West Palm Beach (HedgeCo.net) – Fitch Ratings has taken a positive view of the recent moves by the United Arab Emirates (UAE) government to boost liquidity in the banking system but notes that the operating environment has become more challenging.

"The risks of a UAE bank suffering a capital markets-driven liquidity crisis are limited as none of the banks are reliant on these markets. Their funding bases are predominantly based on retail and corporate deposits, with the balance as inter-bank borrowings and some limited debt capital market issuance," says Robert Thursfield, Director in Fitch’s Banks team.

"However, UAE banks face mounting challenges in the form of slower economic activity, a property market correction and negative valuation adjustments from continuing volatility in regional stock markets."

It is unlikely, Fitch says, to change the banks’ Long-term Issuer Default Ratings as these are driven by expected support from the UAE authorities, although Individual ratings could come under pressure if the banks’ ability to fund themselves deteriorates, leading to declining growth, profitability and the erosion of capital.

Fitch says the series of measures taken by the Central Bank of the UAE (CBUAE) and UAE Ministry of Finance (MOF) are likely to strengthen confidence in the bank sector.

The longer-term challenge faced by the banks is to develop other funding/capital sources so they can continue financing a significant pipeline of infrastructure projects.

A more immediate challenge for the banking sector is the likelihood of a negative impact from major corrections and continuing volatility in regional stock markets. The Dubai Financial Market was down about 44% YTD and the Abu Dhabi Securities Exchange down about 23% YTD as of 21 October 2008.

The Dubai property market has seen spectacular growth in recent years but there is increasing concern that a correction will occur in the short- to medium-term. Stress in the local interbank market is likely to have a negative impact on the availability of residential mortgages and funding for property developers, which would dampen demand as supply is forecast to increase.

The declining oil price will negatively impact business sentiment and domestic economic activity (Brent was priced around $67 a barrel on 21 October 2008). This could result in the postponement or cancellation of some major projects. However, Fitch estimates that Abu Dhabi would continue to run a budget surplus at a price as low as $31/bl.

Bank results for the year to end-September 2008 will be published soon and Fitch expects to see slower growth in loans and deposits, higher funding costs and negative investment portfolio mark to market valuations. Fitch will review the results and may comment further on the sector’s performance.

Alex Akesson

Editor for HedgeCo.Net
Email: alex@hedgeco.net

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Tags: advisory-services, boston, business-assets, currency-policy, debt-markets, financial-investors, global-economy, international-finance-centre, recapitalisation, sec-investor

West Palm Beach (HedgeCo.net) – The Morgan Stanley Frontier Emerging Markets Fund, Inc. (the “Fund”) has issued 7,100,000 shares of common stock at a price of $20 per share resulting in gross proceeds to the Fund of approximately $142,000,000.  The Fund’s shares began trading on August 25, 2008 on the New York Stock Exchange under the symbol “FFD.”

The newly organized, non-diversified closed-end fund’s investment objective is to seek long-term capital appreciation. "There can be no assurance that the Fund’s investment objective will be achieved." Morgan Stanley said as the Fund’s lead underwriter.

The Fund will seek to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets in equity securities of companies operating in frontier emerging market countries.

Frontier emerging market countries in which the Fund currently intends to invest include: Bahrain, Bangladesh, Botswana, Bulgaria, Croatia, Ecuador, Estonia, Ghana, Jamaica, Jordan, Kazakhstan, Kenya, Kuwait, Latvia, Lebanon, Lithuania, Macao, Mauritius, Namibia, Nigeria, Oman, Panama, Qatar, Romania, Saudi Arabia, Serbia, Slovenia, Sri Lanka, Trinidad and Tobago, Tunisia, Ukraine, United Arab Emirates and Vietnam.

The Fund’s assets are managed within Morgan Stanley Investment Management’s Emerging Markets Equity team. “We have a long tradition of emerging markets investing dating back to the mid-1980’s, with the objective of helping investors capture growth opportunities in developing economies,” said Ruchir Sharma.

“We launched a Frontier Fund to invest in markets that we believe are continuing to grow and are not currently on most investors’ radar screens. The Fund’s registration in over 30 frontier markets across geographical regions gives us a wide footprint to make active country allocation decisions, and we are excited about the potential opportunities."

Alex Akesson

Editor for HedgeCo.Net
Email: alex@hedgeco.net

HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!

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Financial Times – Abu Dhabi Commercial Bank has filed a lawsuit against two US banks and two rating agencies over losses from a collapsed $6bn structured investment vehicle, formerly managed by London-based hedge fund Cheyne Capital.

In the suit in a US court, the bank, which is majority owned by the largest of the United Arab Emirates, is seeking unspecified damages from Morgan Stanley, Bank of New York Mellon, Moody’s Investors Services and Standard & Poor’s.

The suit alleges investors were misled over the quality of assets held by the SIV, a vehicle that was part of an industry that was worth $400bn before it was decimated by the credit crunch. The crunch cut the value of asset-backed and other financial debt these vehicles invested in, while also causing their funding to evaporate.

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