Today, after moodys downgraded trying to shift focus away from the saudi led blocs demand. We asked bloombergs middle east executive editor if the invoice will be able to move its block off its hardline stance. Reporter the 13 demands can be part of the six. The six are just vaguer. They are more general statements of principle, which obviously would open the door to some negotiation to some agreement. The six are based on agreements qatar has already signed. You think it would be easier to get to some sort of deal there. It is the u. S. Envoys trying to push the conversation back to these broader principles rather than these very specific 13 demands. Shery where does that leave the u. S. . Will they be able to achieve this . Reporter they are certainly trying. Weve had a couple of weeks where not much was happening. The sense was that things are really stuck. As yousef pointed out, it went from a hopeful phase where they did seem to be some progress between qatar and the u. S. The allies actually said that that was a positive step, but not enough yet. Going back to this list of 13 demands, it got everything stuck. This is good to see in a way, this concerted effort by the u. S. With officials to try and get this back on track. Yousef so the americans very much handson still in this process, trying to resolve things. The other parties still involved is the kuwaitis. They sent out their foreign minister. What is he hoping to get . Reporter that has been consistent in all of this. The kuwaitis are the mediators. The americans are going to the kuwaitis and using the kuwaitis. That is one thing every side agrees on, the kuwaitis are the mediators. They are trying their best. They are sending envoys. Im sure there is frustration they havent progressed further than that. What isnt happening is that sort of different tracks or different streams are starting. It is all going via the kuwaitis. Yousef moodys downgraded its outlook on qatari financials, and it said that saudi arabias biggest banks could remain profitable despite the economic pressures. We spoke to Renaissance Capital for more on this. Guest i think the fact that the government is tightening spending and it is affecting the banks negatively, that has been around for about a year now. I have been underperforming. They have been undervalued. I would argue that these concerns are correct and we should be worried about them, and i think if we continue to affect profitability over the next five years, but at the end of the day, i would argue that the saudi banks have priced for that. The market has priced in a lot of this. Yousef your voice joins a host of other Analysts Bullish on the saudi banks. In terms of those who are keen to trade on some of those ideas, i was looking at some of the capital flows to gauge interest in the saudi story. I could see from the data that there is more to it going on when it comes to the saudi story. There definitely is. If you were to trade saudi on an index level, is not a smart thing to do is that a smart thing to do . Guest i would not trade saudis on an index level. The influx have been quite significant, even during the summer months, and where the saudi banks, consumers, and on the backs of many of the names, which was really expected. Which wasnt really expected. From the past few quarters, saudi hasnt really reacted to results. This quarter has been quite different. I think we are seeing a lot of foreign inflows. If you look at the official numbers, foreign assets in the saudi market has increased. Shery another key driver of businesses in saudi arabia is nonoil gdp. What can we expect on the credit growth front . Guest that is still something that is part of the reform story. I wouldnt see it sifting through the numbers now. What saudi has been doing over the past year and a half is shifting from an Oil Dependent economy towards a nonOil Dependent economy. That is going to take time. I dont think that is something that is going to affect the numbers anytime soon. Yousef we are getting breaking wind hitting the bloomberg. This is an insurance company. Secondquarter net income at 896 million. It clearly beat the secondquarter net income. Youre looking at some further comments are saying they are on track to reach 2018, 2019 targets. They are confirming they have achieved 550 million in cost savings. The fiscal net income, 3. 2 billion. The estimate was for 3. 19 billion. Very marginal beat on the net income. Shery they were expecting visible progress on cuts. We have seen a lot of Companies Reporting the results. We have arab tech, the dubai exchange. What are you seeing on the earnings . Is there momentum going into the second half of this year . With the exception of egypt for reasons we know, the results have been quite good so far. It has been a surprise to the market. We are seeing momentum there. Yousef the other major story is coming out of qatar. We are showing what is happening with the interbank rates. It has come down a little more. We understand from our sources that more banks are now looking at further Funding Options to overcome some of those gaps. How do you feel about the qatar story now as this continues to drag on . Guest volatility is going to be the name of the game when it comes to this. I think there will still be a lot of pressure on qatar and the economy and banks. I would argue this is the beginning. I think we are still going to see more and more pressure on this. I think the stress