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) Economy p.2 JP MORGAN SAYS MENA GROWTH WAS WEAK IN THE FIRST QUARTER OF 2016 JP Morgan released a note on MENA economics, saying that regional real GDP was weak in 1Q2016 on the back of fiscal consolidation and soft private domestic demand. Also in this issue p.3 IMF funding deal would be credit positive for Egypt, says Fitch p.4 Low oil prices to weigh on economic sentiment and fiscal and external positions in the UAE, says the IMF Surveys p.5 UAE GDP GROWTH FORECAST TO RISE 4%-5% FROM , AS PER MEED According to a survey released by MEED, project activity in the UAE is forecast to recover in 2017 after a difficult 2016 on the back of a strong recovery in economic growth. Also in this issue p.6 Slow down in the performance of Jeddah s real estate market, as per JLL Corporate News p.7 UAE'S UTICO SET TO DOUBLE WATER CAPACITY WITH US$ 185 MILLION INVESTMENT UAE s Utico Middle East would invest about US$ 185 million to more than double its water desalination capacity in two years. Also in this issue p.7 Qatar's Barwa signs US$ 175 million land deal in Saudi Arabia p.7 Dubai South awards US$ 81 million infrastructure deal p.8 Bahrain's GFH repays US$ 45 million in syndicated debt p.8 Dubai's DP World inks deal to develop port in Taiwan p.8 Abu Dhabi s Mubadala to buy 20% of Bahrain s Investcorp Markets In Brief p.9 REGIONAL EQUITIES DOWN, BOND PRICES MIXED MENA equity markets recorded a 1.4% decline in prices week-on-week, largely dragged by price falls in the heavyweight Saudi Tadawul amid some unfavorable financial results, while the Egyptian Exchange registered a strong price rally on news that Egypt is approaching the final stages of negotiations with the IMF for a three-year loan program. In parallel, regional bond markets saw mixed price movements. Some papers registered price gains, tracking rises in US Treasuries after the US Federal Reserve said in its latest FOMC meeting that it expects to raise interest rates gradually, while giving little hint about an increase anytime soon. Some other papers posted price declines amid some profit taking operations. Farah Nahlawi (961-1) farah.nahlawi@banqueaudi.com 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 _ JP MORGAN SAYS MENA GROWTH WAS WEAK IN THE FIRST QUARTER OF 2016 JP Morgan released a note on MENA economics, saying that regional real GDP was weak in 1Q2016 on the back of fiscal consolidation and soft private domestic demand. Six MENA countries have released real GDP figures for this year s first quarter, pointing to weak momentum. Bahrain was a notable exception, posting a growth pickup to 4.6% on a yearly basis, the highest print since the third quarter of In contrast, real GDP growth across the region has remained well below the long-term average, despite some modest improvements. In Tunisia, real GDP accelerated to 1% year-on-year in 1Q2016 from 0.3% during the previous quarter, helped by base effects and a rebound in chemical industries. Tunisia s economic performance has been the weakest across the region over the past two years. And, delays of structural reforms, lingering security concerns, and recurrent strikes are likely to keep real growth in a low range in coming years, according to the same source. Jordan, too, has posted one of the lowest growth figures, slowing 0.3% to 2.3% on a yearly basis in 1Q2016 despite pickups in finance and retail and wholesale trade, after averaging 2.6% growth since Growth slowed the most in Morocco, to 1.7% year-on-year in the first quarter of 2016 from 5.2% in the previous quarter. An exceptional harvest boosted agricultural production in 2015 with the sector growing 14.3%. The normalization of the rainfall season has driven a steep 9% contraction on a yearly basis in the first quarter. This output loss should persist through year-end, as per JP Morgan. Excluding agriculture, activity slowed 0.5% to 2.5% over the covered period, driven by the industrial and construction sectors. Growth momentum also has weakened substantially in several oil producers, as lower oil prices forced rapid fiscal consolidation and undercut consumer confidence. For example, in Saudi Arabia real GDP growth decelerated further to a three-year low at 1.6% on a yearly basis, driven by a 2.6% contraction of the public sector and a slowdown in private sector demand to 0.2%. The petroleum sector benefited from base effects and refining activity as the Kingdom expanded capacity. Yet, the construction sector contracted 1.9% after growing over 5% in the previous two years. The wholesale, retail trade, and tourism sector also contracted albeit at a slower 0.8% pace as per the same source. Among recent topics mentioned in the note, JP Morgan