2017’s TOP 100 GCC COM­PA­NIES

CEL­E­BRAT­ING 21 YEARS OF IN­SIGHT AND ANAL­Y­SIS

Gulf Business - - FRONT PAGE -

With many sec­tors still be­ing im­pacted by the legacy of low oil prices, the re­gion’s cor­po­rate world has ex­pe­ri­enced mixed for­tunes over the past year. Mar­more Mena In­tel­li­gence helps us ex­plore the ups and downs of the GCC’s lead­ing busi­nesses and which firms are lead­ing the pack

G CC in­dices have recorded mixed re­sults so far in 2017, with the year be­ing marked by slow re­cov­ery in oil prices and av­er­age but im­proved cor­po­rate earn­ings com­pared to 2016.

Oman’s bench­mark in­dex Muscat Se­cu­ri­ties Mar­ket de­clined 11.4 per cent in year to date (YTD) terms, the largest de­cline in the re­gion. The Saudi bourse also reg­is­tered losses of 4.4 per cent, mean­ing Saudi and MSM shares bore the brunt of the neg­a­tive in­vestor sen­ti­ment linked to a lack of oil price growth dur­ing first half of the year de­spite an OPEC and non-OPEC deal to cut pro­duc­tion.

On the other hand, the price indexes of the Kuwait, Bahrain and Dubai fi­nan­cial mar­kets reg­is­tered growth of 15.1 per cent, 4.5 per cent and 3 per cent re­spec­tively. But the S&P GCC Com­pos­ite in­dex still de­creased slightly by 2.1 per cent, as the drag led by MSM and Saudi Ara­bia was only par­tially off­set by pos­i­tive re­turns in other GCC mar­kets.

Cor­po­rate earn­ings in Saudi Ara­bia and Bahrain grew by 7 per cent and 6 per cent (year-on-year ba­sis) in H1 2017 re­spec­tively. Pos­i­tive mo­men­tum in its non-oil pri­vate sec­tor mainly sup­ported Saudi Ara­bia’s earn­ings growth. No­tice­ably the growth in Bahrain’s cor­po­rate earn­ings was at­trib­uted to fi­nan­cial ser­vices (111 per cent). Over­all, H1 2017 was another pe­riod of slow re­cov­ery for GCC mar­kets af­ter the de­cline of the oil price in re­cent years.

Emerg­ing mar­kets have be­come the favourite des­ti­na­tion for for­eign in­vestors with US in­ter­est rates re­main­ing low. India’s Sen­sex has gained 19.6 per cent in the YTD and MSCI’s Emerg­ing Mar­kets In­dex and BRIC In­dex have gained 29.6 per cent and 35.3 per cent. Mar­kets in ad­vanced economies were also pos­i­tive with the S&P 500 and the UK’s FTSE in­creas­ing by 14.1 per cent and 5.5 per cent re­spec­tively.

Ac­cord­ing to the monthly mar­ket’s re­view pub­lished in Oc­to­ber 2017 by Mar­more, Brent crude closed at $58 per bar­rel, which rep­re­sents a YTD in­crease of only 1.3 per cent. Oil prices in­creased by 9.9 per cent in Septem­ber 2017, due to bet­ter OPEC com­pli­ance with sup­ply cuts and a drop in the num­ber of oil rigs in the US.

GCC coun­tries are turn­ing to both do­mes­tic and for­eign debt mar­kets to fi­nance their ris­ing fis­cal deficits, and this trend is likely to per­sist in the short to medium term. The drop in oil prices since mid-2014 has shifted the large ag­gre­gate cur­rent ac­count sur­pluses of GCC coun­tries, ac­cu­mu­lated in the past decade, to a deficit of $28bn in 2016. How­ever as the oil price grad­u­ally re­cov­ers and fis­cal ad­just­ments un­fold, the cur­rent ac­count bal­ance is ex­pected to re­turn to a sur­plus of 1.76 per cent of GDP in 2017.

Abu Dhabi Se­cu­rity Ex­change is hop­ing to fast track at least $5bn of stock mar­ket list­ings by state­backed com­pa­nies next year be­fore Saudi Aramco’s planned $100bn IPO dom­i­nates in­vestor de­mand in the re­gion. Like neigh­bour­ing Saudi Ara­bia, Abu Dhabi is re­struc­tur­ing its in­dus­trial sec­tor to lure for­eign in­vestors with pri­vati­sa­tions af­ter lower en­ergy prices left a dent in its cof­fers. This could re­sult in at least five large list­ings in­clud­ing Abu Dhabi Na­tional Oil Co's (Adnoc) fuel dis­tri­bu­tion unit, alu­minium-maker EGA, in­dus­trial con­glom­er­ate Se­naat and Abu Dhabi Ports.

