DECEMBER 13 - DECEMBER 19, 2015 WEEK 51

CONTACTS The MENA WEEKLY MONITOR

Treasury & Capital Markets Economy Bechara Serhal ______(961-1) 977421 p.2 CITI SAYS OIL AND GEOPOLITICS WILL BE DOMINANT FACTORS IN MENA [email protected] POLITICAL ECONOMY IN FORESEEABLE FUTURE Nadine Akkawi Citi released its 2016 prospects report for the economies, highlighting some of the key (961-1) 977401 themes it believes will play out in the region next year. It says oil and geopolitics will be dominant factors [email protected] in MENA political economy in the foreseeable future.

Private Banking Also in this issue Toufic Aouad p.3 Capital Intelligence revises ’s rating outlook to “negative” from “stable” (961-1) 329328 p.4 projects QR 46.5 billion deficit in 2016, as per Reuters [email protected] p.4 's total bank credit grows 10% year-on-year to OMR 18.3 billion Corporate Banking Surveys ______Khalil Debs p.5 GCC HIKES SHOW PEG COMMITMENT WHILE OIL STILL KEY FOR GROWTH, AS (961-1) 977229 PER FITCH [email protected] According to a recent report by Fitch, interest-rate increases by the central banks of Saudi Arabia ("AA/ Negative"), ("BBB-/Negative"), and ("AA/Stable") reflect their commitment to their exchange-rate pegs and are not the result of immediate market pressures.

Also in this issue RESEARCH p.6 GCC companies growing despite challenging business environment, as per Heidrick & Struggles Corporate News Marwan Barakat ______(961-1) 977409 p.7 QATAR'S QNB ACQUIRES STAKE IN TURKISH BANK FOR US$ 2.95 BILLION [email protected] Qatar National Bank reached an agreement with National Bank of Greece to acquire its entire 99.81% stake in Turkey's Finansbank for € 2.7 billion (US$ 2.95 billion). Jamil Naayem (961-1) 977406 [email protected] Also in this issue p.7 Saudi Aramco seeks US$ 4.7 billion loan to extract Sinopec JV cash Salma Saad Baba p.7 Gulf Marine Services secures US$ 620 million six-year syndicated financing (961-1) 977346 p.8 Utico to invest US$ 327 million in new utilities projects across the UAE [email protected] p.8 UAE’s Lulu Group to invest US$ 300 million in Egypt p.8 US-based Archer Daniels Midland to acquire 50% stake in Cairo-based Medsofts Group Fadi Kanso (961-1) 977470 Markets In Brief [email protected] ______p.9 PICK-UP IN EQUITY PRICES, TWO-WAY FLOWS IN BOND MARKETS AFTER US FED Sarah Borgi MOVE (961-1) 964763 MENA equity markets rebounded this week following the US Federal Reserve’s decision to raise its [email protected] benchmark interest rate for the first time in almost a decade, despite continuous weak Brent prices, as some investors sought assets in economies where currencies are pegged to the US Dollar. This was Gerard Arabian reflected by a 1.0% rise in the S&P Pan Arab Composite Index. In parallel, regional bond markets saw (961-1) 964047 mixed price movements. Some papers registered price increases amidst reduced anxiety after the US [email protected] Federal Reserve said that further interest rate moves would be gradual. Some other papers remained under pressure as weak oil prices continue to weigh on investor sentiment. Farah Nahlawi (961-1) 959747 MENA MARKETS: WEEK OF DECEMBER 13 - DECEMBER 19, 2015 [email protected]

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

Week 51 December 13 - December 19, 2015 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] DECEMBER 13 - DECEMBER 19, 2015 WEEK 51

ECONOMY ______CITI SAYS OIL AND GEOPOLITICS WILL BE DOMINANT FACTORS IN MENA POLITICAL ECONOMY IN FORESEEABLE FUTURE

Citi released its 2016 prospects report for the Middle East economies, highlighting some of the key themes it believes will play out in the region next year. Oil and geopolitics will be the dominant factors driving the political economy of the Middle East for the foreseeable future, as per the report. The collapse in oil prices since mid-2014 is having a profound impact on the economic and fiscal performance of both regional oil exporters and oil importers. This is also being reflected in financial markets as perceptions of creditworthiness deteriorate (reinforced by a spate of recent ratings downgrades). Governments have been relatively slow to react, but are increasingly being forced into action on economic policy in a bid to lessen the blow to the domestic economy, as per Citi. All this is unfolding at a time of heightened regional geopolitical tensions, most notably the sharp escalation in western involvement in the fight against ISIS.

