Transcripts For BLOOMBERG Best Of Bloomberg Markets Middle East 20170819

We talked about the Economic Outlook for qatar with mohammed sergei. Guest the selling points for qatar over the past come of years that as Oil Prices Decline and affect all the countries in the reason, qatar continues to grow faster than it. Qatarbeen its continues to grow faster than its peers. It appeared to grow faster than the reduced forecast of 2. 5 . The reason is that qatar is spending 2 billion on infrastructure upgrades to host the world cup, so that has moved the needle a little bit. The embargo has absolutely affected forecasts for this year. It is interesting to see how that will play forward that layout Going Forward. Shery expectations are high for growth in 2018. Re economists adopted . Are economists adapting . Are they expecting the economy of qatar to adapt to the boycott eventually . Guest the really important factor at play here is the assumption that tensions will not be escalated and the conflict will not be escalated. If it continues at the current trajectory, basically the economy will absorb these costs, the cost of finding new trade routes were the beginning of investor confidence, all this will evaporate. You will see the growth rates returning to what the previous expectations were. Going forward, i dont think the models actually include the plan to increase Oil Production by about one Million Barrels per day and to expand liquefied natural Gas Production significantly by 2022 or 2024. Qatar has this growth story Going Forward, but it is in crisis mode. Nobody really knows what will happen next month, let alone in the next 45 years. Yousef the head of research at the run capital. Guest gdp can come with money supply or the loss of money within the economy. Not only due to the geopolitics, but if you look at the number expected from consumption and spending, we are talking about 3 million visitors coming to qatar every year, 900,000 at least from saudi arabia. That spending power is significant. You can see a recovery in terms of velocity, because the dependence on local producers and looking into other Bilateral Agreements could make it softer. Direct investments and expected spending might even drive that growth lower. Shery the conclusion of that survey by bloomberg was that eventually, it doesnt matter how long this continues, eventually the qatari economy and markets could adapt to the boycott. What are your expectations for the markets . Will they eventually adapt to these changes . Guest from a sentimental point of view, i agree. However, from a geopolitical standpoint and the way the gcc is structured, it is not going to be easy for qatar to move forward in terms of growth. When you look at the spending power, it is a bit of a different story. In the long run, if other Bilateral Agreements and a successful story have been built, it would probably give an advantage to local producers and probably to a different political map of the region. It is not easy to see an adaptation for that, given the unified efforts are still required, and the gcc in general places have a lot of risks. It is not only qatar. Yousef lets cross to the other side of the story in terms of the earnings season and what we are seeing across the gcc. You alluded to that just now. All companies reported. We can take stock. It wasnt a great quarter by any means. The earnings analysis is a great way to get that overview. The right column is the Earnings Growth. No growth across all sectors for this list of companies. I find this particularly fascinating, you highlight the fact that there are some key lessons to be drawn this quarter. When you look at Companies Like union properties, like markup coming up with reevaluations in terms of some of those assets, what is the key warning signal with the impact on an economy not going as fast as it used to . Guest the idea is that we see a lot of emphasis, and the light is only being shed on income statements. The bottom line in general. Little attention is being given to the cashless statements. The Balance Sheets had intangible assets. Those revaluations gains have flexibility in terms of accounting standards. The market was slowing down. Accounting is late. If you look at the statement from upp, you would know that they are coming, no doubt. The performance of the other companies were read behind, and castaways were negative. The cash ones were negative. The same applies for upp. Yousef coming up, we get the outlook for oil markets that shale production looks set to hit a new high. That and the impact on saudi arabias economy up next. This is bloomberg. . Yousef welcome back to the best of Bloomberg Markets middle east. Ave Economist Says that chief Economist Says oil prices should edge closer to 60 a barrel as the year ends. Here is what they had to say about the applet for crude and economy that depend on it. Guest we think demand and supply will actually be supportive of Oil Prices Going forward. We see oil ending the year at the highest towards 60 per barrel. What is interesting at the moment is the second aspect of pricing, which is sentiment. You mentioned that the market is a bit directionless at the moment. For the last few months, sentiment was quite negative. What we were seeing for the past few months was that the market was not responding positively to positive data. To us, we believe sentiments will ultimately prevail. We see the market ignoring some of the fundamentals for some time, which was showing to us that sentiment was quite negative. I think the fact that the market is a bit directionless is a positive development for prices because is going from negative to confused. Yousef that is a very interesting take. In terms of what this means for this part of the world and saudi arabia, we had deflation numbers out for saudi arabia falling 0. 