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 WORLD BANK SAYS GROWTH IN GULF COUNTRIES TO REBOUND IN A sustained increase in oil prices over the past two years has driven an economic recovery in the GCC countries, but government-led reforms need to continue to keep up the momentum, as per the World Bank. Also in this issue p.3 Dubai expects to almost halt the growth of State spending in 2019 p.3 KSA economy grows at fastest rate since 2016 during Q p.4 Qatar's banking and financial services sector growing strongly over past decade, says Fitch Surveys p.5 TUNISIA TOPS MENA COUNTRIES IN GLOBAL GENDER GAP REPORT 2018 According to the Global Gender Gap Report 2018 issued by the World Economic Forum, Tunisia ranked first in the MENA region while ranking 119th globally in Also in this issue p.6 Economic stimulus to boost Abu Dhabi's real estate market, says JLL p.6 Saudi Arabia is likely to remain a global leader in low cost petrochemicals production, as per BMI Corporate News p.7 FLYADEAL SIGNS US$ 5.9 BILLION DEAL FOR UP TO 50 BOEING JETS Flyadeal, a subsidiary of Saudi Arabian Airlines, has committed to ordering 30 Boeing 737 MAX airplanes with options for 20 more in a deal that would be valued at up to US$ 5.9 billion. Also in this issue p.7 Aramex in deal to sell 60% stake in Australian JV p.7 Bilfinger and Egyptian Maintenance Company sign MoU p.7 Jusoor inks deal with Tecnimont to fund key Oman project p.8 UAE's Mubadala, EGA & Dubal Holding to develop water & power plant in Dubai p.8 ADNOC awards feed contract for Ruwais chemical plant p.8 Arabtec wins contract to build over 350 villas at Dubailand Markets In Brief p.9 REGIONAL EQUITIES UP IN 2018, BOND MARKETS UNDER DOWNWARD PRESSURES Regional equity markets registered price gains of 5.3% between year-end 2017 and the 28th of December 2018, mainly supported by price increases in the heavyweight Saudi Tadawul and the Qatar Exchange amid an oil price recovery and driven by some favorable market-specific and company-specific factors, while the UAE equity markets and the Egyptian Exchange posted price falls, dragged by some unfavorable sector-specific and market-specific factors. In contrast, MENA bond markets came under downward prices pressures in 2018, tracking an emerging market weakness after the US Fed raised its benchmark interest rate four times in 2018, and on fears of a global economic slowdown. This was reflected by a circa 45% expansion in the Z-spread based Audi Compiled bond index in MENA MARKETS: WEEK OF Nivine Turyaki (961-1) nivine.turyaki@bankaudi.com.lb Bank Audi sal - Group Research Department - Bank Audi Plaza - Bab Idriss - PO Box Lebanon - Tel: research@bankaudi.com.lb 1

2 ECONOMY _ WORLD BANK SAYS GROWTH IN GULF COUNTRIES TO REBOUND IN A sustained increase in oil prices over the past two years has driven an economic recovery in the Gulf Cooperation Council (GCC) countries, but government-led reforms need to continue to keep up the momentum, according to the World Bank s biannual Gulf Economic Monitor. Economic growth for the GCC region is expected to reach 2% in 2018, up from -0.3% in 2017, thanks in part to higher oil production and a slower pace of fiscal consolidation. With fiscal and external imbalances narrowing, the region has remained largely immune to the financial volatility that beset other emerging market economies in mid The World Bank expects economic growth for the region to strengthen gradually in the medium term to 2.7% by 2020 as high energy prices and rising government spending lift output and sentiment. Growth in Saudi Arabia is expected to rebound to around 2% in from a contraction in 2017, and to strengthen similarly across the GCC countries. External and fiscal imbalances are also expected to narrow, with Saudi Arabia and the UAE achieving near fiscal balance by 2020 and, along with Qatar and Kuwait, returning to current account surpluses during Gulf countries have implemented some notable reforms in recent years, including the rolling back of costly and distortionary subsidies, the implementation of a VAT, and business environment and labor market reforms, as per the World Bank Country Director for the GCC. But it is critical that GCC countries stay the course, not least because any loss in momentum could hinder their ability to draw in long-term investors that are crucial for diversification efforts, as per the same source. Looking forward, there are several downside risks to the regional economic outlook. Global trade tensions, global financial volatility, and geopolitical tensions could dampen global demand and trade, affect access to and cost of financing and weigh down hydrocarbon prices. A key domestic risk for the GCC region is a slowing in the pace of reforms due to higher oil prices, as per the report. The World Bank s Gulf Economic Monitor focuses the reform lens on four key areas where further progress is needed. On the fiscal front, GCC countries have yet to systematically explore public wage bill and employment reforms as a strategy to anchor longer term fiscal sustainability and to improve service GCC FORECAST SUMMARY Source: World Bank 2

