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Kuwait’s Boubyan Bank to meet investors Kuwait’s Boubyan Bank has picked banks for a series of fixed income meetings starting Sunday ahead of a potential dollardenominated sukuk issue that will boost its capital base, a document from lead arrangers showed on Wednesday. The sharia-compliant lender, a subsidiary of National Bank of Kuwait, has picked Dubai Islamic Bank, Emirates NBD Capital, HSBC, KFH Capital, National Bank of Kuwait, Standard Chartered and itself to arrange the meetings, it showed. Roadshows will start in the United Arab

INDIA GERMANY FRANCE EUROPE

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Sensex DAX CAC 40 Euro Stoxx 50

Points +56.82 +40.24 +26.22 +9.14

National Bank of Abu Dhabi , the emirate’s largest lender by assets, on Wednesday posted a 10.7 percent fall in first-quarter net profit as revenues dropped and impairment charges for bad loans rose. NBAD, almost 70 percent owned by an Abu Dhabi state investment fund, made a net profit of 1.27 billion dirhams ($345.8 million) in the three months ending March 31, compared to 1.42 billion dirhams in the year-ago

Emirates on Sunday before heading to Hong Kong on Tuesday, Singapore on Wednesday, London on Friday, and Zurich and Geneva on the following Monday, according to a separate document from the leads. Boubyan Bank, rated A+ by Fitch and Baa1 by Moody’s, will issue sukuk to boost its Tier 1 or core capital, subject to market conditions. Last month, the bank’s chief executive said it would issue sukuk worth $250 million before the end of April. (RTRS)

Market Movements Closing pts 26,064.12 10,299.83 4,559.40 3,130.43

Mubadala eyes bond issue

NBAD Q1 net profit falls 10.7 pct period. Two analysts polled by Reuters forecast a profit of 1.28 billion dirhams and 1.45 billion dirhams respectively. Revenues reached 2.65 billion dirhams during the quarter, down from 2.68 billion dirhams during the year-ago period. Impairment charges reached 295 million dirhams, a 73.3 percent increase on the corresponding period of last year. (RTRS)

Abu Dhabi state-owned investment fund Mubadala has chosen banks to arrange a dollar-denominated bond issue, two sources said on Wednesday. A transaction could be announced to the market “soon”, the sources said, speaking on condition of anonymity as the information isn’t yet public. A third source said the planned transaction would be of benchmark size — traditionally understood to mean upwards of $500 million. A spokesman for Mubadala declined to comment. Mubadala’s bond plans will follow the Abu Dhabi government’s own deal. The sovereign sold a $5 billion two-part bond on Monday, split equally between portions lasting five and ten years. (RTRS)

27-04-2016 AUSTRALIA JAPAN S. KOREA PHILIPPINES HONG KONG

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All Ordinaries Nikkei KRX 100 All Shares Hang Seng

Points -32.70 -62.79 -4.86 -20.11 -45.67

Closing pts 5,250.90 17,290.49 3,990.65 4,301.43 21,361.60

Business

MENA economic outlook KAMCO Research

Govt finances in GCC expected to deteriorate: IMF IMF in its latest MENA Regional Economic Outlook (REO) released on 25 April 2016, reiterated that low oil prices are expected to drive slower economic trends in the GCC in the near term, while the overall MENA region is likely to be additionally impacted by deepening conflicts. Government finances in the GCC are expected to deteriorate in the GCC, despite fiscal consolidation measures implemented in 2016, while overall oil production in the region is expected increase over 2016 & 2017. The MENA region, however, is expected to grow faster than the GCC over 2016 & 2017 as Iran is expected to drive GDP growth in the region over the period. According to the forecast, Iran’s real Oil GDP is expected to grow by 16.9% and 8.8% during 2016 and 2017, respectively, after the lifting of sanctions. In contrast, as oil GDP growth flattens, non-oil GDP in the GCC region is now forecasted to grow at 3.25% over 2016-2020, significantly below the 7.75% growth over 2006-2015. Real GDP growth rates for 2015 & 16 for all the GCC economies barring the UAE (2015) were revised downwards by the IMF as compared to their Oct-15 outlook. Qatar’s strong non-oil GDP growth is expected to contribute to the country remaining the fastest growing economy in the GCC, as real non-oil GDP is set to expand by 6.6% and 5.9% in 2016 & 2017 respectively. Largely, real GDP growth rates across the region now reflect a higher contribution of non-oil GDP, due to the slower growth of oil production across the region. Nevertheless, real oil GDP in Kuwait is reportedly set to expand by