THE DROP IN OIL PRICES SINCE MID-2014 HAS SHIFTED THE LARGE AG­GRE­GATE CUR­RENT AC­COUNT SUR­PLUSES OF GCC COUN­TRIES, AC­CU­MU­LATED IN THE PAST DECADE, TO A DEFICIT OF $28 B NI N 2016.

Else­where, Bahrain Bourse (BHB) ha in­au­gu­rated the Bahrain In­vest­ment Mar­ket (BIM) – an al­ter­na­tive source of fi­nanc­ing for grow­ing busi­nesses in the king­dom and the wider MENA re­gion. The new eq­uity mar­ket aims to im­prove ac­cess to fi­nance for small and medium-sized en­ter­prises (SMEs) that do not meet the list­ing cri­te­ria for BHB’s main board.

Cuts in the debt rat­ings of Bahrain and Oman un­der­line a grow­ing gap be­tween the weak­est Gulf Arab economies and the oth­ers – a gap which may not yet be fully re­flected in mar­ket prices. All three ma­jor agen­cies have classified Bahrain’s debt rat­ing as junk. Moody’s also cut Oman’s rat­ing one notch to Baa2, two notches above S&P, which has the coun­try at junk. All three agen­cies have kept neg­a­tive out­looks for Bahrain and Oman. That is a big con­trast to the other Gulf Arab oil ex­porters, which are in in­vest­ment grade ter­ri­tory and mostly have sta­ble out­looks.

Across the wa­ter, Kuwait Fi­nance House (KFH) is look­ing to merge with Bahrain's Ahli United Bank, Kuwait’s big­gest Is­lamic lender. The Gulf ’s bank­ing sec­tor is con­sol­i­dat­ing as three years of low oil prices squeeze de­posits and push up bad loans. The merger is cur­rently only un­der study and there has been no agree­ment so far. This would be a pos­i­tive step if it closed with the right price. Ahli United Bank is Bahrain’s largest lender and has a pres­ence in Kuwait, Egypt, Iraq, Oman, Libya and the United King­dom ei­ther di­rectly or through af­fil­i­ates.

The IPO mar­ket in GCC was as slug­gish in H1 2017 as it was in 2016. The num­ber of merger and ac­qui­si­tion (M&A) deals car­ried out in the en­tire Mid­dle East and North Africa (MENA) re­gion in the first half of 2017 fell by 23 per cent year-on-year, ac­cord­ing to ac­coun­tancy firm EY. Only 192 deals were con­ducted in the re­gion dur­ing the first six months, down from 250 in the same pe­riod last year.

The big­gest deal an­nounced dur­ing the pe­riod was air­craft leas­ing com­pany Dubai Aerospace En­ter­prise’s ac­qui­si­tion of Ir­ish air­craft lessor AWAS Avi­a­tion Cap­i­tal for $7bn. The most ac­tive sec­tor in terms of deal val­ues was the oil and gas mar­ket, where $11.5bn of deals was done.

Liq­uid­ity in most GCC mar­kets has re­duced along­side de­clin­ing in­vestor sen­ti­ment. The UAE wit­nessed poor liq­uid­ity among the ma­jor mar­kets in the GCC and Saudi Ara­bia wit­nessed a sharp re­duc­tion of more than 50 per cent in its turnover ra­tio in 2017.

Road Ahead

Per­sis­tent low oil prices have led GCC gov­ern­ments to fast track re­forms, both

THE GULF ’ S BANK­ING SEC­TOR IS CON­SOL­I­DAT­ING AS THREE YEARS OF LOW OIL PRICES SQUEEZE DE­POSITS AND PUSH UP BAD LOANS.

The most ac­tive sec­tor in terms of deal val­ues was the oil and gas mar­ket, where $11.5bn of deals were done.

The big­gest M&A deal an­nounced dur­ing the first half was air­craft leas­ing com­pany Dubai Aerospace En­ter­prise’s ac­qui­si­tion of Ir­ish air­craft lessor AWAS Avi­a­tion Cap­i­tal for $7bn

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