MAY 22 - MAY 28, 2016 WEEK 22

CONTACTS The MENA WEEKLY MONITOR

Treasury & Capital Markets Economy Bechara Serhal ______(961-1) 977421 [email protected] p.2 EFG HERMES SAYS MENA BANKS’ LIQUIDITY TIGHTENS WHILE ASSET QUALITY STRESS IS YET TO EMERGE Nadine Akkawi EFG Hermes recently issued its 1Q2016 MENA banks trend tracker, arguing that banks in the region saw a (961-1) 977401 further slowdown in earnings growth after a weak fourth quarter of 2015. [email protected] Also in this issue Private Banking p.3 GCC countries' institutional strength to determine their ability to push through economic and Toufic Aouad fiscal reforms, says Moody's (961-1) 954922 p.3 ’s foreign assets fall to lowest level in four years [email protected] p.4 Kuwait’s inflation rate eases to 2.9% year-on-year in April 2016 Corporate Banking Surveys ______Khalil Debs p.5 MIDDLE EAST’S HOSPITALITY MARKETS WITNESSES WEAK PERFORMANCE IN (961-1) 977229 [email protected] FIRST FOUR MONTHS OF 2016, AS PER EY Ernst & Young issued its latest Hotel Benchmark Survey on the Middle East according to which occupancy rates increased in three cities within the region, and decreased in eleven cities.

Also in this issue p.6 Fitch affirms Egypt's Long-Term Foreign and Local-Currency Issuer Default Ratings (IDRs) at “B” with a “stable” outlook RESEARCH Corporate News ______p.7 SAUDI BINLADIN GROUP SECURES AIRPORT CONTRACT Construction firm Saudi Binladin Group secured a contract to build a new passenger terminal at the Marwan Barakat Maldives international airport which is being built at a total cost of US$ 800 million. (961-1) 977409 [email protected] Also in this issue p.7 Kuwait to sign US$ 1 billion contract with Italy’s Salini and Turkey’s Limak JV for South Al Mutlaa Jamil Naayem (961-1) 977406 City Project [email protected] p.7 Emicool awards contract for US$ 32 million Dubai Sports City cooling system p.8 ADFG and Bahrain's GFH to launch Islamic bank in Abu Dhabi Salma Saad Baba p.8 Dubai Properties unveils plan for new two-tower project (961-1) 977346 p.8 Saudi's SABIC inks deal to build China petrochemicals project [email protected] Markets In Brief ______Fadi Kanso (961-1) 977470 p.9 EQUITY PRICES DOWN AHEAD OF RAMADAN, BOND PRICES MIXED [email protected] MENA equity markets saw extended price declines this week, as reflected by a 1.4% drop in the S&P Pan Arab Composite Index, mainly driven by price falls in the Saudi Tadawul and the Qatar Exchange, amid Gerard Arabian some profit-taking operations ahead of the Holy month of Ramadan and as some market players left (961-1) 964047 room for large regional bond issues. In parallel, regional bond markets saw mixed price movements. [email protected] Some papers registered price declines as market players reduced their holdings in order to leave room for new regional issues. On the other hand, some other papers recorded price increases amid some Farah Nahlawi offshore buying. (961-1) 959747 [email protected] MENA MARKETS: WEEK OF MAY 22 - MAY 28, 2016

Nivine Turyaki (961-1) 959615 [email protected]

Week 22 May 22 - May 28, 2016 1 Bank Audi sal - Group Research Department - Bank Audi Plaza - Bab Idriss - PO Box 11-2560 - Lebanon - Tel: 961 1 994 000 - email: [email protected] MAY 22 - MAY 28, 2016 WEEK 22

ECONOMY ______EFG HERMES SAYS MENA BANKS’ LIQUIDITY TIGHTENS WHILE ASSET QUALITY STRESS IS YET TO EMERGE

EFG Hermes recently issued its first quarter of 2016 MENA banks trend tracker, arguing that banks in the region saw a further slowdown in earnings growth after a weak fourth quarter of 2015.