2.0% over the 2016 & 2017. KAMCO Research continues to believe that fiscal consolidation would be of paramount importance for the GCC, as deficits would need to be stemmed over the medium term, without impeding growth initiatives, in order to support exchange rate pegs. Revenue side initiatives would need to intensify beyond initiatives taken so far, as seen from the increase in corporate income tax in Oman, tobacco and alcohol tax in Bahrain and the muchawaited VAT to be implemented across the GCC in 2018. Oil production set to rise further; but oil exports to decline sequentially in 2016 & 17...

Move could pose challenges

Saudi will struggle to kick its oil addiction John Kemp is a Reuters market analyst. The views expressed are his own — Editor

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By John Kemp

‘K

ing Abdulaziz and the men who worked with him for the establishment of the state did not depend on oil and they established the kingdom without oil, and they ran this state without oil, and they lived in this state without oil,” Saudi Deputy Crown Prince Mohammed bin Salman said in an televised interview on Monday.

The deputy crown prince criticised the kingdom’s subsequent “addiction” to oil which has “disrupted the development of many sectors in the past years” implying this was a relatively recent problem. The prince claimed his national transformation programme would enable the kingdom to “live without oil” as early as 2020. But if modern Saudi Arabia was founded by conquest and the skilful statesmanship of Abdulaziz, it has been held together by the revenue from oil, even more than conservative religion. Distribution of oil revenue to client groups has formed the foundation of the state from its earliest years and shaped the contours of the economy and society. Sharing oil wealth in exchange for popular submission to absolute monarchical rule has always been central to the social contract between the ruling Al Saud and the kingdom’s population. Transforming that contract so that it does not centre on oil is an enormously ambitious undertaking fraught with considerable risks and with an uncertain chance of success. Before the discovery of oil, Saudi Arabia was a desperately poor country, with a largely subsistence economy and depending on the annual pilgrimage to Makkah and Medina. The modern state was assembled through a series of conquests between 1902 and 1926 and proclaimed as the unified Kingdom of Saudi Arabia in 1932. At the time, the only government revenue came from customs duties, pilgrimage taxes and tithes. From the start, the state was short of money and desperately looking for additional sources of income. One reason the kingdom granted a concession in 1933 to prospect for oil to the US company Socal rather than Britain’s Iraq Petroleum Company was that Socal was prepared to offer

more cash up front and loans to be repaid from future production. In 1938, the government’s revenue amounted to just $7 million, according to Arthur Young, the US financial expert sent out after World War Two to help set up the Saudi Arabian Monetary Agency. The first commercial oil discovery was made the same year and the kingdom received $340,000 in oil royalties. Hopes of an immediate bonanza were delayed by the world war, which led to the postponement of exploration and development work. But once the war ended, production and oil revenue began to ramp up. The kingdom’s annual oil revenue surged from $340,000 in 1938 to $10 million in 1946, $57 million in 1950, $334 in 1960, $1.2 billion in 1970 and $84 billion in 1980. Even before oil, gift-giving was an important element of the compact between the ruler and his subjects, and the need to demonstrate generosity frequently strained royal finances. Once the gusher of oil revenue arrived, it provided the scope to co-opt almost all social groups and make them clients of the state. Tribal groups were granted generous state subsidies and recruited into the national guard. Hundreds of thousands of other citizens have been put on the payrolls of the armed forces and various ministries. Money could also be used to settle tensions within the royal family by allowing each senior prince to be given their own vast and essentially autonomous bureaucratic fiefdom. Oil wealth enabled the state to avoid levying income and other taxes and to subsidise the provision of basic services including water, electricity and gasoline. Oil wealth enables Saudi Arabia to maintain more than 250,000 men under arms and run the world’s thirdlargest defence budget. More or less everything in modern Saudi Arabia depends directly or indirectly on oil. From the very beginning, however, expenditure tended to run ahead of receipts. “When oil production and spending grew after the war, spending grew even faster”, according to Young. “Governments, like individuals, have the urge to spend more whenever income suddenly increases.” In 1949, despite oil revenue amounting to $39 million, the government was struggling to pay its bills, the first of several budget crises in the subsequent decades. (RTRS)

