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Thu 16 Dec 2010 12:58 PM

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Kuwait's Zain dips as Etisalat eyes a smaller stake

Abu Dhabi telco now looking at a 40% stake instead of the previously agreed 46% stake

Kuwait's Zain dips as Etisalat eyes a smaller stake
RALLY WANES: Qatars index slipped for the second day as investors cashed in on gains from the December rally (Getty Images)

Zain ended lower after a source says Abu Dhabi's Etisalat is looking to buy a smaller stake in its Kuwait rival than had been previously agreed.

Etisalat is now seeking a 40 percent stake in Zain, down from the 46 percent agreed in September.

Zain ended 1.3 percent lower, having touched a 15 month intraday high. Trading in the telecoms operator accounts for more than a third of total bourse turnover.

Major shareholder the Kharafi group has led the stake sale consortium, which will not be done on a pro rata basis, while another shareholder Al Fawares Holding has taken legal action to halt the due diligence for the deal. The court hearing has been delayed until Dec 22.

"Kuwait is all about Zain now and whatever happens with the deal will affect the whole market," said Essa al Hasawi, assistant manager at Zumorroda Investment Co in Kuwait.

"Zain will control the market for the next one to two months," he added.

Kuwait's index rose 0.4 percent to 6,853 points.

Kuwait Finance House climbed 1.7 percent and Burgan Bank added 1.9 percent.

Oman's measure ended lower for a fifth day, slipping 0.2 percent to 6,635 points.

Abu Dhabi's Aldar Properties slumped to a new two week low as the year end nears with no word on an expected government support package for the indebted developer.

Aldar dropped 1.8 percent, slipping to its lowest level since Dec 1. It jumped 10 percent on Dec 8 as volumes hit a two year peak. The shares reached a five week high a day later, but have since given back these gains.

"Aldar receiving government support is a question of when, not if, but the issue is that the surge in volumes last week was a lot down to institutions covering short positions, rather showing a change in the trend," said Mohammed Yasin, chief investment officer, CAPM Investment.

"Financial support for Aldar will be to meet previous commitments, not to support company growth. The challenges facing the UAE real estate sector have not changed," he added.

Aldar has AED14bn ($3.8bn) of debts maturing next year, according to investment bank EFG-Hermes, and has made losses for straight quarters, while its shares are down 55 percent this year.

In November, Aldar said it was in the final stages of talks with the government over its cash needs, with a deal expected by the end of 2010.

Rival developer Sorouh Real Estate fell 2.4 percent and Dana Gas lost 1.4 percent.

Abu Dhabi's index fell 0.04 percent to 2,715 points, slumping to a five week low.

Banks were among the biggest losers as investors cashed in on gains from a Qatar December rally sparked by the country's succesful bid to host the 2022 soccer World Cup.

Commercial Bank of Qatar fell 0.9 percent and Masraf Al Rayan dropped 0.5 percent.

The index slipped 0.2 percent to 8,758 points, falling for a second day since Tuesday's 26 month high. It is up 26 percent in 2010, dwarfing gains on many regional markets, while Dubai, Abu Dhabi, Bahrain and Kuwait are all in the red this year.

"Qatar has provided handsome returns this year and is bound to see some profit taking - it's much easier for the market to give back some gains than to continue upward," said Yasin.

Dubai's Emaar Properties slumped to a new 14 week low, extending losses after the developer said it may increase its stake in mortgage affiliate Amlak.

Emaar dropped 0.3 percent, slipping to its lowest level since Sept 6.

Almak's shares have been suspended since November 2008, pending a mooted merger with rival mortgage provider Tamweel, a deal that appears increasingly unlikely.

Amlak's business model of funding long term mortgages with shorter term borrowing collapsed as the credit crunch dried up liquidity and Dubai property values tumbled and it has an estimated AED11.4bn ($3.10bn) of debt, of which Emaar holds around $217.8m. The latter also has a 48 percent stake in Amlak.

"Emaar is still showing its investment in Amlak at cost, so if you assume that its investment in Amlak is unrecoverable, it will have to write off around $272.2m," said Majed Azzam, AlembicHC real estate analyst.

"If this doesn't happen in Q4 then we will probably see the company taking provisions next year - Emaar's auditors have been very understanding considering the then uncertain outlook of the Amlak/Tamweel merger talks which started two years ago and they might now ask Emaar to take provisions," he added.

"This will impact profitability. Most institutional investors have already written off the Amlak investment, but an impairment would hit Emaar's numbers and that could impact share performance," he said.

Amlak's book stands at $490.0m, Azzam adds, while its property assets of $871.2m are held at acquisition cost, which does not reflect the steep decline in asset valuations since.

Dubai's index falls 0.2 percent to 1,626 points.

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