, what issues they face as well as how they defend themselves against possible threats. The Kaspersky Cybersecurity Index is based on this data, collected from thousands of users across the globe. The index combines three indicators measuring the degree to which users realize the danger to which they are exposed. The concerned indicator measures the percentage of people who believe they may be targeted by a cyberattack. The affected indicator identifies how many people have actually fallen victim to cyberattacks during the reporting period, attacks can include data leakage and extortion. The protected indicator shows the number of users who have installed a security solution on the device they use to access the internet, the indicator covers all types of devices including mobile phones. According to the survey, only 21% of users in the UAE currently believe they are threatened by anything online, the same value was recorded globally. However, 42% have actually fallen victim to cybercriminal schemes in the UAE, compared to 29% globally. Furthermore, the survey also found that 47% of UAE users have installed security solutions on all their devices to access the internet, while 60% of all users in the surveyed countries had security solutions installed. THE UAE S REAL GDP GROWTH TO SLOW DOWN TO 1.8%, AS PER THE EIU The EIU has raised their real GDP growth forecast concerning the UAE to reflect revisions to historical data, new information on business confidence and rising oil output. According to the report, low oil prices would continue to weigh on growth in the real economy, owing to weaker fiscal revenue, tighter banking liquidity and underperformance in some non-oil sectors, which would affect investment as well, as per the report. The EIU forecasts that real GDP growth would slow to 1.8% in 2016, before picking slightly to 2.3% in The economy would gain greater traction in 2018, before slowing in 2019 as global demand growth eases, as per the report. According to the report, fuel prices are now indexed to international prices, which would begin to trend up, while rental price growth would ease considerably. The removal of other subsidies and new levies on various services would put pressure on prices, although weaker European currencies would tame imported inflation, as per the report. According to the report, the introduction of VAT, a pick-up in commodity prices and strengthening domestic demand would see inflation remain elevated. The EIU forecasts an easing of inflation in 2019, followed by a small spike in The official basket is more representative of prices faced by the Emirati population, who benefit from food and utility subsidies, than those for expatriates, whom ale up the bulk of the labor force, as per the EIU. 6

7 CORPORATE NEWS UAE'S RAK PETROLEUM COMPLETES US$ 850 MILLION OFFSHORE PROJECT IN IVORY COAST UAE-based RAK Petroleum announced the completion of a four-year US$ 850 million field development program in an offshore project in the Ivory Coast. The Oslo-listed oil and gas investment company said in a statement that operator Foxtrot International has brought on stream two new gas fields, Marlin and Manta, following the installation of a manned platform and related processing and pipeline facilities which would drill one exploration and seven production wells. Gas production from Block CI-27 climbed to an average of 170 million cubic feet per day in August, constituting more than three-quarters of Ivory Coast's total, as per the same source. The production of oil and condensates from the block averaged 3,000 barrels per day. In 2015, gas production from the block averaged 145 million cubic feet per day, while liquids production averaged 1,140 barrels per day. The new platform doubles Block CI-27's gas and liquids handling capacity and increases the reliability of gas deliveries to the Ivorian electricity sector. Through Mondoil Enterprises, RAK Petroleum has a one-third ownership of Foxtrot International, which operates Block CI-27 with a 24% direct stake. CHINA'S COSCO TO INVEST US$ 400 MILLION IN NEW ABU DHABI CONTAINER TERMINAL China's Cosco Shipping Ports would invest US$ 400 million in building a container terminal in Abu Dhabi as the emirate aims to expand trade with the world's second largest economy. The bulk of China's trade with the United Arab Emirates currently goes through Dubai, while Abu Dhabi invests billions of dollars in infrastructure, real estate and tourism to diversify its economy away from