Gulf markets hope good news will travel far

Volumes tripled year's average last month Emaar bond issue, Etisalat bid for Zain stake and Dubai debt sale to influence market Hadeel al Sayegh Gulf markets are expected to continue a euphoric run this week with larger traded value and volumes as good news from last week carries past the end of the third quarter, brokers say. Mohammed Ali Yasin, the chief investment officer at CAPM Investments in Abu Dhabi, said investors would be holding their positions as this week marked the start of the third-quarter reporting season.

Dubai and Abu Dhabi share values rose by 13.2 per cent and 7.2 per cent respectively last month, with volumes tripling the year's average as investment banking activity resumed in the UAE. Acquisitions, debt issues, debt restructuring and initial public offerings have sustained a rally that began at the start of last month. Investors will this week be looking for greater information on a prospective deal by the UAE's largest telecommunications operator, Etisalat, to acquire 46 per cent of the Kuwaiti telecoms operator Zain. The deal is still being considered by both companies.

Shares in Etisalat were suspended on the Abu Dhabi Securities Exchange last Wednesday and resumed trading on Thursday as the news broke. Brokers say investors will this week also begin to digest the news that the Dubai developer Emaar Properties is raising US$450 million of debt from investors. The five-year note, carrying an interest rate of 7.5 per cent, was increased from $375m on strong demand and may be further increased to $500m.

"Emaar would not have done that unless they felt that there would be an appetite for it," Mr Yasin said. "Everyone is looking to the Emaar story and the effect of the convertible bond. People did not fully absorb the news and that is what we will be waiting for." Shares in Emaar fell 1.8 per cent to Dh3.73 last Thursday. The developer's bond prospectus revealed more details about the major Islamic mortgage provider Amlak Finance. Emaar owns a 48 per cent stake in Amlak, which may need to restructure its debt, possibly exposing Emaar to loan write-offs and a decrease in the value of its investment.

Shares of Amlak and its rival Tamweel, both of which are publicly listed, have been frozen since November 2008, spurring a grey market in their trade. Last week, Dubai Islamic Bank increased its stake in Tamweel to 57.33 per cent, ending the prospect of a long-contemplated tie-up between Amlak and Tamweel. Investors also showed strong interest last week in Dubai's $1.25 billion sovereign bond issue, which was four times oversubscribed. It was Dubai's first bond sale since November last year when Dubai World said it was seeking to delay its debt payments.

"The fact that the Government was able to raise that amount of money without paying too much in terms of interest is very positive," Mr Yasin said. The Gulf region is expected to raise $10bn through debt sales in the fourth quarter, Royal Bank of Scotland forecasts, with issues coming from governments, state-owned entities, banks and other corporations. The debt accord struck over the Eid holidays by Dubai World with most of its bank creditors to restructure $24.9bn of debt brought much-needed confidence to the markets and foreign investors.

The cost of insuring against Dubai debt through credit default swaps has fallen from this year's high of 6.55 percentage points in mid-February to about 4.30 percentage points more recently. "We have seen some positive signs in the market that will help to maintain a lot of the gains last week," Mr Yasin said. "We may even get some positive surprises from earnings that will [provide] some additional positive momentum going forward, but basically all the indicators are looking good from here."