said Egypt is close to finalizing the IMF loan agreement that should boost reform momentum. The Egyptian government s official IMF loan request submitted on July 26 has increased considerably the probability of reaching a final loan agreement by September, as per the note. The IMF Executive Board will likely approve the 36-month Stand- By Arrangement by end-august or September. The Egyptian government has publicly stated that negotiations with the IMF are very close to an agreement that Egypt s President has backed. In JP Morgan s view, the headlines point to a considerable convergence of views between the Egyptian government and the IMF about the structural reform program. Unlike the previous two attempts to reach an IMF loan agreement in June 2011 and November 2012, JP Morgan believes the IMF will probably attach more stringent conditionality to the loan agreement this time. Fiscal consolidation will likely be the top priority of the program, with an adjustment of at least 1% of GDP per annum. As a result, the government will probably announce a new round of energy price increases, implement a VAT by September, and reintroduce the capital gains tax that was postponed in May of last year. The Central Bank likely will allow greater FX flexibility although the pace of adjustment may remain a point of contention, as per the same source. 2

3 IMF FUNDING DEAL WOULD BE CREDIT POSITIVE FOR EGYPT, SAYS FITCH Securing an IMF funding deal would be credit positive for Egypt, but implementation risks are high and the country would continue to face several economic challenges, as per Fitch. If negotiations are finalized during the IMF visit, an agreement could be in place by September With additional multinational assistance, for example from the World Bank and African Development Bank, plus international sovereign bond issuance, the government is aiming to raise a total of US$ 21 billion over the next three years. According to Fitch, this could still fall short of Egypt's total financing needs, which is estimated closer to US$ 10 billion annually, but a package would also likely stimulate some return of portfolio investment inflows. By supporting Egypt's external finances, a deal would pave the way for further necessary currency devaluation. A deal would also speed up fiscal reform and boost confidence in the economy, currently struggling with a budget deficit of close to 12% of GDP, mediocre economic growth and double-digit inflation, as per the rating agency. The 2015 current account deficit widened to close to 5% of GDP, constraining the Central Bank of Egypt's (CBE) foreign currency reserves, which were US$ 17.5 billion at end-june 2016, compared to US$ 37 billion at end-2010 before the Arab uprisings. The CBE reacted by devaluing the Egyptian pound by 14% in March 2016, but expectations of further downward adjustment continued with widening differentials between the official auction currency rate and the parallel market. Multilateral assistance would be disbursed in predictable tranches, provided conditions are met. This is important because, by contrast, financial support from Gulf States is less regular and transparent, as per Fitch. Furthermore, the level of financial support Egypt can hope for from the Gulf in the near term is lower than in recent years and lower than Egypt stands to gain under an IMF deal, according to Fitch. Egypt has held stop-start negotiations with the IMF since 2011, but financial support never materialized largely due to a combination of political constraints and shortfalls regarding fiscal reforms. It is important to note that prospects for reaching an agreement may be better this time, as Egypt formally completed its political transition and a new parliament is in place, says Fitch. The authorities also undertook a number of fiscal reforms and have a program outlining further measures. The CBE also showed greater acceptance of the need for exchange rate adjustments. But seeking IMF support is politically contentious in Egypt and Fitch expects some opposition to a deal. To counter this, the government would argue that it is pursuing its own economic program and the IMF agreement would be in support of this, rather than imposing policies. An IMF program is likely to include provisions to move to a more flexible exchange rate, wide-ranging fiscal measures including implementation of VAT and further subsidy reductions, and ongoing civil service reform. According to the rating agency, the IMF is likely to be accommodating to Egyptian concerns over too sharp a fiscal retrenchment, given political risks and the need for economic growth. But the Egyptian authorities could shy away from reforms at some stage during a three-year program if faced with popular opposition. Even if implementation proceeds on plan, Egypt faces a testing period of fiscal, monetary and structural reform, as per the Fitch report. 3

