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MENA-­1

 SUNDAY  MORNING  ROUND-­UP  


   
EuroMoney  is  currently  conducting  its  Middle  East  Research  and  Best  Managed  Companies  Survey.  The  
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Thank  you  for  your  support.  
   
UAE  
Government  of  Dubai  asks  entities  to  cut  spending  
Tabreed  announces  settlement  of  its  tender  offer  for  AED1.7  billion  of  Trust  Certificates  due  2011  
TAQA  appoints  Stephen  Kersley  as  CFO  
Free  zones  trade  grew  23%  in  2010  
The  Central  Bank  of  the  UAE  to  issue  new  mortgage  rules  
   
Kuwait  
Al  Ahli  Bank  of  Kuwait  gets  go-­ahead  to  extend  date  for  share  buy-­back  or  resale  
   
Qatar  
QPI  signs  MOU  with  Maersk  Oil  for  global  oil  exploration  
Barwa  Bank  in  talks  with  local  conventional  banks  following  QCB  move  
Cosmo  Oil  and  Sojitz  start  output  from  Qatar  oil  field  
   
EFG  Hermes  Research  
Union  National  Bank  (UNB)  -­  A  Value  Play,  Fundamentals  Not  Yet  Priced  In;  Initiate  with  Buy  -­  Initiation  
of  Coverage  -­  19  May  2011  
Qatar  Banking  Sector  Flash  Note  -­  April  2011  Sector  Trends:  Public  Sector  Lending  Accelerates;  Deposit  
Growth  Strong  -­  19  May  2011  
DP  World  (DPW)  -­  Adjusting  FV  for  Reverse  Stock  Split;  Lowering  Rating  to  Neutral  -­  19  May  2011  
Raysut  Cement  Company  -­  Near-­Term  Concerns  Priced  in,  Upgrading  to  Neutral  -­  Company  Note  -­  19  May  
2011  
   
Agenda  
   
Qatar  
Wed  25  May  >>  Vodafone  Qatar  FY2010-­‐2011  (March  year  end)  results  
Wed  1  June  >>  Al  Khaliji  Commercial  Bank  BOD  meeting  
   
UAE  News  
   
Government  of  Dubai  asks  entities  to  cut  spending  
The  Government  of  Dubai  asked  its  departments  to  reduce  expenditures  by  20-­‐25%  in  order  to  achieve  a  budget  
surplus  of  AED3-­‐3.5  billion  until  2013,  Gulf  News  reported  citing  Ahmad  Humaid  Al  Tayer,  Member  of  the  
Supreme  Fiscal  Committee.  However,  government  entities  were  not  asked  to  increase  their  revenues  by  
charging  more  fees  or  indirect  taxes  for  the  services  they  provide,  Al  Tayer  added.  Al  Tayer  also  called  for  setting  
up  a  department  to  manage  the  public  debt  in  Dubai.  The  cut  in  spending  is  in  line  with  our  view.  We  expected  to  
see  a  retrenchment  in  government  spending  in  Dubai  in  2011  and  into  the  medium  term.  We  believe  that  this  
fiscal  retrenchment  will  add  to  the  weak  domestic  demand  environment  in  Dubai.  (Zawya  Dow  Jones,  Monica  
Malik)  
   
Tabreed  announces  settlement  of  its  tender  offer  for  AED1.7  billion  of  Trust  Certificates  due  2011  
National  Central  Cooling  Company,  known  as  Tabreed  (TABR.DU),  announced  the  AED1.7  billion  settlement  of  
an  offer  related  to  the  Trust  Certificates  due  2011  of  the  Tabreed  08  Financing  Corporation  and  the  delivery  of  
the  relevant  shares  took  place  on  Thursday,  19  May  2011,  following  the  receipt  of  the  final  required  regulatory  
approval.  Following  the  conversion  of  the  AED1.7  billion  sukuk  into  shares,  the  shareholdings  in  the  company  of  
the  following  entities  has  increased:  Arabian  Company  for  Water  and  Power  Development  (16.24%  stake),  
Mubadala  Development  Company  (14.81%)  and  General  Investments  FZE  (11.29%).  (Company  disclosure)  
   
