We expect 2016 to be a rewarding year” ——Svein Moxnes Harfjeld, joint chief executive officer for DHT Investment BankingDeutsche Bank Wins Amid Saudi Woes best year in the troubled ki
Trang 116 — 31 January, 2016
businessweekme.com
Algeria… … … DZD 215 Egypt…… … EGP 18 Jordan … … JOD 2 Lebanon LBP 4000 Oman…… … OMR 1 Saudi Arabia …SAR 10 UAE … … … …AED 10
Trang 5be spoilers”
p20
“We are benefiting
from what is currently
heat and provides an
external finish to the
Trang 616 — 31 January, 2016
How the cover gets made
Cover Trail
16 — 31 January, 2016
businessweekme.com
Algeria… … … DZD 215 Bahrain… BHD 1 Egypt…… … EGP 18 Jordan … … JOD 2 Lebanon LBP 4000 Libya… LYD 3.5 Oman…… … OMR 1 Saudi Arabia …SAR 10 UAE … … … …AED 10 00_cover.indd 1 13/01/2016 17:20
“Cool We’ll go with that.”
③ “How about this? It looks a bit more like the towers you see in this part of the world.”
② “Burning
through the front of a building, then?”
① “Ok then, how about a cover of cash with fire burning a hole through it.”
“Oh, this is after the fire on New Year’s Eve in Downtown?”
“Yeah, that was the third major tower fire in the city in as many years They all seem to have shared the problem
of being built using flammable panels
on their façade The problem seems
to be quite widespread and, beyond posing a risk to health and safety, it also threatens property investments.”
“This issue’s cover will be on the risk posed by tower fires in Dubai.”
“Like the idea of the hole burning through the cover but not sure about the cash.”
“Yeah, that looks better Any other options on the look of the building?”
Opening Remarks Dubai real estate investors could have hot property on their hands 6
Global Economics
As gas prices fall, Gazprom loses its swagger 10
India’s GDP data get recalculated, Chinese-style 11
In Japan, put some yen in the soda machine, and out comes deflation 12
Companies/Industries
Good times for Deutsche in Saudi Arabia as its economy stutters 15
In Dubai, homes sit empty as developers try to fend off a property slump 16
The Grill: Bruce Robertston, managing director, Jaguar Land Rover MENA 17
With Saudi Aramco’s sights set on an IPO, refining comes into focus 18
Briefs: Netflix goes global, Emirates rolls out A380s on Dubai-Washington route 19
Politics/Policy
Putin gets his way as Assad looks to keep a grip on power in Syria 21
To write its new economic story, Turkey might need to spend big 23
Technology
For many startup workers, stock option dreams crash into IPO reality 25
The biggest help yet in preventing football concussions: Woodpeckers? 26
Innovation: Testing for a whole lot of viruses all at once 28
Markets/Finance
Egypt’s desperate for dollars, and investors are playing a hard game over bonds 31
In Saudi Arabia, money managers put their faith in IPO funds 32
Banks get ready for what could be a record-breaking listing 32
Bid/Ask: Palm projects for Ssangyong, Dubai developer buys a chunk of London 33
Features
Bad Burrito America’s healthiest fast-food chain comes down with food poisoning 40
Faster Fast Fashion Primark launches its supercheap model in the US 46
China’s Disney Scandal hits the “CEO monk” who made the Shaolin Temple into an empire 52
Etc.
Rant: Why force an office Christmas party when colleagues are already buds? 62
What I Wear to Work: Rutgers law prof Sarah Dadush’s “funky librarian” look 63
How Did I Get Here? Cleveland Clinic’s Toby Cosgrove went from history major to heart surgeon 64
4
Trang 7JPMorgan Chase 32
Juergen Fitschen 16 Julian Bailes 26
Jumeirah Group 19
Khalid al-Attiyah 22 Khalid Al-Falih 19 King Salman 23
Kuwait Investment Authority 19
McDonald’s 43 Microsoft 25
Mohamad Safri Shahul Hamid 31 Montgomery Moran 43
Outward Bound 60
PQRSPaul Marchant 49
Rabigh Refining &
Petrochemical Company 33 RealScout 60
Recep Tayyip Erdogan 23
Stefan Leser 19 Steve Ells 42
Vladimir Putin 21WXYZ
BLOOMBERG BUSINESSWEEK MIDDLE EAST
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Besix Group 33
Bill Coughlin 19
BlackRock 32 Blackstone 33
Brian O’Malley 26
BrightRoll 26
Bruce Robertson 17
Butler Engineering 6 CBRE Group 16 China National Petroleum Corporation 15 China Petroleum &
DHT Holdings 14 Dubai Duty Free 19 Dubai Holding 19
Trang 8After a third major Dubai
tower fire in as many years,
property owners should
be wondering what their
buildings are made of
6
tical fire spreads quickly because the hot plume rises and impinges directly upon the unburnt material above This process leads to the melting of the panel core which leaks out and fuels the fire.”
Not all ACPs have an entirely bustible core: many have a mineral or chalk buffer that reduces their combus-tible content down to 30 or even 7 per cent, and which—if correctly installed—
com-will not contribute to rapid vertical fire spread Critically, however, use of ACPs with a combustible core was widespread
in Dubai and across the UAE before the UAE federal fire code was introduced in July 2011, which banned their use, says Sajid Raza, a vice president and advisor at Butler Engineering, and a member of the UAE Fire Code Council By one estimate, the number of buildings constructed in the UAE with combustible core panels is above 500, he says
Insurance company RSA regularly ducts engineering inspections of buildings
con-in Dubai prior to writcon-ing a policy These con-spections consider many elements of fire safety and the risk, including the nature of the occupancy and building management;
in-they also look for the presence of ACPs By obtaining design and specification details
of exterior cladding during site surveys, risk engineers are able to “identify the external fire spread characteristics of the building,” says AK Ravindran, technical di-rector at RSA “Most of the constructions [in the UAE] prior to 2013 have combusti-ble ACPs cladding on exterior walls,” ac-cording to Ravindran Generally, RSA will not insure buildings with a high presence
of combustible ACPs, since not only will they rapidly spread fire, but as they burn will give off toxic gases and smoke, which can make it difficult for Civil Defence to control the fire, says Ravindran
Authorities too are aware of the
ma-terial Speaking to Industrial Fire World,
a trade publication, Lt Col Ali Hassan Mutawa, director of operations at Dubai Civil Defence, described the façade of The Torch “The building’s external finish con-
Al-sists of panels made from two sheets of metal composite with an infill of combus-tible foam which exhibits rapid flames spread upon fire exposure It gives good insulation against heat and provides an external finish to the building However,
we have found in several instances that it can be quite flammable.”
So far Dubai has managed to avoid any fatalities caused by these fires This can
be put down to a mixture of fire safety systems working as planned, the quick re-sponse of Civil Defence, as well as simply luck Fire experts spoken to pointed out
a number of ways these fires could have resulted in worse outcomes Façade fires have a risk of spreading fire into the buildings, says Poon, which can endan-ger the lives of occupants or firefighters
A failure in any of the critical elements of the fire safety system—such as the sprin-kler system, fire compartmentation, or evacuation procedure—could result in devastating consequences There is also the danger that molten fragments can travel in the wind to adjacent skyscrap-ers, or smaller buildings located on the ground that may not have the same level
of fire safety as the large towers, he says
As far as luck goes, wind direction can play a big role in whether occupants are able to safely evacuate: In the case
of The Address hotel fire, the wind was blowing the toxic smoke away from the building “That’s why people were able
to escape,” says one fire safety engineer, who declined to speak on the record citing sensitivity about ongoing projects “It was bad enough, and everyone had enough problems, and that was when everything worked well That’s the scary thing: if the wind had been in a different direction,
I think that we would have had a very difficult outcome.”
The UAE isn’t alone in facing the issue of combustible panels: they’re also found in other GCC countries such as Saudi Arabia and Qatar, says Raza Internationally, rapid fire-spread on building façades has been experienced in disparate locations such as
Firefighters in Dubai are fast gaining a
rep-utation as some of the best in the business
when it comes to extinguishing blazes in
super-tall buildings Fire departments
around the world look to their expertise
and techniques, honed and perfected over
the past few years in a series of high-rise—
and high profile—fires Tamweel Tower,
Torch Tower, and now The Address
Down-town Dubai on New Year’s Eve have all
been the site of dramatic blazes In all of
these conflagrations, the building’s façade
material is being fingered as the culprit,
responsible for the rapid fire spread
Lightweight, easy to install, and
aes-thetically pleasing, aluminium composite
panels (ACPs) are a favourite of architects
and builders in many countries around
the world In Dubai, the panels are an
in-tegral part of the modern look of many
of the buildings in the emirate’s
futuris-tic skyline There’s just one problem—it’s
not the two thin aluminium skins that
make up the surface of the panel, but
what lies within Many ACPs contain a
combustible core of polyethylene, a
hy-drocarbon that, once ignited, can create
a fire which spreads vertically up a
build-ing’s façade, and often at speed After a
discarded cigarette butt ignited a pile of
rubbish left behind by contractors at the
base of Tamweel Tower, in Jumeirah Lake
Towers, it took just ten minutes for the
blaze to reach the roof of the 35-storey
building, according to the police
foren-sic report Describing how these panels
burn, Dr Leong Poon, a fire safety
spe-cialist based in Singapore who has worked
on several projects in Dubai, says:
“Ver-Questions
Trang 9chitect of record, says Raza
When it comes to clawing back costs, a major point of contention may be that the work done on these buildings was compli-ant with the code at the time The burden will be on the owners to demonstrate that developers or builders knew that the ma-terial being used was dangerous, Green-berg says “The lack of any regulation at the time will present a very serious chal-lenge to an owner seeking to impose li-ability, but in a case where the builder knew the cladding was dangerous for the purpose for which it was intended, a court might award damages But there will need
to be an exceptional showing to rebut the presumption created by the lack of any law prohibiting this material at the time.”For building owners who believe their building is built with combustible ACPs, the first step is to engage a reputable engi-neering firm to study the material to deter-mine what the risk is and the replacement cost, says Greenberg “If there is risk, the best option would be to place the builder
on notice, and see how they and their insurer react, although they will need to also determine whether they are prepared
to bear the cost of a retrofit without any outside source of compensation.” Regard-less of who pays, doing nothing may not
be an option, since insurers and writers are likely to refuse insurance, or else they may underwrite such risks “at significantly higher rates,” according to one property reinsurer in DIFC, who de-clined to be identified because he was not authorised to speak to the media
under-Niraj Masand, director at Banke national Properties, a real estate broker
Inter-in Dubai, says he’s seen no signs that the recent fires have affected appetites among property investors “Buyers are obviously looking at safety, but the inci-dents have not deterred them, and it’s not
a deal breaker.” He says that if tion work is necessary, building mainte-nance funds, which owners contribute to through their service charge, could po-tentially cover the cost In the meantime, one effect has been a sudden uptake in property and home contents insurance
remedia-by investors and tenants, says Masand
“Previously buyers considered property and home insurance as an expense, but now they’re looking at that much more
seriously.”�Stian Overdahl <BW>
Previously buyers considered property and home insurance as an expense, but now they're looking at that much more seriously
Grozny, the capital of Chechnya, and
Mel-bourne, in southern Australia Following
a fire in Melbourne in mid-2015, a local fire
chief expressed disbelief that a blaze could
travel so quickly up the façade of the
build-ing Subsequent investigations revealed it
had been constructed with combustible
core ACPs, in contravention of the state’s
building code Authorities there made
a direct comparison with The Torch in
Dubai, saying that there was a similar rate
and vertical travel of fire spread, while the
properties of the external cladding were
also deemed to be similar
In Melbourne, authorities were spurred
to undertake an audit of 170 high-rises that
had been constructed in the central city
over the past decade, demanding from
builders and surveyors proof details of the
façade specifications According to one
fire engineer familiar with the process,
the audit has already identified a number
of buildings where panels will need to be
replaced or remediation work
undertak-en “When we look in the greater
Mel-bourne area, there are probably 10 times
that many buildings, so this is a process
that is going to take years,” he says “I
would suggest that Dubai needs to do the
same process.”