is going to be quite volatile going forward. Shery we are hearing from reports that abu dhabi officials lendersd bankers that with significant qatari shareholders are unlikely to win significant mandates in the uae. Could we see moves expanding through the rest of the gulf nations . What sort of impact will this have on financial Business Activity in the region . Guest if we look at qatari banks, they are definitely softening as we mentioned. If we are looking at other banks who have qatari ownership, it is clear the stance of the Saudi Coalition towards qatar, whether through shareholders or qatari banks or shareholders in foreign banks, the attitude towards those banks is going to be the same. Yousef what about when it comes to the egypt story . We did have the budget deficit at a fiveyear low and more and more support of macroeconomic data. As earnings kick into high cure high gear over there, one of the key earnings . Guest there is a lot of interest in egypt right now. I think we are going to see the currency strengthening slightly through the end of the year. We like eastern tobacco. I always like to be simplistic. If youre talking about a recovery story, you would look at the banks. Cib is the largest bank. It is a proxy for the economy in the market. Shery can we say the egyptian economy has now bounced back, that Investor Confidence in the country is actually justified . Guest i would say Investor Confidence is increasing every day. Bounce back, it is still a little early. It has started to go towards bouncing back, but we are seeing positive signs so far, which is what we have been talking about and what we expected, but i wouldnt say that it has bounced back. Yousef the government is also extending costcutting efforts for food rations. With all this reform happening, isnt there a point where you say, wait, you might be doing too much too fast . Guest some people said that, but i think the way the government has been balancing it in doing all these subsidy cuts and trying to subsidize the needy, so far it has been balanced. Ive heard a lot of voices saying inflation is too much, and maybe you need to slow down, but i think on such a Reform Program it is very difficult to slow down, on this or any steps back. Yousef coming up, opecs best laid plans go awry. Shale producers plan to cut costs and raise output. More on the cartels struggle to get prices heading north again, next. This is bloomberg. Yousef welcome back to best of Bloomberg Markets middle east. Opec left its meeting in abu dhabi. Tracy alloway was there with the details. Tracy let me set the stage. This is a meeting by opecs technical committee. It has been getting a lot of attention which underscores concerns about compliance with that Production Cut agreement. Compliance is said to have fallen to 86 in july, the lowest since the agreement when into effect in january. In terms of what we were hearing, what was discussed at the meeting, one interesting subject was the topic of internal versus external production estimates. The uae and iraq said that opecs estimates of production were the ones at fault for any alleged failures to comply, placing the blame squarely on those external estimates. The outcome has been pretty much what you would expect. A statement from opec talks about constructive discussions. Interestingly, they do names of specific actors. They say it the uae, iraq, kazakhstan, and malaysia all expressed support for the existing monetary mechanism. To be honest, that is what weve seen before. After the st. Petersburg meeting, the uae expressed similar commitment to maintaining its Production Cut. Anchor i do wonder, will higher compliance from opec translate into High Oil Prices . We saw some of the highest compliance levels in the first half of this year. 90 plus. Didnt reallyces budge that much. Tracy the recent price action and oil has been interesting. We are it fall despite the fact that we had some pretty valid stockpile data overnight from api. Stockpiles were said to have fallen by 7. 8 Million Barrels last week, much higher than the 2. 8 million expected by the market. Meanwhile we also have Inventory Data that will come out later today, also expected to show a fall of 2. 2 Million Barrels for last week. Once upon a time you would have expected that kind of drawdown data to move the market in a positive way. That hasnt been happening. One of the explanations i have heard for that if there is still a lot of concern in the market about whether this is just seasonal strength that is going to run out. There is some evidence of that given recent refinery utilization numbers, running quite high. Meanwhile there are the overriding concerns about whether or not opecs strategy is actually going to have much of an effect on u. S. Shale production. I would also like to highlight the Financial Market aspect of all of this. If you look at cftc positioning for hedge funds, they havent really gone all in. You will remember earlier this year, they got burned quite a number of times. They would make big positive bets on the price of oil, only to get burned as shale production restarted and caused a slump in crude. That burning actually caused some pain for particularly prominent hedge funds. That was andy halls main hedge fund. You can see people are bullish, but not going all in, which explains why oil has been pretty range bound recently. Yousef we also spoke to the founder and ceo of qamar energy. Guest think the recent