TAQA  appoints  Stephen  Kersley  as  CFO  
The  Abu  Dhabi  National  Energy  Co.  (TAQA)  [TAQA.AD]  said  that  its  Chief  Financial  Officer  (CFO),  Doug  Fraser,  is  
leaving  the  firm,  and  will  be  replaced  by  Stephen  Kersley.  Kersley  comes  after  many  years  of  experience  at  Shell,  
and  he  will  take  up  his  duties  on  22  May  2011.  Fraser  will  remain  at  TAQA  until  30  June  2011  to  help  with  the  
transfer  of  duties.  (Zawya  Dow  Jones)  
   
Free  zones  trade  grew  23%  in  2010  
The  total  trade  in  the  UAE’s  free  zones  and  markets  grew  23%  Y-­‐o-­‐Y  to  AED325.8  billion  in  2010,  of  which  
imports  accounted  for  AED201.4  billion,  while  exports  and  re-­‐exports  were  AED151.4  billion,  according  to  data  
released  by  the  Federal  Customs  Authority  (FCA).  Total  UAE  trade  (non-­‐oil  foreign  trade  and  free  zones  trade)  
amounted  to  nearly  AED1.1  trillion  in  2010,  of  which  imports  were  AED754.3  billion,  and  exports  and  re-­‐exports  
were  AED352.8  billion.  (Gulf  News)  
   
The  Central  Bank  of  the  UAE  to  issue  new  mortgage  rules  
The  Central  Bank  of  the  UAE  is  planning  to  issue  new  rules  to  regulate  mortgage  lending  by  banks  within  an  
overall  banking  reform  process  that  saw  new  a  personal  lending  law  introduced  in  May  2011.  The  central  bank  
discussed  the  rules  with  banks  at  a  meeting  on  18  May  2011,  but  gave  no  details  of  the  rules,  Al  Khaleej  
reported.  (Zawya  Dow  Jones)  
   
Kuwait  News  
   
Al  Ahli  Bank  of  Kuwait  gets  go-­ahead  to  extend  date  for  share  buy-­back  or  resale  
Al  Ahli  Bank  of  Kuwait  (ABK)  [ABKK.KW]  said  that  the  Central  Bank  of  Kuwait  has  approved  its  request  to  
extend  the  buy-­‐back  or  resell  programme  of  up  to  10%  of  its  shares  for  another  six  months.  The  new  deadline  
will  expire  on  12  December  2011.  (Zawya  Dow  Jones)  
   
Qatar  News  
   
QPI  signs  MOU  with  Maersk  Oil  for  global  oil  exploration  
Qatar  Petroleum  International  (QPI),  Qatar  Petroleum’s  (QP)  international  arm,  announced  that  it  has  signed  a  
memorandum  of  understanding  (MOU)  with  Maersk  Oil  for  global  oil  exploration,  Qatar  News  agency  reported.  
“The  new  MOU  will  allow  the  two  companies  to  explore  new  development  opportunities  in  oil  operations  and  to  
enhance  their  oil  investments  portfolios  at  the  international  level”,  QPI’s  CEO,  Nasser  Al-­‐Jaidah,  was  quoted  as  
saying.  (Qatar  News  Agency)  
   
Barwa  Bank  in  talks  with  local  conventional  banks  following  QCB  move  
Barwa  Bank  announced  that  it  is  in  talks  with  local  conventional  banks  following  the  Qatar  Central  Bank’s  (QCB)  
decision  to  tighten  Islamic  finance  regulations,  The  Gulf  Times  reported.  “We  have  approached  some  of  the  
conventional  banks,  though  (we)  are  talking  about  much  more  than  buying  their  assets.  It  is  more  about  building  
our  business  than  an  asset  purchase  opportunity,”  Barwa  Bank’s  CEO  Steve  Troop,  was  quoted  as  saying.  (The  
Gulf  Times)  
   
Cosmo  Oil  and  Sojitz  start  output  from  Qatar  oil  field  
Cosmo  Oil,  Japan’s  fourth  largest  oil  refiner,  and  Sojitz  announced  that  they  have  started  commercial  output  
from  a  new  oil  field  in  A-­‐Structure  South  of  the  offshore  Block  1  in  south-­‐eastern  Qatar,  Reuters  reported.  The  
two  firms  said  that  production  started  on  27  April  2011  and  reached  3,000  barrels  per  day,  increasing  the  
venture’s  total  crude  output  in  Qatar  to  around  9,000  barrels  per  day.  Cosmo  Oil’s  75%-­‐owned  joint  venture  
with  Japanese  trading  house  Sojitz  had  been  developing  the  field  under  a  production-­‐sharing  pact  with  Qatar.  
(Reuters,  Gulf  Base)  
   