4 LOW OIL PRICES TO WEIGH ON ECONOMIC SENTIMENT AND FISCAL AND EXTERNAL POSITIONS IN THE UAE, SAYS THE IMF According to the International Monetary Fund s (IMF) Article IV consultation with the United Arab Emirates, persistently lower oil prices continue to weigh on economic sentiment and fiscal and external positions. However, large buffers built over time have provided ample policy space, limited negative inward spillovers and contained the weakening of investor appetite. Non-oil economic activity slowed to 3.7% in 2015 driven by a contraction of public investment in the context of fiscal consolidation, and lower contribution from domestic private demand. Negative effects on overall growth were partially offset by the increase in oil production. Despite the strong fiscal policy response to adjust to lower oil prices, the fiscal balance turned to a deficit of 2.1% of GDP, while the current account surplus declined to 3.3% of GDP. Banks remained well capitalized and liquid, though pressures on profitability are emerging as asset quality weakens due to the economic slowdown and rising funding costs. Economic activity in the country is expected to moderate further in 2016, before improving over the medium term. Non-hydrocarbon growth is projected to slow to 2.4% in 2016 due to fiscal consolidation, the stronger dollar, and tighter monetary and financial conditions. Over the medium-term, nonhydrocarbon growth is forecast to increase to above 4% as the dampening effect of fiscal consolidation is offset by improvements in economic sentiment and financial conditions as oil prices rise, a pickup in private investment in the run-up to the Expo 2020, and stronger external demand. The IMF welcomed the United Arab Emirates resilience to the oil price shock. Directors commended the authorities for their prudent policies, which helped build large fiscal and external buffers and strengthened the economy. Directors underscored the need for sustained sound macroeconomic policies to reduce fiscal vulnerabilities, safeguard financial stability, and promote long-term growth. The IMF also welcomed the authorities commitment to pursue fiscal consolidation. For the near term, in light of the ample buffers, they generally considered a gradual adjustment effort to be appropriate in order to minimize the negative impact on growth. However, stronger fiscal consolidation would be needed over the medium term to ensure intergenerational equity. The report encouraged the UAE authorities to diversify revenues and rationalize current spending, while further strengthening public financial management. They welcomed the plans to introduce a VAT and increase excise taxes, which could be followed by a corporate income tax. The IMF also recommended phasing out remaining energy subsidies, while protecting the vulnerable. Priority should also be given to curb other current spending, while preserving public investment and enhancing its efficiency. The report noted that developing a consolidated forward-looking medium-term fiscal framework would assist the authorities in setting direction for fiscal policy, and in aligning resource allocation with the UAE 2021 vision. They encouraged the authorities to strengthen the debt management framework to better account for contingent liabilities from Government Related Entities and Public-Private Partnerships. UAE SELECTED ECONOMIC INDICATORS Sources: International Monetary Fund, Bank Audi's Group Research Department 4

5 SURVEYS UAE GDP GROWTH FORECAST TO RISE 4%-5% FROM , AS PER MEED According to a survey released by MEED, project activity in the UAE is forecast to recover in 2017 after a difficult 2016 on the back of a strong recovery in economic growth. A recovery in oil prices combined with growing public and private sector activity boosted by Dubai s preparations for the Expo 2020 would see real GDP growth rise to between 4-5% a year from , compared with about 3.1% growth in The recovery is expected to support an increase in major project spending in the Emirates after a year of flat growth in 2016 stunted by cutbacks in government spending and a review of oil and gas and infrastructure projects in Abu Dhabi. Furthermore, the report says that about US$ 155 billion worth of major projects were under execution in the UAE at the mid-point of 2016 and it identifies a project pipeline of about US$ 629 billion worth of major projects that are planned in the UAE but not underway as of mid As well as about US$ 22.6 billion worth of project contracts have been awarded in the UAE in the first half of 2016, largely