Gulf Business Top 100 GCC COMPANIES 2012 [Gulf Business (United Arab Emirates)]
(Gulf Business (United Arab Emirates) Via Acquire Media NewsEdge) The first half of 2012 was mostly about the GCC markets reacting to events in the developed world. 2011 was a tough year not only because of the natural disasters but also due to financial crises, including the Eurozone, and the US debt and downgrade. The GCC region nursed its own troubles from political turmoil to various corporate issues.
After a tough 2011, world markets began 2012 on an upbeat note due to positive signs from the US (unemployment fell to a three-year low of 8.3 per cent), and also from Europe. The ECB continued to pump liquidity into Eurozone banks in an effort to curtail a credit crunch; the end of February saw the second ECB offering of three-year funds, 800 banks borrowed €530 billion ($598 billion). The first offering was made back in December 2011, where banks availed themselves of €489 billion ($644 billion).
Gradually the flow of negative news returned once more. According to data released by the Bureau of Economic Analysis, the US economy expanded 2.2 per cent in the first quarter 2012; slower than the three per cent during 4Q11.
In the Euro area, Spain's rating was cut from "A to "BBB+" by S&P on concerns that the country would have to provide further fiscal support to the banking sector as the economy contracts. In the month of May, political uncertainty in Greece aggravated discussions about a Greek departure from the Euro. There was also news about large scale deposit withdrawals from Greek banks.
Late in June, MSCI announced that UAE and Qatar will continue as frontier markets and will remain under review for potential reclassification in June 2013. Some respite came exactly on the last trading day of the first half after a marathon meeting in Brussels. Policymakers reached a consensus to recapitalise banks directly with bailout funds once a banking supervisor is set up for the Eurozone.
These global developments had an impact on local markets, but not uniformly though. The S&P GCC composite gained 0.97 per cent on a YTD basis for H1 '12. Dubai was the largest gainer at 7.28 per cent followed by Saudi Arabia at 4.55 per cent. Qatar was the biggest loser, down 7.47 per cent, followed by Bahrain which was down 1.48 per cent.
After four years of continuous decline, liquidity levels saw an increase in 2011 and 2012. Value traded in GCC closed at $354 billion in 2011, an increase of 19 per cent over the previous year. Value traded continued its uptrend in 2012 too. H1 12 aggregate value traded came in at $371 billion, almost double the H2 11 number of $194 billion. The increase was led by Saudi Arabia, where value traded in the first half of 2012 grew 114 per cent YoY to $332 billion. Kuwait (13 per cent) and UAE (18 per cent) also saw notable increases in liquidity levels. Qatar and Oman saw 25 per cent and 17 per cent YoY drops in liquidity levels respectively.
THE ROAD AHEAD
We have a positive outlook on Saudi Arabia, due to improved economic factors and improving liquidity. Kuwait saw a turnaround in its corporate earnings, which is positive going forward. In the UAE, the IMF estimates that government related entities (GRE) have to repay $30 billion of maturing loans this year and face a "significant" amount of debt due in 2014 and 2015. The problems with GRE could worsen, if the market environment for fund raising becomes difficult. Qatar has declining market liquidity and a lower earnings growth potential due to volatile commodity prices.
Saudi Arabia was ranked eighth in the IMF's listing of world's 10 high growth economies of 2012. The IMF predicts Saudi Arabia's GDP to grow by six per cent in 2012. According to data released by the Central Department of Statistics and Information (CDSI), the Saudi economy grew by 5.94 per cent in the first quarter of the year on a YoY basis. This reaffirms the IMF prediction of a six per cent growth rate. Inflation in the Kingdom also seems to be moderating with June inflation at 4.9 per cent - the lowest level this year and also the first time it had dipped below five per cent in the prior 10 months.
In January, Saudi Arabia annouced its 2012 budget with expenditure set at $184 billion and giving emphasis to social welfare, education and healthcare, although the government indicated that expenditure may slow going forward. Another significant development that cheered the market was the General Organisation for Social Insurance's (GOSI) announcement of boosting investments in locally-listed firms.
TURNAROUND IN CORPORATE EARNINGS
Kuwait earnings staged a comeback in Q1 12 after three continuous quarters of de-growth. However, earnings dropped 25 per cent over the year mainly on account of a one-time gain of $959 million booked by Wataniya Telecom in Q1 11. Excluding the extraordinary item, aggregate profits grew 41 per cent in Q1 12.