fall in oil prices over the past couple of months has been largely due to libya and algeria. That said, i think libyan production and the security situation is very volatile. We hear reports about one of their largest being shut down by protests. It is a question of whether this libyan recovery is really sustainable. Shery what can we expect to see out of this meeting on the compliance of these nations . Guest i think this is really a technical, monitoring meeting, and we had these before. Theres an angle on this they are trying to encourage some of the less compliant nations to join in more enthusiastically, particularly iraq to meet its obligations more closely. Im not convinced that is going to be successful, because i think all these countries have their interests. Tracy i was going to ask exactly what sticks and carrots can opec to bring to bear on noncompliant members . Guest they always lacked a reinforcement mechanism. The ultimate reinforcement mechanism is that saudi arabia in particular walks away from any deal and production goes up and prices collapse and members get hurt. That is the real nuclear option. We are not anywhere close to that now. Yousef coming up on the best of Bloomberg Markets middle east, south africas president survived a noconfidence vote, but his win leaves his old party in the firing line. More up next. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. President zuma survived a noconfidence vote, despite several members of his party turning against him. The Party May End up to be the biggest loser. Our reporter explains. Reporter there were celebrations right across after that decision was made and after the voting was counted and the results read out. One can certainly assume that it was closer than they had ever expected. They will realize that any people within their own ranks really are favoring the president zuma to leave. 198 members of parliament voted no, not in favor of that motion. Lets remember that the anc has 249 members in parliament. It is an interesting one that over 50 members didnt vote for president zuma to stay in office. Yousef we pulled up a chart on the bloomberg here. Our clients can pull it up. Lets show you the south african 10 year yield. Take a look at that rally. All the way up to 2. 5 right now. Quite a hike up. In terms of the impact from this point onward, are we going to return to a relative status quo until the next Decision Point for jacob zuma . Guest suggestions are that heads will roll considering there are so many of the ruling African Congress that voted in favor of the president to step down. Of course the big issue here is that he doesnt know exactly who those members are, but he does have a fair idea. There were a few members of parliament who did come out vocally saying we need to vote with our conscience and do the right thing, that the best thing for south africa may be to have new leadership from within the anc in order to move the country a lot more forward. Those yields themselves are set to have a torrid time considering that the remainder of the year will see the Political Party itself try to appoint a new leader in december. From here on in, it doesnt get any easier for the anc. If anything, the fractions are about to splinter and get even worse. Yousef we spoke to tim foxx. Guest the vote just showed, i think the margin of victory was very slight for jacob zuma. So we roll onto the next event, probably at the end of the year when the anc appoints a new leader. I think politics is going to continue to be the driver here. I dont think the agencies are going to take any relief from zumas reappointment and success. The verdict of the markets will remain a negative one, i suspect. Until you get some greater clarity about the future of south africa in terms of its political outlook, i think the Market Sentiment and Investor Sentiment is going to remain relatively negative, and the yields tell the story. The brand also tells the story. Probably exacerbated by dollar strength, over well. As well. I suspect we will remain in that situation until the next political story evolves. Shery that will be a clear thatge to Global Investors he survived the noconfidence vote. It seems that we are getting more and more headlines. Not only in south africa, but also venezuela and brazil. Relative to what is happening in asian emerging markets, there seems to be more negative news flow when it comes to africa and latin america. Would you say that asian emerging markets are more of a safe bet for investors when it comes to putting their money and not worrying about Political Risks . Guest i think when you have Political Risk with north korea, that is unlikely. At the moment, asia, africa, latin america, emerging markets in general are starting to see faultlines exposed. I think the markets globally have been more or less priced to perfection recently as geoPolitical Risks are highlighting some of that. There are problems looming. Yousef next on the best of Bloomberg Markets middle east, the showdown between dana gas and its creditors deepens. A look at how latest developments could affect developers and their business. This is bloomberg. Got you outnumbered. The dinosaurs extinction. Dont listen to them. Not appropriate. Now im mashing these potatoes with my stick of butter. Why dont you sit over here. Find your awesome with the Xfinity Stream app. Included with xfinity tv. More to stream to every screen. Yousef welcome back to the best