driven by real estate, transport and power projects in Dubai, which account for about US$ 16 billion worth of awards. MEED forecasts that about US$ 37 billion of awards would be made in the UAE in 2016, a similar level to The largest sectors for future projects are construction, followed by transport. In addition to Abu Dhabi s metro and light rail plans, there is the expansion of Al-Maktoum International airport and further phases of Etihad Rail s federal railway to execute as per MEED. It is worth noting that the UAE is one of the world s largest exporters of oil, and is solvent and creditworthy with at least US$ 500 billion-worth of public and private savings. Its economy is increasingly diversified and supports large and experienced corporations active in regional and global markets. The banking system is solvent, liquid and well-managed, however the report highlights the unprecedented fiscal challenges facing the UAE as a result of the sharp and sustained fall in the oil price since the summer of As a result of lower oil export revenues, the consolidated UAE government would record a budget deficit and the UAE s historically substantial current account surplus would be eliminated. The changes include increasing the efficiency and effectiveness of the governments of the federation and of individual emirates; acting to end or reduce energy and other subsidies; and preparing for the introduction of VAT and other forms of taxation for the first time to increase public sector revenue. The main risk associated with the forecast made in this report is a failure of the projected oil price increases to materialize. This would intensify the challenges facing the government of the federation and individual emirates; however the UAE has the resources to deal with the financing requirements the low price scenario presents. The main issue in these circumstances would be the impact low oil prices and reduced government income would have on the economies of the five poorer emirates and Dubai, the most heavily indebted of the seven, and in turn the projects market as per the report. 5

6 _ SLOW DOWN IN THE PERFORMANCE OF JEDDAH S REAL ESTATE MARKET, AS PER JLL Jones Lang Lasalle released the Jeddah Real Estate Market Overview covering the second quarter of The report outlines a general slow down in performance amid further project completions. The economic slowdown has ended the recent period of rental growth in the Jeddah office market. While average rents remained stable this quarter at SAR1, 123 square meter, they have decreased marginally by 1.5% over the past year. The vacancy rate increased marginally, by 1%, over the second quarter to reach 6%, while year-on-year vacancy rates have remained stable, as per JLL. As for the residential sector, there was very little change in both rentals or sale prices in the second quarter of this year with rentals for both apartments and villas increasing by 1% only. Furthermore, rentals for villas increased by 2.5% over the past year, while apartment rents continued to increase, but at a slower pace of 4%. Sale prices continued to decline marginally over the quarter, by 1% for villas and 2.3% for apartments. Year-on-year villa and apartment sale prices decreased at around the same rate of 4% and 5% respectively, according to JLL. According to the report there have been no notable completions in the second quarter, with total supply remaining at approximately 796,000 residential units. The second half of the year is expected to see the completion of Abraj Al Hilal 2. A number of planned large scale residential developments, which were expected to enter the market in 2017, have now been delayed to Retail rents have seen little change during the second quarter, falling by less than 1% in both regional and super regional centers. Over the year, super regional and regional centers saw rental increases of 15% and 5% respectively. Vacancies have decreased over the second quarter to approximately 7%, as new supply continues to be absorbed. A total of 14,000 square meters entered the market in the second quarter with the expansion of the Alandalus Mall. A further 42,000 square meters of retail space is due for completion in 2016, including the 20,000 square meter expansion of the existing Red Sea Mall. Most of the future supply is located in the East, West and North of the city away from the traditional shopping district of Tahlia Street, with the exception of Jeddah Park, as per JLL. As for the hotel market, May occupancy rates have decreased by around 5% to 69% when compared to the same period last year. JLL reported that the second quarter of 2016 saw the opening of the Sofitel Corniche, formerly the Westin Hotel, and the Ramada Corniche in the midscale segment. These completions bring the total supply to approximately 9,000 keys, with around 1,500 hotel rooms. Hence, the report affirms the existence of a slowdown in the market as indicated by most of its sectors. 6