As a matter of fact, aggregate earnings growth for MENA banks under coverage (45 banks) has been steadily decelerating over the past three quarters, and slowed to a five-year record low of just 1% year- on-year in the first quarter of 2016, from 4% year-on-year in the fourth quarter of 2015.

Furthermore, and out of the 45 MENA banks covered by the report, 29 saw a slower earnings growth when compared to the first quarter of 2015, while 13 saw a higher growth and three reported almost no change, as per EFG Hermes.

Loan growth has held up relatively well, posting a 9.7% yearly increase but revenue growth on an aggregate basis slowed to 1.8% year-on-year, driven by net interest margin compression and lower non- interest income, as per the same source.

Deposit growth has further decelerated and tight liquidity will continued to add pressure to banks’ net interest margins and earnings, as per EFG Hermes, particularly in Qatar and Saudi Arabia.

EFG Hermes went on to report the main trends characterizing MENA banks in this year’s first quarter. First, deposit growth weakened further, as per the report, decelerating to 4.8% year-on-year in the first quarter of 2016, against a 5.4% yearly growth in the previous quarter and a 9.8% yearly growth in the fourth quarter of 2014.

Second, loan growth has been stable, continuing to positively surprise at the aggregate level (+9.7% in this year’s first quarter). Loan growth was unchanged relative to the fourth quarter of 2015, noting that the strongest loan growth markets continue to be Egypt and Qatar.

Third, net interest margins continued to tighten on a yearly basis in Qatar, the and Oman. Higher policy rates have been generally positive for Egypt banks’ NIMs.

MENA BANKS' 1Q 2016 RESULTS (YEARLY TRENDS VERSUS 1Q 2015)*

Source: EFG Hermes

Week 22 May 22 - May 28, 2016 2 MAY 22 - MAY 28, 2016 WEEK 22

Fourth, fee income growth has been generally poor, on weak trade finance volumes, as per the report. Data reveals that MENA banks under coverage saw a 5% and 1% yearly increase in net interest income and fee income respectively, pretty much the same growth rates as in the fourth quarter of 2015 (on a year-on-year basis as well).

Fifth, credit quality was broadly unchanged, with EFG Hermes only seeing a marginal uptick in provisioning costs in most markets. Earnings growth reported for banks under coverage proved broadly in line with pre-provision earnings growth. ______GCC COUNTRIES' INSTITUTIONAL STRENGTH TO DETERMINE THEIR ABILITY TO PUSH THROUGH ECONOMIC AND FISCAL REFORMS, SAYS MOODY'S

Gulf Cooperation Council (GCC) countries' institutional strength would determine their ability to push through economic and fiscal reforms designed to counter the drop in oil revenue, as per a recent report by Moody's.

The report, titled "Sovereigns -- Gulf Cooperation Council: Peer Comparison - Institutional Strength Determines Adjustment To Lower Oil Prices", notes that Moody's recent review of the ratings of GCC countries considered each sovereign's capacity to formulate and implement effective policy responses to the lower oil prices. The review concluded with a downgrade of three GCC sovereign ratings, and a “negative” outlook assigned to four ratings that were confirmed.

It is worth noting that the rating agency’s assessment of institutional strength incorporates policy effectiveness, governance indicators and transparency.

According to the report, sovereigns implemented several fiscal measures to adjust to lower revenues. The introduction of a GCC wide value-added tax (VAT) of 5% from 2018 would support revenue diversification, while governments are also considering increases in corporate income taxes and taxes on remittances.

The reforms, while positive, would only partly compensate for the continued oil price slump. As such, Moody's expects that fiscal and external constraints would persist beyond 2016. Moreover, the social impact of fiscal reforms would make policy implementation tougher for Bahrain (“Ba2 negative”), Oman (“Baa1 stable”) and Saudi Arabia (“A1 stable”), where governments are under pressure to continue redistributing oil revenues to their populations to avoid economic-related civil unrest.