During the first half, Kuwait Central Bank introduced new loan-to-deposit ratio (LTD) rules that will permit grouping of other sources of funding such as bonds and loans along with deposits to calculate LTD. This move was expected to increase interbank lending and aid in the development of financial markets.
GRES AND THE MSCI UAE
Government-related entities (GRE) in the UAE are due to repay $30 billion of debts maturing this year, according to the IMF. "The Dubai World debt restructuring was completed, but several other troubled GREs are still in the process of restructuring. GRE indebtedness, refinancing needs and reliance on foreign funding remain high," the IMF said, adding that "significant amount of debt is falling due in 2014-15." Problems with GREs could deteriorate, if the market environment for fund raising becomes difficult.
In June, MSCI announced that MSCI UAE and MSCI Qatar Indices will continue as frontier markets but will remain under review for potential reclassification at the next annual review in June 2013.
THE BIG SURPRISE
The big surprise for 2012 was Qatar which lost 7.5 per cent in the first half. Just to recap, Qatar was the only GCC country which ended 2011 with positive stock market returns (up one per cent). Changing sentiment in the gas exports market, slower growth in GDP and corporate earnings and declining liquidity could be the primary reasons for turning the tide against Qatar.
After experiencing double digit growth rates for the last six years, Qatar's GDP growth rate is expected to come down to normal levels going forward. While infrastructure spending is expected to be robust, investments in the upstream hydrocarbon sector will tail off due to culmination of its 20-year hydrocarbon investment programme in 2011. With reduced government spending, capital formation will be affected, leading to slower growth in corporate earnings. In Q1 12, net income of listed Qatari companies grew by only two per cent YoY.
On the basis of perfromance in S&P Sectoral Indices, healthcare performed well for H1 12. The S&P GCC Composite Health Care price index ($) gained 7.06 per cent for H1 12. It is estimated that the share of private health expenditure will increase systematically in most GCC countries. Public health expenditure is projected at $50.96 billion in 2015 at 64 per cent of total healthcare expenditure, according to Markaz Research.
The S&P GCC Composite
The Telecommunication Services price index ($) gained 4.16 per cent for H1 12. In the Saudi Arabian Exchange the sectoral index (Telecom and IT) gained 20.64 per cent for H1 12. The sectoral index also made a gain of 5.19 per cent and a small 0.66 per cent in the Dubai Financial Markets and Abu Dhabi Exchange respectively.
Out of the top 100 stocks by market cap, three stocks have gained more than 50 per cent on a YTD basis, Jabal Omar Development Co (56.8 per cent), Knowledge Economic City SJSC (54.5 per cent), and Mabanee Co SAKC (50.9 per cent). Other prominent gainers for the year include Bank Aljazira, Bank Albilad, National Shipping Co of Saudi Arabia, and Alinma Bank.
BY MARKET CAP - There was no shake up this year in the top three ranking. Saudi Basic Industries Corp ($72.4 billion), Al Rajhi Banking and Investment Corp ($29.1 billion), and Qatar National Bank SAQ ($25.6 billion) maintained their positions. The Zain group continued its downslide and slipped to 14th place this year from last year's 10th at $10.6 billion.
BY REVENUES - SABIC retained its first position at a revenue of $25.29 billion. Rabigh refining and Petrochemical Co ($8.22 billion) and Saudi Telecom Co ($7.79 billion) exchanged their positions at second and third places. Similarly Qatar Telecom Co ($4.50 billion) and Emirates Telecommunication Corp Ltd ($4.48 billion) exchanged their positions at fourth and fifth places. Six of the top 10 companies are from Saudi Arabia. Four of the top 10 companies are from the telecoms sector.
BY EARNINGS - SABIC retained its first position ($3.3 billion). However, Industries Qatar slipped to fourth position from last year's second at $1.10 billion. Out of the top 10, five were banking and investment services and three were telecom services firms, while two were chemicals. On a country basis, out of the top 10, five were from Saudi Arabia, three from the UAE and two from Qatar.
BY LIQUIDITY - Similar to last year, all top 10 companies were from Saudi Arabia. However SABIC lost its first position and slipped to third place this year with value trades at $20.36 billion. The first place this year has been occupied by Alnima Bank ($24.02 billion), followed by Mobile Telecommunications Co, KSA ($21.11 billion). On the basis of sector, three chemicals and three real estate companies made it to the top 10 list.
"After experiencing double digit growth rates for the last six years, Qatar's GDP growth rate is expected to come down to normal levels going forward. With reduced government spending, capital formation will get affected leading to slower growth in corporate earnings."
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