7 CORPORATE NEWS UAE'S UTICO SET TO DOUBLE WATER CAPACITY WITH US$ 185 MILLION INVESTMENT UAE s Utico Middle East would invest about US$ 185 million to more than double its water desalination capacity in two years. Demand for water and power in the UAE is expected to grow by 5% to 6% annually in the next few years on the back of a growing population and industrialization, according to estimates by State-owned utilities. Utico s customers include manufacturing companies, port operators, government utilities in the small UAE states, hotels, palaces, quarries and private entities. However, it currently has capacity, of only 31 million gallons per day (mgpd) of desalinated water, from four plants in the northern Emirate of Ras al Khaimah. To more than double capacity it is building a new plant and upgrading two existing plants. The new plant is under construction in Ras al Khaimah with a capacity of 24 mgpd, in a joint venture with Spain's Grupo Cobra, for an investment outlay by the partners of US$ 196 million. The Utico plants being upgraded would add a total of ten mgpd with investment of US$ 68 million. The new plant as well as the two upgrades would be operational at full capacity by October 2018, when Utico's total capacity would be 65 mgpd. Financing for the plants would be partly through a US$ 150 million club loan from three local banks namely Emirates NBD, National Bank of Abu Dhabi and Commercial Bank of Dubai and the remainder through equity. QATAR'S BARWA SIGNS US$ 175 MILLION LAND DEAL IN SAUDI ARABIA Qatar's Barwa Real Estate bought a vacant plot of land in Riyadh, Saudi Arabia, for SR million (US$ million). The deal was part of Barwa's plan to explore potential real estate investment opportunities in the Kingdom, with the project would include residential and commercial use. Barwa Real Estate Company is a real estate investment firm specializing in real estate projects which include residential facilities, a motor city, warehouses and complementary commercial and retail spaces. The firm engages in investment, development, and management of properties with a focus on Qatar and Saudi Arabia. It also invests in stocks of real estate firms. The firm invests in the real estate markets across the globe. Its portfolio includes residential and commercial property and hotels. DUBAI SOUTH AWARDS US$ 81 MILLION INFRASTRUCTURE DEAL Master developer Dubai South awarded a contract worth AED 300 million (US$ 81.7 million) for infrastructure works at its flagship Residential District. Central to the contract, which was awarded to Tristar Engineering & Construction, is the delivery of the infrastructure works of phase 1 and 2 of the Residential District in Dubai South by the fourth quarter of

8 The scope of the work spans 2.2 square km and Tristar would carry out complete community infrastructure work including road works, potable water network, sewerage network, storm water drainage network, combined irrigation and firefighting network, district cooling network, electrical works, telecommunication works, road lighting, gas network and spare ducts. Mobilisation would begin immediately, with work due for completion by the end of _ BAHRAIN'S GFH REPAYS US$ 45 MILLION IN SYNDICATED DEBT Bahrain-based Islamic investment bank GFH Financial Group repaid US$ 45 million worth of debt, bringing its total syndicated liabilities down to US$ 105 million. The move is the latest effort by GFH to deleverage, having held liabilities of over US$ 1 billion back in The bank now holds US$ 700 million in total equity, as per a company statement. In June, GFH announced that it planned to raise US$ 150 million via the sale of Islamic bonds, or Sukuk, to repay outstanding debts and use surplus cash for future investments. It is working with Abu Dhabi Financial Group, which owns about 11.7% of GFH, to establish an Islamic financial institution in Abu Dhabi s financial free zone with authorized capital of US$ 100 million. _ DUBAI'S DP WORLD INKS DEAL TO DEVELOP PORT IN TAIWAN Dubai-based DP World signed an agreement with the State-run Taiwan International Ports Corporation (TIPC) to develop Kaohsiung Port s Terminal 7 in Taiwan. The agreement marks the beginning of a joint effort to seek future business opportunities and to steer growth in Taiwan s port infrastructure, as per a company statement. DP World Limited, together with its subsidiaries, develops and manages international marine terminal operations, economic zones, free zones and industrial zones in the Asia