In comparison, Kuwait (“Aa2 negative”), Qatar (“Aa2 negative”) and the United Arab Emirates (“Aa2 negative”) have fewer such constraints, according to the rating agency. In fact, governance frameworks are at various stages of development and diverging. Relative to globally rated sovereigns, Qatar and the United Arab Emirates have high institutional strength scores. Bahrain's and Oman's scores rank toward the middle, while Kuwait's and Saudi Arabia's scores are weaker.

Last but not least, reserve buffers are a key credit support for many GCC sovereigns. However, there is a high degree of opacity in policy making and fiscal buffers compared to global peers, particularly for Kuwait, Qatar and the UAE. ______SAUDI ARABIA’S FOREIGN ASSETS FALL TO LOWEST LEVEL IN FOUR YEARS

Saudi Arabia’s net foreign assets fell for a 15th month in April 2016, as the Kingdom announced its Vision 2030 for a post-oil future.

The Saudi Arabian Monetary Agency announced that net foreign assets declined by 1.1% to reach US$572 billion, the lowest level in four years. The slump in crude prices forced the government to sell bonds and draw on its currency reserves, which is still among the world’s largest. The Kingdom’s net foreign assets fell by US$ 115 billion last year, when the kingdom ran a budget deficit of nearly US$ 100 billion, as per Bloomberg.

Week 22 May 22 - May 28, 2016 3 MAY 22 - MAY 28, 2016 WEEK 22

The fiscal crunch led Saudi Arabia to look beyond oil, consider new taxes and plan an initial public offering of State energy major Saudi Aramco. As a result, the Deputy Crown sketched out the planned changes dubbed Saudi Vision 2030 on April 25th.

The strain on reserves also fuelled speculation that the Kingdom would adjust its decades-old riyal peg to the dollar, as per Bloomberg. But the new Central Bank Governor announced recently that Saudi Arabia does not plan to change its exchange rate policy. ______KUWAIT’S INFLATION RATE EASES TO 2.9% YEAR-ON-YEAR IN APRIL 2016

Inflation in consumer prices eased to 2.9% year-on-year in April 2016. This comes mainly due to a slowdown in food inflation, as per NBK Economic Report.

In details, core inflation (which excludes food prices) was slightly higher at a yearly 2.9% as inflation in the clothing & footwear and furnishings segments continued to gather some pace in April. Inflation is projected to hold steady in the near-to-medium term, amid low global commodity prices and a stronger Kuwaiti dinar. As a result, the report expects annual average inflation in 2016 to ease slightly to 3.0% compared to 3.3% in 2015.

It is worth noting that inflation in local food prices continued to trend lower in April. Food inflation eased from 4.1% year-on-year in March to an almost one-year low of 2.6% year-on-year in April, on the back of a slowdown in most of its subcomponents. Inflation in global food prices witnessed a rebound, climbing into positive territory for the first time since June 2015, as per NBK.

According to the Commodity Research Bureau's global commodity index, inflation in international food prices logged in a reading of 2.6% year-on-year for April. Inflation in furnishings and household maintenance saw some stabilization in April while clothing and footwear costs gained some momentum during the same period.

Inflation in furnishings stabilized at around 3% year-on-year in April. Clothing and footwear prices continued to fall during the same period, but at a much lower rate of -0.1% year-on-year.

The stronger dinar and more frequent and longer seasonal promotions have kept costs low in this component. Inflation in the 'other goods & services' segment continued to edge higher in April but still remained relatively low, as per the same source. Inflation in this component, which is mostly comprised of imported goods such as personal care products and jewelry, has been kept in check by lower imported inflation, due to the ongoing strength in the local currency against all major currencies except the US dollar.

Alongside, inflation in wholesale prices decelerated sharply in the first quarter of 2016, amid weaker inflation in agriculture, livestock and fishing, mining and quarrying and in particular, manufacturing (oil related).

Inflation across the major components of the wholesale price index is forecast to remain moderate in at least the near-to medium term, on the back of a softer oil price environment and a stronger local currency. This should in turn help keep inflation in the consumer price index at a steady pace in 2016.