3 delivery. Governments should also note that spending better rather than spending more will likely be the key to unlocking productivity gains from infrastructure spending. Business environment and labor market reforms are needed to increase private investment, to foster job creation, and to ensure that Gulf nationals have the skills required by the private sector. The World Bank report also draws attention to a separate but critical aspect of long-term sustainability, namely the management of water resources in the region, as GCC countries have some of the highest levels of water consumption globally and are highly dependent on energy-intensive water desalination. Because the management of water resources is a cross-sectoral issue, governments will need to ensure that policies and strategies are integrated and applied consistently across these sectors. Governments would need to prioritize water conservation, management of aquifers, recycling, desalination, agricultural use and coastal management. DUBAI EXPECTS TO ALMOST HALT THE GROWTH OF STATE SPENDING IN 2019 Dubai expects plans to almost halt the growth of State spending in 2019, as revenues expand more slowly because of the emirate's efforts to stimulate business investment, according to the 2019 State budget. State spending would total AED 56.8 billion (US$ 15.5 billion), a marginal increase from last year's original budget plan of AED 56.6 billion (US$ 15.4 billion), which was a 19.5% rise from Last year, budgeted infrastructure spending shot up by close to 50% to AED 11.9 billion (US$ 3.2 billion), as Dubai made preparations to host the Expo 2020 world's fair. These preparations would continue but some Expo projects have now been completed, and the 2019 budget projects a fall in infrastructure spending to AED 9.2 billion (US$ 2.5 billion). Meanwhile, State revenues are projected to reach AED 51.0 billion (US$ 13.9 billion) this year, up by just 1.2% from last year's budget plan, which included a 12% jump in revenues. To attract foreign investment and keep Dubai competitive against rival economies in the region, the government decided last year to reduce some of the fees it charges, freeze fee increases for three years, and refrain from imposing any new fee without providing a new service. Since non-tax revenues account for 64% of total revenue in the budget, the investment incentives have had a significant impact on the government's ability to finance higher spending, as per the official State budget. The 2019 budget projects a deficit of AED 5.8 billion (US$ 1.6 billion), down slightly from the projected 2018 deficit of AED 6.2 billion (US$ 1.7 billion). KSA ECONOMY GROWS AT FASTEST RATE SINCE 2016 DURING Q Saudi Arabia's economy grew at its fastest rate since early 2016 in the third quarter of 2018, boosted by the expansion of the oil sector while non-oil growth stayed sluggish. As a matter of fact, KSA's gross domestic product grew by 2.5% during the third quarter of 2018, an acceleration from the second quarter of 2018 where it grew by 1.6% and the fastest rate since Q The Saudi economy was negatively impacted in recent years by low oil prices and State austerity measures to curb a huge budget deficit. In 2017, it shrank for the first time since the global financial crisis nearly a decade earlier. It is worth noting that the Kingdom s GDP growth picked up largely because of higher oil output. The oil sector expanded by 3.7% from a year ago in the third quarter of 2018, after a 1.3% growth rate in the second quarter of