of Bloomberg Markets middle east. The feud between dana gas and its a islamic shareholders takes a new step. The company now believes they might need to pay millions of dollars. Dana gas shook the islamic bond market in may after saying it doesnt comply with sharia law. Guest theres actually a precedent for this if you go back in kuwait to the crisis. They also tried to avoid this. Because interest was seen as to be usurious, all the interest that was paid you would have to refund. When that went to the judge and the prehearings, you still have to pay back the principal, but there might be a case for the interest. It is not completely unusual, but i think we can take a bit of comfort that in this particular case, the u. K. Court has said we want to year the whole thing. I think the u. K. Court probably will look at the terms of the agreement and what the intentions were of the parties. It is a bit of a long shot, but not completely a zero chance. Tracy you mentioned the u. K. Court involvement there. They said last month that danna should withdraw the court action and the whole thing should be done under u. K. Law, which would mean the u. K. Would also decide the sharia compliance of the bonds. Is that unusual . What can we expect there . Guest when you have an agreement, it is the Agreement Terms that bind the parties. The sharia compliant element isnt part of the agreement, per se. At the beginning of the transaction, you get your sharia opinion, all the parties agree that it is sharia compliant, and you move forward. There arent really sharia contingent clauses. I think the court should look at the terms of the agreement and probably enforce the terms of the agreement. That it is sharia compliant is not part of the agreement. Here in the uae, it might have been a potential angle. I think in the u. K. They will probably look at it in terms of the overall agreement and obligation. They will look at the agreement. Tracy so the high court isnt going to be issuing any. Guest i wouldnt think so. Tracy some people i had spoken to said they expected dana went would attempt to sweep some of this controversy under the rug by maybe offering a suite and restructuring deal. Are you surprised that hasnt happened . Guest theres an ongoing negotiation going on. Both parties are looking to get an advantage. Going from the position of effectively owing a lot of money in profit, they have come up with some arguments as to why things should change or why the restructuring should occur. Again, the u. K. Court did feel that there was substantial reason to actually hear a full Court Hearing in september. They had improved their position from these negotiations and discussions. I guess we just have to see what the ultimate outcome is. Tracy at this juncture in time, after we see a company say that its debtors owe it money, if this continues, does it increasingly look a oneoff . Does it Say Something about potential weaknesses in the overall financial industry . Guest there is an issue overall in that there is a lot of complexity in these instruments, a lot of legal structuring. The principles of sharia are not necessarily universal. Different parties have different ideas. I think there is an issue, but as mentioned at the outset, it is generally off the table when it comes to the financing and the transaction. The parties agree at the outset that everything is compliant. It shouldnt really be an issue. This case is a good landmark case. If it goes well for the creditors, it will create more confidence in this market. If it goes badly for the creditors, it will probably damage the market going forward. Tracy ultimately at this juncture, how do you see it playing out . Guest i would expect the courts it is hard to say but i would look to the court to reinforce the terms of the agreement, not really looking at the sharia compliance. They have made some good arguments, so lets see what happens in september. Tracy in terms of overall issuance, it hasnt been as strong as some people hoped or expected. Why you think that is, and what is needed to really ensure lift off . We are in the summer period. I think the slowdown isnt particularly unexpected. The timing of this Court Hearing in september is probably just at the beginning of the last quarter. If you still dont see issuance in october, then i think you probably can see that as an issue. If the ruling goes in the right direction, you might actually have a backlog of issuance and you might see a bit of a flow coming through in the last quarter of the year. Tracy going back to dana gas, how do you think investors or lenders are going to treat the Company Going forward . Guest with caution, obviously, in these types of situations. I feel sometimes the market has a short memory. A few years after the case is settled, if they are back in the market with good transactions, investors will be cautious, but theres always money out there looking for you. We will just have to wait and see what happens. Tracy we spoke about this just briefly, but iraq comes back to the Market Selling 1 billion worth of debt not backed by the u. S. Government. The issue is seven times overprescribed, and they tighten price guidance from 7 to 6. 75 . Are you surprised . Guest it is interesting because they were planning a deal at couple of years ago. I think at that time it was pricing at 11. 