According to Raza, officials at the UAE
Ministry of Interior are planning a similar
response He says that the process is yet
to be formalised, but will be part of the
annual safety audit that’s required for all
buildings in Dubai, carried out by
engi-neering firms approved to act as registered
fire consultants, known as houses of
ex-pertise Safety audits are proceeding gressively,” says Raza, and include inspec-tion of the exterior façade system, though
“ag-he foresees that t“ag-he process will be dited following the fire at The Address
expe-For buildings with combustible façades, mitigation measures are to be taken Rather than replacing the entire façade, one of the recommendations is
to fit every third floor of a high-rise tower with non-combustible ACPs, or any other exterior façade system or building enve-lope system, to act as a fire break, says Raza This means that in the case of a façade blaze breaking out, it’s less likely
to spread quickly beyond two storeys
Other options are also being studied and considered, including installing sprinklers
on balconies, or even externally
With news that many buildings in Dubai may require retrofitting of some cladding, questions will be asked about whether developers, architects or build-ers can be held responsible for the costs
Barry Greenberg, senior associate at law firm BSA Ahmad Bin Hezeem & Associates, believes there’s a chance that owners may
be able to shift costs back onto ers, architects or builders, under the UAE Civil Code That code states that the ar-chitect and contractor are jointly liable for a period of 10 years for any defect
develop-“which threatens the stability or safety
of the building.” In the case of ACPs, ity may fall on the party that specified the panelling to be used The view of Dubai Civil Defence engineers is that the overall responsibility for a project lies with the ar-
liabil-The Address
Downtown Dubai
caught fire on New
Year's Eve
Trang 10Global
Economics
On 23 November, when drugmaking
giants Pfizer and Allergan agreed to
combine, in a deal worth $183.7 billion,
2015 gained the distinction of
becom-ing a record year for mergers and
acqui-sitions The Big Pharma deal, by far
the year’s largest, pushed 2015 past the
$3.4 trillion mark in global M&A value
set in 2007, just before the financial
crisis That beat the previous record, set
in 2000, which also came right before
the economy fell into recession, pulled
down by the dot-com collapse
A flurry of corporate dealmaking
is “a classic late-cycle development,”
says David Rosenberg, chief economist
at Gluskin Sheff, a Toronto money
manager “When companies embark on
peak M&A activity, it is more often than
not coinciding with a peak in the stock
market and, dare I say, a peak in the
business cycle Companies are telling
us they can no longer grow
organi-cally.” The dollar value of deals in 2015
through 21 December was $3.8 trillion
During six and a half years of
expan-sion, the US economy has averaged
only 2.2 per cent annual growth With interest rates near zero and corporate balance sheets flush with cash, the easiest way for executives to boost share prices has often been to increase dividends and buy back stock
That strategy worked to a degree
Even with lacklustre economic growth, the stock market has almost tripled since its March 2009 low Yet corporate profits peaked in the summer of 2014 With consumer demand still weak around the world, sales growth remains elusive Rather than trying
to generate revenue selves, companies have been buying growth instead, acquiring rivals at
them-an unprecedented pace
The near-term impact
of a merger boom tends
to be negative for the economy, Rosenberg says
The watchwords of rate M&A—cost-cutting and synergies—usually translate
Monster Deals, Big Questions
16 — 31 January, 2016
8
Trang 11A better way to measure India’s growth 11 Gazprom fights
to protect its market share in the EU 10
Economic data from vending machines
in Japan 12
into people losing jobs “The idea is to take capacity out of the system and gen-erate better returns for shareholders,”
he says “I don’t think I’ve ever seen a merger that didn’t involve job losses.”
Judging the longer-term impact of all these deals is trickier Some will invari-ably turn out to be mistakes “In a world where borrowing money is virtually free, you’re probably doing more of these deals than you should,” says Jim Paulsen, chief investment strategist at Wells Capital Management
But a surplus of deals doesn’t mean a recession is lurking nearby Given how bizarre this recovery has been—almost seven years of weak growth despite record-low interest rates—“I’m not sure the same lessons apply this time around,” Paulsen says
For one, the current flood of deals is more US-centric than previous ones By mid-December, mergers and acquisitions made by US companies had accounted for almost $2 tril-lion in deals, more than half the global total European
targets made up the smallest share of global acquisitions in 17 years, 21 per cent, or only $785 billion That gives many corporate watchers confidence that M&A isn’t overheating, because it’s mostly focused on the world’s stron-gest economy
Last year’s rush is also note worthy for the number of transactions valued
at more than $10 billion, says Russell Thomson, who leads Deloitte &
Touche’s US M&A practice By his culation, it’s about double the number
cal-of high-priced mergers during the vious peaks of the past 15 years “That
pre-is quite staggering,” says Thomson, who points out that last year’s crop was more evenly spread across the various parts of the economy, “instead of being concentrated in one or two industries.”Earlier recessions were preceded by ever-riskier dealmaking in single indus-tries Such focus led to financial imbal-ances as too much money poured into one part of the economy Think of the dot-com bubble that burst in 2000 or the 2008 crisis that devastated house-holds, homebuilders, and banks This time the lack of dealmaking focused
on one industry lowers the chance of
a recession The average expansion
Monster Deals, Big Questions
9
Trang 12$2t
$1t
0
EnergyGazprom Is Losing Its Market Muscle
energy giant to make nice
mantra for both the EU and Russia”
Gazprom, the state-controlled,
Moscow-based natural gas giant has long played a double role: as an instru-ment of Kremlin foreign policy; and
as a major source of tax revenue for Vladimir Putin’s government
Things have changed Gazprom has long been accustomed to dictat-ing terms because of its size In the European Union, it supplies about
30 per cent of the gas But with a
70 per cent drop in profits, the Russian company finds itself fighting to protect its share of
a market it depends on for as much as a third of its revenue
of $100 billion Gazprom is no longer a potent diplomatic tool at a time when customers have many more options
By 2025, says the International Energy Agency (IEA), gas imports by the EU
since World War II has lasted less
than five years Joseph LaVorgna,
chief US economist at Deutsche Bank
Securities, rejects the idea that
recov-eries “die of old age They die of
imbal-ances, and right now I’m not seeing a
lot of imbalances.”
Every recession is different, but they
all tend to have the same main
ingre-dient: inflation Despite an abnormally
long recovery and rates near zero,
inflation is very low So is growth The
average forecast among economists
surveyed by Bloomberg is for the US
economy to expand 2.5 per cent in
2016 That makes LaVorgna nervous:
“I’m more worried over the inability
to generate decent economic growth
than I am over what this M&A boom
is signalling.”
From a corporate standpoint, with so
much cash flooding the system,
acquisi-tions have become less risky given most
companies’ lower cost of capital, says
Stephen Morrissette, who teaches M&A
strategy at the University of Chicago
Booth School of Business “You really
have to overpay for something, for a
deal not to end up adding value.”
Rather than a warning of weaker
growth, some economists see the
record M&A activity as the
oppo-site “I think it’s a sign of strength
in the US,” says Torsten Slok, chief
inter national economist at Deutsche
Bank “Corporate America’s
appe-tite for risk is finally beginning to
thaw Even if activity slows down [in
2016], I think we are still two or three
years away from a recession,” he says
Allen Sinai, chief global economist of
Decision Economics, agrees “If
any-thing, this is a sign of maturation
It’s as if this recovery is just reaching
will account for 77 per cent of its sumption, up from 63 per cent now Gazprom will not necessarily be supplying Europe with those extra imports American companies will
con-be providing liquefied shale gas to European power plants starting next year “US shale gas will provide a very important opportunity for European consumers to strengthen their hands,” says Fatih Birol, executive director of the IEA US exports may make up half
of flexible liquid natural gas volumes heading to Europe by 2020, says Philip
Olivier, chief executive officer of Engie
Global LNG, a shipper of flexible
LNG “Flexible” means the gas can be shipped anywhere
It’s not just America “There will
be competition between American gas, Russian gas, Algerian gas,
Middle Eastern gas,” Total CEO Patrick
Pouyanné said in October In response, Gazprom has dropped the bluster and threats it used with European clients that protested Moscow’s actions in Ukraine last year and whose govern-ments imposed sanctions on Russia (The Western sanctions don’t restrict purchases of Russian natural gas.) Instead, the company is paying more attention to customer needs, announc-ing plans for a pipeline that would transport its gas directly to the EU and pushing to settle an EU antitrust claim that could cost it billions of dollars.The new approach complements Russia’s attempts to ease tensions with the West over Ukraine and boost coop-eration in fighting terrorists in Syria Those efforts have met with limited success, but Russia is persistent “The position of Gazprom and the Russian side is becoming flexible in light of the changing situation, defending our interests but also taking into account the demands of the European side,” says First Deputy Energy Minister Alexey Teksler
Gazprom is trying both to appease the Europeans and
look for new customers “In
the aftermath of the Ukraine crisis, gas diversification became a mantra for both the
EU and Russia,” says Simone Tagliapietra, energy fellow
at Bruegel, a think tank in Brussels But “Russia needs the EU gas market as much as—if not more than—the EU
puberty Chronologically, it’s old, but functionally, it’s still very young.”
�Matthew Philips
The bottom line An M&A wave can signal an
economic downturn, but this record-breaking cycle may not follow the script.
2.7%
The value of deals is rising again, but most economists maintain a rosy outlook
1995 2015*
A Harbinger of Tough Times?
Value of announced M&A deals in which the acquiring company is based in the US
total value of deals
grew by more than
in light of the changing situation, defending our interests but also taking into account the demands of the European side.”