4 On the other hand, growth in the non-oil sector slowed to 2.1% in Q from 2.4% in the previous quarter. A gradual acceleration of the non-oil economy is expected next year, as bank lending to the private sector rose by 2.3% from a year earlier in November, its fastest growth since The Kingdom s State budget would increase spending by 7% in 2019 from this year's actual level. Investment spending and bonuses for state employees in the budget could revive the private sector. QATAR'S BANKING AND FINANCIAL SERVICES SECTOR GROWING STRONGLY OVER PAST DECADE, SAYS FITCH According to Fitch, Qatar's banking and financial services sector has been growing tremendously over the past decade, with total gross premiums growing and the banking sector requiring no more support from the Central Bank and sovereign wealth fund. In 2018, the performance of the insurance and banking sectors recovered from the dispute in Total gross premiums increased in the insurance sector and the market capitalization of the stock exchange reached nearly QR 580 billion (US$ 155 billion), as it is expected that it would continue its strong growth in 2019, as per the report. Given the recent regional dispute, Qatar faced some liquidity problems, with net outflows of nondomestic customer deposits accounting for US$ 8 billion in June and July However, the government's significant resources allowed for a strong response against these issues in the short term, as per Fitch. The government has considerable asset buffers, about US$ 35 billion in net international reserves at its Central Bank as well as more than US$ 300 billion of assets managed by the Qatar Investment Authority (QIA). This, together with US$ 30 billion worth of liquid foreign assets, provides the country with a suitable safeguard. In the insurance sector, gross written premiums (GWPs) increased to US$ 3.7 billion, reflecting the country's growth in the sector. Fitch forecasts that they would reach US$ 4.4 billion by the end of the forecast period in In the banking sector, the rating agency anticipates a slowdown in credit extension compared to the historical average. Indeed, Fitch expects loan growth to come in at 7.0% year-on-year in 2019, which, while marking an uptick from an estimated 6.3% in 2018, remains below the 19.5% average recorded in the decade preceding This reflects the comparatively weaker macroeconomic backdrop, largely the result of lower hydrocarbon prices and output growth, as well as Qatar s already-high loan-to-deposit ratio of 1.1 as of July 2018, which leaves limited room for further expansion. Fitch also expects banks deposit base to gradually expand. Non-resident deposits are rebounding, following a sharp drop in H2 17 on the back of the GCC crisis. After re-entering positive territory in July 2018, non-resident deposit growth has accelerated substantially, averaging 20.3% year-on-year in September- October

5 SURVEYS TUNISIA TOPS MENA COUNTRIES IN GLOBAL GENDER GAP REPORT 2018 According to the Global Gender Gap Report 2018 issued by the World Economic Forum, Tunisia ranked first in the MENA region while ranking 119th globally in It attained a score of in 2018, against in UAE came second in the region and 121st globally with a score of in 2018, down from a score of in the previous year. At the end of the scale came Yemen, which ranked last globally and in the region. The Global Gender Gap Index was first introduced by the World Economic Forum in 2006 as a framework for capturing the magnitude of gender-based disparities and tracking their progress over time. The Index benchmarks national gender gaps on economic, education, health and political criteria, and provides country rankings that allow for effective comparisons across regions and income groups. The rankings are designed to create global awareness of the challenges posed by gender gaps and the opportunities created by reducing them. The methodology and quantitative analysis behind the rankings are intended to serve as a basis for designing effective measures for reducing gender gaps. There are three basic concepts underlying the Global Gender Gap Index, forming the basis of how indicators were chosen, how the data is treated and how the scale can be used. First, the Index focuses on measuring gaps rather than levels. Second, it captures gaps in outcome variables rather than gaps in input variables. Third, it ranks countries according to gender equality rather than women s empowerment. The Global Gender Gap Index examines the gap between men and women across four fundamental categories (sub-indices): Economic Participation and Opportunity, Educational Attainment, Health and Survival and Political Empowerment. According to the report, the Middle East and North Africa region continues its progress from last year, with a remaining overall gender gap of less than 40% for a third consecutive year. However, the region continues to rank last globally on the overall Index, behind South Asia. On Economic Participation and Opportunity, it ranks ahead only of South Asia. On Educational Attainment, it ranks ahead of South Asia and Sub-Saharan Africa, and on Health and Survival it surpasses South Asia and East Asia and the ARAB MENA GLOBAL GENDER GAP INDEX RANKINGS Sources: World Economic Forum, Bank Audi's Group Research Department 5