EFG  Hermes  Research  
   
Union  National  Bank  (UNB)  -­  A  Value  Play,  Fundamentals  Not  Yet  Priced  In;  Initiate  with  Buy  -­  Initiation  
of  Coverage  -­  19  May  2011  
Initiate  with  FV  of  AED5.10/Share,  Implying  44%  Upside  Potential;  Buy:  With  a  well-­‐capitalised  balance  sheet,  
stable  asset  quality  and  low  net  interest  spread  compression  risk,  UNB  is  a  value  play  at  the  current  price,  in  our  
view.  We  initiate  coverage  with  a  Buy  rating,  as  our  fair  value  (FV)  of  AED5.10/share  implies  44%  upside  
potential.  The  stock  is  currently  trading  at  an  estimated  2011  P/BV  of  0.8x,  which  does  not  reflect  UNB’s  
fundamentals,  we  believe.  Our  FV  implies  an  estimated  2011  P/BV  of  1.2x,  which  is  justified  by  an  estimated  
normalised  ROE  level  of  15%,  in  our  view.  We  expect  UNB’s  ROE  to  normalise  to  15%  by  2012  after  building  
conservative  provisions  into  our  2011  forecast,  which  keeps  ROE  down  at  14%.  A  pickup  in  government  
spending  on  infrastructure  in  Abu  Dhabi  from  2Q2011  and  a  decline  in  funding  costs  on  the  back  of  improved  
system  liquidity  are  potential  catalysts  and  pose  upside  risks  to  our  FV.  
   
Strongest  Asset  Quality  in  Our  UAE  Coverage:  With  an  NPL  ratio  (ex-­‐Dubai  World)  of  1.4%  and  NPL  coverage  of  
130%,  UNB  has  the  best  asset  quality  metrics  within  our  UAE  coverage,  in  our  opinion.  Although  the  trend  in  
1Q2011  indicates  that  asset  quality  is  stable,  we  forecast  UNB’s  NPL  ratio  to  scale  up  to  2.3%  in  2011  on  our  
concerns  over  UAE’s  real  estate  sector.  Going  forward,  provisions  are  expected  to  lean  more  towards  the  general  
provisions  category,  as  the  bank  builds  up  its  general  provisions  reserve,  which  currently  stands  at  0.78%  of  
credit  risk-­‐weighted  assets.  
   
Liquid  Balance  Sheet;  Nominal  Exposure  to  Egypt:  UNB  maintains  a  very  liquid  balance  sheet,  with  liquid  assets  
exceeding  20%  of  total  assets.  However,  this  liquidity  comes  at  a  cost;  we  estimate  the  bank  can  add  AED60  
million  to  net  interest  income  by  letting  go  of  this  liquidity  buffer.  UNB  Egypt  remains  a  small  component  of  the  
UNB’s  balance  sheet,  with  assets  totalling  AED2.4  billion,  or  2.8%  of  UNB’s  assets.  (Murad  Ansari,  Shabbir  Malik)  
   
Qatar  Banking  Sector  Flash  Note  -­  April  2011  Sector  Trends:  Public  Sector  Lending  Accelerates;  Deposit  
Growth  Strong  -­  19  May  2011  
System  Loan  Growth  Accelerates  on  Stronger  Public  Sector  Credit:  Total  lending  grew  12%  Y-­‐o-­‐Y  and  1.25%  M-­‐
o-­‐M  in  April  2011,  the  strongest  monthly  growth  this  year.  Lending  to  the  public  sector  was  strong  at  3.6%  M-­‐o-­‐
M,  reversing  the  trend  of  the  past  two  months,  when  public  lending  contracted.  On  a  Y-­‐o-­‐Y  basis,  public  credit  
grew  4.5%.  These  growth  rates  seem  low  when  seen  in  the  context  of  strong  government  spending,  and,  in  our  
view,  is  to  a  large  extent  explained  by  a  strong  comparable  in  2010,  when  public  sector  credit  was  growing  at  
average  rates  of  above  100%  Y-­‐o-­‐Y.  We  expect  an  acceleration  in  public  sector  loan  growth  in  the  coming  
months,  with  a  strong  outlook  for  infrastructure  and  construction  projects  awards.  
   