——Alexey Teksler, First Deputy Energy Minister, Russia
10
Global Economics
Trang 13In India, Growth Data Served Chinese-Style
sales and power consumption
“doesn’t quite add up”
Indian economists have adapted Chinese Premier Li Keqiang’s
approach to figuring out economic growth, which involves scrutinising data from various industries instead
of relying on the official figure for gross domestic product The picture painted by what the Indians are calling the Keqiang index is more downbeat than the official data from Delhi, which started using a new way
to calculate GDP in January
When he was a regional official in China, Li examined electricity con-sumption, rail cargo volumes, and loan disbursements to take the pulse
of the economy He told US sador Clark Randt in March 2007 that such data captured the reality of growth better than “man-made” GDP, according to classified documents published on WikiLeaks
ambas-Mumbai-based stock
broker-age Ambit Capital introduced
a Keqiang-inspired index in
September, when doubts over the reliability of India’s GDP figures were increasing The government’s numbers showed the country’s economy outpacing China’s Says Ambit analyst Ritika Mankar Mukherjee, who worked on the firm’s Keqiang index, “The GDP data is telling you something that doesn’t quite add
up Everything you know from rate captains, from corporate manage-ment, from the government machinery,
corpo-is telling you that the economy corpo-is slowing down.”
Ambit’s Keqiang index combines motor vehicle sales, power consump-tion, capital goods imports, and cargo handled at airports to capture private consumption and investment demand The index shows the growth of motor vehicle sales decelerating to 0.5 per cent last quarter, from 2.4 per cent over the previous three months
Although the government reported that the overall year-over-year growth rate had accelerated to 7.4 per cent in the three months through September, from
7 per cent in the prior quarter, Ambit estimates a deceleration to 6 per cent, from 6.3 per cent A top government eco-nomic adviser, Arvind Subramanian, in a
18 December press conference defended the independence of the statistics office while acknowledging the uncertainty economists and investors feel about the official measurement of GDP
market needs Russian gas.”
Gazprom’s room to manoeuvre is
limited All the gas for Europe is shipped
by pipeline, meaning Russia can’t divert
it to other markets Links to China aren’t
expected to be built until after 2019
Russia shelved plans to turn Turkey
into a conduit to Europe after the Turks
downed a Russian warplane near the
Syrian border in November
Gazprom’s “export policy has always
been balanced and adaptive,” says
spokesman Sergei Kupriyanov He
argues that European customers have
become more interested, not less,
in Russian gas, given Europe’s own
decline in production
The Kremlin’s traditional hard-line
approach to customers was on display
in 2014 when tensions over the crisis in
Ukraine led to the worst breach in
rela-tions with the West since the Cold War
“Europe has lost,” Gazprom CEO Alexey
Miller declared after Russia signed
its first gas supply deal with China
He said another deal would come in
the “nearest future” that would allow
Russia to redirect some EU-bound gas
from deep in West Siberia to Asia
In September 2014, Gazprom
started to limit gas deliveries to some
EU members, including Poland and
Slovakia They had been supplying
gas to Ukraine to replace supplies that
Russia had cut off in a pricing dispute
with its neighbour Russia warned that
the conflict with Kiev could disrupt
supplies to Europe, as had happened
in 2006 and 2009 In both those
epi-sodes, Gazprom cut off gas to Ukraine
Because Europe got most of its Russian
gas via Ukraine, Gazprom’s actions
imposed shortages on the EU as well
In January 2015, Miller told the EU’s
new energy chief, Maros Sefcovic,
that Gazprom would cut off
ship-ments to Europe via Ukraine after the
current pipeline contract ran out in
2019 That would force customers to
build new pipelines “We don’t work
like this,” a stunned Sefcovic told
reporters in Moscow
But since the spring, the pressure
has been growing on Gazprom The
plunge in gas prices has begun to bite
Gazprom expects revenue in Europe in
2016 to be down 16 per cent, the lowest
in 11 years Its giant Siberian fields are
operating far below capacity It says
production this year will fall to a record low because of weak demand, primarily from Ukraine, which isn’t buying much
In April, Brussels unsealed an antitrust complaint alleging Gazprom sold gas to Poland and the Baltic states
at prices up to 21 per cent higher than the average If the charges are proven, the gas giant could pay as much as
$3.8 billion in fines, VTB Capital in Moscow estimates Gazprom denies all the charges
In negotiations to export more gas
to China, talks have stalled After a September visit to China again failed
to yield a deal to expand shipments, Gazprom hastily signed a pact with five big EU companies including oil major
Shell and utility E.ON to build a
pipeline under the Baltic Sea to Germany Russian officials say they’re ready to offer lower prices to gas customers that
help fund construction, as well
as concessions to ensure the pact wins EU approval The company later made a formal offer to settle the EU’s antitrust charges
Miller has publicly backed off from threats to cease shipments via Ukraine after 2019 Gazprom is also giving in
to European clients’ calls for more pricing flexibility Slowly, Gazprom is learning how to operate like an ordi-nary company that has to work on its
customer relations �Elena Mazneva,
Anna Shiryaevskaya, and Kelly Gilblom, with Ilya Arkhipov, Tino Andresen, and Alex Morales
The bottom line As Russia tries to defuse
tensions with the West, Gazprom is blustering less and promising more.
Global Economics
11
Trang 14Ambit says the slowdown reflects
Prime Minister Narendra Modi’s efforts
to break India’s dependence on the old growth model “You’ll have smaller subsidies coming from the central government, you’ll have a smaller black economy, and you’ll have crony capitalism curtailed to some extent,” Mukherjee
says “While each of these resets will
be very positive for the country from a
long-term perspective, all of this in the
short term is extremely negative for
GDP growth.” � Sandrine Rastello
The bottom line The government says India’s
economy grew 7.4 per cent in the third quarter, but
actual business activity suggests otherwise.
Consumption
Vending Machines in
Japan Sell Deflation
locked in a soft-drink price war
to the idea of low prices”
Japan has vending machines
every-where: in the capital’s vast network of
train and subway stations, at Kyoto’s
historic shrines and temples, on
Okinawa’s remotest islands, and even
on Mt Fuji With 5 million of them,
about one for every 25 people, Japan
has the most vending machines per
capita in the world—double
the rate in the US The
machines sell train tickets,
flowers, and fried chicken,
among other items More
than half offer soft drinks,
making beverages the
indus-try’s largest category They’re
also an economic indicator
The soft-drink vending machines
exemplify how difficult it is to stamp
out the deflation that’s stifling growth
in Japan Government data show the
prices of soft drinks are at their lowest
since 1976 About one in three machines
has reduced prices, according to based beverage researcher Inryou Souken At one machine at the main intersection of Tokyo’s fashionable Shirokanedai neighbourhood, a half-litre supersize can of Coca-Cola sells for only 100 yen, or the equivalent of 82¢
Tokyo-The standard soft drink price for all vending machines is 130 yen That’s the price at suburban locations and in train stations, where competition is limited
Operators of the drink vending machines have been locked in a price war with supermarkets and dis-count retailers for years After the government hiked the sales tax in April 2014, many vendors chose to lower prices further to soften the blow of the tax “There’s a great many people who are still attached to the idea of low prices,” says Takeshi Minami, an econo-mist at Norinchukin Research Institute
soft-in Tokyo “It’s deeply rooted.”
With the recovery still fragile,
Vending machines in Japan sell beer, burgers, underwear, ramen, umbrellas, razors, floral arrangements, toy cars, toasted sandwiches, fresh eggs, neckties, and batteries
6%
Private estimate of
India’s year-over-year
GDP growth for the
third quarter; the
official calculation is
7.4 per cent
budget-conscious consumers are increasingly packing drinks from home when they go out When they purchase them, they tend to buy at super markets and convenience stores offering deep discounts That pres-sures vending machine operators
to lower prices, says Yano Research Institute in Tokyo
The competition is intense: A litre bottle of Coke goes for 75 yen (55 with a coupon) at a Don Quijote dis-count retailer across the street from the Shirokanedai vending machine Whoever wins the marketing war
half-in soft drhalf-inks, the depressed prices that result will help keep defla-tion alive in the Japanese economy
�Kevin Buckland and Kyoko Shimodoi
The bottom line The prices at Japan’s soft-drink
vending machines demonstrate how hard it is for the government to curb deflationary forces.
Trang 15EACH JACKET IS PAIRED WITH TWO TROUSERS
Michael Small, Economist
Abu Dhabi - Doha - Dubai - London www.ascotsandchapels.com
Traditions rooted in logic last more than a lifetime
For over 130 years, an Ascots & Chapels suit comes
with two trousers per jacket, because you wear your
trousers twice as often as your jacket
Trang 16▶ Cheaper oil is seeing high demand for ships transporting crude
▶
▶ “The stars are aligned for us right now”
The most destructive oil crash in a eration is giving ship owners a billion-dollar windfall With the Organization
gen-of Petroleum Exporting Countries abandoning output limits in a drive for market share, ships that carry as much as 2 million barrels a trip are in demand to haul crude from the Middle East to Asia and North America While oil prices fell about 35 per cent in
2015, average earnings for these riers jumped to $67,366 a day, the most since at least 2009, according
car-to Clarkson, the world’s largest broker “The stars are aligned for us right now,” Nikolas Tsakos, the chief
ship-executive officer of Tsakos Energy
Navigation, says, adding that falling
oil prices will likely stimulate demand and cargoes next year
Tanker analysts are predicting the rate boom will persist for many of the same reasons oil forecasters are bearish OPEC shows no sign of revers-ing its market strategy, and Iran has outlined plans to ramp up its exports once economic sanctions against the country are lifted At the same time, the US just repealed a four-decades old limit on its exports With on-land inventories already at record levels, this could mean more barrels will eventually be stored on ships, further increasing profit, says Tsakos
The biggest tanker operators who manage fleets from Europe
are Euronav, based in Antwerp, Belgium, DHT Holdings, Frontline
Management, which runs
Norway-born billionaire John Fredriksen’s tanker fleet, and Tsakos Energy in Greece All have seen their shares rise this year while most energy producers have fallen “We are benefiting from what is currently a challenging envi-ronment for the energy sector,” says Svein Moxnes Harfjeld, joint chief exec-utive officer for DHT “We expect 2016
to be a rewarding year.”
Tsakos, whose company gained 4.3 per cent in New York trading this year, says the increase should have been higher, given that “the underlying busi-ness is doing very well.’’ Too often, tankers are lumped in with other oil industry services in the minds of inves-tors, he says “Investors look at tankers
A Good Time for Tankers
Trang 17Crude Carriers, the cial designation for the big tankers, exceeded
offi-$100,000 a day for the first time since 2008, accord-ing to data compiled by Bloomberg
Moving forward, the carrier company Frontline expects rates to be “firm, driven by a high supply of oil,”
Chief Executive Officer Robert Hvide Macleod says Euronav NV declined
to comment “The very thing which has been negative for oil markets has been positive for tanker markets,” says George Los, a New York-based analyst for Charles R Weber “We have seen
a supply driven boost to the tanker market which has come at the cost of
the oil market.” �Manisha Jha.
The bottom line The conditions that saw oil tanker
operators last year earn the most per day since
2009 look set to continue into this year.
as an oil service, which we are,”
Tsakos says “But I think very few
have identified that this side over
here is the only oil service that’s
positively affected by the dropping
oil prices I hope in the new year
that this will be recognised, and
our share prices are moving in the
right direction.”
