Locals poised for part in takeover

PotashCorp of Saskatchewan managed to parry BHP Billiton's $40 billion hostile takeover bid last week, but the mining giant is persistent.

Regional fertiliser companies are awaiting the next move after the rejection of BHP Billiton's US$40 billion bid for PotashCorp of Saskatchewan, anticipating a positive effect on their share prices. BHP Billiton last week sought to acquire the world's largest fertiliser company and now that the takeover door has been opened, speculation about other possible bidders has grown. There is suggestion that Vale of Brazil, Rio Tinto and China, one of the world's top potash importers, could be interested.

"Commodity prices have recovered and natural resource producers are feeling confident again," Philip Keevil, a senior partner at Compass Advisers in New York, told Bloomberg. "In many cases, it makes more sense to buy something someone else has already found. This hasn't happened in the last two years when the financing dried up but that appears to be changing." Last week, Jordan's Arab Potash, in which PotashCorp has a minority stake, gained 4.5 per cent on the last two days of trading as it became apparent the BHP effort would be rejected. Arab Potash's stock closed at 32 Jordanian dinars.

The results of the BHP bid would affect only potash companies in Jordan and Morocco, said Yazan Abdeen, a fund manager at ING Investment Managementin Dubai. Morocco and Jordan are among five countries that control 90 per cent of the world's phosphate reserves. The other major players include South Africa, China and the US. The news is not expected to boost the shares of other regional fertiliser companies such as IQCD, Orascom Construction Industries and SAFCO.

Those companies supply products other than potash, such as urea, Mr Abdeen said. Companies in the Gulf are not takeover targets as governments hold majority stakes in them, said an analyst who asked not to be named. And most of the Gulf enterprises concerned are not purely fertiliser businesses but are also involved with products such as steel and petrochemicals. For the UAE markets, although daily volume has improved in recent weeks, analysts say that is not enough to trigger long-term interest.

"Low volumes and low liquidity continue to persist," Mr Abdeen said. "The shift has to come from fundamental drivers such as international money flow and increased retail and institutional participation in the market." Daily trading volume on the Dubai Financial Market (DFM) last week increased from 32.2 million shares on Sunday to 67.5 million shares on Thursday. On the Abu Dhabi Securities Exchange (ADX), trading volume increased to 63.6 million shares on Thursday from 40.9 million shares on Sunday.

Last week, DFM shares, which are traded as DFM Company, were downgraded to "sell" from "neutral" by Deutsche Bank. Analysts attributed the market's lack of liquidity to low trading of companies listed on the bourse in the past two quarters and the absence of initial public offerings. "From an analytical perspective, liquidity is studied on three-month average, and a trend in daily volumes is not likely to significantly affect the three-month average in volumes."

Three-month daily average volumes were 56.4 million for the ADX and 88.4 million for the DFM. Last week, the UAE's local indexes made large strides coming out of the second quarter's earnings results. Dubai's measure added 1.8 per cent to close at 1,492.16, and Abu Dhabi's gained 0.8 per cent, closing at 2,506.29. The Abu Dhabi Islamic Bank's MSCI Index added 1.3 per cent to close at 892.7. Analysts believe the worst is over, as the banking sector showed transparency over Dubai World debt. "I think the positive surprise that should come next is a clean-up in the financial system," Mr Abdeen said.

"This means an accurate marked-to-market policy, and downsizing the balance sheet sizes of the banks so they can start a fresh new start that can spark growth." On the ADX, Abu Dhabi Commercial Bank ended the week 0.5 per cent higher at Dh1.69, the highest weekly gain among Abu Dhabi banks. On the DFM, Emirates NBD, Dubai's largest lender, added 2.4 per cent to close the trading week at Dh2.47, the highest weekly gain among Dubai banks.

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