Citi structures thoughts into five key themes. First is the macro fallout from lower oil prices. The sharp fall in oil prices has been a clear macro theme among Middle East oil exporters since mid-2014, but Citi thinks the economic effects of this have only begun to be felt. Throughout 2015, GCC countries have made only tentative efforts to consolidate public finances, but this is changing. Citi expects overall expenditures to contract by as much as 6% across the GCC next year (and estimates that expenditures contracted by only 1% in 2015) leading to real non-oil GCC economic growth of just 2% in 2016, down from around 4% this year and an average far in excess of 6% over the previous decade.

Second is market volatility along with challenges and opportunities. Regional equity markets have done pretty badly this year, but debt markets held up relatively well until recently, buoyed by domestic liquidity. Citi thinks the recent re-pricing of debt will accelerate in 2016 as liquidity continues to dry up and issuance increases.

Third, the UAE peg could move centre stage. The fall in oil prices has put the sustainability of oil-exporter pegs in the spotlight, and Citi has been consistently arguing over the past year that the likelihood of a de- pegging of any GCC currency in the foreseeable future is close to zero, and the likelihood of devaluation is very low. That said, Citi does see a quite convincing policy argument for devaluation in the UAE,

GDP GROWTH FORECASTS FOR COVERED MENA COUNTRIES

Source: Citi

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given the dominance of non-oil exports, mainly from and the other Northern Emirates, although maintaining its view that this is unlikely.

Fourth is a spotlight on governance. With oil prices high and rising for most of the decade prior to last year, GCC governments have faced few immediate economic challenges to test their policy mettle. But as revenues shrink, the challenges being faced by regional oil exporters will shine a spotlight on their reactions, which would be an important determinant of both their macro trajectories as well as the confidence they are able to build with investors, as per the report.

Fifth is geopolitics. As ever, geopolitics in the Middle East will continue to be a major factor in investment decisions next year, as per Citi. Overall, Citi sees another year of continued turbulence and highlights mostly the themes of a global consensus building on Syria raising the prospect of a swifter resolution to the war, the fact that an end to war in Syria would not be a panacea to regional instability, the joint comprehensive plan of action implementation day, and risks to domestic political stability from economic challenges and required reform. ______CAPITAL INTELLIGENCE REVISES SAUDI ARABIA’S RATING OUTLOOK TO “NEGATIVE” FROM “STABLE”

Capital Intelligence (CI) affirmed Saudi Arabia’s long-term foreign and local currency ratings at “AA-” and the short-term foreign and local currency ratings at “A1+”. At the same time, CI revised the outlook for the ratings to “negative” from “stable”.

The revision of the outlook reflects the ongoing deterioration in the Kingdom’s public finances, as well as CI’s expectation that the government’s balance sheet would weaken significantly over the coming years, albeit from a position of relative strength. Assuming an average oil price of US$ 50 per barrel and the continuation of current policies, the central government budget is expected to record a double-digit deficit in the region of 20% of GDP in 2015 and to continue registering large, albeit declining deficits, in 2016-2017.

Despite the weak fiscal performance and the structural fiscal shortcomings, in particular the over- reliance on hydrocarbon revenues and the narrow tax base, the government’s balance sheet remains relatively sound, characterized by sizeable financial assets and minimal debt, as per Capital Intelligence. Notwithstanding the magnitude of the budget deficit, refinancing risks currently appear to be low owing to the likely appetite for government securities from local banks and pension funds, as well as the large fiscal buffer in the form of deposits held with the Saudi Arabian Monetary Authority (SAMA), currently equivalent to more than 50% of GDP.