Week 22 May 22 - May 28, 2016 4 MAY 22 - MAY 28, 2016 WEEK 22

SURVEYS ______MIDDLE EAST’S HOSPITALITY MARKETS WITNESSES WEAK PERFORMANCE IN FIRST FOUR MONTHS OF 2016, AS PER EY

Ernst & Young issued its latest Hotel Benchmark Survey on the Middle East according to which occupancy rates increased in three cities within the region, and decreased in eleven cities.

Occupancy rates indeed rose in three of the 14 cities considered in the survey, with , Ras Al Khaimah and Manama registering increases of 13%, 9% and 5% respectively in the first four months of 2016. In contrast, occupancy rates declined in 11 cities, with Kuwait witnessing the highest decrease of 15%. The latter was followed by Madina and Makkah, which saw declines of 14% and 10% respectively.

The cities of Dubai, Abu Dhabi and Muscat reported the highest occupancy rates amongst peers, with 86% for Dubai, 82% for Abu Dhabi, and 76% for Muscat. At the lower end of the regional scale were Kuwait, and Makkah with corresponding occupancy rates of 43%, 50% and 53% respectively.

Furthermore, a total of four cities reported increases in the average room rate, registering 23.5% in the case of Cairo. The most significant upward movements after Cairo were posted by Makkah (+5.6%) and Kuwait (+3.7%). The most significant decreases were registered by (-18.1%), Abu Dhabi (-17.1%), and (-15.0%), according to EY.

Dubai, Kuwait and reported the highest average room rates of US$ 287, US$ 279 and US$ 245 respectively. At the lower end were Cairo, Beirut, Abu Dhabi with US$ 126, US$ 136 and US$ 141 respectively.

Last but not least, the rooms’ yield decreased in 12 cities, while two cities reported increases. The most significant decreases were seen at the level of Kuwait and Doha, which dropped by US$ 37 each. Dubai and Abu Dhabi also witnessed declines of US$ 28 each and they were followed by Jeddah where room yields fell by US$ 25. On the other hand, the only expansion in room yields took place in Cairo and Ras Al Khaimah, which saw yields rise by US$ 28 and US$ 12 respectively. Dubai (US$ 249), Jeddah (US$ 168) and Doha (US$ 163) had the highest rooms’ yields while those of Beirut (US$ 74), Cairo (US$ 76) and Amman (US$ 79) were the lowest.

ERNST & YOUNG MIDDLE EAST HOTEL BENCHMARK SURVEY (FIRST FOUR MONTHS)

Sources: Ernst & Young, Bank Audi's Group Research Department

Week 22 May 22 - May 28, 2016 5 MAY 22 - MAY 28, 2016 WEEK 22

______FITCH AFFIRMS EGYPT'S LONG-TERM FOREIGN AND LOCAL-CURRENCY ISSUER DEFAULT RATINGS (IDRS) AT “B” WITH A “STABLE” OUTLOOK

Fitch Ratings has affirmed Egypt's Long-Term Foreignand Local-Currency Issuer Default Ratings (IDRs) at “B” with a “stable” outlook. The issue ratings on Egypt's senior unsecured foreign and local-currency bonds have also been affirmed at “B”. The country ceiling was affirmed at “B” and the Short-Term Foreign Currency IDR at 'B'.

Egypt's ratings balance a high fiscal deficit and general government debt/GDP ratio, low foreign reserve coverage of imports and recent volatile political history, with low external debt and gradual progress in implementing an economic and fiscal reform program.

Furthermore, Fitch estimates a budget sector deficit of 11.6% of GDP in FY16 ending in June, broadly the same as in FY15. This is larger than budgeted for a number of reasons. These include the failure to introduce value added tax (VAT) as planned (estimated to raise revenue of about 1% of GDP), the devaluation in March and surging interest payments.

The draft budget for FY17, which is still subject to approval by parliament, aims to reduce the deficit to 9.8% of GDP, helped by the belated introduction of VAT and further reform of fuel and electricity subsidies. Fitch expect the budget sector deficit to remain larger than the draft target, owing to weaker growth assumptions and implementation risk, but nevertheless to narrow to 11% of GDP.