While rates are forecast to slip in
2016, the ships will still earn $46,400 a
day, the second best year since 2009,
according to the median of six analysts
surveyed by Bloomberg and
histori-cal data from Clarkson The average
carrier is about 332 metres long, or
almost 1,089 feet, data from IHS show
The carriers’ earnings will more than
double this year, according to analyst
estimates compiled by Bloomberg The
extra rates would work out at more
than $5 billion in additional revenues if
applied across the entire fleet “A
sce-nario in which crude oil prices are
sup-pressed across 2016 could lead to a
boom in tanker earnings of
compara-ble magnitude to 2007-08,” Tim Smith,
senior analyst at Maritime Strategies
International, says in a report
At the same time, low oil prices have
served to stimulate world oil
consump-tion, which rose by 1.8 million barrels
a day in 2015, the highest in five years,
according to the International Energy
Agency With about 40 per cent of the
world’s crude shipped by sea, that
will result in 1.4 million barrels a day
more cargoes this year, according to
Clarkson data
One other factor related to the oil
rout is that it’s driven down fuel prices,
further boosting tanker profits At the
start of October, earnings for Very Large
Dubai’s newly built properties that aren’t for sale (yet) 16
Refining could be the target for Aramco’s IPO plans 18 The Grill: Bruce
Robertson, MD, Jaguar Land Rover MENA 17
Briefs: A Middle Eastern deal for a US wind farm 19
“We are benefiting from what is currently a challenging environment for the energy sector
We expect 2016 to
be a rewarding
year” ——Svein
Moxnes Harfjeld, joint chief executive officer for DHT
Investment BankingDeutsche Bank Wins Amid Saudi Woes
best year in the troubled kingdom
just scratching the surface”
In a year which saw the price of oil slump and Saudi Arabia’s economic
growth slow, Deutsche Bank expects
to have seen its best-ever performance
in the kingdom, according to Jamal Al Kishi, chief executive officer of the lend-er’s local unit “2015 has been a record year for us in Saudi Arabia, mostly
driven by structured financing and M&A work,” Al Kishi, head of Deutsche Securities Saudi Arabia, says, declining
to give financial details “For Deutsche Bank, the business in Saudi Arabia is one of the largest contributors to the Middle East and Africa sub-region, and
we see that reflected in the continued investment and commitment here.”
The Frankfurt-based lender was among banks that arranged a 2 billion riyal ($530 million) bond for Riyadh’s
Arab National Bank in September
and participated in a $10 billion loan
for oil producer Saudi Aramco in
March It’s also advising Aramco on
a potential acquisition of some keting, retail and refining assets
mar-from China National Petroleum
Corporation, people with knowledge
of the matter said in October
Deutsche Bank, which employs about 80 people in Saudi Arabia, was the fourth-biggest earner of invest-ment banking fees in the Middle East last year, up from fifth a year earlier, according to New York-based research firm Freeman & Co The bank, which ranks behind HSBC Holdings, Goldman Sachs and Barclays, had made $35.9 million from arranging bonds, syndicated loans, M&A and equity capital market deals by mid-December Freeman doesn’t break out data for Saudi Arabia
A drop in the price of oil—Saudi Arabia’s principal form of revenue—is leading the country to report its first budget deficit since 2009, while eco-nomic growth is expected to slow to 2.5 per cent this year, from 3 per cent
in 2015, according to the median mate of 12 economists compiled by Bloomberg Despite that, deal activity remains steady as state-owned compa-nies seek investments abroad and to raise capital “The opportunity here
esti-is great and really the international banks here are only just scratching the surface,” Al Kishi says “We definitely see a lot more opportunity in Saudi Arabia even with the oil price where
it is.”
Such bullishness may mean Deutsche Bank’s business in Saudi Arabia will escape cost-cutting mea-sures being considered by co-chief
Trang 18executive officer John Cryan His
plans involve eliminating the
divi-dend for two years, pulling out of
busi-nesses in 10 countries and shrinking
headcount by about a quarter to revive
profit and reverse a share slump
Globally, Deutsche Bank’s advisory
business saw revenue jump 20 per
cent to 471 million euros ($515 million)
in the first nine months from a year
earlier, company filings show That
made it the smallest source of earnings
at the firm’s ment banking and trading unit, which saw revenue rise 14 per cent
invest-to 12.1 billion euros in the nine months through September, according to the filings
Ashok Aram, who heads Deutsche Bank in the
Middle East and Africa, will expand
his role to take charge of Europe as
the Frankfurt-based lender reduces
its global coverage to five regions
from seven, co-CEO Juergen Fitschen
said on 29 October The bank has 14
offices in the Middle East and Africa,
with Dubai serving as the regional
hub, according to information on the
bank’s website �Matthew Martin
The bottom line Deals with Arab National Bank
and Saudi Aramco have helped Deutsche Bank
have what it says was its best year in Saudi Arabia.
Real Estate
Dubai’s Developers
Play a Waiting Game
developments in the emirate
flexibility… will delay”
Dubai developers halted delivery of
about a quarter of the properties set for
completion last year, bolstering
apart-ment rents but failing to stop a 16 per
cent price decline, according to CBRE
Group About 6,000 nearly-completed
homes sit empty in newer
develop-ments such as Dubailand, Jumeirah
Village Circle and Dubai Sports City as some developers withhold keys from buyers, according to CBRE, which visits developments to assess the extent of construction on various projects
Single-family home rents declined 4 per cent compared with a 14 per cent drop in values, Matthew Green, head
of UAE research at CBRE, said at a ference last month Apartment rents were unchanged Rents climbed in lower-priced developments such as Sports City and Dubailand but fell in prime areas such as Palm Jumeirah and Dubai Marina, which had been quick-est to recover from the city’s 2008 property crash
con-Out of 20,000 homes CBRE mated were ready for comple-tion in 2014, 14,000 were brought to the market, Green said The supply squeeze and growing leasing demand
esti-is maintaining a gap between rents and values While some developers pur-posely delayed completion, some proj-ects were held back by the approvals
process or buyers who failed to make payments, CBRE says
“Those who have some flex-ibility in deliv-ery pipelines will delay or stall the delivery until
they presume that the capital values and rental values of those units will give them better returns,” says Nick Maclean, CBRE Group’s managing director for the Middle East region
“The impact on the rental market
is much less than the impact on the capital market That’s partly the result
even-a leven-argely expeven-atrieven-ate workforce Theven-at means the completion of 20,000 new homes can be absorbed by renters but anything above that would boost vacancy rates, Green said
The value of transactions in Dubai dropped 33 per cent last year to around 18.45 billion dirhams ($5.02 billion), CBRE says Dubai home values have been hit by the falling price of oil, tighter regulation and unsustainable price increases Residential property prices will probably fall by another 10 per cent next year, mostly in the first half Home rents are expected to also decline in 2016, Green said, without
being more specific �Zainab Fattah
The bottom line Some developers in Dubai are
strangling supply to try and stem the property price drop in the emirate.
$35.9million
Deutsche Bank’s 2015
income in the Middle
East from arranging
bonds, syndicated
loans, M&A and equity
capital market deals
till mid-December
“The impact on the rental market is much less than the impact on the capital market That’s partly the result of strangled supply.”
——Nick Maclean, managing director for the Middle East at CBRE Group
48,000Dubai homes set for completion through 2018
Trang 19The Grill
Bruce Robertson
How has Jaguar Land Rover been performing in the Middle East and North Africa and where does the region sit in your global portfolio?
We are now the fourth largest market within the Jaguar Land Rover portfolio of families and companies around the world The largest being China, the US, the UK, and then us
From a strategic point of view the growth has been very good The boom in the economy,
up until recently, definitely helped; new products help But more importantly we’ve seen regional expansion: The GCC has been particularly strong We have some of the biggest dealers in the world in the GCC:
Of the top ten Land Rover dealers, we’ve got four of them in the GCC Of the top ten Jaguar deals in the world we’ve got three As
we look forward, we are going to grow the number of facilities from where we are at the moment, which is around 40, to 60 over the next two to three years.
Out of all the forthcoming models, is there any one for which you are seeing particular interest in the Middle East?
The Jaguar F-Pace, the SUV, has created an inordinate amount of interest, which is good news for us I think for a number of reasons: one, people are intrigued by what Jaguar is bringing to the market; two, it’s something the market has been calling out for; three, there’s
a genuine interest around the fastest growing segment in the industry Jaguar is putting this car into a space where it hasn’t been before, but we do have the credentials in the family from which we operate We have great
aspirations for the vehicle in the GCC and North Africa.
Jaguar Land Rover is, of course,
a British manufacturer Is British manufacturing still a selling point and is it valued in this part of the world?
I think so Our brand heritage is deeply rooted in the Middle East, and the Middle Eastern consumer is now much more advanced than they were in the past
We are talking to educated consumers who understand design, who understand style, who’ve travelled the world, and I think the resurgence of the British motor industry is definitely driving interest back into an environment where maybe there’s been a bit of a hiatus over the last 10-20 years, or even longer.
The automotive market in the region is characterised by high-powered sports cars and large 4x4s Is the consumer
in the Middle East that much different
to the rest of the world in terms of what they are demanding?
I don’t think they are In the segments in which we compete, people are demanding
In the Middle East there is a known appetite for luxury vehicles, customisation and personalisation And that perhaps
is different to a lot of other markets, where people will buy quality products, but here we see a much higher level of personalisation
The push towards autonomous and assisted
driving seems to presume that such vehicles
are what all consumers want As self-driving
vehicles become the norm, how do you see the
industry satisfying the demands of those who
prefer the old-fashioned manual experience?
I think things evolve You just have to look at
things like communications When we first
launched cell phones, we could only make calls
Fundamentally we can still make calls, but there
are a lot of add-ons around it that enable us to
live more efficiently I don’t think vehicles are
going to be any different to that You are going to
get active involvement from the vehicles You may
choose just to use your car as a form of transport
or one that enhances your lifestyle We’ve got to
allow customers the choice at the end of the day
We can’t force them down a route of just being
driven by an autonomous vehicle.
What new models have you rolled out and what new models can we expect to see here soon?
The first one is the Jaguar XE, which we launched last year, and the XF, which is literally just launching
at the moment within the market We’ve also got the F-Pace, which launches mid-this year, and that’s Jaguar’s first SUV It will open up opportunities for a different client base and offer our clients something they’ve been asking for a long time On the Land Rover side, we’ve got the Range Rover Evoque Convertible, the world’s first [luxury] compact SUV convertible I’m test-driving one at the moment.
One of the major trends in the
automotive industry is the move
towards self-driving vehicles Will
we eventually see self-driving
Jaguars and Land Rovers in
this region?
I think a Jaguar Land Rover intelligent
vehicle will become a reality within
the next 10 years and we are heavily
involved in the development of that
with a consortium in the UK So,
yes we will continue to advance
and evolve If you were to ask me
personally if I would like to be driven
in a purely intelligent vehicle, I love
driving, so there still needs to be the
passion for people to get into a car
and want to own one and drive.
17
The managing director for Jaguar Land Rover MENA tells Rahul Odedra
about his company’s plans for the future of motoring in the region
“We’ve got to allow
customers the choice
at the end of the day
We can’t force them
down a route of just
being driven by an
autonomous vehicle.”
