Arab Finance Evolution Cyclical or Structural

1
Arab Finance EvolutionCyclical or Structural
2
The Emergence of the Arab Worlds Finance
Industry Its Goals and Challenges within the
Global Financial Marketplace

• 95 Cyclical
• 5 Structural

3
Cyclical Factors

• Rising oil prices
• Low interest rate environment
• Excess liquidity, rising GDP, corporate earnings
• Stock Market explosion

9/11 repatriation partially contributed to
market appreciation
4
OIL PRICE SCENARIOS AND TOTAL GCC OIL REVENUES
Oil price scenarios
Avg. oil price
Price scenario
Total GCC oil revenues billion, constant 2003
High
65
Base
53
Low
39
Total revenues 2004-2010 expected to range
between USD 1.4-2.0 trillion
Revenue scenarios are based on various oil
price forecasts by international agencies and
investment banks Source BP Statistical Review
International Energy Agency EDB analysis press
clippings McKinsey analysis
5
MOVEMENT OF TOTAL CORPORATE PROFITS AT THE SAUDI
STOCK MARKET
Expected
Earnings per share
High profit growth since 2002
Gulf war
03
04
05
2006
1989
90
91
92
93
95
96
97
98
99
2000
01
02
94
Source Bakheet Financial Advisors Tadawul
6
MARKET CAPITALIZATIONS ACROSS THE REGION HAVE
SOARED OVER THE PAST YEARS

• USD billions

Kuwait
Saudi Arabia
UAE
50
142
128.2
102
72
646
75
231
404.3
62
170.8
307
36
91
28
157
45
75
73
30
14
2001
05
02
04
03
2001
02
03
04
05
2001
05
04
02
03
2006
2006
2006
Qatar
Bahrain
Egypt
68
80
17
25
16.8
14
94
73
80
43
10
59.3
8
7
40
16
27
11
11
9
2002
03
04
05
2006
2001
02
03
04
2006
2001
05
02
04
03
2006
05
Source Stock exchanges, Global Investment House,
Bloomberg, McKinsey analysis, AMF
7
GCC EQUITY MARKET GROWTH MOSTLY RESULT OF
EXISTING SHARES RATHER THAN IPOs
Growth in 2003
Growth in 2004
Qatar
152
51
1
95
110
Saudi Arabia
22
72
7
Kuwait
14
49
14
12
103
UAE
0
28
40
13
Bahrain
Not all new listings included because of lack
of information Source Stock exchanges, Global
Investment House, Zawya, McKinsey analysis
2
27
2
-4
Oman
-6
8
GCC STOCK MARKETS CORRECTIONS
Change High Current
Change 2003 High
01 Jan 2003
High
Country Index
Current
Saudi Arabia Tadawul Index
UAE NBAD Index
Kuwait KSE Index
Qatar CBQ Index
Bahrain BSE Index
Oman MSM Index
Saudi (25 Feb 2006) UAE (10 Nov
2005) Kuwait (7 Feb 2006) Qatar (19 Sep 2005)
Bahrain (16 Nov 2005) Oman (20 June 2005)
14 May 2006 Source Stock Exchanges
BFA
9
P/E RATIOS AND EARNINGS GROWTH ARE DECLINING IN
2006
Saudi Arabia
UAE
Kuwait



P/E
P/E
P/E
2003
04
05
06(E)
2003
04
05
06(E)
2003
04
05
06(E)
Earnings Growth
49
44
32
Earnings Growth
36
155
29
Earnings Growth
19
73
26
Qatar
Bahrain
Oman



P/E
P/E
P/E
2003
04
05
06(E)
2003
04
05
06(E)
2003
04
05
06(E)
Earnings Growth
60
40
25
Earnings Growth
97
40
25
Earnings Growth
25
18
17
Source Global Investment House
10
Structural Growth Levers

• Legislation (ownership, IP protection,
  disclosure)
• Corporate Governance
• Development of Private Equity culture
• Development of bond markets (deepen market and
  investor choice)
• Institutional investor base (pension fund,
  insurance sector, mutual funds)
• Attract back talent wealth

11
JUDICIAL SYSTEM INSOLVENCY
Benchmarks
OECD (highincome)
Saudi Arabia
Bahrain
Kuwait
Oman
Qatar
MENA
UAE
7
Time to complete insolvency pro-cedures (years)
5
4
4
3
2
N/A
N/A
Cost to complete insolvency proce-dures ( of
estate)
38
18
13
7
4
1
N/A
N/A
72
Recovery rate(cents on the dollar)
39
32
29
24
5
N/A
N/A
Priority position ofsecured debtor claim(over
labor, tax, and shareholders)
N/A
3rd
N/A
N/A
2ND
N/A
4TH
1st
Middle East and North Africa follows World
Bank region classification (excludes Bahrain,
Qatar, Kuwait, UAE because of advanced level of
income development) for benchmark regions no
split for Total time available Source World Bank
Doing Business 2005 and 2004 (for priority claims)
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55
As of December 31, 2004
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Reason for Optimism

• Dynamic new leadership with vision
• Setting up of Financial Centres with focus on
  software rather than hardware only
  infrastructure.
• WTO FTAs and opening up of markets forcing
  previously unheard of reforms (title, agency
  laws, foreign direct investments)
• Recognition of opportunities by worlds most
  prestigious financial institutions
• Returning human talent
• Excess liquidity