oil. Abu Dhabi Ports awarded Cosco Shipping a 35-year concession to build and operate the terminal at Khalifa Port, Abu Dhabi's main port. It would be the second terminal at Khalifa. According to a filing with the Hong Kong Stock Exchange, Cosco announced that the concession is valued at around US$ 738 million in total. The Chinese company would set up a joint venture company for the project, to be called Cosco Shipping Ports Ltd - Abu Dhabi, with Cosco Shipping Ports holding the majority stake and Abu Dhabi Ports taking a minority stake. The new terminal would have a capacity of 2.4 million TEUs, with an option to increase that to 3.5 million TEUs. It is expected to be operational in the first quarter of BAHRAIN'S DIYAR AL MUHARRAQ SIGNS US$ 366 MILLION PROJECT FINANCE DEAL Bahrain-based real estate developer Diyar Al Muharraq secured US$ 366 million in Islamic financing from four banks to develop a new housing project. The Murabaha contract was signed with Al Salam Bank-Bahrain, Kuwait Finance House, Bank of Bahrain and Kuwait, and Al Baraka Islamic Bank of Bahrain. Murabaha is a common cost-plus-profit arrangement in Islamic finance. 7

8 The money would be used to help develop the 1.2 million square meter Deerat Al Oyoun project, a residential community with a first phase planned for completion in February On the other hand, in line with its strategy to achieve sustainable development, Diyar Al Muharraq partnered with engineering firm ByrneLooby to implement new projects to enhance the marine environment. SAUDI'S KINGDOM HOLDING SELLS FOUR SEASONS TORONTO FOR US$ 172 MILLION Saudi Arabia's Kingdom Holding sold the Four Seasons Hotel Toronto for a gross price of US$ million. The property was sold to family investment vehicles related to Shahid Khan, Pakistani-American founder of automobile parts maker Flex-N-Gate Group and owner of the Jacksonville Jaguars American football team and London's Fulham Football Club. Four Seasons Hotels and Resorts, in which Kingdom Holding owns a 47.5% stake alongside a similar stake held by Cascade Investment, would continue to operate the Four Seasons Toronto. _ DUBAI S SELECT LAUNCHES NEW US$ 122 MILLION DUBAI MARINA RESIDENTIAL PROJECT Select Group announced the launch of Studio One, the group s 14th project in Dubai Marina. The 31-storey project with an estimated cost in excess of AED 450 million (US$ million) is a residential development, featuring studios, one bedroom and a limited number of two bedroom apartments, as per a company statement. The anticipated completion date for Studio One is December Studio One amenities would also include a temperature controlled swimming pool, a gym, steam room and sauna. GE OIL & GAS SIGNS LANDMARK CONTRACT WITH PETROLEUM DEVELOPMENT OMAN GE Oil & Gas signed a landmark long-term, multi-million-dollar contract with Petroleum Development Oman for the provision of progressive cavity pump equipment (PCP) and related services commencing in the third quarter of This is aligned with PDO s In Country Value initiative and marks the first contract awarded by PDO to GE, for providing PCP equipment and services. The strategy aims at promoting localized sourcing, developing Local Community Contractors (LCCs) and strengthening Omani talent development through training programs. GE Oil & Gas would sub-contract services to LCCs that would also be trained on the various aspects of PCP services. The award of the integrated PCP contract to GE for the Nimr fields synergizes and aligns with the integrated RRP contract for the Nimr fields previously awarded to GE. The contract builds on the company s long-term partnership with PDO and underlines its commitment to investing in Oman and supporting PDO to achieve long-term goals. The provision of advanced equipment and services would help in meeting and exceeding the average run-life of the PCP equipment, a critical component in PDO s production operations. As part of the deal, GE Oil & Gas has joined hand with its local partner Edgo to provide a wide range of specialized equipment and ensure preventive and corrective maintenance for a number of inherited PCP systems in addition to supervising the use of these systems in well interventions. 8