Trang 20Aramco’s IPO May Turn
Out to be Quite Refined
just float part of its business
is the most likely scenario”
Investors hoping a Saudi Arabian Oil
Company IPO will provide a chance
to buy a stake in the world’s largest
crude producer may have to wait
The company says one option is to
sell shares in the its refining assets
rather than the parent company While
that would lock private capital out of
the world’s biggest oil fields, it still
offers an immense global business
with plants spread from Louisiana to
Japan, processing more than 3.1 million
barrels a day “The Saudis aren’t just
pumping crude out of the ground and
selling it anymore,” says Jim Krane,
energy research fellow at the Baker
Institute at Rice University in Houston
“They’re now converting a massive
share of that crude into all sorts of
refined products Things like
high-quality petrol and low-sulphur diesel,
and petrochemicals.”
Saudi Aramco, as the state-owned
oil monopoly is known, confirmed
on 7 January it was studying options
for a share sale While one route is a
full initial public offering, another is
“listing of a bundle” of refining
sub-sidiaries, it said in a statement That
suggests Aramco may seek a path to
IPO that allows the state to retain full
control of its crown jewels: the fields
that produce more than 10 million barrels a day and make it the world’s largest exporter “Given the size of the company, selling its downstream business is the most likely scenario at first, as the offering will require a huge amount of liquidity,” says Fahad al-Turki, chief economist at Riyadh-based Jadwa Investment Co
The kingdom owns, either directly or through joint-ventures, plants capable
of processing 5.3 million barrels a day in Saudi Arabia, the US, South Korea, Japan and China Of that, Aramco directly controls 3.1 million barrels a day Based on its direct own-ership, the Saudi company is the world’s fourth-largest refiner, behind
Exxon Mobil, Royal Dutch Shell and China Petroleum & Chemical, or
Sinopec, according to US-based tants PetroStrategies
consul-Aramco could be at the top of the ranking by 2025, if the plans of its new Chief Executive Officer Amin Nasser to almost double capacity to 10 million barrels a day are realised By then, Aramco would be able to produce enough refined products to supply nearly all the petrol, diesel and other fuels China consumes
“Selling shares of its downstream business will allow Aramco to raise enough cash to expand its refining portfolio at home and abroad,” accord-ing to Mohamed Ramady, a London-based independent analyst and former economics professor at King Fahad University for Petroleum and Minerals
“The company wants to double its refining capacity and that will require a lot of cash, and at low oil prices getting that cash from its own pockets will pressure its budget.”
Whatever the size, refining isn’t
nearly as valuable as oil tion And investors, whether local
produc-or fproduc-oreign, could hesitate Consider
Valero Energy, the largest US
domes-tic refiner Despite its 2.9 million barrels of processing capacity—the sixth-largest globally—it has a market capitalisation of just under $35 billion Compare that with Exxon’s $313 billion John Sfakianakis, a Riyadh-based economist and former government adviser, says Aramco could sell stakes
of between 30 and 49 per cent in its downstream projects He estimates the value of Aramco’s downstream proj-ects at home and abroad at between
$100 billion to $150 billion
The discussion about a refining IPO comes as Saudi Arabia is spending bil-lions of dollars to invest in refineries
Companies of Immense Refinement
Based on its direct ownership of Saudi Arabia’s total refining capacity of 5.3 million barrels per day, Saudi Aramco is the world’s fourth-largest refiner
Rank by capacity
Trang 21Company has won US approval to sell its 50 per cent stake in LWP Lessee, the operator of
a 205.5-megawatt wind farm in Minnesota to the Qatar-based private equity fund Nebras Power Qatar Electricity & Water Company owns 60 per cent of Nebras Qatar Petroleum International and Qatar Holding each hold 20
Emir-ates will upgrade flights between Dubai and
Washington to Airbus A380 superjumbos, a month after Unit-
ed Airlines said it would quit the route following the awarding of
a government travel contract to the Gulf carrier via its code-share partner JetBlue Airways
Emirates will transition from Boeing 777-300ERs currently used starting next month in order to meet “strong customer demand” as United prepares to end its service on 25 Janu-
Stan-dard Chartered tower in Dubai, signalling investor demand for income-generating assets continues even as oil declines and political tensions mount The 13-storey building sold for about $177 million, Jim Osborne, a founding
partner of developer Gulf Resources
Group President and CEO Gerald Lalwess, who has led the hospitality company for 18 years, is to move on to a new role heading
up tourism and hospitality strategy with ent company Dubai Holding Stefan Leser is
par-to become Group CEO of Jumeirah, joining from Swiss travel business Kuoni.
Internet TV service Netflix has been made available across the GCC as part of its expansion around the world to over 190 countries The company has also added Arabic language support Due to government restrictions, Netflix is still unavailable in Crimea, North Korea and Syria, while it is still working on bringing the service to China.
Dubai Duty Free ranked number one globally in 2015 for duty free sales at an individual location, with its Dubai International Airport operations, according
to The Moodie Report
The retailer beat Incheon International Airport’s sales
of $1.8 billion.
companies-and-industries
in Asia, with contracts guaranteeing
that most of the oil will come from the
kingdom Riyadh has already invested
in plants in China and South Korea and
has announced plans to take a stake in
its first refinery in Indonesia Aramco
Chairman Khalid Al-Falih said in
Beijing in March the company “would
like to multiply our investments
in China.”
Aramco has struggled to expand
beyond its first plant in Asia’s largest
economy Since 2011, Aramco has
been talking to China National
Petroleum about a facility with a
capacity of 260,000 barrels a day in
Yunnan province, a mountainous
region bordering Vietnam and Laos
Though the two sides agreed in 2011
that the Saudis would control 40 per
cent of the venture, there’s been little
visible progress
The Saudis pursued a similar path
in the US three decades ago to lock in
sales as crude prices tumbled,
buying into three oil-processing
facilities in Texas and Louisiana
since 1988 The strategy
worked: Motiva Enterprises,
the US refiner half-owned by
Aramco, last year imported a
significant proportion of its oil
from the kingdom
The Saudi company has
experi-ence with refining listings In 2008,
it sold shares in a venture called
Rabigh Refining and Petrochemical
Aramco retained a 37.5 per cent stake,
Sumitomo Chemical bought 37.5 per
cent and the rest was sold into the local
stock market The flotation of Rabigh,
which processes 400,000 barrels a day,
was seen as a way to transfer oil wealth
to the 4.5 million Saudi citizens who
invested in the venture Still, the share
price has fallen 51 per cent after oil
prices plunged
Aramco has in the past talked about
floating stakes in other domestic
joint-ventures in refining and
petrochemi-cals, including in the so-called Satorp
and Yasref refining projects, each with
a capacity for 400,000 barrels a day,
and in the Sadara chemical venture
�Javier Blas and Wael Mahdi
The bottom line If Saudi Aramco is to achieve its
target of doubling refining capacity it may need to
attract outside investment.
$1.88b
“Once someone starts thinking like an inventor, they can’t turn that off.”
——Ford Global Technologies CEO Bill Coughlin, explaining a 36 per cent increase in the carmaker’s annual patent applications
CEO Wisdom
19
Companies/Industries
Trang 22The alliance between the US and Saudi
Arabia—an almost century-old
friend-ship at the heart of American policy in
the region—is coming under growing
strain as the Sunni-led kingdom
engages in an escalating Cold War with
Shiite Iran With President Barack
Obama entering his final year in office,
tensions between the regional powers
put at risk Obama’s initiatives in the
Middle East, from ending the war in
Syria to combating terrorists from
the self-proclaimed Islamic State and
improving relations with Iran In each,
the US counts on Saudi support, or at
least acquiescence
Now the Saudi breach with Iran is
being viewed by some as a
deliber-ate attempt to undermine Obama’s
broader efforts, at a moment when
many of those plans
are faltering and
Saudi assistance
is crucial,
particu-larly in Syria “This
is a power play,” says
Vali Nasr, a former
State Department
adviser “The Saudis
are showing the US
that they are capable
of dominating
by Obama’s refusal to back Egyptian president Hosni Mubarak in the Arab Spring protests that toppled him, per-ceptions the US hasn’t pressed hard enough for Syrian President Bashar al-Assad’s ouster and conclusion of the US-led nuclear agreement with Iran While the Iranian deal will proba-bly proceed, bolstered by the Obama administration’s support and the interest of Iran’s trading partners in resuming economic ties, the tensions are an obstacle to broader improve-ments in relations between the US and Iran The Saudis and their Sunni allies went along with the nuclear accord reluctantly, warning that Iran remained intent on undermining them and supporting terrorism
In the US, the latest events in the Middle East will add fodder to the narrative of Republican presiden-tial candidates that Obama has been
an unsuccessful president, says Paul Pillar, a senior fellow at Georgetown University’s Center for Security Studies and a former senior CIA offi-cial “It will be folded under the overall theme that the Middle East has become a greater mess under Obama, and here’s an indication of how big the mess has gotten,” he says
regional politics.”
While the US usually has offered only muted criticism of the kingdom’s human-rights record, administra-tion officials emphasised on 4 January that they had urged against plans for mass executions, including the killing
of cleric Nimr al-Nimr, a critic of the kingdom’s treatment of its Shiite minority The Saudis went ahead with the executions anyway Protesters
in Iran responded by setting fire to the Saudi embassy in Tehran, and the Saudis broke off diplomatic relations with Iran The result is the biggest meltdown between the two regional powers in almost three decades
The Saudis may have executed al-Nimr “to stir the pot a bit in the last year of the Obama presidency, when he may be looking to fortify the Iran deal and leave his mark
on the region,” says Brett Bruen, former director of global engage-ment for Obama’s National Security Council and now presi-dent of the Global Situation Room consulting firm “This may be an attempt by the Saudis to try to disrupt those efforts.”
Saudi Arabia’s relationship with the US already had been strained
of lost control of the dialogue, the agenda in the Middle East right now We’re not playing the deciding role I think what’s happening with Iran and Saudi Arabia right now is they’re both realising they can be spoilers”
� Karen Young, senior fellow at the Arab
Trang 23in 2017 elections as the US steps up efforts to end almost five years of civil war Opposition in Washington is weakening against Russia’s insistence that Assad be allowed to compete
in a presidential election after an 18-month transition period that starts this month, according to Russian and Western officials For its part, Russia has agreed that the millions of Syrians who’ve fled their country can take part in the vote and is showing increasing flexibility on which Islamist rebel groups can join peace talks
President Vladimir Putin told US Secretary of State John Kerry at a meeting in Moscow on 14 December that Assad can’t be barred as a
conventional American military
or political strategies.”