3 year on year. It shows the kingdom struggling we put itself on the chart for additional conflicts that additional context. What this shows is the ongoing struggle with the inflation. This is perhaps a bit unorthodox your white line, the bloomberg spot index. Put it all in context for us. Guest dollar weakness should be inflationary for saudi ultimately because of the dollar. The dollar is coming from a very strong level to begin with. You mentioned oil is crucial for the region. It is particularly crucial for saudi arabia. One of the recent developments we have seen from saudi arabia is the fiscal balance, which is coming out slightly improved. That is because revenues are improving because we are seeing Stronger Oil Prices compared to a few years back. There is reform taking place in the region and in saudi arabia, but still to date, the most important aspect for the saudi economy is the oil price outlook. It will affect confidence, growth, and the fiscal balance. We still havent broken away from that dependency on hydrocarbons and oil. Reporter i want to take a look at the Bigger Picture here. This may even be an existential question. Will there be a time when we can talk about the middle east devoid of oil . Is that at all possible at 2030 . Guest it should be possible. I think it is not an option. Diversifying away from oil is not something that countries have a choice on. They actually have to go ahead with it. Historically, oilproducing countries throughout the world have actually underperformed compared to nonoil countries, but what we have seen in many parts of the world, including the middle east, is that diversification and breaking away from oil happens when you are actually forced to do it. Right now with lower prices, with population expanding in saudi arabia, the need to diversify away from oil and generate jobs from the local population is bigger than ever. I think it is actually going to happen. There are positive examples. Bahrain has done it, dubai has done it. Dubai is now a fully diversified economy away from oil. David anchor do we see the likes of saudi and bahrain move from oil into services . Is that the industry that makes up for the job loss we are seeing in the former . Guest what is interesting is that oil and the hydrocarbon sector are largely capital. They rely on heavy investment. They do not rely so much on labor. If your model is based on hydrocarbons, the hydrocarbon sector will not generate the jobs for your local population. Indirectly this will help because oil revenues are taking by the government, and the government creates the jobs. I think services or manufacturing, but probably services will be the way forward. Bahrain did this in the 1980s. Dubai has done it. It was mostly driven by necessity rather than choice because both those countries were running out of oil. Saudi is behind that. Saudi is still heavily dependent on oil revenue to generate jobs. It is going to be a slow process. It will not happen overnight. It is a multiyear process, and we are seeing signs they are moving in that direction. Yousef the uae is planning to spend its way out of an economic funk caused by low oil prices. We hear more from the emirates infrastructure minister next. This is bloomberg. . Yousef welcome back to the best of Bloomberg Markets middle east. The uae gdp is set to get a boost from Infrastructure Spending as it pumps in funds oil fields. Could the ongoing spat with qatar slow down these plans . Tracy alloway spoke to the uae infrastructure minister. Guest the qatar issue is, as far as the Infrastructure Ministry and the strategy of our report, is a minute issue. We are not discussing it at all. Tracy not at all. All right. Walk us through some of the uaes upcoming plans in terms of Infrastructure Spending. Weve had reports saying you are looking to increase that spending. What is the thinking there . Guest the infrastructure, as far as ports, airports, roads, rail is actually trending within the region. As far as the ports, we are putting 25 into the 60 billion division that has been put into place in the United Arab Emirates for the next decade. We are looking into plans for improving our port facilities during the next 10 years. Tracy talk to us about the financing that you envision as you seek to improve various Infrastructure Projects and transport development in the uae. Is the scope for more Publicprivate Partnership . Guest no doubt that the issue is trending today. It is not only in the United Arab Emirates, but a worldwide issue. We also have the private sector as a partner in most of our projects, whether it is an Infrastructure Project or other projects. We are driven by the private sector. We are a Market Driven country. The private sector has always been considered a partner for the development of the United Arab Emirates. Tracy what is private sector appetite for financing these types of projects like at the moment . Guest it is huge, tremendous. Many Foreign Investors, many institutions are looking into partnering with us. We recently are getting into some lighting projects. We have seen offers from all for the newld Street Lighting on road infrastructure. That is tremendous. We have seen that huge appetite within the United Arab Emirates specifically, and of the region in general. Tracy new Street Lighting. That is exciting. We also had a report recently about dubai planning to form a 1 billion shipping investment fund. Walk us through the thinking there and what you might use that fund for. Guest maybe i am not within the circle of such projects. I would have very little input to give you on this issue. Nonetheless, any investment that is made within this United Arab Emirates is actually building on the stability of the Business Environment and the appropriate strategies of the government for