9 CAPITAL MARKETS EQUITY MARKETS: PRICE DROPS IN REGIONAL STOCK MARKETS, DRAGGED BY SAUDI EQUITIES Regional equity markets saw price falls this week, as reflected by a 2.3% drop in the S&P Pan Arab Composite Index, mainly dragged by a 5.0% plunge in the Saudi equity prices after the Kingdom announced new austerity measures in a low price environment, fuelling concerns over consumer spending. The heavyweight Saudi Tadawul registered a 5.0% drop in prices week-on-week on reduced investor sentiment after the Saudi government announced a series of public sector pay cuts, reducing salaries and fringing benefits of Ministers and Shura Council members by 20% and 15% respectively, while scaling back financial bonuses and freezing the wages of lower-ranking civil servants, which is expected to weigh on private consumption. Also, the US Congress voted overwhelmingly this week to override the US President s veto of a legislation allowing 9/11 victims' families to sue the Saudi government. Prices drops occurred despite news that OPEC members agreed to reduce oil production for the first time in eight years, a move that triggered an 8.0% rise in Brent oil prices by 8.0% week-on-week. Petrochemicals giant SABIC s share price decreased by 3.4% to SR Saudi Kayan Petrochemical Company s share price plummeted by 13.1% to SR Sahara petrochemical Company s share price shed 7.8% to SR Also, most Saudi banking stocks ended the week on a negative territory despite news that SAMA would deposit about SR 20 billion at commercial banks and introduce two new money market instruments to fight a surge in market interest rates caused by low oil prices. Al Rajhi Bank, the largest banking stock by market capitalization, registered a 3.4% fall in its share price to close at SR NCB s share price retreated by 1.2% to SR Banque Saudi Fransi s share price plunged by 3.8% to SR Also, the insurance stocks followed a downward trajectory amid bets over reduced consumer spending. Bupa Arabia s share price shed 5.8% to SR Medgulf s share price dropped by 5.1% to SR Tawuniya s share price fell by 3.4% to SR The UAE equity markets posted a 1.0% decrease in prices week-on-week, tracking declines in the Saudi bourse and on bets over further decline in rental prices in Dubai. Emaar Properties share price retreated by 0.8% to AED Emaar Malls share price fell by 3.9% to AED Arabtec Holding EQUITY MARKETS INDICATORS (SEPTEMBER 25, 2016 TILL OCTOBER 01, 2016) Sources: S&P, Bloomberg, Bank Audi's Group Research Department 9

10 Company s share price shed 2.0% to AED Deyaar s share price closed 1.9% lower at AED Union Properties share price shed 2.1% to AED The global consultancy Deloitte said that rental price decline in Dubai could be exacerbated further if speculative investors who are unable to sell product for a satisfactory return instead decide to release units for rent. Also, Air Arabia s share price fell by 1.4% to AED Dubai Financial Market s share price shed 3.7% to AED In Abu Dhabi, Aldar Properties share price retreated by 1.8% week-on-week to AED RAK Properties share price went down by 1.6% to AED ADCB s share price closed 1.4% lower at AED ADIB s share price dropped by 1.1% to AED Dana Gas share price fell by 6.9% to AED Finally, the Egyptian Exchange recorded a shy decrease in prices of 0.2% week-on-week. Telecommunication stocks saw price falls after Egypt said it would consider auctioning its fourthgeneration (4G) licenses on the international market after all three of the country s existing mobile phone operators turned down an offer to acquire them. Orange Egypt s share price fell by 1.15 to LE Telecom Egypt s share price shed 5.1% to LE Telecom Egypt, which is the country s fixedline monopoly, acquired last month its 4G license at a cost of LE 7.08 billion, noting that the Egyptian government was selling four 4G licenses as part of a long-awaited plan to reform the telecoms sector. BOND MARKETS: DOWNWARD PRICE PRESSURES ACROSS REGIONAL BOND MARKETS MENA fixed income markets saw mostly downward price movements across the board this week following the US Congress s decision to overrule the US President s veto of a legislation allowing 9/11 victims families to sue the Saudi Arabian government, and on concerns about a possible contagion effect from German bank s woes, though these concerns receded thereafter. In the Saudi credit space, most bonds posted price falls this week after the US congress voted overwhelmingly to overrule the US President s veto of the 9/11 legislation, which raised concerns over the upcoming Saudi international bond sale and led to an 18 bps expansion in Saudi Arabia s fiveyear CDS spreads to reach 167 bps. SABIC 20 was down by 0.13 pt. SECO papers maturing in 2022, 2023, 2024, 2043 and 2044 registered price declines ranging between 