5 . They werent interested in going ahead because they said it was too expensive. You have seen quite a good spread compression over the yes the last couple of years. I think a lot of it has to do with the global environment. With all this quantitative easing, theres a lot of money floating around. It is interesting in this region, at the same time you have oil prices weakening and fundamentals weakening, the spread have also fallen. Usually you expect a weakening to be associated with a widening, but it has gone in the opposite direction. Tracy and supply is going in the opposite direction, as well. Guest they are all putting paper out into the market. I think it really is that search for yield when you have zero or negative yields in europe. All these investors are going into places where traditionally they wouldnt have gone. Iraq is just one point on that spectrum of emerging market investments. Tracy so iraq, you dont necessarily by the story about the country recovering, it just won mosul. It is about global liquidity conditions. Guest they would have to pay more, and my view. Global liquidity is definitely having a positive effect on the region. The weaknesses quite welltimed when there is excess liquidity elsewhere. It is a great time to borrow. Who knows what will happen to oil, whether shale or opec . With Interest Rates and the cost of funding being relatively low, it is probably a good time to borrow longterm, because you dont know what is going to happen in the future. Looking at oman, for example, was now at about 30. The rating agencies figure is going to head to 50 plus. That is a huge change. At least in terms of debt service, the spreads are relatively low. Tracy my colleagues here at bloomberg were reported last were reporting last week that oman is planning to raise 2 billion in Additional Debt sales this year alone. This brings me back to the supply point. Is there room for everyone in the gulf for everyone to bring issue enough . Guest when you look at yields around 6 , those are attractive yields. Where will you pick those up elsewhere . Two ratings agencies still keep an investment grade. But theyre has pushed it down into junk. The third has pushed it down into junk. When youve got 5. 5 , 6 , that is still quite an attractive level. International investors, despite all the political fractures, are still comfortable with gulf credit. I think there is appetite for those yields. Tracy how much does the oil price feed into the bond story right now . It is kind of a doubleedged sword. As the price declines, need to issue more, but maybe it goes more difficult as investors start to worry about fiscal outlook. Guest if you look at the starting point, the debt to gdp levels are quite low. There is a bit of head room before you start jeopardizing the Credit Profile to an extent that investors are worried. Theres still a bit of head room, whether one year, two years. Although countries have engaged on diversification efforts to raise revenue. There is this Inflection Point in the middle where they are spending a lot of money to try and diversify, and they still have head room. If you get to two years out, oil is still low, debt to gdp is climbing. Then you may see investors get a bit worried. It just means they will charge more yield. There is definitely appetite. What is more of an issue is if the u. S. And europe start to recover, if rates start rising there. A lot of liquidity might start going back to the jurisdictions in europe and elsewhere. Yousef coming up, a streaming video startup targeting emerging markets is a funding boost. Gets a funding boost. We ask the ceo how he can compete with netflix and amazon. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. Iflix has completed a new round of fundraising. We spoke to the ceo about how he plans to take on the market leaders netflix and amazon. Guest we are in the middle of a transformative period in media globally. The whole world is moving towards watching whatever you want to watch when you want to watch it. In emerging markets specifically, that means watching in the palm of your hand on a mobile device. Iflix is bringing Internet Television to the masses. We have been building up for the last few yea. We launched in the middle east in the last couple of months and will be launching in africa next week. Taking that ambition globally. Yousef im looking at some of the pricing structure for countries like malaysia and the differential to the netflix prices are just astounding. When are you going to be profitable at this rate . Guest in the next two to three years. Those markets have two very different strategies. You can either go after the super rich group of people who have credit cards, or there is the massmarket who are very price sensitive, but in the next three years theres 1. 3 billion people who have a smart phone and mobile broadband connection. Theyre never going to be able to afford netflix or amazon, and they are not going to have paid tv. That 1. 3 billion people at the moment, their only option to get access to Great Entertainment is piracy. What we are competing with is the price of a single pirated dvd, 2 to 3 a month, a 6. 2 billion Consumer Spending each year. To want to bring that out of piracy and the illegal market into the legal market and start getting that 6. 