Despite the new plications, the White House isn’t likely to make any major change in its approach to the region during the limited time before a new president takes office, Miller says “The arc
com-of this administration’s cies in the Middle East is set,” he
poli-says �Mike Dorning and Angela
Greiling Keane
The bottom line Saudi Arabia’s attempts to assert
its power in the face of a strengthening Iran are reducing US influence and control in the region.
depends
on building erning institutions that are credible to both Sunnis and Shiites “This will make it much more difficult to show progress”
gov-against ISIS, according to Nasr, who’s dean of the Johns Hopkins University School of Advanced International Studies “Now our terrorism policy becomes like pouring water into sand
It’s just not going to go anywhere.” In Iraq, the sectarian tensions will make
it harder for the Shiite-dominated ernment to build on the recapture
gov-of Ramadi to regain control gov-of other Sunni-majority areas of the country, large sections of which are now held
by ISIS
It may also make it harder to halt a resurgence of the Taliban in Afghanistan because cooperation from neighbouring Iran is crucial, Djerejian says “The US is stuck in a region that
it can’t fix and it can’t leave,” says Aaron David Miller, a vice president
of the Wilson Institute and former Middle East adviser to Republican and
Democratic administra-tions “It’s trapped by unreliable allies pursu-ing agendas that con-flict with the United States and problems that simply are not ame-nable to res-olution by
The widening rift between
Iran and Saudi Arabia worsens
sec-tarian fault lines throughout a region
where tensions between Sunni and
Shiite populations drive many local
conflicts “The Obama
administra-tion has kind of lost control of the
dia-logue, the agenda in the Middle East
right now,” says Karen Young, a senior
fellow at the Arab States Gulf Institute
“We’re not playing the deciding role I
think what’s happening with Iran and
Saudi Arabia right now is they’re both
realising they can be spoilers.”
Prospects for a political settlement in
Syria are now “very dim,” says Edward
Djerejian, a former assistant
secre-tary of state for Middle East affairs and
ambassador to Syria, who’s now
direc-tor of Rice University’s Baker Institute
for Public Policy “There was at least
some modicum of progress Now that is
put very much in doubt.” Saudi Arabia,
which has aided Sunni rebel groups
in Syria, and Iran, a military backer of
Assad’s regime there, are key parties in
international talks that seek to bring to
the negotiating table the Syrian
govern-ment and its
21
Trang 24presidential candidate, and he
would win if he runs, two people
familiar with the matter said, speaking
on condition of anonymity to discuss
diplomatic matters While Kerry
didn’t agree, the US is already pushing
to set the terms of the 2017 ballot
in ways that would reduce Assad’s
chances of victory—contradicting the
Obama administration’s repeated calls
for the Syrian leader to leave office
The US position remains that “Assad
must go” because he’s lost the moral
credibility to govern his country, said
State Department spokesman Eddie
Vasquez, when asked if the Obama
administration could envisage the
Syrian leader competing in an
elec-tion “That said, we’re under no
illu-sions about the obstacles that exist
The decisions for how that takes place
must be decided in the context of
political negotiations.”
More than 250,000 Syrians have
died and millions of others have been
forced from their homes in the
con-flict, sparking the biggest refugee
crisis in Europe since World War II
and spurring efforts to strike a
com-promise that would end the fighting
Russia’s intervention three months
ago, which blunted the
immi-nent threat of the collapse of
Assad’s regime, according
to officials in Moscow, has turned the tables
in the Syrian leader’s favour and brought major powers to the
ing table
negotiat-“Many Syrians will
interpret a decision to allow Assad
to run in upcoming elections as de facto international acceptance for him, regardless of US intentions,”
says Emile Hokayem, senior fellow for Middle East security at the London-based International Institute for Strategic Studies
The Syrian president won scites unopposed twice with almost
plebi-100 per cent of the vote In 2014, in the midst of civil war, he secured another seven-year term with 89 per cent in a ballot condemned as illegitimate by Western and most Arab powers Assad would probably engineer a “land-slide” victory in any vote, says Peter Harling, senior Middle East and North Africa adviser at the International Crisis Group The embattled leader now controls only a quarter of Syrian territory, though about 60 per cent of the population
Kerry said on 18 December that the US has abandoned its demand for Assad, an ally of Iran as well as Russia, to step down as a precondition for a peace deal “We began to really come to the reality that this demand was in fact prolonging the war, creat-ing greater agony and suffering, and not getting us anywhere in a stale-mate,” he told reporters in New York
Although President Barack Obama said the same day that “Assad is going
to have to leave for the country to stop the bloodletting,” he also has shown increasing flexibility about Syria’s future Obama has said the nation’s military and government institutions should remain intact and that Assad’s Alawite minority should be protected from retribution
On his side, Putin acceded to the
US proposal to include the Syrian diaspora among the electorate, a Russian official said A United Nations Security Council resolution unani-mously approved on 18 December
stipulated that the 4.4 million gees—out of the country’s pre-war population of 22 million—who have fled Syria will be eligible to vote and the ballot will be supervised by the
refu-UN The Russian president also agreed
to allow major Syrian armed tion groups backed by Arabian Gulf states and Turkey, such as the Army
opposi-of Islam and Ahrar ash-Sham, to join the political process if they stop fight-ing These Islamist groups, considered
by Russia as terrorists alongside the al-Qaeda-affiliated al-Nusra Front and
IS, were both part of a Syrian tion meeting hosted by Saudi Arabia
opposi-in early December
UN-sponsored peace talks between the Syrian government and its oppo-nents are due to start in Geneva on
25 January over the formation of
an interim body with full executive powers that would begin to function within six months A year after that, the elections would be held following changes to the Syrian constitution In parallel, the UN is to seek a cease-fire that would cover all armed groups, except for those considered terrorists.Kerry said after meeting Putin in Moscow that the US isn’t focused on Assad, but on the political process
“The United States and our ners are not seeking so-called regime change,” he said “Our challenge remains creating the conditions on which an alternative can emerge.”
part-Russia’s Foreign Minister Sergei Lavrov dismissed any US say in Assad’s future
“In the UN Security Council tion, it’s written clearly that the Syrian people will decide the fate of their country,” he said last month after meeting his Qatari counterpart Khalid al-Attiyah in the Russian capital “What has this got to do with the Americans?” Saudi Arabia and other Sunni Gulf states, which along with Turkey have maintained calls for Assad’s ouster,
Trang 25Fiscal Policy
Turkey’s Purse Strings
Look Like Loosening Up
Erdogan urges higher spending
help create “a new Turkey story”
Turkey needs to boost
infrastruc-ture investment to kick-start a new era
of rapid growth in the Middle East’s
largest economy, one of President
Recep Tayyip Erdogan’s top economic
advisers says While primary budget
surpluses under the ruling AK Party
have boosted Turkey’s credit
worthi-ness and reduced the ratio of public
debt to gross domestic product by
more than half, higher spending on
railways, ports and energy pipelines
will be necessary to make the economy
more competitive and help craft “a
new Turkey story” to attract foreign
investment, says Cemil Ertem
Ertem’s comments point to a
potential policy shift by the
govern-ment, which responded to the global
are now willing for the Syrian leader
to stay on throughout the 18-month
transition period, says Abdulkhaleq
Abdulla, a political analyst based in
the United Arab Emirates
Turkish President Recep Tayyip
Erdogan charged Assad’s government
on 29 December with “mercilessly”
killing several hundred thousand
people He also criticised Russia for
supporting him ahead of talks with
Saudi King Salman in Riyadh The
Turkish state-run Anadolu news
service said in a commentary on 22
December that Assad has secured at
least two more years in power after
the passage of the UN resolution on
Syria As far as Assad’s candidacy
in 2017 elections, “the Gulf states at
this moment would say no for sure,
but if there is a concession coming
from everybody else, I don’t think
there is a way for them to say no,”
�Henry Meyer
The bottom line As the US pushes for a peace
deal in Syria, Russia is manoeuvring to consolidate
Bashar al-Assad’s grip on power.
8 6
-2 0
4 2
-4 -6
politics-and-policy
financial crisis and ing market capital out-flows by maintaining fiscal discipline that helped it regain investment grade status in 2013 They also reflect the tale of two halves of AK Party rule—
emerg-growth since the market turmoil of 2008 has been less than half the average of more than 6 per cent before it, and the lira slumped more than 20 per cent last year
It is “flawed” policy to run a public budget with a single aim of having a surplus, and Turkey may need to dip into the red to create “externalities,”
Ertem says, referring to conditions in which Turkish industry can flourish
“You may run some considerable budget gaps, and the fiscal balance may worsen for some time if you undertake these infrastructure projects,” he says “But
in the medium-term, when you create those externalities your industrialists gain global competitiveness, which helps
to restore macroeconomic fundamentals and accelerate economic growth.”
Moody’s says uncertainty over the government’s future economic policies was part
of the reason for keeping its country outlook at negative
at last month’s scheduled review, which held Turkey’s credit rating at the lowest investment grade Baa3 due to its
“strong fiscal metrics.” Turkey has run surpluses, excluding interest payments, since the ruling AK Party came to power
in 2002, and the surplus-to-GDP ratio was 2 per cent in the second quarter of last year, according to the Ministry of Finance The ratio of public debt to GDP fell to 35 per cent in 2014, from 79 per cent in 2003
Ertem, who became Erdogan’s chief adviser in January and has a PhD from Istanbul University, says his vision for fast-track growth relies on having complimen-tary monetary and fiscal poli-cies that support job creation and the government’s broader economic goals Some economists have said Turkey can’t return to the same economic model of the high-growth era, which was fuelled by con-sumer demand and ample liquidity It also saw imports outpace exports, con-tributing to a current-account gap that reached nearly 10 per cent of GDP in
2011 It was forecast to have fallen to
5 per cent by the end of last year The spike in imports and subsequent wid-ening in the current-account deficit was a result of policies that relied on short-term capital to cover the gap and kept interest rates above global norms, Ertem says The system is a “trap” for emerging economies, says Ertem, who wrote about Erdogan’s economic pol-icies and his own proposals for a
new growth model in Turkey:
A River That Finds Its Course
published in 2014
While some members of the ruling AK Party have accused the central bank
of hindering growth with excessively high interest rates, Ertem says the criticism was “neither useful nor meaning-ful.” Policy makers should be able to discuss whether Turkey’s interests are best served by the central bank’s prefer-ence for an inflation target rather than a monetary target, including focusing on money supply to spur growth, he says
“In a world where capital flows are nite, an open economy with a free-float-ing currency like Turkey cannot have
infi-a foreign-exchinfi-ange level—the centrinfi-al bank’s inflation target is an implicit FX target,” Ertem says “What the central bank should do is to adopt a monetary policy that also focuses on job creation and supports the government’s eco-
nomic goals.” �Selcan Hacaoglu and
Onur Ant
The bottom line Turkish growth since 2008 has
been less than half the average of more than 6 per cent achieved in the first six years of AK Party rule.
“In the medium-term, when you create those externalities your industrialists gain global competitiveness, which helps to restore macroeconomic fundamentals and accelerate economic
growth.” �Cemil
Ertem, economic adviser to President Recep Tayyip Erdogan
Estimated
23
Politics/Policy
Trang 26▶
Texting Out an SOS
Sophie Otiende is a late adopter It
was only last summer, she says, that
she became obsessed with her
smart-phone Even so, she had a better
excuse than the rest of us for
con-stantly checking her device Otiende
is a consultant in Nairobi with the
nonprofit Awareness Against Human
Trafficking By last spring, 31 women—
in a group spread across war-torn
Libya and linked via social media—had
found her on Facebook through the
organisation and asked for her help
The first thing she could do, the
endan-gered women told her, was join their
group chat on WhatsApp.