General government debt increased to an estimated 90.3% of GDP in FY16, well above the peer median. Government external debt is relatively low, although the devaluation of the Egypt pound in March has an upward effect on the debt stock. Fitch expects debt/GDP to edge up to 90.5% in FY17, given only modest deficit reduction and assuming some further exchange-rate weakness.

Foreign-exchange reserve coverage remains low at around three months of current external payments. Security incidents have dealt a blow to tourism inflows in 2015-16, while other lines of the current account have also struggled. FDI increased in 2015, and is likely to rise this year; some further support is coming in, both multilateral and from the Gulf Cooperation Council (GCC). The Central Bank of Egypt responded to the strain on the balance of payments by devaluing the currency in mid-March by 14% against the US dollar, and further exchange-rate weakness is likely.

Gross external debt has been rising, due largely to concessional support from the GCC, but it remains below peers. It is expected to rise to around 18% of GDP by end-2016. Net external debt would remain just below 7% of GDP, compared with a “B” median of 26.3%. The bulk of external debt is on a concessional basis, and while Egypt's external liquidity ratio has been worsening it remains stronger than peers. The rating is supported by the absence of a recent history of debt restructuring.

Real GDP growth has slowed in FY16 to an estimated 3.2%, owing to declines in tourism and shortages of foreign exchange. This is after strengthening to 4.2% in FY15, from an annual average of around 2% since the Arab Spring in 2011. However, energy shortages are being addressed, and public and private investment is rising.

Finally, Fitch assumes growth would strengthen slightly to 3.6% in FY17 and further the following year. Inflation is above peers, and it is forecasted to remain in double-digits in 2016-2017, with structural rigidities aggravated by the weaker exchange rate.

Week 22 May 22 - May 28, 2016 6 MAY 22 - MAY 28, 2016 WEEK 22

CORPORATE NEWS ______SAUDI BINLADIN GROUP SECURES MALDIVES AIRPORT CONTRACT

Construction firm Saudi Binladin Group secured a contract to build a new passenger terminal at the Maldives international airport which is being built at a total cost of US$ 800 million.

Saudi Binladin would lead the construction of the new terminal on a 78,000 square meter area of reclaimed land in the southwest of the airport island in Maldives, with 12 jetties and six aero-bridges.

The project is estimated to cost around US$ 800 million in total and the Maldives is seeking funding from the China EXIM Bank, the Kuwait Fund, Abu Dhabi Fund, and the Saudi Fund for Development. ______KUWAIT TO SIGN US$ 1 BILLION CONTRACT WITH ITALY’S SALINI AND TURKEY’S LIMAK JV FOR SOUTH AL MUTLAA CITY PROJECT

Kuwait is expected to sign a US$ 1 billion contract with a joint venture of Italy's Salini Impregilo and Turkey's Limak Construction for its planned South Al Mutlaa City project.

The contract would cover construction of a road and other infrastructure and would be funded by the Kuwaiti government from its own reserves.

The Gulf State would also sign a contract worth between US$ 80 million and US$ 90 million with Hill International to manage the building of South Al Mutlaa City. ______EMICOOL AWARDS CONTRACT FOR US$ 32 MILLION DUBAI SPORTS CITY COOLING SYSTEM

Emirates District Cooling, also known as Emicool, awarded a contract to Drake & Scull to design, build and operate an AED 120 million (US$ 32.6 million) mega project network to extend chilled water to new developments within Dubai Sports City.

The joint venture of Dubai Investments and Union Properties announced that the new network is set to increase the production capacity to 77,000 tons of refrigeration (TR), which would cater to the surging demand of the Dubai Sports City development.

The expansion of the new district cooling network would result in an annual reduction of 173 gigawatt/ hour power consumption in Dubai Sports City and also reduce 120,000 tons of carbon dioxide emissions. The project is expected to be completed by July 2018, as per Emicool’s CEO.

The new district cooling network from Emicool would connect complexes, stadiums and buildings in Dubai Sports City and is a major step forward in empowering businesses and consumers with sustainable development and innovative technologies, as per Emicool’s CEO.