investors. With this project and any other project, having such a good climate for business within the United Arab Emirates. Tracy your excellency, since we are talking about the shipping industry, i noticed recently the uae is the only arab country to be bidding for category b mem category b membership in the International Maritime organization council. Why is that important to you . Guest this is probably a continuation of the previous question. This is actually driven by the private industry that we have within the uae. They have to be within the council. Ive always assumed the council of the imo is where most of the legislation, rules, regulation are being prepared. In an industry that is booming in the uae, the industry thinks that we as the government should be an incubator for their willingness to become a member on the council. One thing that the industrys require, taken that we have a great infrastructure within the United Arab Emirates as far as the maritime, we are actually number three in the world as far as infrastructure is considered. For that, we feel that we really need to be in there to participate in formulating the rules and regulations. The second part is the legislation that we have, the rules that we have, the Business Environment that we have would actually be a great incubator for us to be participating in a situation with the council of the imo. We can provide them with what it takes to improve their Business Environment. We also have within the region over 20 ports within the United Arab Emirates. Three of them are in the top 10 for the last three years. We have good reason to be part of the council. Tracy lets jump from sea to land transport. I want to talk about the gulf rail project. Dead, givencially the existing delays and ongoing situation with qatar . Guest i dont know where he got the idea of dead. It is still a project, and as far as the United Arab Emirates, we have completed over 266 kilometers of that portion. We are negotiating now with saudi arabia to incorporate their activities. We are encouraging a lot of neighbors to continue with that. It is on the go, and we are looking into options of executing it. Yousef next on the best of Bloomberg Markets middle east, dubai broke the most ambitious of forecasts. This is bloomberg. . Yousef a company turned in earnings that beat analysts estimate. The developer of the worlds tallest building is the most valuable company on the everett stock exchange. More on the earnings. Guest this is a very important stock here in dubai. It is the name that everyone watched to try and get what is going on within the market here, the real estate market, which is so important for the uae. What we hear from analyst is this is a good surprising terms surprise in terms of margins. The bottom line was quite positive. As you said, it was surprising to most of those watching this stock. At the same time, revenues was lower than expected. The shifting focused to margins right now is quite important, especially because people want to assess what is ipo is going what is this ipo going to be like. It is the biggest in the uae in the past few years. Theres a lot of expectation on what this might actually bring in terms of dividends to shareholders. This is expected to just be one of the main reasons for people to watch the name right now. Yousef lets get more context about what is happening with the earnings season in the gulf cooperation council. Joining us is the head of brokerage managing for the company. Welcome back to the program. I was just looking at an earnings breakdown of some of the companies. With over 120 reported, we are seeing flat sales growth and Earnings Growth well, there was no growth, down 6 . You are not as pessimistic about these numbers as some of the others are, are you . Guest no. I am not that pessimistic about the numbers, because these come down with good reason. They are going for a major restructuring on the government level. In these times, you dont expect much growth in the economy. What is happening is extremely natural compared to what saudi is going through. Yousef so why dont you talk us through some of the key things you are excited about some things that really get you out of the bed in the morning in the United Arab Emirates or saudi arabia . For Foreign Investors, specifically . Guest there are things that keep me awake at night in the area. With these stressful times, i think opportunities arise where you get distressed assets. If you believe in the dubai story of the region, making a comeback after restructuring, you would be able to snatch a lot of distressed assets at the moment from the regional markets. That is the thing that we talked about. You are starting to see more value. Yousef so what is going to be the catalyst in the uae, for example . We are looking ahead to Emaar Properties earnings, still one of the heavyweights on the index. We heard from them minutes ago, seeing stabilization in the uae property market. How does that feed into your strategy for the emirates . Guest at the moment, to talk a little bit about the real estate market, you see lots of sales happening with aggressive offers. This is enticing people to buy because this is a stressful time. You get these good deals and people are coming in with some cash as many people do believe in the long story of dubai and uae. This market has been growing the past six to nine months, i would say. Lots of people are coming in. Regional and International Money keeps flooding into the market. People do believe that this city is what is happening around us. Yousef we are seeing a relative stabilization in select qatari asset classes. How much is still out there . A lot of people are Still Holding back in terms of putting money to work in the gulf cooperation council. They want to see political progress, a political