2 billion dollars back into the hands of amazing content creators in hollywood and the local markets in which we operate. Shery when it comes to piracy and intellectual property, emerging markets and the governments are not really very supportive. What are you seeing out there . Guest governments in emerging markets have many priorities to deal with economically and socially. Piracy is not at the top of the list. People dont want to pirate content. They just want access to Great Entertainment, and that is universal. If i cant afford paytv or netflix, often the best solution is going to be pirated dvd just down the road. For three years, iflix has been working with global studios who produce extraordinary content and Telecommunications Companies in emerging markets to make it incredibly simple and easytouse. It is integrated with my prepaid data packets. Even if i dont have a bank account, i can still get access to it. I can download and watch absolutely everything quickly. I can stream at low speeds. It is a product that really works and is really convenient. Yousef very briefly for the broader base of investors, when and where are you going to list . Guest we havent focused on listing yet. We are going to be executing our global ambition the next 12 months. We would love to be a Public Company in the future and have access to the Global Capital that that provides. Certainly, for the foreseeable future, we are focused on, building our customer base. Yousef coming up next on best of Bloomberg Markets middle east, how to win friends and influence people through football. Qatar shows the weight. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. The brazilian soccer stars transfer is a milestone for the french club. It is also seen as a political statement by its wealthy owner, qatar, the latest in a series of headline grabbing deals by qatar since june, when a saudi led alliance cut ties with the nation in a diplomatic dispute. We get more on the story. Reporter seem as, in need to show everyone that life is normal despite the blockade and saudi boycott, they meet that. This is the headline number. This excludes neymars wages. Some reports put the total value of the deal at 600 million. Perspective, last year, Manchester United had the world record, signing for a little over 100 million. That is more than double the previous deal. Tracy what do you think qatar is trying to achieve through this . Reporter you could argue that this deal was in the making before. Same thing with the f16s from the u. S. And the italian navy warships. It is being seen as, like we say, life an qatar is going proceeding normally despite the boycott. It hasnt stopped any of their international business. It is seen as a political statement, a muchneeded publicity. That is how it is interpreted because we spoke to a few people , in the sports business industry. They said there is no way that this figure actually makes sense from a financial perspective. It is way beyond anything that has been done before to be justified financially. Tracy i like the way simon cooper at the Financial Times put it. He said it is like a rich person buying a picasso, a signaling effect of power. Guest exactly. This has been the market of qatar for the past 20 years. It has been known for flashy asset buying. It has been supporting political groups in the region to the dismay of saudi arabia and the uae. It has been known for flashy asset buying. Some of that has stakes in global companies. Big real estate again, seen as a statement to build qatars soft power. That is what qatar is good at. Sometimes it backfired. In this deal, we saw the potential of it when la liga in spain said this violates financial fair play. This will make the transfer market, which is already high, even more crazy. It has not always been working well for them. Tracy one assumes if it does go through, it means that those rules dont have much teeth at all. In terms of qatars asset buying abroad, do those always pay off . How do we judge the success of those purchases if we are talking about soft power and reputation . They do not disclose any of its returns. We saw a year or so ago when glencore shares started plummeting, people were pointing the finger at investment. That didnt really work well. Then, it recovered. It is very difficult to put a number on it. Obviously if we are the q ia now, people are wondering, if qatar needs the money and if q ias assets are tied up in real estate, if that would be a smart investment will not. You tie that into the current context. We also know, in terms of making a statement, they have an Investment Program in the u. S. We broke two weeks ago a story that it is actively pursuing this in the u. S. To show the world ever thing is fine. Yousef thats it for this weeks best of Bloomberg Markets middle east. We will be back sunday morning at 8 00 a. M. In the uae on bloomberg television. Join me then. This is bloomberg. Track your pack. Set a curfew, or two. Make dinnertime device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. Introducing xfinity xfi. Amazing speed, coverage and control. Change the way you wifi. Xfinity. The future of awesome. Coming up on bloomberg best, the stories that shaped the week and business around the world. Heated rhetoric between the United States and north korea sending a chill through the markets. They will be met with fire and fury, like the world has never seen. The rhetoric continues to ratchet up almost by the hour. South africas president of what a political challenge, and chinas tourism boom spurs a surprising partnership. The marriage of online to online, or online to offline. Sheryl sandberg saying that facebook is committed to using its power for good