Kuwait's Kharafi-linked stocks tumbled on Monday on investor fears the group's consortium will not complete its deal to sell a 46-percent stake in telecoms operator Zain. Kharafi, a major Zain shareholder, has a provisional deal to sell the Zain stake to Abu Dhabi rival Etisalat, but there is growing market talk that Kharafi has not been able to recruit enough Zain investors to reach the agreed 46 percent.
The deal also requires Zain to sell its stake in Saudi affiliate Zain Saudi and no formal bids have yet been revealed. Etisalat has said the deal could fail if definitive documents are not signed by January 15, 2011. "Everybody is nervous about the Zain deal - as time goes on, the picture gets bleaker as we wait confirmation that Kharafi has the 46 percent and Zain Saudi has been sold," said a Kuwait trader who asked not to be identified.
"Kharafi stocks fell today and dragged the rest of the market down as well." Zain ended flat, but National Investments Co dropped 5.1 percent and National Industries Group fell 4.2 percent. The latter pair are majority-owned by Kharafi. Saudi petrochemicals stocks took their gains to 21 percent this year, helping the index edge up to a new seven-month high, although volumes slumped to a two-week low.
"We are at a cross roads, waiting to see if the Q4 numbers will show that the gains in petrochemicals stocks are justified," said a Riyadh-based trader who asked not to be identified. "With results only a couple of weeks away, people aren't going to pump big money into the market." Saudi Kayan rose 0.8 percent and Saudi Basic Industries Corp added 0.2 percent. The latter has recommended a dividend of 2 riyals per share for the second half of 2010.
"SABIC's dividend was in line with expectations, which is shown in the share price reaction today," added the trader. Saudi banks also rose, extending gains since early December's six-month low as traders bet increased government spending will boost lenders' profits next year.
After market hours, the kingdom announced a record budget of 580 billion riyals ($154.7 billion) for 2011. "Banks haven't showed any loan growth, but this should pick up in the first quarter of 2011 as contractors and suppliers seek more financing," said Rami Sidani, Schroders Middle East head of investment.
"Saudi bank provisions have risen on the instruction of the central bank, but NPLs (non-performing loans) have been steady." Dubai volumes slumped to a 16-week low as the emirate's index fell for a seventh session in nine and further declines are forecast. "In the absence of local institutions, day traders are running the show and they are looking at the technical charts to make a quick gain and that isn't very useful to the market - that's why it's moving sideways to lower," said Mohammed Yasin, CAPM Investment chief investment officer. Emaar Properties fell 1.1 percent, Aramex dropped 2.4 percent and Tabreed lost 2.3 percent.
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