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March 2010

News Letter - 14th March 2010

Abu Dhabi and Conoco have signed an AED 1.1Bn construction contract for the Shah sour gas project with Al Jaber Group. The price of crude rose to a seven week high of $81.5 per barrel after several weeks in the $70 to $75 per barrel range – as reported previously. The main reason for the relative stagnation of the oil price is uncertainty over the world economic recovery: many indicators are as yet unclear regarding recovery. However a stronger US$ (as we’ve seen over the past few weeks) boosts the oil producing countries purchasing power and tends to offset a lack of price increase in crude. That said shipments of crude to Europe and the U.S. should start increasing over the next few weeks to meet the increased summer demands for holiday motoring on these continents. On the other side of the coin OPEC may have to face the issue of a significant oil production increase from Iraq sooner rather than later after Iraq signed several deals over the past two months with foreign oil companies for the development of a number of potentially large oil fields. At present Iraq is exempt from OPEC quota limitations but this will most probably become a ‘thorny issue’ if Iraq significantly increases production.

The Dubai World debt restructuring is still to be revealed to a waiting world but indications are that there will be a debt roll-over for probably several years. There have been rumours of a debt ‘haircut’ whereby Dubai World would only pay approx 60 cents in the $ of their debt. Of course this threat of a haircut could have been (and probably was) a negotiating ploy in order to ensure the conglomerate of banks was ‘’amenable’ to a substantial roll over. It is possible that there will be multiple options – one to satisfy local banks (they are short on liquidity) and one to satisfy the international banks (they want their money back and may not be willing to take any haircut). Rumours abound and will continue until we get an official announcement on this important topic. We shall have to wait and see over the coming days and maybe weeks. In the meantime the Dubai Financial Market (DFM) has during the past week surged to its highest since the end of January but is still at just 1,660. All sectors of the market showed an increase with the real estate market advancing for most of the week – surprise, surprise!

Aldar Properties, Abu Dhabi’s largest developer, saw its rating by Moody’s drop from Baa2 to Ba1 which will mean Aldar may find any borrowing will cost more. At this stage Aldar have indicated they do not intend any borrowings this year (that sort of statement usually means one is in for an unpleasant surprise in the not too distant future – we wait and see)! In another indication of financial woe’s - Tabreed – the Middle East’s largest district cooling firm is to get an AED1.3Bn (approx $360 million) bail out from Abu Dhabi after the company posted a surprise AED1.12Bn (approx $305 million) loss for 2009. Shares in Tabreed plummeted by 9.52% on the DFM on the news – very near to the maximum movement of 10% allowed on the Dubai Market. Thank goodness for Abu Dhabi’s generosity: the situation would be dire if it were not for Abu Dhabi?

In a move the world is getting used to – ref China with Google and Iran blocking the worldwide web (or trying to) - the Saudi Government has apparently contacted Canada’s Research in Motion (RIM) seeking to have access to and monitor communications through BlackBerry Smartphone’s. As some will recall it is only a few months ago that RIM discovered ‘’interference’’ with their software by another Middle East government! Should RIM agree to this we can expect an avalanche of governments requesting the same sort of thing. Not a good omen for the web and free communications but at least KSA made a request to Blackberry instead of unilaterally trying to interfere with the software.