After weeks of torpid market activity, investors are hoping UAE bourses will come back to life this week as corporate earnings from some of the region's largest companies are released. Earnings are especially important this quarter as the reports are expected to offer insight into the effect of both payments made by the developer Nakheel to creditors and of the negotiations that took place last week between Dubai World and its lenders.
Emirates NBD and First Gulf Bank, two UAE banks with exposure to the Dubai World conglomerate, are expected to announce second-quarter results this week. Dubai World, which is renegotiating US$23.5 billion of debt, said on Thursday it expected to complete its restructuring process in the coming months. "Since the Dubai World meeting took place before the banks are to release their results, it remains to be seen if the banks will register their impairments this quarter, or the one after it," said Mohammed Ali Yasin, the chief executive at Shuaa Securities, based in Abu Dhabi. "It is ultimately up to the Central Bank of the UAE to decide on how impairments will be registered for the Emirati banks following the Dubai World resolution."
Last week, Emirates NBD dropped 2.7 per cent to Dh2.46 a share, while First Gulf Bank rose 0.6 per cent to Dh14.40. Smaller creditors, which hold about 40 per cent of the debt to be restructured, met Dubai World representatives at the Atlantis, The Palm on Thursday. Creditors with the largest stakes hold 60 per cent of the debt and came to an agreement with Dubai World in May. They include HSBC, RBS, Standard Chartered Bank, Abu Dhabi Commercial Bank, Emirates NBD and Bank of Mitsubishi. Dubai World must have approval from a minimum of two thirds of the banks to move forward with the restructuring process.
"External auditors are pressing on banks to classify it as impairment, which I think is not fair," Mr Yasin said. "Ultimately, the question is, will banks have to take the hit in one quarter or be able to spread it out, say, for the full year." Also of interest to investors this week will be Emaar Properties, Dubai's biggest developer. The company reported on Thursday it had profits of Dh802 million for the second quarter, compared with a loss of Dh1.2bn for the same period last year.
"It's a testament to the company to build a model that generates enough cash flow to continue in bad times," Mr Yasin said. Shares of Emaar rose 2.1 per cent to Dh3.37 for the week. In Abu Dhabi, Sorouh Real Estate is expected to announce its second-quarter results. These should help paint a clearer picture of how key property companies are doing in the midst of a depressed market. Share prices of Sorouh, Abu Dhabi's second biggest developer, moved 0.5 per cent higher to Dh1.78 last week.
Aabar Investments, through its majority shareholder IPIC, is expected to buy back the shares of its minority shareholders at Dh1.95 over the next two weeks. In response, Aabar stock surged 11.6 per cent to Dh1.92 last week. Yesterday, the Saudi Tadawul All-Share Index ended trading up 1.6 per cent to 6,187.39. It was a quiet trading day in the kingdom as second-quarter earnings were already out. Investors on the Tadawul were instead looking globally for direction, such as the renewed positive sentiment in Europe.
Analysts were disappointed that the good feeling did not spread into the Gulf. "The news on the EU banks should have carried on to the Saudi markets," said Farouk Miah, an analyst for NCB Capital, based in Riyadh. Analysts are now looking forward to events such as Saudi Al Jouf Cement's initial public offering (IPO), which closes tomorrow, to see if investors' appetites for regional IPOs have returned.
"There is a number of potential IPOs in the pipeline for Saudi Arabia," Mr Miah said. "Depending on the market's interest on the initial public offering, it should determine if there's a general interest in the market, if it is the right time to buy." Elsewhere in the region, Kuwait's index moved 1.2 per cent higher last week to 6,582.60, while Bahrain rose 0.7 per cent to 1,401.42. Oman's bourse dropped 1.9 per cent to 6,117.25 and Qatar moved 0.2 per cent higher to 6,951.89.
Other indicators revealed a mixed bag last week. Oil declined 0.4 per cent on Friday, with Nymex crude futures trading at US$78.98 a barrel. The Abu Dhabi Securities Exchange General Index rose 0.6 per cent to 2550.98. Abu Dhabi Islamic Bank's index moved 0.8 per cent higher to 929.7. The Dubai Financial Market General Index also showed slight strength, rising 0.7 per cent to 1,528.97. In Europe, seven of 91 EU banks failed stress tests and global markets managed to trade up over the weekend.