As well as providing chilled water to the customers, the network would also monitor consumption levels within the developments.

Furthermore, Emicool said it is planning to increase its plant capacity to 500,000 TR by 2020 as construction is leading to pent-up demand for district cooling services across the UAE and region.

Week 22 May 22 - May 28, 2016 7 MAY 22 - MAY 28, 2016 WEEK 22

______ADFG AND BAHRAIN'S GFH TO LAUNCH ISLAMIC BANK IN ABU DHABI

Abu Dhabi Financial Group (ADFG) and Bahrain's GFH Financial Group are jointly setting up an Islamic bank in Abu Dhabi's new financial free zone with initial capital of US$ 100 million, as per ADFG's chief executive.

Privately-owned investment management firm ADFG and GFH have received preliminary approval to launch the bank at Abu Dhabi Global Market (ADGM), the second financial free zone in the United Arab Emirates after the Dubai International Financial Centre (DIFC).

It would be the first new bank set up at the recently-launched ADGM, which has so far attracted Aberdeen Asset Management and Macquarie Capital to open offices.

ADFG recently raised its stake to 11.7% in Islamic investment bank GFH from 10%. ______DUBAI PROPERTIES UNVEILS PLAN FOR NEW TWO-TOWER PROJECT

Master developer Dubai Properties unveiled Bellevue Towers, a new two-tower project to be built in Downtown Dubai.

The east and west buildings of Bellevue Towers have a total of 300 units across the 23 residential floors, ranging from one, two and three-bedroom apartments, three-bedroom penthouses, and lofts of contemporary designs in modern layouts, as per a company statement.

The Bellevue Towers project is scheduled for completion in 2019.

In addition to two main lobbies set on a common podium and retail stores on the ground floor, the project also boasts a variety of residential facilities including a gymnasium, a pool, a playground, lawn and social terrace.

Dubai Properties Group LLC is an integrated real estate and community development company. The company, through its subsidiaries, provides real estate management solutions, including sales, leasing, facilities management, and security. It offers property related services, including project development, portfolio management, and asset management; sales and customer service and handover management; and facilities management, property management and security solutions for public and private sectors. The company manages the leasing portfolio across various destinations and districts, including land leases, and retail and mall management. ______SAUDI'S SABIC INKS DEAL TO BUILD CHINA PETROCHEMICALS PROJECT

Saudi Basic Industries Corp (SABIC) signed an agreement with Shenhua Ningxia Coal Industry Group to build a petrochemical complex in China.

The joint project would be a "Greenfield petrochemical complex" located in the Ningxia Hui Region of China and would help the Saudi company diversify its feedstock sources.

The joint venture would benefit from its location in Ningxia and utilize locally available coal feedstock to be supplied by SNCG. The Chinese company is a unit of Shenhua Group Corporation Limited.

The plans were part of SABIC’s ongoing strategy to diversify its operations geographically and to seek investments that would open up the company to new markets.

The China-based complex would also help SABIC get its feedstock from a wider variety of sources.

Week 22 May 22 - May 28, 2016 8 MAY 22 - MAY 28, 2016 WEEK 22

CAPITAL MARKETS ______EQUITY MARKETS: EXTENDED PRICE DECLINES IN REGIONAL EQUITIES AHEAD OF RAMADAN

MENA equity markets saw extended price declines this week, as reflected by a 1.4% drop in the S&P Pan Arab Composite Index, mainly driven by price falls in the Saudi Tadawul and the Qatar Exchange, amid some profit-taking operations ahead of the Holy month of Ramadan and as some market players opted to leave room for large regional bond issues.

In details, the heavyweight Saudi Tadawul was marked by a sell-off mood during this week, as some investors opted to book profits ahead of the Holy month of Ramadan. This was reflected by a 3.1% fall in the S&P Saudi index. NCB’s share price plummeted by 3.4% to SR 41.15. Al Rajhi’s share price dropped by 1.9% to SR 57.90. SABB’s share price tumbled by 6.9% to SR 21.33. Also, petrochemicals registered price declines despite an extended oil price increase of 1.2%. Petrochemicals giant SABIC’s share price declined by 0.8% to SR 82.43. Sahara Petrochemical Company’s share price shed 2.9% to SR 11.11. Advanced Petrochemical Company’s share price closed 3.1% lower at SR 48.20. Saudi Kayan’s share price tumbled by 5.8% to SR 6.39.