Oil production in the GCC is forecasted to increase in 2016 & 17 as per the IMF, albeit marginally by a CAGR of 1.1%, driven by production in Saudi Arabia, where production is expected to grow to 10.22 mbpd in 2016 and 10.34 mbpd in 2017. We view the move by Saudi Arabia to increase production, primarily as an initiative to maintain market share in the light of Iran ramping up production, and aiming to reach 4 mbpd by March 2017. KAMCO Research also expects to witness additional increases in production from Saudi Arabia and leading GCC oil producers, if Iran goes ahead with its target. UAE is also expected to add around 0.14 mbpd over 2015-17, followed by

Kuwait which is expected to add 0.11 mbpd over the period. On the other hand, according to the IMF, GCC oil exports are projected to decline sequentially over 2016 & 17. Oil exports from the region are expected to decline from 13.56 mbpd in 2015 to 13.46 mbpd in 2017. The decline is forecasted to be led by a decline in exports by Saudi Arabia (-0.16 mbpd), followed by Oman (-0.05 mbpd). Nevertheless, we expect this decline to be partially offset by spot sales of oil by GCC oil producers, as evidenced in Saudi Arabia for the first time, as Aramco reportedly sold spot oil to an independent Chinese refinery, Shandong Chambroad Petrochemicals Co. Further decline in oil prices would however considerably affect respective governments’ revenues and their capacity to spend in the region. State measures recalibrate breakeven oil prices... OPEC oil prices declined by

around 70% from mid-2014 until now to trade at USD 39.78/bbl. Prices nevertheless recovered from the lows of January 2016 when OPEC prices had reached a low of USD 22.48/bbl. The fall in oil prices have affected revenue streams of GCC governments and have pushed to rationalize their spending plans, as some significant measures were announced in the latter part of 2015 and early 2016. Policy effort is expected to intensify reportedly going forward especially on the revenue side, as most of the adjustments have comprised of spending cuts so far; however newer sources of revenue are also being considered by governments across the GCC. All GCC economies would be unable to balance their budgets when oil prices are below USD 50 per barrel, as per the IMF. Kuwait has the lowest breakeven oil price of USD 52.1/bbl and USD 52.8/

bbl for 2016 & 2017, followed by Qatar which also requires oil price to remain in the region of USD 52.4/bbl and USD 54.7/bbl over the period. On the other hand, Bahrain has the highest vulnerability to oil price shocks with a breakeven oil price of over USD 93/bbl over 2016 & 17, as per the IMF, followed by Oman with a breakeven oil price of over USD 73/bbl. The budget cuts from Saudi Arabia were able to ensure that breakeven oil prices needed were lower at USD 66.7/bbl for 2016 & USD 70.2/bbl for 2017 from IMF’s earlier update in October-2015. The sustained decline in oil prices in 2015 swung GCC’s total current account balance from a surplus of USD 238 Bn to a deficit of USD 13.3 Bn in 2015, as per the IMF. Lower oil revenue receipts is expected to widen the current account deficit further in 2016 and 2017, as the

Continued on Page 31

Saudi Aramco outlines financing plans for global industrial push Company decides to set up JVs for drilling rig services KHOBAR, Saudi Arabia, April 27, (RTRS): The world’s biggest energy company Saudi Aramco outlined financing plans on Wednesday that will support its expansion into new areas under a sweeping economic reform plan released by Riyadh this week.

using its vast financial resources to create jobs and help diversify the Saudi economy beyond oil.