6 Pacific. Overall, the performance of countries across the region is somewhat more divergent than in other world regions. The region s best performing countries this year are Tunisia, the United Arab Emirates and Kuwait, having closed 65%, 64% and 63%, respectively, of their overall gender gaps. The lower end of the regional table is made up of Syria, Iraq and Yemen, which have closed 57%, 55% and 50% of their overall gender gaps, respectively. ECONOMIC STIMULUS TO BOOST ABU DHABI'S REAL ESTATE MARKET, SAYS JLL Despite the subdued performance of Abu Dhabi s real estate market in Q3, the emirate s Tomorrow 2021 initiative will lead to a more positive investment environment in the future, according to a new market report from JLL. According to the report, the initiative will also encourage start-ups to enter the market more efficiently, which, in turn, will result in a boost to commercial activity in the emirate. With the reforms set to impact the real estate sector, the Tomorrow 2021 stimulus package will particularly focus on increased investment in the commercial market in the long term, as per JLL. Further aspects of the package will impact free zone businesses, allowing them to trade on shore. Additionally, the government s decision to allow ten-year visas to qualified expatriates and 100% ownership of companies outside of free zones will be a game changer that may lead to increased market appetite, according to JLL Middle East and Africa CEO. The report added that recovering oil prices in Q3 may also have a positive impact on future office demand by increasing unemployment, reversing contractions that earlier resulted from the consolidation of entities such as ADNOC and Mubadala. Over the quarter, the performance of Abu Dhabi s office sector remained stable, with 3.7 million square meters of Gross Leasable Area (GLA). Meanwhile, Abu Dhabi s hospitality market saw an occupancy increase of 3 basis points. However, while occupant levels reached 70% in the quarter, average daily rates fell and RevPar declined by 3% compared to the same time period last year. SAUDI ARABIA IS LIKELY TO REMAIN A GLOBAL LEADER IN LOW COST PETROCHEMICALS PRODUCTION, AS PER BMI Saudi Arabia is likely to remain a global leader in low cost petrochemicals production with the pioneering oil-to-chemicals project advanced by SABIC and Saudi Aramco likely to change the nature of the industry, as per BMI. Saudi Aramco is also developing a proprietary technology, based on thermal cracking of crude oil to produce chemicals, which promises a 70-80% yield of chemicals. By diversifying feedstock sources with mixed feed crackers, Saudi Arabia can buffer itself against oil and gas price volatility and stabilize margins. The rise in oil prices will generate a net benefit for the Saudi petrochemicals industry. In terms of the local market, oil revenue will stimulate demand and enable a reversal of austerity policies that were depressing key sectors such as construction as well as reducing gas and electricity subsidies. On the supply side, the country's largely ethane-fed petrochemicals value chain will become more competitive against naphthabased production. Although the focus of expansion is now on heavier liquid feed, diversification will enable greater flexibility, particularly in mixed feed crackers, as well as a broader product slate. As such, Saudi petrochemicals production is still set for growth that should support planned capacity expansion. In spite of competitive advantages of low cost ethane feedstock, investment is now focused on liquidsbased petrochemicals, with Saudi Aramco and SABIC looking to establish a unique oil-to-olefins complex and Saudi Aramco and Total looking to build a complex based on a mixed feed cracker with 1.5mn tons per annum (tpa) of ethylene capacity. This is likely to be completed at a date beyond our forecast period; sources suggest 2024 as a likely date when production will start. By 2023, BMI forecasts ethylene and propylene capacities will be 18.2 million tpa and 7.0 million tpa, respectively with Saudi Kayan's commercial operations set to contribute the bulk of the increase. Our projections for petrochemicals capacity are based on planned projects, but it is possible some may not come to fruition due to the restriction on ethane feedstock and the possibility of a lackluster recovery in the Chinese market. 6