Balance of payments performance also weakened, with the external current account expected to post a deficit of about 3.5% of GDP in 2015, compared to a surplus of around 10% in 2014 and to remain in deficit in 2016-2017, as per CI. Official foreign assets under SAMA’s management fell from US$ 732 billion at year- end 2014 to US$ 648 billion in October 2015 and are expected to decline further in 2016. Nevertheless, Saudi Arabia remains a large net external creditor, with official foreign assets alone covering the stock of gross external debt (public and private) more than nine-fold.

Saudi Arabia’s credit ratings continue to be supported by the sheer size of its hydrocarbon reserves and by the prudent management of the country’s substantial oil endowment during the previous periods of high international energy prices, as well as by the net creditor position of the government and country as a whole, according to the rating agency.

CI expects real output growth to expand at a slower pace of 3.4% in 2015 and 2.2% in 2016, reflecting the impact of low oil prices and stagnating government expenditure on key sectors of the economy. The banking system remains sound, and currently poses low risks to the sovereign.

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The sovereign ratings remain constrained by structural fiscal shortcomings, including overreliance on oil revenues, limited tax base and rigid expenditures, as well as institutional weaknesses, socioeconomic challenges and limited fiscal transparency.

Last but not least, the Outlook for the ratings was “negative”, indicating that Saudi Arabia’s ratings are likely to be downgraded over the next 12 months reflecting the impact of lower oil prices on both the public and external finances, and consequently on the country’s capacity to absorb economic shocks. ______QATAR PROJECTS QR 46.5 BILLION DEFICIT IN 2016, AS PER REUTERS

Qatar expects to post a deficit of QR 46.5 billion (US$ 12.8 billion) in 2016, its first in 15 years and a sign of the toll cheap oil prices are taking on Gulf economies, as per Reuters.

Qatar has budgeted for revenues of QR 156 billion and expenditures of QR 202.5 billion in 2016. This compares with QR 226 billion and QR 218.4 billion respectively in the previous budget.

The shortfall is expected to be covered by local and international debt issues, as per the same source.

The budget would sustain spending in key sectors like health, education, infrastructure and transport, with special focus on railways and other projects tied to Qatar's hosting of the 2022 World Cup.

Health, education and infrastructure accounted for the largest share of the 2016 budget, at QR 91.9 billion, or 45.4% of the total, according to Reuters.

Major infrastructure expenditures, which totaled QR 50.6 billion alone, would include railways, the new Doha port, several large roadways and the expansion of electricity, water and sewage networks.

Earlier in the day, Qatar halved its forecasts for economic growth in 2015, down to 3.7% from the 7.3% forecast in June, citing the impact of lower oil prices. ______OMAN'S TOTAL BANK CREDIT GROWS 10% YEAR-ON-YEAR TO OMR 18.3 BILLION

Oman's commercial banks have achieved a robust 10.4% growth in total credit to OMR 18.32 billion for the last year ending October 2015, from OMR 16.59 billion reported in the same period last year, according to the Central Bank of Oman.

The incremental growth for the last one year was OMR 1,731.8 million, which is in line with the loan growth seen in 2014 and was mostly driven by both the corporate and segments.

The demand for credit from the corporate sector is mostly for funding projects, which are either state- owned entities, such as the Oman Oil Refineries and Petroleum Industries Company (Orpic) or semi- government-related entities.

Major real-estate projects, including hotels and resorts, are also driving demand for credit. The pipeline for credit is still strong, which will continue for another two more quarters since local banks are also actively participating in syndicated loan facilities for project funding.

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SURVEYS ______GCC HIKES SHOW PEG COMMITMENT WHILE OIL STILL KEY FOR GROWTH, AS PER FITCH

According to a recent report by Fitch, interest-rate increases by the central banks of Saudi Arabia (AA/ Negative), Bahrain (BBB-/Negative), and Kuwait (AA/Stable) reflect their commitment to their exchange- rate pegs and are not the result of immediate market pressures. Higher policy rates will contribute to slower non-oil growth in the region, but their effect on economic activity will be minor compared with the dampening effect of lower oil prices.