resolution. Is that going to happen soon . How does that affect sentiment from where you are standing . Guest i dont think that the conflict would be resolved really soon. It will take some more time. The good thing is the dialogue is still open, and they are still in talks. There is a systematic risk, of course. Foreign investors tend to look at the region as one piece, irrelevant of what is happening in a certain country. When the egyptian revolution happened a few years back, we in uae. Ient invested we had some out of london interested in the uae. These issues do affect everybody in the region as Foreign Investors do look at us as one part. David since you brought it up, i want to ask you about egypt. When you look at the situation there, it is certainly one of the best textbook examples of the good that can come when you devalue your currency, whether that means a massive pickup and pickup in fdi, what it does for the budget deficit. Have we seen the best, the market peak in egypt . Guest no, i dont think so yet. Egypt has a similar case of saudi arabia, just a different scenario. The country is going through a massive restructuring situation at the moment. I dont think the devaluation helped the people inside egypt because it made every single import too expensive for them at a moment when income was not compensated accordingly. This usually takes time to reflect in the economy. Yousef libya didnt last long. In terms of your crude output, your biggest oilfield increased by more than 30 in recent days. Workers vehicles were taken at gunpoint. Employees demanded better theing conditions, sending opec members outputs spiraling. In terms of what is going on here, i look at how Money Managers are positioned for their cfpc. We have this chart that shows you there is a lack of certainty when it comes to, is this going to go higher or lower . Where do you stand . How serious a setback have a or perhaps positive surprise, is this libya situation . Guest i think the libya outage is just an effect. A temporary effect. As a set earlier and elsewhere, the oil story has changed dramatically in the last few years. This industry has been disrupte demand could be increasing a little bit, but you can definitely see a decrease in demand in oil. I think the best thing that could happen to oil is to stabilize between 50 and 60. I dont see that i dont see that it could shoot up beyond these numbers anytime soon or in the near future. Disruption for oil has started. It is coming. It is expanding. It is going to take Oil Consumption down the hill Going Forward in the next decade or two. Yousef coming up, winter is coming, and the middle kingdom will need more gas. Will qatar or australia benefit from chinese demand . We discuss it on bloomberg. . . Yousef welcome back to the best of Bloomberg Markets middle east chinas promise to make the sky blue again could result in cold winter months. There could be trouble in meeting higher demand. I think Peter Goldman sees india and pakistan seeing really Strong Demand growth. Just because of geographical proximity, it makes a lot of sense for qatar to supply them. It is a really short ocean voyage to move a tanker from qatar to india or pakistan and back. As qatar plans to expand their production capacity, Peter Coleman is hoping all of those their supply basically doesnt get soaked up by pakistan, leading places like japan, south korea, and china to the rest of the world. Hopefully for him, some of his new projects he is trying to get off the ground. Shery looking at china, gas consumption surged by 15 in the first half, 27 in june. This is traditionally the low part of the year. What is going on . Reporter natural gas demand is broken down into two parts. There is endemic demand like the industrial use and Power Generation that goes on all the time, and then seasonal surges. In china, which has lots of People Living in cooler northern climates, traditionally the wintertime has been the strongest for gas demand. Now that we are seeing this big surge in the summer, and make people realize that this endemic national gas demand is really taking off, because the Government Policies to use less oil and less coal and more gas are working. Now the worry is, you have that higher baseload demand. When the winter comes and it is really cold, are you going to have to see a price spike to be able to justify this extra use . Yousef we spoke to the ceo of australias secondbiggest gold producer. Here is what he had to say about the earnings and the broader outlook for gold. Guest we have gone and embarked on a process of really recalibrating and generating a portfolio which can produce gold a very lowcost. We are forecasting 820 to 890,000 ounces in the next Financial Year at a cost of 850 to 900 australian. Shery you experience the benefits of a weaker aussie dollar, with the price of gold averaging a record high last year. You are now seeing the aussie dollar rising. How will this affect your margins . Guest if you look at the last five years, our costs have come down by close to 1 4 in Australian Dollar terms. That is a result of costs decreasing in australia. In u. S. Dollar terms, almost by half. We have had a positive benefit from the currency, but still 1 4 is very large. The aussie dollar gold price is over 1600 australian an ounce. Last year we allocated a large portion to debt repayments. We repaid 325 million. Yousef as much as the cost might be coming down, there are some areas you pointed out that are actually seeing some upward movement. What can you do to chip away even further at those . Guest we are working very hard to improve our operational performance. Maintenance is an area where we see opportunity. Weve repositioned our portfolio with the acquisition of the ernest henry economic interest, a very lowcost and high generating