emeafinance Magazine - August/Sep 2008

The Activist

Tomas Fiala grew up fighting the Komsomol during Czechozlovakia’s Velvet Revolution. Now he is the majority owner of Dragon Capital, Ukraine’s most successful investment bank, but he’s still fighting for investors’ rights, writes Benjamin Seeder in Kiev.

It was early 1996, and 24 year-old Tomas Fiala entered his boss’s office with a letter of resignation. The young Czech, who worked as a junior analyst in the Prague office of Eastern European specialist Wood & Co, told his boss he’d received a better offer from another company.

Mohammad El-Erian: Save the IMF, Save the World Economy

Mohammad El-Erian is co-CEO of Pimco, the largest bond investor in the world. A former deputy director of the IMF, and world expert on emerging markets, El-Erian here writes exclusively for emeafinance on why a reformed IMF has a critical role to play in saving the global economy from its present crisis.

There is a clear need for a global solution to the present economic crisis. The global solution calls essentially for countries to implement specific measures in a coordinated and simultaneous fashion in the context of a ‘shared responsibility’.

Ghanaian banks reach out for new capital

With a landmark Eurobond tucked under its belt, an accelerating stock market and first oil production just two years away, Ghana is well positioned to tap the new capital required for its banking sector, writes Kevin Godier.

Ghana’s banking industry is eyeing over US$1bn in new capital injections after an eightfold increase in the minimum capital requirement for banks announced in February 2008 by Ghana’s central bank. With almost all banks’ capital laying below the new threshold – lifted by the Bank of Ghana (BoG) from C7mn (US$7.2mn) to C60mn (US$61.9mn) – “the industry as a whole is far short of the new requirement”, says Gregory Kronsten, director, Africa research, at London-based independent research boutique Trusted Sources.

State takes the lead in Kazakh banking sector

Kazakhstan’s beleaguered banking sector is getting back on its feet, thanks to increased activity by state banks, and growing levels of FDI, report Shayla Walmsley and Julian Evans.

“It’s been a fascinating ride – to see Kazakh banks go from CIS darling to whipping boy,” says Ian McCall, a director at Argo Capital Management.
For several years, the Kazakh banking sector enjoyed a reputation as the best banking sector in the former Soviet Union. It was mainly privately-owned, well-regulated and relatively transparent.
The top Kazakh banks took advantage of their great reputation to borrow abroad. And how they borrowed. At the end of Q1 2008, overseas debt represented 45% of the sector’s liabilities. In 2006 alone, Kazakh banks borrowed US$18bn on the external debt market.

Riding the MENA wave

Egypt’s reformist government is grappling with the dilemma of fighting inflation while cutting a growing deficit. However, in the capital markets, Egyptian companies are expanding and becoming MENA regional champions. Julian Evans reports from Cairo.

In 2004, after a decade of poor economic performance, President Mubarak appointed a new government, headed up by Ahmed Nazif, the youngest-ever prime minister of Egypt. Nazif brought in a cabinet of liberal reformers – some from the private sector, such as Rasheed Mohamed, minister of trade and industry, who was formerly CEO of Unilever in Egypt; some from multilaterals, such as Youssef Boutros Ghali, formerly of the IMF; and some from academia, such as Mahmood Mohieldin, minister of investment, who was formerly an economics professor at the University of Cairo, where Nazif also formerly worked.

Could London be the global centre for Islamic finance?

As Dubai, Bahrain and Qatar compete to become centres of finance, London is steadily establishing itself as an alternative, writes
Julian Evans.

In London, amid the gloom of the global credit crunch, one topic is sure to bring a smile to the faces of the City’s down-trodden bankers: Islamic finance. While the sukuk market is as quiet as other bond markets this year, City players are still positioning themselves in expectation of a prolonged boom in sharia-compliant financial products. The Islamic Development Bank in Jeddah predicts that global sharia financial assets will grow by 20% per year from US$900bn to US$2tn by 2010. And a lot of that business is going through London.
David Lewis, the Lord Mayor of the City of London, says: “There are now 25 UK banks who provide Islamic products. There are five dedicated Islamic banks, nine Islamic funds, and one Islamic insurance company. There are 20 sukuk listed on the LSE. It’s a huge potential area of growth for the City.”

Aston Martin shifts Islamic finance up a gear

Racing driver and entrepreneur David Richards has been working in motorsports for 30 years, winning world rallies as a driver, running rally and Formula One teams as a manager, and setting up and managing companies as an entrepreneur. He is a pioneer in bringing motorsports to the Middle East, having set up  the first ever rally series in the Middle East when he was just 25.

Last year, David Richards leveraged his contacts in the Middle East to put together a consortium, including two Kuwaiti investors, to buy Aston Martin from Ford, in one of the first ever Islamic finance LBOs. He says he plans to put together another such consortium to buy a Formula One team in the near future.