Soon, Otiende was using the free
messaging app to provide information
to each of the women in Libya, who’d
met in person or found one another
through social media over
several weeks and formed
a support group Many
said they were afraid for
their lives and needed a
way out, so Otiende and
her colleagues began
sup-plying them with the
directions, paperwork,
and points of contact needed to
flee to Kenya, with assistance from
the Kenyan Ministry of Foreign
Affairs & International Trade and the International Organization for Migration By December 2014, all
31 women had escaped sex slavery and begun building new lives in Kenya, according to Otiende “They risked everything,” she says “We were con-stantly worried about them But we were able to communicate.”
In some ways, the Internet and social media have fuelled the problem
of human trafficking around the world It’s never been easier to buy or sell forced labour The International Labour Organization says it’s a
$150 billion market victimising some
21 million people—4.5 million of whom are sexually exploited At the same time, many victims have access to mobile devices, and increasingly, traf-ficked women are using messag-ing services to get help
“If you’re vulnerable and lated, the more important that cell phone becomes for you,” says Mark Latonero, a fellow at the Data & Society Research Institute
iso-in New York, who’s studied nology and human trafficking
tech-“It’s a lifeline, and an important one.”
Many abused or trafficked girls and young women are given phones as a
way for their abusers to keep tabs on them, says Jameela Nishat, founder
of the Shaheen Women’s Resource and Welfare Association, a non-profit shelter in Hyderabad, India Nishat says 10 of her volunteers use WhatsApp to communicate with about
100 women and girls who wouldn’t
be safe trying to meet with a to-door caseworker “It helps them tell us things,” she says “They can share with us the good and the bad.” Through mobile messaging, Nishat says, the women and girls living in confinement can seek education, medical treatment, and counselling,
door-as well door-as emotional support Like Otiende, she’s also used it in more dramatic cases, giving step-by-step guidance for escape or rescue
The women also use apps such as
Line and Telegram, but most often
they mention WhatsApp, which had
900 million users as of September
Facebook, which paid $22 billion for WhatsApp in 2014, didn’t respond to requests for comment for this story When the company announced the acquisition, Chief Executive Officer Mark Zuckerberg said part of WhatsApp’s appeal was that it could be
a kind of “911 for the Internet.”
“The messages say,
‘We’re here to help you if you need it,’
and it gives a high reliability of actually reaching someone.”
——Gordon Gow, University of Alberta
Trang 27Why Woody Woodpecker would be just fine in the NFL 26 Innovation: Detecting 1,000 viruses with just one test 28
Human-rights advocates say social
media services could do more to block
traffickers from advertising and
solicit-ing young people on their sites In 2011,
Microsoft offered six grants totalling
$185,000 to researchers focused on the
role of technology in trafficking That
same year, Google gave $11.5 million
in grants to 10 anti trafficking and
anti-slavery organisations
With an eye to trafficking victims
who have only disposable “burner”
phones and can’t use apps, University
of Alberta communications professor
Gordon Gow and his students comb
classified ads at sites such as Backpage
.com for the phone numbers of sex
workers, then send them SMS text
mes-sages with contact info for the Centre to
End All Sexual Exploitation Gow says
about 10 per cent of the 5,000-odd
mes-sages his team has sent have elicited a
response—some a simple “thank you,”
others asking for more detailed
assis-tance, such as referrals to police or
rehab facilities
Each blast—typically from 100 to
300 messages—costs the
organisa-tion $10 in wireless charges, Gow says
“From our point of view, this is a
prac-tical and cost- effective way of directly
reaching this population,” he says “The
messages say, ‘We’re here to help you if
you need it,’ and it gives a high
reliabil-ity of actually reaching someone.”
Reaching someone is just the
begin-ning, Otiende says In Kenya, her
organ-isation is helping the Libya escapees
find jobs, shelter, and counseling for
post-traumatic stress Migrants,
ref-ugees, and other displaced people
remain particularly vulnerable to
slavers, she says: “The problem is that
we always feel two steps behind where
the traffickers are.”
The next frontiers, says Otiende,
include Instagram, Twitter, and
YouTube Her group is trying to put as
much of its resources online as
possi-ble, to help more people in Kenya and
elsewhere “To fight, we need to be
able to stay up to date with what’s out
there,” she says “We need to be able to
evolve.” �Mary Pilon
The bottom line Trafficked women and the
nonprofits trying to help them are turning to
messaging apps to share information.
Remuneration
The Big IPOs and the Tiny Payouts
gamble for startup employees
keep skyrocketing”
Jeff Sutton led the corporate IT team at
Box for four years, as the online
file-sharing company grew from 50 ees to more than 1,000 He joined Box
employ-from IBM, making about $95,000 a
year—forgoing the higher salary body with his decade of experience
some-in systems admsome-inistration could have made so he could collect stock options, roughly 21,000 in all
When Box went public at the ning of 2015, Sutton’s bet seemed to
begin-be paying off On their first day on the New York Stock Exchange, the com-pany’s $14 shares jumped 66 per cent,
to $23.23 But Sutton, subject to an employee lockup agreement, had to wait 180 days before he could cash out
By then, the stock had fallen more than
20 per cent from that high; it’s now trading at about $13, below its initial public offering price “I thought the stock was going to keep skyrocketing,”
Sutton says “Obviously it didn’t work out that great.”
Let’s be clear: Sutton knows it worked out just fine He made about
$350,000 before taxes on his Box stock, more than enough to buy the world’s smallest violin It wasn’t, however, the life-changing windfall he’d hoped
to secure in exchange for four of his prime Silicon Valley years
The frustrated expectations of early employees like Sutton have become a common thread in the latest round of technology IPOs It used to be “the get-rich story happened for people who joined in the early days,” says Saar Gur, general partner at Charles River Ventures Now they can be among the few left behind Many executives, early investors, and even later investors are able to cash out before the rank and
file, or bargain for guarantees that help ensure a bonanza
In an era when multibillion- dollar private valuations have almost become the norm in tech, employee stock options may appear more valuable than ever That, however, presumes a busi-ness’s public valuation keeps pace with the often too optimistic internal one
Square, the mobile payment company,
maintained a website with an internal stock ticker before its IPO, showing the estimated price steadily rising with each new private investment Yet when the company went public in November, it priced its shares at $9, well below the expected range One former employee says the internal ticker sat at $16 when she got her options last year, and her boss told her to expect a post-IPO jump
to $50 As of 12 January, Square was trading at about $12
Whatever happens with an IPO, utives tend to hang on to enough equity
exec-to guarantee huge payouts when they sell their shares Most early investors get
a chance to sell options on secondary markets before a company’s IPO Later
investors ingly demand pref-erential treatment, including agree-ments that if an IPO under performs the terms of their investment, they’ll
increas-be made whole with an equivalent amount of addi-tional shares Late-stage investors in both Box and Square had such so-called ratchet agreements
in place, further devaluing locked-up employee equity When those kinds of deals are in place, employees often find their payouts disappointing because they’re so diluted, says Clara Sieg, a partner at Revolution Ventures Box and Square declined to comment
Ordinary employees are typically without meaningful financial protections
or even a clear sense of what their equity stakes mean, says Chris Zaharis, who’s worked at startups for about 20 years and as a volunteer teaches people about their equity rights Options grants often don’t come with information on strike
tiny payouts
$3.3billion
Private valuation of Jawbone, which one employee says is unlikely to be met if it goes public
25
Trang 28constricts the jugular vein, which has the effect of reduc-ing the jiggle room inside the cranium
In October, Performance Sports
Group, the maker of Bauer ice hockey
equipment and Cascade lacrosse helmets, licensed the technology; it plans to start selling the bands within
a year or two, subject to approval by the US Food and Drug Administration
“The market is giant,” says Kevin Davis, chief executive officer of the Exeter, New Hampshire, company “It’s a huge unmet clinical need.”
The lightbulb moment came in 2007
Dr David Smith, CEO of Xennovate
Medical, had just wrapped up a
presen-tation on wound dressings Someone in attendance suggested he look at brain injuries: “If somebody can figure out how a woodpecker can smash its head into a tree and fly away without a head-ache, we’d probably have the problem solved,” Smith recalls the person saying
He began studying wood peckers One
of their most unusual features is a long tongue, which in some species is sup-ported by bones that wrap all the way around the head Smith theorises these compress the woodpecker’s neck veins
as it thrusts its head forward, increasing the volume of blood between its brain and its skull Smith says this extra fluid
“works like Bubble Wrap” to help keep the brain from knocking against the skull He was convinced that the same effect could be reproduced in humans, perhaps with some kind of collar
Smith contacted Bailes to share his theory in 2009, after watching him
prices (discounts on shares),
pref-erential treatment, or even the total
number of shares outstanding “People
on average overestimate what they are
going to make by about 10X,” he says
One employee at Jawbone, a maker
of fitness-tracking wristbands, says
he’s no longer sure of the value of his
options given the company’s recent
round of layoffs and debt financing It
looks less likely Jawbone will be able to
go public at or close to its $3.3 billion
private valuation, he says, and it
may opt to stay out of public markets
entirely, rendering the options
worth-less Jawbone declined to comment
The current crop of overly
optimis-tic workers reminds Brian O’Malley of
his younger self O’Malley, a partner
at venture fund Accel Partners, was
fresh out of college at software startup
Bowstreet when the dot-com bubble
burst, taking with it the options the
company told him would be worth six
figures at IPO Like many of today’s
employees, he says, he was too busy
counting his money to consider the
risks “Certain founders think it’s their
job to paint a rosy picture for
employ-ees,” he says Luckily he found a mentor
who helped him shift to venture capital
when Bowstreet crumbled He says he’s
found it better to be as clear as possible
with people about their potential
earn-ings to avoid dashed hopes later
Again, none of this means startup
workers are poor, even without
accounting for the catered meals, free
laundry, lavish parties, and other perks
in their playground offices Average
engineers at early-stage startups make
$127,000 a year, estimates recruiter
Riviera Partners “It’s a pretty great
deal, if you ask me,” says Garrett
Remes, an early employee at Zynga
Remes, now a freelance graphic
designer, in 2008 walked away from
Zynga—and options that eventually
would’ve been worth $2 million—to
co-found mobile game maker Storm8
Less than a year later, after
disagree-ments with his co-founders, he left that
company, too Nonetheless, he says, the
startup lifestyle “was better than I was
used to, living in the Midwest.”
Sutton hasn’t given up on the startup
world, either Since Box, he’s managed
IT for video advertising company
BrightRoll, later bought by Yahoo!, and
is now a manager at Instacart, the food
delivery startup But he’s a little more
jaded “It’s almost like winning the lottery for your company to do an IPO and do well,” he says “It’s definitely not something that happens to everybody.”
�Sarah Frier and Adam Satariano
The bottom line When companies fail to meet
expectations as they go public, options-holding employees bear much of the brunt.
