INTERVIEW: ‘Aramco IPO is going to change markets in the region,’ says strategist Yazan Abdeen

INTERVIEW: ‘Aramco IPO is going to change markets in the region,’ says strategist Yazan Abdeen
Illustration by Luis Grañena
Updated 16 September 2019

INTERVIEW: ‘Aramco IPO is going to change markets in the region,’ says strategist Yazan Abdeen

INTERVIEW: ‘Aramco IPO is going to change markets in the region,’ says strategist Yazan Abdeen
  • Yazan Abdeen, CEO of AD Investment Management, part of Invest AD, tells how the share sale will change the perception of MENA markets

Seasoned regional investor Yazan Abdeen has developed a simple formula for successful investing in the Arabian Gulf: “Buy when people cry. Sell when they yell.”

His maxim implies that investors should appreciate the buying opportunities in falling markets, as well as the chances of realizing a healthy profit in periods of market enthusiasm. It has served him well in a career of nearly two decades in the UAE and Saudi Arabia.

Abdeen is chief executive officer of Abu Dhabi Investment Management, managing a portfolio on behalf of InvestAD, one of the UAE’s big investment vehicles owned ultimately by the giant Mubadala. It is, he said, a specialist asset management firm that invests in Middle East and North Africa equities, with a basic strategy of maximizing return while managing risk.

That position gives him a good vantage point from which to survey financial business in the Gulf, and especially in Saudi Arabia, where he worked for several years with SEDCO, the Jeddah-based investment group, and in Riyadh, where he spent much of his youth.

Abdeen’s take on the current state of the Kingdom, as it gears up for the initial public offering of Saudi Aramco — the biggest event in its investment history — is illuminating. Some critics bemoan the relative lack of progress toward the Vision 2030 goals, but he believes analysts should distinguish between the long-term nature of the Vision strategy and the short-term changes that have already been accomplished.

“The National Transformation Program of 2015-16 has definitely created a shock effect in the economy. The previous standard of corporates living through government subsidy been completely changed. 

BIO

BORN:

• 1981, Jordanian citizen

EDUCATION:

• American University of Beirut, BA applied science

• London Business School, MBAs in business administration and business, finance and economics

CAREER:

• Analyst, Capital Trust

• Investment manager, Damac Holding

• VP Asset management, Noor Holding

• Asset manager, Union Properties

• Fund manager, ING Investment Management

• Head of MENA Capital Markets, SEDCO

• Head of Capital Markets, Scope Investments

• CEO and Portfolio Manager, AD Investment Management

“The major changes were seen in the contracting sector, where the main contractors were living off government spending. They would simply put a 5 percent margin on top of the government cost of a project and live off that. This situation has changed drastically. It’s also been felt in the petrochemical sector where subsidies on feedstocks have been reduced or removed,” he said.

Consumers have also felt the effect. Petrol prices have risen, as have utilities bills, as government subventions have been stopped. “I could tell the difference in the electricity bills straightaway when I moved back to Saudi Arabia after some years in Dubai,” he said.

Growth rates in the non-oil sector have slowed as a result of the cuts in government subsidies, but Abdeen believes the short-term pain will be worth it. “It was a systemic shock, but a necessary one for Saudi Arabia to refine the operational viability of the private sector,” he said.

The policy of Saudization has also had a radical effect. “One third of the population was foreign labor, and this has also been changed, creating certain stress points in the economy. The securities that have been most affected are consumer discretionary ones, retail for example, but there are companies that have changed their business modes drastically and growth market share and today are running a profitability level significantly higher than they were in 2015.”

He highlighted the electronics retail group Extra as an example of a Saudi company nimble enough to take advantages of the changes.

Abdeen agreed that the privatization program — which was estimated at one point to bring $200 billion of assets to markets and attract foreign investment through public-private partnerships and other transactions — has been slow to get off the ground, but he pointed to the sale of shares in the bank NCB as an example of a successful Saudi IPO.

He said there was still a lot of pent-up interest in the assets being prepared for sale by the National Privatization Center, and that Tadawul had needed the time to make preparation for more share sales and achieve inclusion into the MSCI index, which has been done.

He sees big opportunities in the tech sector in Saudi Arabia, with its large youthful demographic and high Internet penetration, and also pointed to the big profits Saudi investors made on the $3.1 billion sale of Careem to Uber as positive factors in the Kingdom’s investment scene: “You could argue that Careem was a Saudi company, and it is also the largest market in the region for Careem’s business.” 