7 CORPORATE NEWS FLYADEAL SIGNS US$ 5.9 BILLION DEAL FOR UP TO 50 BOEING JETS Flyadeal, a subsidiary of Saudi Arabian Airlines, has committed to ordering 30 Boeing 737 MAX airplanes with options for 20 more in a deal that would be valued at up to US$ 5.9 billion. The deal is subject to both sides concluding final terms and conditions and a purchase agreement, a Boeing statement said. ARAMEX IN DEAL TO SELL 60% STAKE IN AUSTRALIAN JV Aramex, a global provider of comprehensive logistics and transportation solutions, won approval from the board of directors to sell its entire stake in Aramex Global Solutions (AGS), its joint venture with Australia Post, for US$ 20 million. The decision for divesting the stake came at a mutually agreed transaction that will allow both organizations to independently execute their strategic growth in the booming global e-commerce industry, said a statement from Aramex. In 2016, Aramex and Australia Post partnered to create AGS to serve as an e-commerce delivery platform, with a particular focus on connecting the Australian e-commerce market with sellers in Asia. Aramex currently owns the majority of the joint venture, with a 60% stake while the other 40% is held by Australia Post. BILFINGER AND EGYPTIAN MAINTENANCE COMPANY SIGN MOU Bilfinger, the engineering and industrial solutions powerhouse and Egyptian Maintenance Company, one of the country's leading maintenance solutions providers, signed a Memorandum of Understanding to establish a Strategic Cooperation aimed at positioning both companies to accelerate growth in the maintenance and modernization. The cooperation, in line with country's drive for optimization and modernization of its industrial assets, focused on delivering advanced solutions to help end-users and operators reduce maintenance cost, increase energy efficiency and maximize assets' life cycle returns. Bilfinger is an international engineering and industrial services provider. The group enhances the efficiency of assets, ensures a high level of availability and reduces maintenance costs. The portfolio covers the entire value chain from consulting, engineering, manufacturing, assembly, maintenance, plant expansion as well as turnarounds and also includes environmental technologies and digital applications. JUSOOR INKS DEAL WITH TECNIMONT TO FUND KEY OMAN PROJECT Jusoor, a joint venture between Omani groups Orpic and Sohar Aluminium and Vale, a global diversified mining company headquartered in Brazil, signed an agreement with Italian construction major Tecnimont, for the funding of Package Two of a major industrial project at Liwa, Oman. Tecnimont is an international leader in engineering, procurement and construction for large-scale projects worldwide based in Italy and is currently carrying out the engineering, procurement and construction (EPC) works of Package Two of Liwa Plastics Industries Complex (LPIC) Project. The MoU is in connection with the funding of the construction of parking area, lighting poles and landscaping in Liwa Cultural Centre project, being implemented by Jusoor. 7

8 Under the terms of the agreement, Tecnimont will fund the construction of 111 parking spaces, 32 lighting poles as well as landscaping with a modern irrigation system at a total cost of OMR 100,000 (US$ 259,193). UAE'S MUBADALA, EGA & DUBAL HOLDING TO DEVELOP WATER & POWER PLANT IN DUBAI Emirates Global Aluminium (EGA), Mubadala Investment Co and Dubal Holding announced plans to develop a power and water desalination plant at EGA's smelter in Jebel Ali in Dubai. The 25-year agreement is worth more than AED 1 billion (US$ million), the companies said in a joint statement. The joint venture will install a combined cycle power facility at EGA's Jebel Ali site capable of generating over 600 megawatts of electricity. ADNOC AWARDS FEED CONTRACT FOR RUWAIS CHEMICAL PLANT Abu Dhabi National Oil Company (ADNOC), and its project partner Cepsa, a Spanish based global integrated energy company, awarded a front-end engineering design (Feed) contract, as both companies move forward with plans to develop a world-scale Linear Alkyl Benzene (LAB) plant in the Ruwais Derivatives Park. The LAB project is the first of the derivative units to be advanced under ADNOC s AED 165 billion (US$ 45 billion) Ruwais downstream investment program. The Feed contract, a key milestone in the development of the LAB project, was awarded to Técnicas Reunidas SA (TR), a Spanish-based engineering company which has been active in the UAE since This is the third ADNOC contract to Técnicas Reunidas this year. In September, a consortium