Pacific and Indian subcontinent, Australia, Americas, the Middle East, Europe and Africa. It has a portfolio of approximately 75 terminals in 31 countries. The company also owns and operates a fleet of specialist vessels, including tugs, ice breakers, and river barges providing logistics solutions to public and private sector customers; and offers third party inspection services for container handling equipment, as well as onsite inspection services for existing equipment. _ ABU DHABI S MUBADALA TO BUY 20% OF BAHRAIN S INVESTCORP Abu Dhabi State investment fund Mubadala agreed to acquire a 20% stake in Investcorp, as per a company statement. Mubadala would buy around 10.0% of Investcorp immediately, and a further 10.0% following the necessary regulatory approvals, as per the same source. Mubadala Development Company PJSC is a sovereign wealth fund of the Government of Abu Dhabi. It prefers to invest in aerospace, financial services, healthcare, information and communication technology, investments, logistics and transport, metals and mining and real estate sectors. The firm also invests in oil and gas (through Mubadala Petroleum), in semiconductors (through Advanced Technology Investment Company), in renewables (through Masdar) and in infrastructure (through Mubadala Infrastructure Partners). 8

9 CAPITAL MARKETS EQUITY MARKETS: REGIONAL STOCK MARKETS DOWN, DRAGGED BY SAUDI EQUITIES MENA equity markets recorded a 1.4% decline in prices week-on-week, largely dragged by price falls in the heavyweight Saudi Tadawul amid some unfavorable financial results, while the Egyptian Exchange registered a strong price rally on news that Egypt is approaching the final stages of negotiations with the IMF for a three-year loan program. The heavyweight Saudi Tadawul reported a 4.1% drop in prices week-on-week, driven by some unfavorable or lower-than-expected second quarter results. Etihad Etisalat s share price shed 13.6% to SR The company made net profits of SR 19 million during the second quarter of 2016 as compared to a net loss of SR 901 million during the same period of last year, yet still falling short of analysts estimates. Petro Rabigh s share price fell by 5.2% to SR The company reported a 79.9% year-on-year drop in its 2016 second quarter net profits to SR 103 million. Sipchem s share price plunged by 11.2% to SR Sipchem posted 2016 second quarter net profits of SR 26 million as compared to net profits of SR 110 million a year earlier. Saudi Telecom Company s share price declined by 3.1% to SR STC announced a 27.1% year-on-year drop in its 2016 second quarter net profits to SR 1.87 billion. Yanbu Cement s share price decreased by 4.1% to SR Yanbu Cement posted a 35% year-on-year fall in its 2016 second quarter net profits to SR 159 million. The UAE equity markets saw two-way flows this week, mainly driven by mixed financial results. This was mirrored by a nil change in the S&P UAE price index. In Dubai, Dubai Financial Market s share price dropped by 3.6% to AED DFM announced a 60% year-on-year fall in its 2016 second quarter net profits to AED 54 million. In contrast, Tabreed s share price surged by 4.9% to AED Tabreed announced a 5% year-on-year increase in its 2016 first half net profits to AED 161 million. In Abu Dhabi, First Gulf Bank s share price retreated by 0.4% week-on-week to AED FGB made net profits of AED 1.31 billion during the second quarter of 2016, down by 9.7% year-on-year. NBAD s share price decreased by 1.1% to AED 9.7. NBAD reported 2016 second quarter net profits of AED 1.4 billion, down by 4.8% year-on-year. In contrast, Sharjah Islamic Bank s share price increased by 0.7% to AED SIB posted net profits of AED 257 million during the first half of 2016, up from AED 205 million a year earlier. Union National Bank s share price rose by 1.8% to AED UNB announced 2016 second quarter net profits of AED 470 million versus net profits of AED 568 million a year earlier, yet still exceeding analysts estimates. EQUITY MARKETS INDICATORS (JULY 24, 2016 TILL JULY 30, 2016) Sources: S&P, Bloomberg, Bank Audi's Group Research Department 9