In some ways, you might see the Saudi market changes and limited privatization steps so far as preparation for “the big one” — the forthcoming IPO of Saudi Aramco, confirmed to take place on Tadawul, perhaps as a prelude to a global offering, very soon. How does Abdeen view the Aramco IPO?

“I think that Aramco is going to change the platform not just for markets but also for us as asset managers in this part of the world. The weighting of Saudi Arabia in the global indices like MSCI and S&P is between 2 and 3 percent, but with the inclusion of Aramco you are talking about a significant increase, depending on the valuation,” he said.

Because Saudi markets comprise about 60 percent of the value of all regional markets, the Aramco IPO would significantly raise the profile of the Middle East in the emerging markets, he said.

“There is also the nature of Aramco itself. It is not only the most profitable company in the world, it is also the biggest single company producing crude oil. So it will have an impact both on emerging markets and on global markets,” he said.

“Whether you are a Middle East investor, or an emerging markets investor, or indeed a global investor, it is a subject you just cannot ignore. It is important for us as Middle East investors to be part of that offering,” he said.

“The rhetoric hasn’t changed since the beginning, that there will be a Tadawul listing of Aramco, and that is only natural. It needs to be offered locally, but with the Saudi market opening, it means that regional investors like us, and even global investors, will be able to invest in it in Saudi.

“After that, most of the exchanges in the world would like to have a company like Aramco listed on their exchange, but valuation and liquidity will be decisive factors in deciding where else in the world it will list. It needs to be in a global hub of capital, and the big ones around the world are well known — in New York, or London or Tokyo for that matter,” he added.

Although events in Saudi Arabia and at Aramco are taking center stage in most regional asset managers’ minds, Abdeen is still focused on the UAE, where a large proportion of his resources are committed.

He said that the biggest factors determining investor sentiment in the Emirates are commodity prices, interest rates, the real estate market and the health of the banking sector, all viewed against the backdrop of global financial, economic and geo-political pressures.

“The experts say there is a 100 percent probability that the Fed will cut rates in September, and there are two more possibilities to cut in the rest of the year,” he said. Meanwhile, he is conscious of the effect on regional investment prospects of the fallout from trade war between China and the US.

In the UAE, he believes there are challenges in the real estate, retail and some consumer sectors, but he still sees significant investment opportunities elsewhere — in the rapidly consolidating banking sector, as well as certain industrials and logistics equities.

In Dubai, he said that “hope is a stronger emotion that fear” as the emirate gears up for the Expo 2020 extravaganza next year. “The incremental capital spending to host the Expo make for good opportunities, and will drive the corporate sector. The millions of visitors who will come are going to create capital flows that will make for good opportunities. Maybe now is the time to bite the bullet on Dubai investment. It’s certainly not a time to be throwing in the towel.

“It all depends on your appetite for risk. For example, immediately after the global financial crisis you could buy Emaar shares for less than the price they eventually sold just their malls business for; equally, in Saudi Arabia in 2016 the big banks were just too cheap. The big test is, if I buy now and hold the stock for five years, whether I will still be happy,” he said.


Saudi Arabia starts trial of the first wind turbine in Al-Jouf

Saudi Arabia starts trial of the first wind turbine in Al-Jouf
Updated 05 August 2021

Saudi Arabia starts trial of the first wind turbine in Al-Jouf

Saudi Arabia starts trial of the first wind turbine in Al-Jouf
  • Dumat Al-Jandal is poised to become the largest wind farm in the Middle East

RIYADH: Saudi Arabia has started the operational trial of the first wind turbine at Dumat Al-Jandal wind farm, which once fully operational will reduce CO2 emissions by nearly 1 million tons annually and supply 72,000 homes with clean energy.

The turbines comprise towers, blades, and nacelles, which will be assembled at the project site, 900 kilometers north of Riyadh in the Al-Jouf region. The project will include 99 Vestas wind turbines, each with a hub height of 130 meters and a rotor diameter of 150 meters.

The Kingdom’s first utility-scale wind-power source is being developed by a consortium led by EDF Renewables of France in partnership with Abu Dhabi-based Masdar. The Renewable Energy Project Development Office of Saudi Arabia’s Ministry of Energy awarded the project to the EDF Renewables-Masdar consortium in January 2019 after a competitive tender.

