Gulf banks major acquirers in MENA

Updated 04 February 2013
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Gulf banks major acquirers in MENA

Banks in the Gulf Cooperation Council (GCC) countries are becoming active buyers again of stakes in banks in the Middle East and North Africa (MENA) and even farther afield, Standard & Poor’s said yesterday.
As acquirers in MENA, Gulf banks are taking the place of European banks that are shoring up their balance sheets in the aftermath of the financial and sovereign crises.
“Banks in the Gulf have capital to spare, and are literally capitalizing on their traditional strengths such as strong capital positions, healthy liquidity, and supportive shareholders to pursue acquisitions in MENA emerging-market countries, where opportunities for long-term growth exist,” said Standard & Poor’s credit analyst Timucin Engin.
Standard & Poor’s Ratings Services has noted a sharp rebound in acquisitions by Gulf banks in 2012, especially in Turkey and Egypt, in a report published today, “Exit European Banks, Enter Gulf Banks as Major Acquirers in the Region’s Emerging Markets”.
Mergers and acquisitions in 2012 in MENA were the highest since 2008, and buyers favored the financial sector slightly more at 30.5 percent of transactions than telecommunications at 26.7 percent. And Egypt and Turkey attracted much of the activity. According to the report, 142 deals were announced or closed in Turkey for a total value of $ 10.1 billion, and in Egypt, transaction volume reached $ 9.8 billion from 38 deals.
Looking at the prices of the announced and realized deals, we observe that the price of a controlling stake in a financial institution is significantly lower than before the crisis, creating affordable access for long-term business operators.
“We look at the potential impact on the ratings of issuers on a case by case basis. Potential rating movements depend on a conflux of factors, such as how well capitalized the acquirers will be post-acquisition, how well they will manage the credit exposures arising from these expansions, and whether they will be able to reap potential benefits of diversification,” said Engin.
Growth into higher economic risk countries could boost a bank’s risk-adjusted capital requirements, lowering our assessment of its capital adequacy. However, Gulf banks generally have supportive shareholders and strong internal capital generation which might serve as a cushion.
Furthermore, these transactions are opportunities for diversification into markets with large unbanked populations, which can provide for longer-term growth. A negative factor is that, excluding a few ones, banks in the Gulf — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates — usually lack lending and credit underwriting experience outside their region, which we view as a significant risk factor.
According to the S&P report, European banks will continue to sell noncore assets, especially those outside of their home markets, to rebuild their balance sheets in the aftermath of the financial and sovereign crises, and meet tighter regulatory requirements.
Before the crisis hit, major European banks acquired a large portfolio of financial institution stakes in key emerging markets to provide them with long-term growth opportunities.


Starbucks blames slower China growth on drop in third-party delivery orders

Updated 13 min 15 sec ago
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Starbucks blames slower China growth on drop in third-party delivery orders

SINGAPORE/SHANGHAI: Starbucks Corp. has reported a sudden slowdown in China growth just weeks after trumpeting rapid expansion in the country, citing a drop-off in unapproved third-party delivery services whose bulk orders had been clogging up its cafes.
The US cafe chain on Tuesday same-store sales would be flat to slightly negative in its second-biggest market in April-June, versus 7 percent growth a year earlier. The announcement was followed by a 9 percent drop in Starbucks’ share price.
China has been a sweet spot for Starbucks for the past few years, as the country embraces cafes and opens up to drinking coffee over tea while growth saturates back home. Last month, the firm said it aimed to triple China revenue and double cafe numbers to 6,000 by 2022.
But on Tuesday, the company said new cafe openings were cannibalizing customer visits at other stores, as also happened in the United States. However, Starbucks particularly noted a decline in third-party firms — with whom it had no formal arrangements — that placed large orders for delivery to their own customers, often resulting in long in-store queues.
“I think it was driven by the government to want to stop having third parties do that because it was creating annoyances,” Chief Executive Kevin Johnson said on a call with analysts on Tuesday. He said the remedy was to seal a delivery partnership with a “large tech company” by the end of the year.
Reuters was unable to confirm any government measures on the matter.
Third-party “daigou” shopping agents in China offer services via delivery platforms such as Ele.me, backed by Alibaba Group Holding Ltd, and Meituan-Dianping, backed by Tencent Holdings Ltd. Restaurants and cafes can also have official accounts on such platforms, though Starbucks does not.
Mizuho Securities analyst Jeremy Scott in a research note said Starbucks would have been happy for the no-cost custom generated by third-party delivery services, but an official arrangement will likely push up costs.
“While the Street may be willing to forgive a tough May ... the soft comp (comparable store sales) in China is more disheartening given that management is hyper-focused on the market,” said Scott.
Starbucks also on Tuesday said it planned to close 150 cafes in the United States and open fewer locations in its financial year beginning in October, in response to competition that has seen new coffee chains, convenience stores and fast-food restaurants improve quality and cut prices.