Legendary investor Mark Mobius could open business in Saudi Arabia

Mark Mobius. (Reuters)
Updated 18 October 2017
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Legendary investor Mark Mobius could open business in Saudi Arabia

DUBAI: Mark Mobius, the legendary investor, is considering setting up an office in Saudi Arabia for his firm, the $750 billion Franklin Templeton Investments (FTI) group.

In an exclusive interview with Arab News, Mobius, who is executive chairman of FTI’s emerging markets business, said that he expected a big increase in investment opportunities in the Kingdom as part of the economic transformation strategy being pursued under the Vision 2030 reform plan, and was exploring the possibility of a permanent presence in Saudi Arabia.

“In Saudi Arabia we still have to invest via proxies, but it’s quite possible we’d like to invest directly in Saudi Arabia, and we could do that via an office there. Saudi could become very big indeed,” he said.

“We would definitely consider opening an office in Saudi Arabia and getting a full investment licence. What would make it even more attractive would be if the GCC (Gulf Cooperation Council) nations got together and unified their economies in terms of currencies and investment flows. It would be in the interest of Saudi Arabia to encourage that, and eventually include Egypt too in a big trading group,” he added.

Mobius currently invests in listed securities in Saudi Arabia in the food, banking and logistics sector, but is looking to expand his exposure to the country.

“At the moment, out of $500 million we have invested in the Middle East, some $270 million is in Saudi Arabia. But there is $29 billion of assets in the emerging markets group. We could easily double the investment in Saudi equities. If the reforms in the Kingdom move ahead, we could easily absorb another $200 million to $300 million in Saudi Arabia,” he said.

But he added that it was important for Saudi Arabia to be upgraded to emerging market status by MSCI and FTSE Russell, the index compilers. “Inclusion in the indices is vital,” he said.

Mobius, who has been investing in global emerging markets since 1987, said he was interested in any public offering of shares in Saudi Aramco, but with certain caveats.

“There are corporate governance issues that would leave a big question mark. The Saudi government is obviously running the show and will have to make it clear that the quoted element of Aramco is independent of the government. The way to do that is to have truly independent directors and ensure that they and the shareholders will get a chance to vote on key issues,” he said.

There were other issues regarding Aramco, he said. “It would also be good to spin off those things like schools, hospitals and social projects that are not strictly part of the oil business,” he said, although he conceded that dividend policy would be important in determining how global investors viewed these issues.


UAE companies challenged by debt and rising interest rates

Updated 10 min 20 sec ago
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UAE companies challenged by debt and rising interest rates

  • Debt restructurings on the rise, but below crisis levels
  • Central Bank of the UAE has raised interest rates four times since last March

There has been an uptick in recent months in heavily-borrowed companies in the UAE seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the country following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.
Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams (SR4.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to Dh2.1bn of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in Dubai were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”