Its tariff of $21.3 per megawatt-hour (MWh), the lowest bid submitted, was reduced to $19.9/MWh at financial close, making Dumat Al-Jandal the most cost-efficient wind-energy project in the world. According to the US-Saudi Arabian Business Council, the development of Saudi Arabia’s renewable energy sector could create up to 750,000 jobs over the next decade, as the Kingdom pushes to generate 7 percent of its total electricity output from renewables by 2030.

It will also benefit from a 20-year power purchase agreement with the Saudi Power Procurement Co., a subsidiary of the Saudi Electricity Co., the Kingdom’s power generation and distribution company. Saudi Arabia’s renewable energy program aims to contribute to a sustainable future, preserve nonrenewable fossil fuel resources, and safeguard the Kingdom’s international energy leadership, according to the King Abdullah City for Atomic and Renewable Energy. That way, the program aims to ensure greater long-term global energy market stability.

Renewable energy projects, including wind and solar, are planned across more than 35 parks in Saudi Arabia by 2030.


Saudi youth move away from cash, says report

Saudi youth move away from cash, says report
Updated 05 August 2021

Saudi youth move away from cash, says report

Saudi youth move away from cash, says report
  • Revenue in the Saudi e-commerce market is projected to reach $7.05 billion in 2021, according to data firm Statista

RIYADH, DUBAI: Saudi youth are increasingly drawn toward using digital payment channels rather than cash, a trend indicating that the Kingdom’s plan to create a cashless society is on course.

Only 18 percent of Saudis aged between 16 and 22 years use cash, while almost half of the people who are 60 and above still prefer using cash, a report by Fintech Saudi showed.

The report also showed that only 20 percent of the population in the central region of Saudi Arabia, which includes the capital Riyadh, use cash in their everyday transactions, while 37 percent of those living in the western region, use paper money in their daily dealings.

The use of paper currency is declining at a rapid pace.

Fintech Saudi survey results showed that around 60 percent of individuals Kingdom-wide still use paper money at least once a week and one out of four people in Saudi Arabia uses cash every day.

Under Saudi Vision 2030, the Kingdom aims to increase the number of non-cash transactions to 70 percent by 2025.

“The coronavirus disease (COVID-19) outbreak has led to an acceleration in cashless activity with digital payments increasing by 75 percent over the last year, while cash withdrawals from ATMs and other payment points have declined by 30 percent over the same period,” the report said.

Revenue in the Saudi e-commerce market is projected to reach $7.05 billion in 2021, according to data firm Statista. 

The numbers are expected to show an annual growth rate of 5.38 percent in the coming years, resulting in a projected market volume of $8.69 billion by 2025.


Gulf economies expected to grow 2.2 percent this year, says World Bank

Gulf economies expected to grow 2.2 percent this year, says World Bank
Updated 05 August 2021

Gulf economies expected to grow 2.2 percent this year, says World Bank

Gulf economies expected to grow 2.2 percent this year, says World Bank
  • Most GCC countries are expected to continue to post deficits over the coming years
  • The countries that posted the largest deficits in 2020 — Bahrain, Kuwait and Oman — are expected to remain in deficit until 2023

RIYADH: Economies of the Gulf Cooperation Council (GCC) will likely grow at an aggregate 2.2 percent this year after a 4.8 percent contraction last year caused by the pandemic and lower oil prices, the World Bank said on Wednesday.

“With recent progress made with the rollout of the COVID-19 vaccine globally and with the revival of production and trade worldwide, the prospects for an economic recovery are firmer now than at the end of last year,” it said in a research report.

“Although downside risks remain, the forecast stands for an aggregate GCC economic turnaround of 2.2 percent in 2021 and an annual average growth of 3.3 percent in 2022–23.”

It remains vital for GCC countries — which include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the UAE — to diversify their economies, the World Bank said, as oil revenues account for over 70 percent of total government revenues in most GCC countries.

It said it expects Kuwait and Qatar to introduce a value-added tax (VAT) this year, following the example of other GCC states that have implemented the revenue-diversifying measure in different phases over the last few years.

On the fiscal side, most GCC countries are expected to continue to post deficits over the coming years, the World Bank said, after shortfalls intensified last year because of the coronavirus crisis.

The countries that posted the largest deficits in 2020 — Bahrain, Kuwait and Oman — are expected to remain in deficit until 2023, but with narrower ratios than in the 2020 downturn. While a rebound in oil prices may lift economic prospects in the short term, the World Bank said downside risks to its outlook are “extremely high” because of the region’s heavy exposure to global oil demand and the service industries.