of Técnicas Reunidas and UAE-based Target Engineering Construction was awarded an EPC contract for the second phase of ADNOC LNG s Integrated Gas Development Expansion Project. In November, the Spanish group had secured an AED 5.1 billion (US$ 1.4 billion) engineering, procurement and construction (EPC) contract to upgrade and expand ADNOC s Bu Hasa field, which will increase the field s crude oil production capacity to 650,000 barrels per day (bpd). The LAB project will be jointly operated by ADNOC and Cepsa, a wholly-owned unit of Abu Dhabi s Mubadala Investment Company, which has more than five decades of experience in LAB. When it comes on stream, the plant will produce 225,000 metric tons per annum (MTPA) of Normal Paraffins (NP) and 150,000 MTPA of LAB. ARABTEC WINS CONTRACT TO BUILD OVER 350 VILLAS AT DUBAILAND Arabtec Holding, a contractor for social and economic infrastructure, said one of its units secured an AED 222 million (US$ 60.4 million) contract from UAE master-developer Dubai Properties to build 352 villas within Amaranta development at Villanova, a key residential community in Dubailand. The contract has been awarded to Arabtec Construction and the work is due to be completed in 20 months, said a statement from Arabtec. 8

9 CAPITAL MARKETS EQUITY MARKETS: PRICE GAINS IN MENA EQUITY MARKETS IN 2018 Regional equity markets registered price gains of 5.3% between year-end 2017 and the 28th of December 2018, mainly supported by price increases in the heavyweight Saudi Tadawul and the Qatar Exchange amid an oil price recovery on average over the year and driven by some favorable marketspecific and company-specific factors, while the UAE equity markets and the Egyptian Exchange posted price falls, dragged by some unfavorable sector-specific and market-specific factors. In details, the Qatar Exchange was the best performer in the MENA region in 2018, registering a strong price rally of 22.4%, mainly supported by oil price gains on average over the year, a foreign ownership increase, some favorable financial results and increased confidence in the fundamentals of the Qatari economy following a blockade that was imposed on Qatar in June Qatar Petroleum raised in March 2018 the non-qatari ownership limit in the energy sector companies and in its subsidiaries listed on the Qatar stock Exchange to 49%. Qatar Electricity and Water Company s share price rose by 3.8% to QR Qatar Fuel s share price climbed by 59.8% to QR Mesaieed Petrochemical Holding s share price jumped by 19.2% to QR Industries Qatar s share price surged by 38.3% to QR As to banking stocks, Qatar Islamic Bank s share price skyrocketed by 57.2% to QR Qatar Central Securities Depository amended the foreign ownership percentage in the shares of QIB to 49% from 25%. QNB s share price climbed by 54.7% to QR QNB raised in April 2018 its non- Qatari ownership limit to 49% from 25% and the amount a single investor can own to 5% from 2%. The heavyweight Saudi Tadawul registered price increases of 9.5% in 2018, despite heightened geopolitical tensions towards the end of the year. Price gains were mainly supported by an oil price rebound in 2018, with the Brent oil price reaching US$ 70 per barrel on average as compared to an average of US$ 55 per barrel in 2017, in addition to a long-awaited upgrade of Saudi Arabia to secondary emerging market status by FTSE on March 28, 2018 and MSCI on June 20, Within this context, petrochemicals giant SABIC s share price jumped by 12.8% to SR Saudi Kayan Petrochemical Company s share price climbed by 24.0% to SR Yansab s share price closed 8.1% higher at SR Also, NCB s share price rose significantly by 27.8% to SR Al Rajhi Bank s share price surged by 32.9% to SR SABB s share price went up by 23.0% to SR EQUITY MARKETS INDICATORS (DECEMBER 23 TILL DECEMBER 29, 2018) Sources: S&P, Bloomberg, Bank Audi's Group Research Department 9

10 In contrast, the UAE equity markets posted a 10.3% fall in prices in 2018, mainly dragged by a wide sell-off mood in emerging markets, some unfavorable financial results, and a real estate market slump in Dubai amid an oversupplied residential market, a subdued real estate demand, a higher interest rate environment and a soft jobs market. In the Dubai Financial Market, Drake &Scull International s share price plunged by 83.6% to AED Union Properties share price shed 58.5% to AED DAMAC Properties share price dropped by 56.4% to AED Emaar properties share price fell by 42.5% to AED Deyaar Properties share price went down by 31.6% to AED Arabtec Holding Company s share price closed 21.8% lower at