Private  Sector  Credit  Gradually  Picking  Up:  Lending  to  the  private  sector  increased  moderately  in  April  by  0.3%  
M-­‐o-­‐M,  but  this  follows  two  months  of  solid  expansion.  On  a  Y-­‐o-­‐Y  basis,  private  sector  loan  growth  was  15.5%  
Y-­‐o-­‐Y  in  April  compared  to  an  average  growth  of  6%  Y-­‐o-­‐Y  in  2010.  We  believe  that  public  spending  should  
translate  into  higher  credit  demand  by  the  private  sector  for  the  remainder  of  2011,  despite  an  expected  
slowdown  in  retail  lending  following  stricter  regulations  issued  by  the  Qatar  Central  Bank  in  April.  
   
Improvement  in  Balance  Sheet  Liquidity  on  Strong  Deposit  Growth:  Deposits  grew  8.4%  M-­‐o-­‐M,  driven  by  a  
strong  increase  in  corporate  and  in  foreign  currency  deposits.  Balance  sheet  liquidity  therefore  improved  with  
the  loans-­‐to-­‐deposit  ratio  falling  to  95%  in  April  2011  from  102%  in  March  2011.  On  a  Y-­‐o-­‐Y  basis,  deposits  
grew  22%  Y-­‐o-­‐Y,  despite  a  decline  in  non-­‐resident  deposits,  following  the  reduction  in  deposit  rates  since  the  
beginning  of  2011,  which  has  resulted  in  deposit  rates  paid  by  Qatari  banks  being  close  to  deposit  rates  in  the  
rest  of  the  GCC  region.  
   
QNB  and  CBQ  Remain  Our  Top  Picks  
We  believe  QNB  offers  one  of  the  strongest  growth  outlooks  in  the  MENA  region,  and  this  is  reflected,  in  our  
view,  in  justified  premium  valuations  versus  other  Qatari  banks.  CBQ’s  shares  have  lost  20%  since  the  beginning  
of  2011  and  we  believe  offer  good  value  at  just  1.4x  estimated  2011  P/BV.  A  key  catalyst  for  a  re-­‐rating  of  the  
stock  will  be,  in  our  view,  the  potential  increase  in  foreign  ownership  limits  in  Qatar  (currently  25%  of  the  free  
float),  which  could  lead  to  Qatar’s  classification  as  an  emerging  market  by  MSCI  (announcement  on  21  June  
2011).  (Elena  Sanchez-­‐Cabezudo)  
   
DP  World  (DPW)  -­  Adjusting  FV  for  Reverse  Stock  Split;  Lowering  Rating  to  Neutral  -­  19  May  2011  
Adjusting  FV  for  Reverse  Stock  Split:  We  adjust  our  fair  value  (FV)  for  DP  World  to  USD15.00/share  from  
USD0.75/share  to  reflect  the  1:20  reverse  stock  split  that  was  approved  by  shareholders  at  the  company’s  AGM  
held  on  11  May  2011.  Following  the  reverse  stock  split,  DP  World’s  total  number  of  shares  outstanding  
decreased  to  830  million  from  16,600  million.  The  ex-­‐date  for  the  reverse  stock  split  was  19  May  2011.  
   
Downgrade  to  Neutral  from  Buy:  DP  World’s  shares  have  rallied  by  22%  since  March  and  our  adjusted  FV  now  
offers  a  limited  upside  potential  of  only  8%  from  the  current  share  price.  Therefore,  we  downgrade  our  rating  to  
Neutral  from  Buy.  (Redwan  Ahmed)  
   
Raysut  Cement  Company  -­  Near-­Term  Concerns  Priced  in,  Upgrading  to  Neutral  -­  Company  Note  -­  19  May  
2011  
Upgrade  to  Neutral  after  Share  Price  Fall;  Lower  FV  on  Risk  Premium:  We  lower  our  fair  value  (FV)  for  Raysut  
Cement  (RCC)  to  OMR0.979/share  from  OMR1.018/share,  as  we  increase  our  risk  premium  by  100  bps  to  
account  for  RCC’s  increased  capacity  built-­‐up  in  a  highly  oversupplied  cement  market  and  increased  debt  
burden.  We  also  adjust  our  earnings  model  to  incorporate  newly  acquired  Pioneer  Cement;  however,  this  has  a  
limited  impact  on  our  DCF  valuation,  as  increased  operating  profits  are  offset  by  increased  debt.  RCC’s  stock  has  
fallen  more  than  13.7%  YTD  and  our  new  FV  implies  7%  downside  potential;  we  upgrade  our  rating  to  Neutral  
from  Sell.  We  believe  the  valuation  gap  between  Oman  Cement  (OCC)  [Price:  OMR0.0.563,  FV:  OMR0.614,  Rating:  
Neutral]  and  RCC  has  narrowed  with  RCC’s  shares  trading  at  an  estimated  EV/tonne  of  USD193,  slightly  above  
OCC’s  EV/tonne  of  USD175.  
   