Motorsports industry revs up in the Middle East

Motorsports, and Formula One in particular, is a major growth area in the Middle East, attracting billions of dollars in investment from some of the biggest local investors. emeafinance editor Julian Evans talks to Simon Azzam, CEO of Union Properties, about the motorsports boom, and Union Properties’ own multi-billion-dollar investment into it.

emeafinance: Would you say the interest in motorsports is booming in the Middle East?

Simon Azzam: Yes, the interest in motorsports industry is booming in the Middle East due to several factors in the market that relates to the introduction of facilities that provide opportunity for growth in the field.

UEFA could give red card to Ukraine for 2012 Euro-Cup

Ukraine needs to pull out all the stops in its preparations for the Euro 2012 football championship, writes Julian Evans.

As soon as the final whistle blew in the Euro2008 final in Vienna, anxious attention turned to the 2012 championship, scheduled to be held in Ukraine and Poland. The head of UEFA, Michel Platini, said Ukraine and Poland’s right to hold the next championship, in 2012, could be in jeopardy.

Platini, who headed out to Kiev in July, warned that delays in building stadia in Kiev and Warsaw could force UEFA to hold the tournament elsewhere. He said: “We’ll do everything we can to hold it in Poland and Ukraine. The only thing which would make me decide not to go is if there is no stadia in the capitals, Warsaw and Kiev. If there are no stadia there, no tournament.”

Kuwaiti banks: Flying a crowded nest

As new players enter the Kuwaiti banking market and the central bank tightens lending rules, existing domestic players are increasingly
looking abroad, writes Clare Dunkley.

In contrast to the catchphrase once used to advertise the UK’s TSB – “the bank that likes to say ‘yes’” – the Central Bank of Kuwait (CBK) has traditionally been viewed as the bank that likes to say the opposite. Thus the Kuwaiti financial sector is typically regarded as either the GCC’s most carefully regulated and stable, or most over-scrutinised and restrictive. But from both perspectives, it is a market in a state of almost unprecedented flux, with new rules being imposed, new institutions entering the marketplace, and established players taking advantage of more than five years of economic boom and hence ballooning profits to spread their wings overseas – escaping both the fierce competition and the draconian referee.

Turkey’s strengthened banks unfazed by rising risks

Boosted by a wave of reforms and foreign investment, Turkish banks are confident that they can weather the current climate of slowing growth and rising interest rates and resume their rapid growth. Of course, there will be winners and losers. And privatisation is still to come, writes Bernard Kennedy in Ankara.

Global and domestic markets may be dragging their feet, but Turkey’s banks have a spring in their step.
Between December 2006 and March 2008, the 50 banks – including the four small but burgeoning ‘Islamic’ participation banks – opened 1,100 new branches and took on 23,000 extra staff. These figures represent a 15% expansion. Hundreds more branches are planned.

Turkey struggles to meet targets

Positive reasons for investing in Turkish sovereign debt are becoming more difficult to find these days. However, yields are on the increase and years of fiscal discipline have greatly reduced the risk of default, writes Bernard Kennedy.

One by one, Turkey has been losing its ‘stories’. First, five years of GDP growth averaging 7.5% gave way to a more modest performance of 4.5% in 2007, reflecting higher interest rates, a downturn in housing and construction and a poor agricultural harvest. Then, rising global energy and food prices helped to revive inflation, which had fallen to 6.9% as of July 2007, its lowest level for over three decades. By May 2008, consumer prices had reached 10.7% and were set to rise further, forcing the central bank to postpone its 4% year-end target until 2012.

EMEA Securitisation Roundtable: bloodied but unbowed

The securitisation market is going through the biggest crisis of its existence, a crisis that potentially even threatens its existence. Heads of state including UK prime minister Gordon Brown are blaming securitisation for the present global financial crisis and demanding that securitised assets are brought back on balance sheet. Will the market survive, and in what form? How has the crisis affected emerging markets like Russia or the Gulf, where securitisation is just beginning to take off? emeafinance gathered some of the top bankers in the market together to discuss what is happening, and where to go from here.

Dealing with the headache of post-acquisition IT integration

The proliferation of legacy systems at CEE banks has proved a major challenge for many western banks that have made acquisitions in the region. But there are a number of different strategies that they can pursue to ensure IT savings, the exploitation of synergies, and a more efficient IT infrastructure, writes Liz Salecka.

Western banks acquiring banks in CEE have often  found  IT integration difficult for a number of reasons  – not least because, as in most acquisitions, the immediate focus is put on commercial and operational issues, which fail to consider IT or systems integration challenges.
 

Target-2 initiative raises concerns among CSDs

The ECB recently announced the launch of its Target-2 Securities project, which will see the creation of a new centralised platform for the settlement of securities against euro cash.  But the initiative continues to see voiced concerns from central securities depositories (CSDs) as well as industry bodies representing banks, issuers and investors, writes  Liz Salecka.

Banks, issuers and investors, conducting securities transactions that are settled against euro cash, could benefit from up to one third off their settlement fees in the future now that the European Central Bank’s (ECB) proposal for a centralised, settlement platform – Target-2-Securities (T2-S) – has been given the green light.