The 25 basis point rate hikes, in line with the decision of the US Federal Reserve, are consistent with Fitch’s assumption that GCC central banks will seek to broadly maintain the spreads between their policy rates and the Fed funds rate. As Fitch highlighted in its MENA Sovereigns Outlook, the dollar pegs of these countries are important anchors of economic policy. Since 2009, the policy rate spread has been around zero in Saudi Arabia, 25bp-50bp in Bahrain and 180bp-230bp for Kuwait.

Fitch expects non-oil activity to slow across the region, as lower oil prices weaken domestic confidence and compel governments to rein in spending plans. It forecasts GCC median real credit growth to fall to 4% by 2017 from over 8% in 2014, with non-oil growth dropping to around 4% in 2015-2017 from 5% in 2014. This reflects spillovers from lower hydrocarbon prices and not higher interest rates.

It also expects policy rates to rise only gradually, and although banks will raise lending rates, boosting their profitability, the increases will not be large enough to meaningfully affect aggregate demand for loans in 2016. Nevertheless, the combination of more expensive credit and more frugal governments will prevent a return to the growth rates of 2010-2014, when non-oil economies expanded at a real rate of 6% per year in the GCC on average.

The forward discounts at which Gulf currencies are traded against the US dollar have recently increased but are still low at around 2%, implying no devaluation expectations that could put pressure on reserves. At 3.6 months of current external payments, Bahrain's international reserve coverage ratio in 2015 is the lowest among Fitch-rated GCC sovereigns, but it is above its own long-term average of two months. According to Fitch, Reserve coverage will be ample for the other GCC countries, reaching as high as 25.6 months in Saudi Arabia.

For all Fitch-rated GCC oil exporters, other than Bahrain, vast accumulated buffers give them time to make (mostly fiscal) adjustments. At an oil price assumption of US$ 55/barrel for 2016, Fitch expects Saudi Arabia to post fiscal and current account deficits of around 10% of GDP and 5% of GDP, respectively, but it will still have estimated sovereign net foreign assets (SNFA) of around 100% of GDP. Bahrain has a negative SNFA position and an expected general government deficit of 10% in 2016, but Fitch expects its current account to remain roughly balanced. It also expects the SNFA positions to remain high for Qatar (150% of GDP), (200%) and Kuwait (450% of GDP).

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______GCC COMPANIES GROWING DESPITE CHALLENGING BUSINESS ENVIRONMENT, AS PER HEIDRICK & STRUGGLES

A study conducted by Heidrick & Struggles, shows that senior business leaders in the GCC are optimistic about the economic outlook despite historically low oil prices and anticipated government spending cuts that could contribute to tougher market conditions in 2016.

The study, entiled “Navigating in the Changing Dynamics in the GCC Region Survey 2015”, was conducted in September and October 2015. It solicited responses from 119 senior executives from multinationals, family-owned businesses, government-related entities and governmental organizations operating in the GCC region, with 47% of them from organizations with more than 5,000 employees.

The survey shows that close to 40% of respondents said that their company sales have increased more than 10%. The growth drivers primarily have been government-sponsored spending ahead of Expo 2020 Dubai, as well as infrastructure construction resulting from the target to double space in the Emirate by 2020. However, among the respondents, 21% of companies reported a decline in sales.

According to Heidrick & Struggles, despite the volatility and uncertainty in the GCC business environment, many regional business leaders are confident in their ability to deliver sustainable value. It is remarkable that in the face of these challenges, senior leaders are reporting business growth for 2015 and predicting further growth for 2016.

In fact, despite the fact that business conditions are getting tougher, opportunity is available. Nearly nine in ten respondents agreed that the business environment in the region has become more volatile over the last 18 months and more challenging than in 2014. Reduced customer spending (34.6%), more intense market competition (33.6%), talent recruitment (31.6%) and the need for increased productivity (31.6%) are the four biggest challenges participants say they are facing.

The reduced oil price (79.2%), government spending cuts (51.4%) and wider regional conflicts (38.6%) were cited as some of the factors that may contribute to tougher market conditions and could indicate a similar business environment outlook for next year.