In parallel, construction stocks traced a downward trajectory. A report released by NCB showed that KSA’s construction contract awards have declined by 51% year-on-year in 1Q 2016 and by 39% since the previous quarter to stand at SR 27.9 billion. Jabal Omar’s share price fell by 4.0% to SR 57.03. Makkah Construction and Development Company’s share price retreated by 1.3% to SR 86.71. Najran Cement’s share price dropped by 8.5% to SR 13.50. City Cement’s share price decreased by 1.1% to SR 14.57.

The Qatar Exchange reported a 0.7% decline in prices week-on-week amid a slowdown in activity ahead of the month of Ramadan and as all investors’ eyes focused on an unprecedented Eurobond sale of US$ 9 billion. Ooredoo’s share price decreased by 2.0% to QR 85.40. Vodafone Qatar’s share price retreated by 0.3% to QR 11.19. Industries Qatar’s share price declined by 1.1% to QR 98.00. Barwa Real Estate’s share price fell by 2.2% to QR 31.10. Qatar Navigation’s share price shed 2.4% to QR 86.80. Ezdan Holding’s share price dropped by 2.9% to QR 17.04.

EQUITY MARKETS INDICATORS (MAY 22, 2016 TILL MAY 28, 2016)

Sources: S&P, Bloomberg, Bank Audi's Group Research Department

Week 22 May 22 - May 28, 2016 9 MAY 22 - MAY 28, 2016 WEEK 22

In contrast, the UAE equity markets posted a 1.5% increase in prices week-on-week, driven by some favorable company-specific factors. In Dubai, Deyaar’s share price rose by 2.9% to AED 0.601. Deyaar said that it has formed a partnership with Turkey’s Ascioglu to build a residential tower in Dubai. Shuaa Capital’s share price climbed by 10.1% to AED 0.644. Shuaa Capital said it has cut about 15% of its workforce. Emaar Properties’ share price increased by 2.7% to AED 6.370. Emaar Properties’ Saudi division awarded the construction contract for a new Jeddah project to Arabian Construction Company. In Abu Dhabi, Sharjah Islamic Bank’s share price jumped by 6.2% to AED 1.54. SIB said it has repaid a US$ 400 million Sukuk from its own funds. Aldar Properties’ share price rose by 2.3% to AED 2.63. Taqa’s share price surged by 13.2% to close at AED 0.60 amid an extended oil price rise.

Finally, the Egyptian Exchange posted a 0.2% rise in prices week-on-week, driven by some favorable market-specific and company-specific factors. TheEgyptian government approved a US$ 2.5 billion grant from Saudi Arabia aiming at supporting the country’s economic program. Medinet Nasr’s share price jumped by 2.5% to LE 19.83. Medinet Nasr announced a 90% year-on-year jump in its 2016 first quarter net profits to reach LE 68.6 million. Orascom Construction’s share price rose by 1.4% to LE 53.72. Orascom Construction posted net profits of US$ 23 million in the first quarter of 2016, up significantly from US$ 6 million in the corresponding period of 2015. Talaat Moustafa Group’s share price edged up by 0.8% to LE 6.08. Palm Hills Development’s share price closed 1.2% higher at LE 2.52. ______BOND MARKETS: TWO-WAY FLOWS IN REGIONAL BOND MARKETS

MENA bond markets saw mixed price movements during this week. Some papers registered price declines as market players reduced their holdings in order to leave room for new regional bond issues. On the other hand, some other papers recorded price increases amid some offshore buying.