10 In contrast, the Egyptian Exchange rebounded this week, registering a strong price rally of 8.2% after Egypt said it is nearing the final stages of talks with the IMF for a three-year loan program. The Egyptian authorities, which are targeting US$ 7 billion annually over three years to finance the program, unveiled plans to secure US$ 12 billion from the IMF, with the rest to come from bilateral accords and international institutions. Also, the Egyptian Ministry of International Cooperation said that the country would soon receive the first tranche of a US$ 1.5 billion loan from KSA. Along these favorable market-specific factors, speculation about further currency devaluation persisted, which resulted into a fall in the value of the Egyptian pound against the US dollar to a record low of LE/ US$ in the black market, fuelling demand for tourist-related, export-oriented and real estatefocused stocks. Talaat Moustafa Group s share price rose by 3.5% to LE Ezz Steel s share price surged by 3.9% to LE Global Telecom s share price jumped by 11.7% to LE EFG-Hermes share price climbed by 11.3% to LE Palm Hills Development s share price increased by 5.2% to LE Finally, the Qatar Exchange registered a 1.2% rise in prices week-on-week. Ooredoo s share price increased by 1.4% to QR Ooredoo made net profits of QR 583 million during the second quarter of 2016 as compared to QR 501 million during the same period of Ezdan Holding s share price edged up by 0.5% to QR Ezdan Holding posted 2016 first half net profits of QR 927 million as compared to net profits of QR 858 million during the corresponding period of the previous year. QNB s share price increased by 1.9% to QR Qatar Islamic Bank s share price went up by 5.2% to QR BOND MARKETS: TWO-WAY FLOWS ACROSS REGIONAL BOND MARKETS Regional fixed income markets saw mixed price movements this week. Some papers registered price gains, tracking rises in US Treasuries after the US Federal Reserve said in its latest FOMC meeting that it expects to raise interest rates gradually, while giving little hint about an increase anytime soon. Some other papers posted price declines amid some profit taking operations. Within this context, the Audi- Compiled new MENA Bond Index (overhauled and with a base of Jan 2010=100) expanded slightly by 1.9% week-on-week. In Abu Dhabi, sovereigns maturing in 2019 were down by 0.13 pt this week, while sovereigns maturing in 2026 closed up by 0.75 pt. IPIC papers maturing in 2020 and 2022 registered price declines of 0.13 pt and 0.25 pt respectively, while IPIC papers maturing in 2021, 2023, 2026 and 2041 posted price increases of 0.13 pt to 0.50 pt. Taqa came mostly under downward price pressures. Taqa papers maturing between 2018 and 2026 saw price falls of 0.13 pt to 0.63 pt, while Taqa 36 was up by 0.75 pt. In Dubai, sovereigns maturing in 2020 were down by 0.13 pt week-on-week, while DUGB 22, 23, 29 and 43 registered price gains of 0.13 pt to 0.63 pt. Prices of DP World 20 and 23 increased by 0.25 pt and 0.13 pt, while DP World 37 was down by 0.25 pt. Majid Al Futtaim 17, 24 and 25 traded down by 0.19 pt, 0.13 pt and 0.25 pt respectively, while MAF 19 was up by 0.12 pt. Elsewhere in the UAE, Sharjah Islamic Bank 18 was down by 0.13 pt. Capital Intelligence affirmed the Financial Strength Rating of Sharjah Islamic Bank at BBB+. The rating is supported by the bank s good capital adequacy ratio, comfortable net Islamic financing facilities to stable funds ratio, improving coverage ratio, and moderately good operating profitability. In the Qatari credit space, sovereigns registered downward price movements week-on-week amid some profit-taking operations. Qatar 19 and 20 were down by 0.13 pt each. Prices of Qatar 21 and 22 decreased by 0.25 pt each. Longer-term sovereigns maturing between 2030 and 2046 registered price drops ranging between 0.25 pt and 1.00 pt. In Bahrain, sovereigns maturing in 2018, 2020, 2022, 2023 and 2044 posted price gains of 0.12 pt to 0.38 pt over this week, while Bahrain 21 and 26 were down by 0.25 pt each. Batelco 20 was down by 0.13 pt. Fitch affirmed Batelco long-term foreign currency IDR at BB+, with stable outlook. The ratings reflect the leading position of Batelco in its competitive domestic market and its robust ability to generate free cash flow. 10

11 In Kuwait, KIPCO 16 was down by 0.19 pt week-on-week, while KIPCO 19, 20 and 23 traded up by 0.25 pt, 0.38 pt and 0.31 pt respectively. Regarding plans for new issues, Agility considers issuing up to US$ 500 million in bonds. The proceeds of the sale would be used for international expansion. In Oman, sovereigns maturing in 2021 and 2026 closed up by 1.75 pt each over the week, following the addition of Oman to the EMBIG Diversified Index and ahead of the inclusion of the newly issued sovereigns in the index. Finally, the Egyptian sovereigns registered price gains week-on-week. Egypt 20, 25 and 40 closed up by 0.63 pt, 3.13 pts and 3.00 pts respectively, on news that Egypt is nearing the final stages of its talks with the IMF for a three-year loan program. Within this context, Egypt said that it will approach investment banks for a potential Eurobond sale, part of the government s efforts to shore up reserves and finance an economic program that would rely on a US$ 12 billion loan from the IMF. 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