In fact, many businesses have been impacted by issues such as the significant reduction in the oil price, growing regional conflicts, increases in labor costs, and stronger market competition. This has resulted in business leaders becoming more agile, and has encouraged them to think differently about senior team deployment so they can respond effectively to the changing dynamics.

Companies in general have a neutral-to-positive outlook on economic conditions over the next three years (neutral 37.6%; positive 42.5%). In fact, up to 70% of respondents are expecting sales to increase. Government-led initiatives are the key factors that contribute to the positive outlook, including the developing infrastructure (39.5%), the GCC's robust economic growth forecasts (37.2%), spending ahead of Expo 2020 Dubai (37.2%), as well as confidence in the GCC political leadership (32.5%), especially for respondents in conglomerates and the Industrial and Consumer sectors.

The majority of business growth in the next three years is expected to come from the Middle East, as 25.7% and 16.8% of respondents said that growth will come from within the GCC region and Iran respectively.

Compared to 2014, more than half of the respondents had increased their investments in the GCC so far in 2015. Of these, 23.7% are aiming to expand their business in other geographies and 17.8% are looking for M&A opportunities, with around 3% considering closing their offices within or outside the GCC. In addition, more than half of the respondents said they will increase their headcount in 2016, while 26% said they have no plans to add to the headcount.

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CORPORATE NEWS ______QATAR'S QNB ACQUIRES STAKE IN TURKISH BANK FOR US$ 2.95 BILLION

Qatar National Bank reached an agreement with National Bank of Greece to acquire its entire 99.81% stake in Turkey's Finansbank for € 2.7 billion (US$ 2.95 billion).

The closing of the transaction had been approved by the board of directors of both banks and the General Council of the Hellenic Financial Stability Fund, as per a QNB statement.

The closing of the transaction, which was subject to regulatory approvals and other customary closing conditions, was expected to be completed in the first half of 2016, as per the same source.

Qatar National Bank S.A.Q., together with its subsidiaries, provides commercial and Islamic banking products and services in Qatar and internationally. The company operates through four segments: Corporate Banking, Consumer Banking, Asset and Wealth Management and International Banking. It offers personal banking services, such as current accounts, savings plus accounts, fixed deposit accounts and call-notice deposit accounts, personal, educational, vehicle, vehicle lease, mortgage loans, credit cards, and insurance products, including life, vehicle, travel, home, salary continuation plans, and international saving plans.

The company also provides various investment products, such as funds, structured notes, and portfolio management services, private banking services that include banking, investment, real estate advisory and offshore banking services, corporate banking services, including short and medium term advances, contract guarantees, letters of credit, Treasury products, project finance, syndications, trade finance, and retail and cash management services, commercial banking and contractor finance services. ______SAUDI ARAMCO SEEKS US$ 4.7 BILLION LOAN TO EXTRACT SINOPEC JV CASH

Saudi Aramco is seeking to borrow US$ 4.7 billion from banks to refinance capital used to build a refinery in collaboration with China's Sinopec.

The funds raised from banks would be used to replace some of the cash Aramco invested to build the 400,000 barrels per day (bpd) refinery at Yanbu on the west coast of the Kingdom and release funds which can then be deployed in other projects.

The refinery is run by Yanbu Aramco Sinopec Refining Co (Yasref), with its ownership split 62.5%-37.5% between Aramco and Sinopec, and its products include 263,000 bpd of diesel and 90,000 bpd of gasoline. ______GULF MARINE SERVICES SECURES US$ 620 MILLION SIX-YEAR SYNDICATED FINANCING

Gulf Marine Services (GMS), a provider of advanced self-propelled self-elevating support vessels (SESVs) serving the offshore oil, gas and renewable energy sectors, secured a new US$ 620 million financing facility.

The syndicated financing combines Islamic and conventional facilities and would replace GMS’ existing funding facilities with no changes to the previous borrowing covenants. The facility has a term of six years and comprises a US$ 375 million term facility, a US$ 175 million committed capex facility and US$ 70 million facility for general working capital purposes. A further US$ 300 million uncommitted facility has also been agreed.