AED The Egyptian Exchange traced a downward trajectory in 2018, as reflected by a 10.8% drop in the S&P Egypt BMI index, amid a widespread sell-off mood in emerging markets, rising oil prices in the oil-importing country, in addition to concerns over the impact on banks earnings of the proposed Treasury note tax revision, and as the achievements in budget and reform were already discounted in prices in Commercial International Bank s share price dropped by 5.3% to close at LE Eastern Tobacco s share price shed 18.6% to LE Oriental Weavers share price plunged by 37.6% to LE Ezz Steel s share price fell by 12.4% to LE Orange Egypt for Telecommunications share price plummeted by 47.7% to LE FIXED INCOME MARKETS: MENA BOND MARKETS UNDER DOWNWARD PRICE PRESSURES IN 2018 MENA fixed income markets came under downward prices pressures in 2018, tracking an emerging market weakness after the US Federal Reserve raised its benchmark interest rate four times in 2018, and on fears of a global economic slowdown amid deepening US-China trade disputes, in addition to worries about an oil price collapse towards the end of the year. This was reflected by a circa 45% expansion in the Z-spread based Audi Compiled MENA bond index in Concurrently, regional five-year CDS spreads expanded by 38 bps on average in In the Egyptian credit space, sovereigns maturing in 2020, 2022, 2025, 2027, 2040 and 2047 registered price falls of 3.76 pts to pts in Regarding new issues, Egypt raised US$ 4 billion in 2018 through the sale of three US dollar-denominated sovereign bonds and 2.0 billion through the sale of two Euro-denominated sovereigns. As to credit rating changes, Standard & Poor s raised in May 2018 its long-term foreign and local currency sovereign credit ratings on Egypt to B from B-, with a stable outlook. Also, Moody's changed in August 2018 the outlook on Egypt's long-term issuer ratings to positive from stable and affirmed its B3 issuer ratings. In the Saudi credit space, all sovereigns came under downward price pressures amid an emerging market weakness and rising geopolitical tensions. Papers maturing in 2021, 2022, 2023, 2026, 2027, 2028, 2046 and 2047 posted price drops of up to pts in Regarding new issues, Saudi Arabia raised US$ 11 billion in April 2018 through the sale of US$ 4.5 billion notes maturing in 2025 at 140 bps over UST, US$ 3 billion notes maturing in 2030 at 175 bps over UST, and US$ 3.5 billion notes maturing in 2049 at 210 bps over UST. The bond sale attracted orders of circa US$ 52 billion. Also, KSA raised US$ 2 billion in September 2018 through the sale of a 10-year Sukuk at a coupon of 4.303%. In the Qatari credit space, sovereigns maturing in 2019, 2020, 2021, 2022, 2026, 2030, 2040, 2042 and 2046 registered price retreats of up to 4.04 pts in As to credit ratings, Fitch revised in June 2018 Qatar's outlook to stable from negative and affirmed its long-term foreign currency IDR at AA-. Also, Moody's changed in July 2018 the outlook on Qatar's long-term issuer ratings to stable from negative and affirmed the long-term issuer and foreign-currency senior unsecured debt ratings at Aa3. In parallel, Standard & Poor s revised in December 2018 its outlook on Qatar to stable from negative and affirmed its AA-/A-1+ long-term and short-term sovereign credit ratings. Regarding new issues, Qatar raised in April 2018 US$ 12 billion from the sale of US$ 3 billion of fiveyear notes at a yield of 135 bps over US Treasuries, 10-year US$ 3 billion notes at 170 bps over UST, and 30-year US$ 6 billion notes at 205 bps over UST. The bond issue attracted US$ 53 billion of orders. 10

11 In the Bahraini space, sovereigns maturing between 2020 and 2024 recorded price contractions of up to 3.26 pts in Bahrain 25 (offering a coupon of 5.25%), 26, 28, 29 and 44 were down by up to 4.12 pts. As to new issues, Bahrain issued in March 2018 a seven-year US$ 1 billion Sukuk at a coupon of 6.875%. Regarding credit ratings, Moody's changed in December 2018 the outlook on Bahrain's issuer ratings to stable from negative and affirmed its ratings at B2. In parallel, Fitch downgraded in March 2018 Bahrain's long-term foreign currency IDR to BB- from BB+, with a stable outlook. In the Omani credit space, sovereigns maturing in 2021, 2022, 2024, 2026, 2027 and 2047 saw price falls of 4.75 pts to pts in Regarding new issues, Oman raised US$ 6.5 billion in January 2018 from the sale of five-year, 10-year bonds and 30-year bonds. It also raised US$ 1.5 billion in October through the sale of seven-year bonds. 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