In the Qatari space, a sell-off mood prevailed ahead of an unprecedented Eurobond sale that marked the biggest-ever bond issue from the Middle East. In details, Qatar raised US$ 9 billion through the sale of US$ 3.5 billion five-year notes priced to yield 120 bps over US Treasuries, US$ 3.5 billion 10-year bonds priced at 150 bps over US Treasuries and US$ 2 billion worth of 30-year papers priced at 210 bps spread. The size of the offer was almost double than the original to benefit from lower pricing ahead of a rate rise by the US Federal Reserve and exploit the available liquidity without having to pay a materially higher premium.

Under these circumstances, sovereigns maturing in 2018, 2019, 2020 and 2022 posted weekly price falls of up to 0.75 pt. Longer-term sovereigns maturing in 2040 and 2042 closed down by 0.25 pt and 0.50 pt respectively. Ooredoo papers maturing in 2023, 2025, 2028 and 2043 saw price decreases ranging between 0.38 pt and 1.38 pt. Ooredoo picked banks, including ANZ, Bank of America Merrill Lynch, Citigroup and HSBC for a US dollar bond sale. As to papers issued by financial institutions, QNB papers maturing in 2017, 2018 and 2020 registered price declines of 0.13 pt each. In contrast, Ahli Bank of Qatar’21 was up by 0.19 pt amid a decent offshore bid. IBQ’20 traded up by 0.44 pt.

In Dubai, sovereigns maturing in 2020, 2021 and 2043 closed down by 0.25 pt each over the week. DUGB’22 was down by 0.13 pt. DEWA’16 was down by 0.19 pt. Prices of DP World’17 and ’20 declined by 0.13 pt each. DP World raised US$ 1.2 billion from the sale of seven-year Islamic bonds priced to yield 237.5 basis points over the benchmark midswap rate. The issue received more than US$ 2.5 billion in bids. The proceeds from the bond sale would be used to fund an offer to buy up to US$ 750 million of DP World’s existing 2017 Sukuk and for general corporate purposes. In parallel, financials registered price gains amid some offshore demand. DIB’21 and DIB Perpetual were up by 0.13 pt and 0.38 pt respectively. Prices of Commercial Bank of Dubai’18 and ’20 rose by 0.13 pt each. As to new issues, Emirates Islamic Bank raised US$ 750 million from the sale of five-year Sukuk. Pricing for the instrument has been set at 220 bps over midswaps after attracting orders from investors worth more than US$ 2.2 billion.

In Abu Dhabi, sovereigns maturing in 2019 and 2021 posted weekly price drops of 0.38 pt each. ADGB’26 was down by 0.50 pt. Mubadala papers maturing between 2019 and 2023 saw price falls

Week 22 May 22 - May 28, 2016 10 MAY 22 - MAY 28, 2016 WEEK 22

ranging between 0.13 pt and 0.75 pt. Prices of Taqa’23 and ’24 declined by 0.25 pt each. Taqa’36 traded down by 0.50 pt. Amongst financials, prices of ADCB’23 declined by 0.13 pt. NBAD’17 was down by 0.13 pt. In contrast, FGB’20 closed up by 0.13 pt. Prices of Noor Bank’20 increased by 0.25 pt. Regarding new issues, Etihad Airways raised US$ 500 million through a five-year bond for capital spending, investment in planes and to refinance debt.

In the Saudi space, SECO attracted offshore buying. SECO papers maturing between 2017 and 2044 registered price gains ranging between 0.13 pt and 2.13 pts week-on-week. Prices of Dar Al Arkan’18 and ’19 increased by 0.25 pt each. Saudi Arabia is preparing to sell its first bond in the international capital markets as it seeks foreign financing to plug its budget deficit. Also, Saudi Aramco is working with JPMorgan Chase & Co., HSBC Holdings and Riyad Bank on the company’s first sale of Islamic bonds. Finally, Bahraini sovereigns maturing between 2020 and 2044 saw price increases of up to 0.88 pt.

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

Week 22 May 22 - May 28, 2016 11 MAY 22 - MAY 28, 2016 WEEK 22

SOVEREIGN RATINGS & FX RATES

Sources: Bloomberg, Bank Audi's Group Research Department

______DISCLAIMER

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