The banking group consisted of Abu Dhabi Islamic Bank as the initial mandated lead arranger, global c coordinator and sole bookrunner of the deal, along with Abu Dhabi Commercial Bank as initial mandated lead arranger and intercreditor agent of the deal, National Bank of Abu Dhabi and HSBC Bank Middle East Limited as mandate lead arrangers, and National Bank of Kuwait, ABC Islamic Bank and First Gulf Bank as lead arrangers. GMS was advised by Gibson, Dunn & Crutcher LLP and White & Case LLP.

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______UTICO TO INVEST US$ 327 MILLION IN NEW UTILITIES PROJECTS ACROSS THE UAE

Utico has announced investments of nearly AED 1.2 billion (US$ 326.8 million) in new utilities projects across the UAE to meet the growing regional demand for water and power.

The projects include a water transmission and storage project between Ras Al Khaimah and Sharjah and a desalination facility to be set up in Ras Al Khaimah.

Work has commenced on the AED 410 million (US$ 111.6 million) Ras Al Khaimah-Sharjah water transmission project, which can carry 50 million gallons of water either way and would have a final storage capacity of 100 million gallons once operational, as per a company statement.

The milestone project would be implemented in two phases and would be completed in 18 to 32 months with the pipeline operational in June 2017. Once deployed, the project would provide continuous water supply to more than one and half million residents in Sharjah and Ras Al Khaimah, working closely with the Sharjah Electricity and Water Authority (SEWA) and the Federal Electricity and Water Authority (FEWA). ______UAE’S LULU GROUP TO INVEST US$ 300 MILLION IN EGYPT

Lulu Group is planning to invest AED 1.1 billion (US$ 300 million) in setting up ten new hypermarkets in Egypt in the next two years, as per the company’s Chairman.

Lulu Group International, LLC engages in retail, imports and exports, trading, shipping, IT, travel and tourism and education operations in the and internationally. The company operates hypermarkets, supermarkets and department stores in Abu Dhabi, the wider GCC, and Egypt. It develops and manages shopping mall and mixed use projects in Abu Dhabi.

It also operates meat processing facilities in , exports various food and consumer items and silk and a range of garments, sources and markets vegetables and fruits, footwear, textiles, luggage, electronics, and household articles; sources and exports various agro-products, such as cashew nuts, coffee, rice, pulses, fruits, meat, fish, vegetables, etc. and imports and distributes fresh and frozen foodstuff, such as frozen meat, poultry, vegetables and dairy products. ______US-BASED ARCHER DANIELS MIDLAND TO ACQUIRE 50% STAKE IN CAIRO-BASED MEDSOFTS GROUP

Archer Daniels Midland Company (ADM) reached an agreement to purchase a 50% stake in Cairo-based Medsofts Group.

The new 50-50 joint venture would own and manage merchandising and supply chain operations, including an international merchandising operation that handles more than 1.5 million metric tons of grains, oilseeds and soft commodities annually destined for the Middle East and North Africa, a local grain distribution operation, serving customers in Egypt and an inland logistics network that links port operations to customers throughout Egypt.

In addition, the joint venture would own a 50% share of Nile Stevedoring & Storage Co. (NSSC), which operates one of the largest grain port facilities in Egypt. Located at the Port of Alexandria, the facility has an annual discharge capacity of more than 2 million metric tons and includes additional land for future expansion.

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CAPITAL MARKETS ______EQUITY MARKETS: PRICE REBOUND IN REGIONAL EQUITIES FOLLOWING US FED RATE RISE

MENA equity markets rebounded this week following the US Federal Reserve’s decision to raise its target range for the federal funds rate by 25 bps for the first time in almost a decade, despite continuous weak Brent prices hovering below US$ 40, as some investors sought assets in economies where currencies are pegged to the US Dollar. This was reflected by a 1.0% rise in the S&P Pan Arab Composite Index week-on-week.