Raise  our  Operating  Profit  Estimate  on  Higher  Volume  Sales:  We  increase  our  sales  and  operating  profit  
estimates  for  RCC  by  41.5%  and  31.4%,  respectively,  (see  Figure:  5)  reflecting  higher  revenues  from  increased  
volume  sales.  With  the  acquisition  of  Pioneer  Cement,  RCC’s  volume  sales  are  expected  to  increase  33%  Y-­‐o-­‐Y,  
while  revenues  are  expected  to  increase  22%  Y-­‐o-­‐Y  in  2011.  However,  higher  production  costs  and  lower  selling  
prices  (see  Figure:  3&4)  are  likely  to  result  in  a  lower  gross  margin  for  the  group.  We  expect  gross  and  operating  
margins  to  contract  by  900  bps  and  660  bps  Y-­‐o-­‐Y,  respectively,  in  2011.  
   
Pioneer  Cement  Acquisition  not  Earnings  Accretive;  Lower  Dividends:  Despite  higher  expected  sales,  we  believe  
Pioneer  Cement  acquisition  is  not  earnings  accretive  in  2011,  due  to  increased  interest  expenses.  We  estimate  
interest  expenses  of  OMR2.8  million  in  2011,  up  from  OMR0.01  million  in  2010.  Our  2011  net  income  estimate  is  
now  2%  below  our  previous  OMR18  million  estimate.  RCC’s  net  debt/equity  ratio  increased  to  0.6x  from  0.1x,  
while  debt  repayment  commitments  are  estimated  to  be  c50%  of  our  2011-­‐2012  free  cash  flow  estimates.  As  a  
result,  we  expect  the  dividend  payout  to  be  50%  going  forward  compared  to  97%  in  2010.  (Gigi  Tharian  
Varghese,  Ahmed  Gad)  
   
[Note  –  EFG  Hermes  is  not  responsible  for  the  accuracy  of  news  items  taken  from  other  media.]  
_________________________________________________________________________________________________________________  
Our  investment  recommendations  take  into  account  both  risk  and  expected  return.  We  base  our  fair  value  estimate  on  a  
fundamental  analysis  of  the  company’s  future  prospects,  after  having  taken  perceived  risk  into  consideration.  We  have  
conducted  extensive  research  to  arrive  at  our  investment  recommendations  and  fair  value  estimates  for  the  company  or  
companies  mentioned  in  this  report.  Although  the  information  in  this  report  has  been  obtained  from  sources  that  EFG  
Hermes  believes  to  be  reliable,  we  do  not  guarantee  its  accuracy,  and  such  information  may  be  condensed  or  incomplete.  
Readers  should  understand  that  financial  projections,  fair  value  estimates  and  statements  regarding  future  prospects  may  
not  be  realized.  All  opinions  and  estimates  included  in  this  report  constitute  our  judgment  as  of  this  date  and  are  subject  to  
change  without  notice.  This  research  report  is  prepared  for  general  circulation  and  is  intended  for  general  information  
purposes  only.  It  is  not  intended  as  an  offer  or  solicitation  with  respect  to  the  purchase  or  sale  of  any  security.  It  is  not  
tailored  to  the  specific  investment  objectives,  financial  situation  or  needs  of  any  specific  person  that  may  receive  this  report.  
We  strongly  advise  potential  investors  to  seek  financial  guidance  when  determining  whether  an  investment  is  appropriate  to  
their  needs.  No  part  of  this  document  may  be  reproduced  without  the  written  permission  of  EFG  Hermes.  
   
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EFG  Hermes  (Qatar  office)  Al-­‐Fardan  Towers,  Office  Tower,  7th  floor,  West  Bay,  Doha  -­‐  Qatar  
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Website:  www.efg-­‐hermes.com  
Bloomberg:  EFGH  |  Reuters  pages:  EFGS  .HRMS  .EFGI  .HFISMCAP  .HFIDOM  
 

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