UAE banks rally after Dubai World debt deal

UAE banks rally after Dubai World debt deal

Bank shares were among gainers as Dubai's index hit a 16-week high on Monday.

September 13, 2010 3:30 by Reuters

Bank shares were among gainers as Dubai’s index hit a 16-week high on Monday, the first day’s trade since Dubai World reached an agreement with all but one of its creditors to restructure $24.9 billion in debt.

Although largely priced into stocks, the Dubai World deal helped boost sentiment for lenders in the United Arab Emirates because it includes full repayment so banks should not require new provisions, analysts said.

“(This will) limit greatly the negative impact of Dubai World’s restructuring on UAE banks’ equity,” said analyst William Mejia at Goldman Sachs in a note to clients.

Emirates NBD climbed 5 percent, while Abu Dhabi-listed lenders also advanced. Abu Dhabi Commercial Bank added 3.7 percent and First Gulf Bank gained 4.8 percent.

Dubai World’s deal will also lessen investors panic should other government-linked institutions fall into similar trouble, said Haissam Arabi, chief executive and fund manager at Gulfmena Alternative Investments.

“It sets a precedent to follow for any future restructuring,” he said. “It adds to positive sentiment and shows this issue is truly behind us and we can focus on micro rather than macro factors.”

He tipped Emaar Properties , which climbed 2.7 percent, to outperform as stocks that were oversold because of worries over Dubai’s debts rebound.

“Emaar is a proxy for the market, is well diversified and trading at forward PE of 5-6, which makes it cheap compared to global peers,” added Arabi.

Dubai’s index climbed 2.4 percent to reach its highest finish since May 24 in its sixth straight gain.

“We need to see prices around current levels for a week or two to build a solid base and allow for a rally towards the end of the year,” said Samer al-Jaouni, General Manager of Middle East Financial Brokerage Co. “Movement in prices will not be as aggressive as those of the past week.”

The index is down 9.6 percent in 2010, making it the worst performing Gulf Arab benchmark as Dubai’s debt mountain, continued declines in property prices and lacklustre bank lending weighed on stocks. Abu Dhabi’s index rose 1.4 percent to a 14-week high.

“A lot of people in the UAE are playing a short-term post Ramadan trade — for us, we are playing wait-and-see,” said Robert McKinnon, ASAS Capital chief investment officer.

UAE banks are also in a comfortable position to meet with new banking capital requirements, known as Basel III, analysts said. These are significantly tougher, but still below investors’ expectations, who feared a new wave of capital raisings.

“Currently the capital adequacy for banks in the Middle East and North Africa is high across the region,” said Radwa El-Swaify, banking analyst at Beltone.

“The banks’ capital was already beefed up to offset the spike in NPL’s (non-performing loans) so they are not under any tremendous pressure to raise capital.”

In Egypt, Arab Cotton Ginning (ACG) rose 15.2 percent after reporting annual net profit of 205 million Egyptian pounds ($36 million), up from 29 million a year earlier. Among peers, Arab Polavara climbed 6.9 percent and Kabo gained 1.7 percent.

National Real Estate Bank rose 6.7 percent, taking its gains to 30 percent this month since joining the EGX30 benchmark as index-tracking funds buy the stock. Egypt’s index climbed 1.8 percent, its biggest rise since July 6.