The heavyweight Saudi Tadawul attracted a healthy demand this week following the rise in US interest rates, reversing the downward trajectory traced since OPEC decided to raise its output target in an oversupplied global oil market on December 4, 2015. This translated into a 1.7% increase in the S&P Saudi Index week-on-week. Within this context, it is worth mentioning that SAMA raised its benchmark reverse repurchase rate by 25 bps to 50 bps this week, citing developments in local and international financial markets. NCB’s share price rose by 2.4% to SR 52.73. Al Rajhi’s share price jumped by 10.9% to SR 53.58. Samba’s share price surged by 4.6% to SR 22.31. Price increases occurred although Fitch said that the tougher domestic operating environment is putting pressure on the Saudi banking sector outlook. Also, petrochemicals giant SABIC’s share price closed 1.0% higher at SR 88.30. Yansab’s share price grew by 3.6% to SR 41.97. Saudi Kayan Petrochemical Company’s share price increased by 1.3% to SR 7.89. This happened despite weak oil prices and lingering concerns over a prolonged global oil glut, with the International Energy Agency warning of worsening global oversupply in 2016.

The UAE equity markets bounced back this week, registering a 4.2% jump in prices, following the US Federal Reserve’s decision to raise its benchmark interest rate and the subsequent strengthening of the US Dollar. Price increases occurred despite concerns over spending cuts next year on the back of falling oil prices. Within this context, it is worth noting that the Central Bank of the UAE raised the interest rate on CDs by 25 bps, following the US Fed’s decision. In Dubai, Arabtec Holding Company’s share price climbed by 11.1% to AED 1.090. Emaar Properties’ share price jumped by 11.5% to AED 5.740. Emaar Malls’ share price went up by 3.9% to AED 2.700. Drake & Scull International’s share price surged by 6.3% to AED 0.407. Dubai Islamic Bank’s share price rose by 4.8% to AED 5.860.

In Abu Dhabi, Aldar Properties’ share price went up by 1.8% to AED 2.30. Esharq Properties’ share price

EQUITY MARKETS INDICATORS (DECEMBER 13, 2015 TILL DECEMBER 19, 2015)

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

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jumped by 10.9% to AED 0.51. RAK Properties’ share price surged by 4.3% to AED 0.49. First Gulf Bank’s share price grew by 6.5% to AED 12.25. ADCB’s share price closed 4.6% higher at AED 5.96.

The Egyptian Exchange registered a price rebound of 0.4% this week, tracking increases in the region following the US Fed’s decision. This also came within the context of Saudi Arabia’s pledge to raise its investments in Egypt to above SR 30 billion (US$ 8 billion) and to contribute to providing Egypt with petroleum needs for the next five years. Talaat Moustafa Group’s share price rose by 2.6% to LE 6.41. Juhayna Food Industries’ share price surged by 2.0% to LE 7.75. EFG-Hermes’ share price jumped by 6.3% to LE 8.46. Palm Hills Development’s share price climbed by 6.2% to LE 2.41. Emaar Misr’s share price went up by 1.5% to LE 2.79.

Finally, the Qatar Exchange bucked regional equity markets, pursuing its downward trajectory with a 1.0% decline in prices week-on-week amidst weak oil prices, and despite US interest rate hike and its currency peg to the greenback. Within this context, it is worth noting that the Central Bank of Qatar said in October 2015 that the country would not raise interest rates in response to a Fed rate hike, stating that the Central Bank of Qatar did not cut rates to the same level as the Fed after the 2008 financial crisis. 28 out of 43 listed stocks posted price falls, while 13 stocks registered price increases and 2 stocks saw no price change week-on-week. Doha Bank’s share price declined by 1.5% to QR 43.95. Masraf Al Rayan’s share price shed 3.6% to QR 35.00. Industries Qatar’s share price dropped by 1.7% to QR 101.00. Barwa Real Estate’s share price tumbled by 3.3% to QR 38.70. Ooredoo’s share price plummeted by 4.5% to QR 67.50. ______BOND MARKETS: MIXED PRICE MOVEMENTS IN REGIONAL BOND MARKETS AFTER US FED RATE HIKE

MENA fixed income markets saw mixed price movements this week. Some papers registered price increases amidst reduced anxiety after the US Federal Reserve said that the US economy has shown considerable strength and further moves would be gradual after the first US interest rate hike in almost a decade. Some other papers remained under downward price pressures as weak oil prices continue to weigh on investor sentiment.