“Mobility restrictions including for international travel may hurt attendance at future high-profile events in the GCC — the 2020 (rescheduled to 2021) World Expo in the UAE and the 2022 Federation Internationale de Football Association (FIFA) World Cup in Qatar,” it said.


SABB records net profit of $504 million

SABB records net profit of $504 million
Updated 05 August 2021

SABB records net profit of $504 million

SABB records net profit of $504 million

JEDDAH: The Saudi British Bank (SABB) recorded a net profit after zakat and income tax of SR1,889 million ($504 million) for the six months ended on June 30, 2021.

This is an increase of SR7,785 million or 132 percent compared to the loss of SR5,896 million for the same period in 2020.

Operating income of SR3,984 million for the six months ended June 30, 2021, a decrease of SR703 million, or 15 percent, compared to SR4,687 million for the same period in 2020.

Lubna Suliman Olayan, board chair of SABB said: The bank’s “performance in the second quarter of 2021 builds on the progress made in the first quarter of the year, as we continue the implementation of our five-year strategic plan.”

She said the bank is now focused on supporting the Kingdom’s economic transformation.


Yemen central bank injects old riyal bills worth billions into market to challenge Houthi ban

Yemen central bank injects old riyal bills worth billions into market to challenge Houthi ban
Updated 04 August 2021

Yemen central bank injects old riyal bills worth billions into market to challenge Houthi ban

Yemen central bank injects old riyal bills worth billions into market to challenge Houthi ban
  • The Houthi ban has forced travelers to Sanaa and other areas controlled by the militant group into buying old banknotes from the black market at a higher rate

ALEXANDRIA: The Central Bank of Yemen in Aden has injected billions of riyals in old large-sized 1,000 banknotes into the market to address a chronic shortage of cash.

The bank also implemented several other economic measures to control the chaotic exchange market and put an end to the fall in the Yemeni riyal.

Since late 2019, the Iran-backed Houthis have banned the use of banknotes printed by the Yemeni government in Aden, creating a severe cash crunch in areas under their control which has led to local exchange firms and banks stopping paying salaries and raising remittance charges.

The Houthi ban has forced travelers to Sanaa and other areas controlled by the militant group into buying old banknotes from the black market at a higher rate and carrying Saudi riyals or US dollars.

In a challenge to the Houthis, the central bank has put billions of riyals in old banknotes into the market and started withdrawing the newly printed 1,000 banknote. Yemenis can get old banknotes from local banks and exchange firms.

However, the Houthis warned people against using the large banknotes and published copies and serial numbers of the newly circulated cash.

In a bid to regulate the exchange market and curb the plunging value of the riyal, the central bank has tightened regulations for opening new exchange shops or firms, demanding that applicants produce a three-year feasibility study prepared by a certified accountant showing estimated budgets.

Existing exchange companies must now send their annual financial statements to the bank, use an approved software for their financial activities, apply international financial reporting standards, and audit their accounts by accountants certified by the central bank.

Some Yemeni economists, however, have cast doubt over the central bank’s ability to enact the regulations after the Yemeni riyal on Wednesday broke another historic record low against the dollar.

Local money traders told Arab News on Wednesday that the Yemeni riyal was trading at 1020 to the dollar in government-controlled areas, compared to less than 980 a month ago. When the war broke out in late 2014, the Yemeni riyal was sold at 215 to the dollar.

The Yemeni government previously relocated the central bank’s headquarters from Sanaa to Aden, floated the Yemeni riyal to bridge the gap between the official rate and the black market, closed many exchange shops, and printed billions of riyals to pay public servants. But all the measures proved ineffective on the ground as the Yemeni riyal continued to drop.

Waled Al-Attas, an assistant professor of financial and banking sciences at Hadhramout University, told Arab News: “The central bank is required to control the market and close unlicensed exchange shops in parallel with tightening control and procedures on existing exchange entities.”

He noted that the latest injection of cash into the market had boosted foreign currency speculation activities and pushed up inflation.

“The large 1,000 banknote that the central bank pumped into the market represents an additional burden and additional liquidity that will cause more inflation, higher prices, and speculation on exchange rates,” he added.

The continuing devaluation of the Yemeni riyal has pushed up food and fuel prices in government-controlled areas and triggered protests.