asset. In the june quarter, we generated close to 48 million from that asset. That has a 10 year life. The other thing we did was sold our highest cost mine last year. Thats how we are repositioning the portfolio, as well as improving the quality of the portfolio and looking at what value we bring to the transaction. Yousef we understand that you have been open to mergers and acquisitions in the past. Weve put together a graphic that shows how tightly combined evaluations are for some of the miners out there when it comes to the gold space. Do you have a particular requirement or idea or vision of what a potential merger could look like for you . Guest what weve said is that we are open to acquisitions, investment, mergers, joint ventures, but we always are going to look at it through the lens of, will it improve the quality of our portfolio, and by that we mean mine life and cost production . What is the value we are bringing for our shareholders . In the past, if you look at 2009 to 2012, the five largest gold producers ended up writing off 65 billion u. S. Dollars in impairments. M a has been an area in which we have been very successful. It has been on the basis of it being countercyclical where you had motivated counterparties looking to deleverage. You have seen 1 4 of australias Gold Production down in the last five years. We are really looking at the next 12 months as being an opportunity to demonstrate our profitability, generate a lot of cash, and continue paying dividends to shareholders. Shery given that you focus so much on expenditure, how about divesting some of your higher cost mines, for example . Guest we keep on looking at opportunities. We want to be countercyclical in our investments. We want to be buying what people are selling and selling when others are buying. We dont comment specifically on what we do with our portfolios, but you can be certain that all opportunities are being scrutinized. Shery we also know that you produce copper. You just mentioned ernest henry. We are seeing copper futures at the highest level on record. Your outlook for the red metal and your production. Guest we are very happy to have some copper exposure. It has helped us generate material amounts of cash flow from the ernest henry economic interest. We have been fortunate that since we have acquired it some 12 or nine months ago, the copper price has gone up by some 25 . We have been very fortunate in our timing, and it has been a terrific acquisition for us. Yousef this is the best of Bloomberg Markets middle east. Ahead, holders of dana gas islamic bonds may end up owing the company money. The latest twist. This is bloomberg. . . Yousef welcome back to the best of Bloomberg Markets middle east. Dana gas seems to be going from creditors to debtors. Bloombergs Tracy Alloway has more from abu dhabi. Tracy dana gas is the only company i am aware of actively turning its lenders into debtors. That makes it possibly one of the most interesting stories and Capital Markets in general. The ceo used the occasion of the companys secondquarter earnings yesterday to really hammer home his argument regarding these. He said the 700 million worth of debt at the center of this dispute being held by investors, those investors would actually have to repay the company the excess amount of profit payments they had received. Because these are sharia compliant bonds, they dont a out interest. Instead, they pay out profit on the company assets. Danas arguments are because the bonds are not sharia compliant, not only did they have the right to withhold current and future profit emits, but also the right to clawback payments it has already made. You can imagine how contentious that has been with investors. On that point, you really have to ask whether dana sees its future Capital Needs maybe being financed by equity. On that note, the ceo did say he thought the recent bump in the companys stock price was an indication that investors would continue to support the company. He said specifically, the fact that share prices have increased significantly over the past three to four months is an indicator that people are viewing dana gas positively. Shares are up about 50 since the end of may. I think you could competently argue that the debt market might have a different opinion there. Yousef im looking at the consensus rating here at 3. 2. What else came out from the numbers specifically . Tracy it is important not to lose sight of the backstory here. This company has been experiencing some shortterm cash flow problems. That has owed money from places like iraq and egypt. It was owed 900 million at the end of the most recent quarter. There was an improvement in the Second Quarter for earnings. Profit rose to 12 million, up from 7 million about a year ago. Revenue is also up, costs coming down. You have to wonder what that legal bill is going to look like if the dispute ends up being protracted, which at the moment, most people expect is going to be. Yousef that is it for this best of Bloomberg Markets middle east. Weve got a busy week ahead, as always, in the region. We will be here for the start of they trading week in the gulf sunday morning at 8 00 a. M. In the uae on bloomberg television. Im yousef gamal eldin. 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. Anna coming up on bloomberg best, the stories that shaped the week in business around the world. Ceos turn on president trump, who lashes back. Theyre leaving out of embarrassment. Anna anger and frustration in an alliance that there is an agenda. Ceos will be reluctant to get too close to trump because who knows when the next outburst will be . If this was not enough to get you to withdraw, what would be . Their romance with big business is done. Anna trade issues moved to the fore as talks commenced. Investors spent hours figuring