0.13 pt and 2.50 pts. Prices of Dar Al Arkan 18 and 19 retreated by 0.63 pt each. Regarding new issues, Arab Petroleum Investments Corporation (APICORP) issued a five-year US$ 300 million bonds in Taiwan, the first Formosa bond sold by a Saudi Arabia-based company. The bond was listed on the Taipei stock exchange, with Credit Agricole CIB acting as a lead manager. In the Omani space, Lamar Funding 25 traded down by 2.25 pts week-on-week. National Bank of Oman 19 closed down by 0.50 pt. Sovereigns maturing in 2021 and 2026 posted price declines of 1.75 pt and 2.38 pts. Oman launched a combined US$ 1.5 billion tap of its June 2021 and June 2026 bonds. The five-year tranche raised US$ 500 million at 230 bps over Treasuries, while the ten-year note would be for US$ 1 billion at plus 315 bps. In the Bahraini credit space, sovereigns maturing between 2018 and 2044 recorded weekly price declines ranging between 0.75 pt and 2.75 pts. Batelco 20 traded down by 0.25 pt. Prices of Mumtalakat 21 decreased by 0.75 pt. As to credit ratings, Fitch Ratings assigned to Bahrain s proposed US dollar denominated sovereign global Sukuk trust certificates, to be issued by CBB International Sukuk Company 5 (CBB5), an expected BB+(EXP) rating. Fitch also assigned Bahrain s proposed US dollar denominated bonds an expected BB+(EXP) rating. The expected ratings are in line with Bahrain s long-term Foreign Currency Issuer Default Rating, which was downgraded to BB+ with a stable outlook in June CBB5 is the issuer and the trustee of the Sukuk incorporated primarily for the purpose of participating in the Sukuk transactions. The trust certificate issuance program s rating is driven solely by Bahrain s IDR of BB+. In Abu Dhabi, ADGB 19, 21 and 26 closed down by 0.25 pt, 0.13 pt and 0.38 pt respectively weekon-week. Mubadala papers maturing between 2019 and 2023 posted price falls of up to 0.50 pt. Dolphin 19 and 21 were down by 0.25 pt each. Taqa 21, 24 and 36 closed down by 0.25 pt, 0.13 pt and 0.50 pt respectively. 10

11 Amongst financials, ADIB Perpetual saw a price retreat of 0.25 pt over the week. Al Hilal Perpetual closed down by 0.63 pt. Prices of FGB 19 and 20 declined by 0.38 pt each. ADCB 18, 19 (offering a coupon of 3%) and 20 traded down by 0.13 pt each. ADCB 23 was down by 0.25 pt. CI Ratings raised the Financial Strength Rating of ADCB to A from A-. A strong capital adequacy ratio, good asset quality, improving liquidity, sound profitability and a solid customer franchise underpin the FSR. However, high, though declining, customer concentrations, wide maturity gaps and elevated credit risks in the operating environment are constraining factors. The bank s long-term and short-term Foreign Currency Ratings were affirmed at A+ and A1, respectively, and the Support Rating is 1. The ratings are underpinned by the bank s superior ownership, good financial fundamentals and the extremely high likelihood of support from the government of Abu Dhabi. The outlook for all the ratings is stable. In Dubai, sovereigns maturing between 2020 and 2043 posted price falls of up to 1.88 pt this week. DEWA 20 was down by 0.25 pt. Prices of DP World 23 and 37 decreased by 0.88 pt and 1.13 pt respectively. Emaar 19 closed down by 0.25 pt. Emaar 24 and 26 were down by 0.75 pt each. Prices of Majid Al Futtaim 19, 24 and 25 registered price drops of up to 1.25 pt. Amongst financials, DIB 17, 20 and 21 closed down by up to 0.38 pt. Prices of ENBD 17 and 19 declined by 0.13 pt each. MIDDLE EAST 5Y CDS SPREADS V/S INTL BENCHMARKS Sources: Bloomberg, Bank Audi's Group Research Department Z-SPREAD BASED AUDI MENA BOND INDEX V/S INTERNATIONAL BENCHMARKS Sources: Bloomberg, JP Morgan, Bank Audi's Group Research Department 11

12 SOVEREIGN RATINGS & FX RATES Sources: Bloomberg, Bank Audi's Group Research Department DISCLAIMER The content of this publication is provided as general information only and should not be taken as an advice to invest or engage in any form of financial or commercial activity. Any action that you may take as a result of information in this publication remains your sole responsibility. None of the materials herein constitute offers or solicitations to purchase or sell securities, your investment decisions should not be made based upon the information herein. Although Bank Audi Sal considers the content of this publication reliable, it shall have no liability for its content and makes no warranty, representation or guarantee as to its accuracy or completeness. 12