In the Egyptian space, sovereigns attracted a healthy demand this week, mainly on news that Saudi Arabia has agreed to invest SR 30 billion (US$ 8 billion) in Egypt through its public and sovereign funds and that the Kingdom is also considering buying local Treasury bonds and Treasury bills instead of depositing dollars with the Egyptian Central Bank to bolster Egypt’s foreign currency reserves. Also, the World Bank approved a 35-year US$ 3 billion loan to Egypt, carrying an annual interest rate of 1.68% to be disbursed over the next three years. This move, according to officials, would help the government secure economic growth and provide FC liquidity. Under these favorable conditions, prices of Egypt’20 and ’25 rose by 0.50 pt each, and Egypt’40 closed up by 1.50 pt week-on-week.

As to credit ratings, Fitch affirmed Egypt's long-term reignfo and local currency IDR at “B” with a “stable” outlook. Egypt's ratings balance a high fiscal deficitand debt/GDP ratio, low foreign reserves coverage of imports and recent volatile political history, with low external debt and progress in implementing a wide-ranging economic reform program. The “stable” outlook reflects Fitch's assessment that upside and downside risks to the rating are currently balanced.

In Saudi Arabia, SECO’22, ’24 and ’43 posted price declines of 0.25 pt, 0.50 pt and 0.13 pt respectively over the week. Dar Al Arkan’18 and ’19 were down by 0.75 pt each, while Dar Al Arkan’16 was up by 0.13 pt. Banque Saudi Fransi’17 closed down by 0.13 pt. It is worth mentioning that SAMA raised interest rates for the first time since 2009, matching the US Federal Reserve move, despite falling oil revenues and a slowdown in economic growth.

In the Abu Dhabi space, sovereigns maturing in 2019 were down by 0.25 pt this week. Prices of Mubadala’19 and ’21 declined by 0.13 pt each. IPIC’20, ’23 and ’26 registered price increases of 0.25 pt each. IPIC’22 traded up by 0.50 pt, while IPIC’41 was down by 0.75 pt. Prices of Dolphin’19 and ’21 increased by 0.50 pt and 0.13 pt respectively. In contrast, Taqa’23 and ’24 closed down by 0.13 pt each,

Week 51 December 13 - December 19, 2015 10 DECEMBER 13 - DECEMBER 19, 2015 WEEK 51

and Taqa’36 was down by 0.50 pt. In the financial space, prices of ADIB’16 declined by 0.13 pt, while ADIB Perpetual traded up by 1.25 pt. FGB’17 posted price gains of 0.13 pt, while FGB’20 was down by 0.13 pt. It is worth mentioning that the Central Bank of the UAE raised the interest rate on CDs by 25 bps, keeping pace with the US Fed.

In Dubai, DUGB’20 and ’29 closed down by 0.25 pt each week-on-week. Sovereigns maturing in 2021 and 2022 registered price decreases of 0.13 pt each, while DUGB’23 was up by 0.13 pt. Amongst quasi- sovereigns, DEWA’16 was down by 0.13 pt. Emirates Airline’23 and ’25 witnessed price falls of 0.13 pt and 0.25 pt respectively. In contrast, DP World’17, ’20 and ’37 closed up by 0.13 pt each. Amongst corporates, Emaar’16, ’19 and ’24 were down by 0.13 pt, 0.25 pt and 0.75 pt respectively. MAF’19 and Perpetual closed down by 0.19 pt and 1.50 pt respectively, while MAF’24 was up by 0.13 pt.

In the Kuwaiti space, KIPCO’19 and ’20 were down by 0.50 pt and 0.25 pt respectively this week. In contrast, Burgan Bank’49 closed up by 0.50 pt. The Central Bank of Kuwait raised this week its benchmark discount rate by 25 bps to 2.25%, following US Federal Reserve’s move.

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 51 December 13 - December 19, 2015 11 DECEMBER 13 - DECEMBER 19, 2015 WEEK 51

SOVEREIGN RATINGS & FX RATES

Sources: Bloomberg, Bank Audi's Group Research Department

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