The plans suggest Saudi Arabia’s state oil company, which Deputy Crown Prince Mohammed bin Salman estimated this week was worth over $2 trillion, aims to move rapidly into its new role. “We will continue to build on our accelerated transformation and serve as a pillar, role model and champion of transformation in the kingdom,” Aramco’s official magaThe reforms envisage Aramco transforming itself from an oil and gas firm zine, Arabian Sun, quoted chief executive Amin Nasser as saying. Aramco’s board, which met in Tokyo last week, decided to provide interim financing into a “global industrial conglomerate” involved in many sectors and services, for a planned shipyard at the town of Ras al-Khair on Saudi Arabia’s east coast, the magazine said without giving details. In January, Aramco signed a memorandum of understanding to establish the shipbuilding and repair complex with National Shipping Co of Saudi Arabia (Bahri), a subsidiary of Lamprell Plc, a United Arab Emirates-based engineering firm, and South Korea’s Hyundai Heavy Industries. The company did not reveal the size of the project, but an oil industry source aware of the scheme said it was expected to cost several billion dollars. Aramco’s board also decided to set up joint ventures for onshore and offshore drilling rig services, the magazine said without giving details of those ventures. Traditionally, Aramco has relied heavily on outside contractors to provide it with such services, but it now wants to control more of those businesses to create An inflight photo of a Jazeera Airways aircraft. jobs for Saudis, stimulate local demand and control costs. The board approved an additional Operating revenue clocks KD 11.9 million equity contribution for its Sadara petrochemical joint venture with US firm Dow Chemical , Arabian Sun said, without disclosing the size of the capital injection. Aramco also approved the creation of KUWAIT CITY, April 27: Jazeera Airof this year, and we are on track to deliver of-the-art check-in facility located two a programme to issue Islamic bonds (suways today announced its financial restarting with the dedicated business class at kuk), the magazine added. It gave no deminutes away from the airport to serve as sults for the first quarter of 2016. The Kuwait International Airport and the remote tails, but since the capacity of the Saudi a second option for flight check-in. Opcompany registered a net profit of KD4.0 check-in and long-term parking facility. banking sector to lend is being squeezed erational by end of 2016, the facility is a million, an increase of 33.0% from the Both initiatives are in development today by low oil prices, bankers think Aramco single-stop remote check-in facility with same quarter last year. and are set to launch in the third quarter of might sell foreign currency debt in the invalets for both short-term and long-term Q1 2016 Highlights: this year. ternational market. parking and luggage assistance. Once ■ Operating revenue: KD11.9 million, “Our outlook for the year remains The reform plan is expected to be actravelers and their luggage are checked less 7.8% from Q1 2015 unchanged and in line with our sector’s companied by a big increase in foreign in, they will be shuttled to the terminal ■ Net profit: KD4.0 million, up 33.0% seasonality. While the excessive overcaborrowing by the Saudi government and where they can proceed directly to passfrom Q1 2015 pacity on the sectors we operate poses a companies as Riyadh juggles the need to port control, thus completely bypassing ■ Passengers: up 5.1% from Q1 2015 downward pressure on our yields, we expursue development projects with a large the hassle of navigating Kuwait Inter■ Load factor: up 2.4% from Q1 2015 pect to counter this pressure in the peak state budget deficit caused by cheap oil. national Airport’s parking and check-in ■ On-time Performance: 90.9% summer season and close the year with Under the reform plan, a stake of less congestion. Jazeera Airways Chairman, Marwan growth in our operational profits and our than 5 percent of Aramco is to be ofStarting Q3 2016, Jazeera Airways Boodai, said: “We’ve had a busy and excitbottom line.” fered to the public, as well as stakes in Business Class travelers will enjoy exing quarter as we lay the ground-work for The Next Big Thing is a series of new some subsidiaries. An initial public ofclusive access to what will be the newest the growth and expansion of our offering in ambitious and game-changing initiatives fering of Aramco, which will be a comlounge at Kuwait International Airport, 2016 and beyond. Soon we will start flights that will boost Jazeera Airways’ offering, plex process given the company’s size and the only lounge at the airport with a to Taif, our third destination in Saudi Arareinforce its brand, and attract and retain and strategic importance, may occur in direct and unobstructed view of the tarbia, with the first flight scheduled for June more customers in 2016 and beyond. Be2017 or 2018. mac. High-speed internet, comfortable 7th. On the product development front, we low is a glimpse into the four new initiaAramco officials quoted in the magazine seating, food, and drinks will be offered kicked-off various construction programs on Wednesday did not comment on the IPO tives and how they will transform Jazeera at the lounge. beyond saying they welcomed it as a way to for initiatives that fall under our ‘The Next Airways’ offering. participate in the reform programme. Continued on Page 31 Big Thing’ strategy, launched in February Jazeera Airways is constructing a state-

Jazeera Airways Q1 profit up 33 pct