③ The added blood leaves less space for the brain to move during a collision, reducing the possibility
of a concussion.
① The plastic collar fits around the back of an athlete’s neck, leaving the windpipe exposed
Collaring Concussion
The collar mimics the effect of the woodpecker’s tongue, which is supported by bones that wrap around its jugular This protects the bird’s brain as it hammers a tree.
It sounds uncomfortable, but Bailes compares it to wearing a tie.
Sports Medicine
Lessons From Bird Brains
inspiration from woodpeckers
unmet clinical need”
The doctors who discovered that football can cause brain damage are the heroes of Concussion , which opened
in theatres on 25 December Now one
of them may be on the verge of another breakthrough Dr Julian Bailes, played
by Alec Baldwin in the film, is part of a team that’s created what might be the first device to cut down on concussions
Spoiler alert: It’s not another tech helmet Helmets are good at pre-venting skull fractures, but they can’t prevent concussions That’s because the brain floats in fluid inside the skull, like an egg yolk inside a shell No matter how well the outside is padded, the brain is still damaged when it sloshes against the sides of the skull during a collision Bailes’s innovation
high-is a collar that lightly
26
Technology
Trang 30Columbia is starting to look for Big Pharma partners to commercialise
the tests, Lipkin says Ahmet Ali Yanik, assistant professor of electrical
engineering at the University of California at Santa Cruz, says a
manufacturer would probably want to make the device more portable “It’s
a big step forward in terms of laboratory research,” Yanik says “But there’s
still a lot to do to make it a point-of-care diagnostic tool.” ——Olga Kharif
Origin In 2013,
Lipkin’s team began building a database
of DNA sequences for those viruses known to affect vertebrates.
Cost Lipkin says his
lab device can test a
sample and obtain a
definitive diagnosis
for $100 or less.
Funding The tests
have been funded
by a $2 million grant from the National Institutes of Health.
Market Bill
Martineau, senior healthcare consultant at market researcher Freedonia Group, says about 10,000 labs would be interested in Lipkin’s tests, plus “all the hospitals.”
Sampling A technician adds
a tissue or fluid sample to a
solution with strands of DNA
that attract various viruses.
1.
Analysis The technician
runs the solution through
a sequencing machine to identify the virus and assess its resistance to treatment.
Form and function
Lipkin and six researchers developed a
shoebox-size add-on to a genetic sequencer they say
can accurately identify more than 1,000 viruses
known to affect vertebrates, so doctors don’t
have to test for infections one at a time.
Innovation
Universal Virus Test
testify before Congress about head injuries in the NFL The team doctor for the Pittsburgh Steelers from 1988
to 1998, Bailes was among those who raised the alarm about chronic trau-matic encephalopathy, a brain disease that wreaks havoc on the lives of former players The two men met and decided
to run some tests on animals “We went
to Michaels arts & crafts and made a collar that would fit a rat,” Bailes recalls
A standard test in brain damage research involves dropping brass weights on the heads of anesthetised rats, then inspecting their brains for tearing in the connections between nerve cells Bailes told Smith that pre-vious experiments found nothing reduced the damage in rodents’ brains
by even 1 per cent “No matter what we put between that ball that comes out of the sky and that rat’s skull—we’ve put rubber, we’ve put steel, Kevlar—nothing changes,” says Smith, quoting Bailes.Subsequent tests showed that rats with the jugular-constricting bands had 80 per cent less damage than those without Three years ago, Smith and Bailes enlisted Dr Gregory Myer at the Human Performance Laboratory at Cincinnati Children’s Hospital to test the device on humans He recruited about 60 high school football players, gave half of them collars, and measured changes in their brains over the course
of a season The results will be detailed
in a paper that Myer plans to submit for publication early next year
Chris Nowinski, executive director
of the Concussion Legacy Foundation, says, “It will also be extremely hard to prove this device works, as there will
be a massive placebo effect.” Says the former pro wrestler: “Impressionable high school athletes, when given this collar and told it prevents concussions, will report fewer concussions.”
Myer’s preliminary data were apparently strong enough to interest Performance Sports Group, which has committed $7 million CEO Davis is so confident of the band’s effectiveness that he’s having his son wear it during
hockey games �Zeke Faux and
Ira Boudway
The bottom line A device worn on the neck may
help prevent concussions by reducing the jiggle room between the cranium and the brain.
technology
28
Technology
Trang 32As global Islamic bonds languish
fol-lowing the bleakest year for sales since
2010, the next 12 months look just as
challenging Malaysia’s CIMB Group
Holdings, the top sukuk arranger
worldwide for seven of the last nine
years, predicts a pick up in 2016 to
at least $40 billion from 2015’s $34.5
billion The forecast is still 20 per cent
less than the record $50.1 billion in 2012,
data compiled by Bloomberg show
Slowing economic growth could
weigh on companies’ capital and their
investment spending, tempering any
increase in Shariah-compliant bond
issuance next year, according to RHB
Investment Bank Borrowers in the
$2 trillion Islamic finance industry
also now face higher costs after the
US raised interest rates for the first time in almost a decade and signalled more increases
“Sukuk supply will fall with rising yield expectations,” says Angus Salim Amran, the Kuala Lumpur-based head
of financial markets at RHB Investment, Malaysia’s second-biggest Islamic bond arranger “Lower oil prices may encour-age governments and corporates to explore better cost efficiencies, which may reduce borrowing requirements and lead to lower sukuk sales.” Angus says the potential decrease in govern-ment revenue and higher budget def-icits may encourage sovereigns to tap the Shariah-compliant debt market,
but at the same time, if companies curtail plans due to slowing growth then sukuk sales next year will be more
in line with 2015
Global issuance has fallen 29 per cent from 2014’s total and offerings are down 17 per cent to 54.2 billion ringgit ($12.6 billion) in Malaysia, the world’s biggest market for the debt, data com-piled by Bloomberg show Worldwide sales amounted to $48.5 billion in 2014 and $48.8 billion in 2013
CIMB predicts investment and infrastructure spending will be the likely drivers behind new Islamic bond offerings in 2016 Ghana and Morocco are also set to debut Shariah-
compliant debt in 2016, while Sichuan
Trang 33No, seriously, Saudi Aramco could really
be doing an IPO 32 IPO funds give 2015 a
silver lining for Saudi money managers 32
Bid/Ask: A contracting trio bags big work in Dubai 33
Development Holding would become
the first company from China to sell
sukuk if it gets a sale off the ground
While issuance in the six-member
Gulf Cooperation Council has dropped
33 per cent to $9.9 billion in 2015, the
poorest showing since 2011, sales are
expected to gather pace next year as
Qatar and Saudi Arabia lead spending,
says Mohamad Safri Shahul Hamid,
the Kuala Lumpur-based senior
man-aging director and deputy chief
execu-tive officer of CIMB Islamic Bank, a unit
of CIMB Group Qatar is spending $182
billion on infrastructure such as roads
and stadiums as it prepares to host the
football World Cup in 2022 A 41 per
cent slump in oil prices in the past 12
months could also foster more
issu-ance from Saudi Arabia, which is the
top exporter among the Organization
of the Petroleum Exporting Countries
and is part of the GCC While Saudi
Arabia’s fiscal deficit is pushing the
government to consider selling bonds
and search for savings, major
devel-opment initiatives won’t be delayed,
Finance Minister Ibrahim al-Assaf
said last year The kingdom is likely
to continue selling debt to finance its
burgeoning deficit, according to an
October report by Standard & Poor’s
credit analyst Mohamed Damak
The Indonesian government has set
aside over 300 trillion rupiah ($21.9
billion) for infrastructure this year and
may step up sukuk sales to fund those
projects, says CIMB’s Safri Malaysia
has a $444 billion development
pro-gramme, with many local companies
undertaking the construction of roads,
railways and power plants as part
of that plan to sell Islamic bonds for
financing “It won’t be an easy year,”
says Mohd Effendi Abdullah, the Kuala
Lumpur-based head of Islamic markets
at AmInvestment Bank, Malaysia’s
fourth-biggest sukuk arranger “While
project financing sukuk may pick up,
corporates may defer sales or seek
alternative cheaper funding in light of
the rising interest-rate environment
and general economic slowdown.”
�Elffie Chew
The bottom line Difficult economic conditions in
many of the major markets for sukuk could lead to
another difficult year for the Islamic bonds.
Government Debt
Egyptian Bonds Get Wary Looks
premium in more than two years
investment”
Egypt is running out of ways to get a hold of dollars By the end of December, investors were demand-ing the highest premium in two years
to buy the nation’s international bonds instead of Treasuries, with the yield spread exceeding the average for emerging-market debt, according to data compiled by Bloomberg The last time Egypt’s spread over Treasuries exceeded that of emerging markets, the yields made the sale of bonds unaffordable
Nineteen months after the tion of President Abdel-Fattah El-Sisi, the former head of the military, Egypt
elec-is still unable to meet its economy’s hunger for dollars and is running out
of resources to plug the gap Cash aid from Gulf Arab allies has dried up with the plunge in oil prices and exports are down Tourism and foreign investment never recovered fully from the Tahrir Square uprising that toppled President Hosni Mubarak in 2011, after which surging borrowing costs effectively shut Egypt out of international markets
“Egypt is very cost sensitive at a time when funding is not highly avail-able for emerging-market issuers that have non investment-grade ratings,”
says Lutz Roehmeyer, who oversees about 1 billion euros ($1.1 billion) of developing-nation debt as director
of fund management at Landesbank Berlin Investment Despite the rise in
the nation’s spreads, “from our point
of view, Egyptian debt is a bad ment as the huge risks are not compen-sated by high enough interest on the bonds,” he says
invest-After ending a five-year drought of international bond sales in June, offi-cials delayed a second issuance slated for the fourth quarter of 2015 because
of rising borrowing costs Egyptian authorities have burned through more than $20 billion in aid received from Gulf Arab allies since July 2013
The country lost more than half of its foreign reserves in the last five years
to $16.4 billion High yield demands undermined Egypt’s efforts to tap the international debt market in the aftermath of the Arab Spring A plan announced in May 2011 to raise $1 billion never materialised because offi-cials weren’t able to secure a US guar-antee for the bonds
While Egyptian bond spreads had declined 29 basis points to 540 by 30 December in Cairo, it was still near the highest level since September 2013, according to JPMorgan Chase indexes
By the end of December the yield on the country’s 5.875 per cent Eurobonds due 2025 had climbed almost 200 basis points since they were issued in June to
7.96 per cent
In 2015, the premium inves-tors demand
to hold denominated sov-ereign Egyptian bonds over similar Treasuries surged
dollar-190 basis points
That compares with a 38 basis-point advance in the emerging-market average to 442
For Ghana and Zambia, which carry the same B grade as Egypt at Fitch Ratings, government debt has spreads of almost
a 1,000 basis points over Treasuries
That makes those bonds more attractive
to hold than Egyptian long-term
secu-rities, Roehmeyer says �Ahmed A
Namatalla and Ahmed Feteha
The bottom lineThe last time Egypt’s spread over
Treasuries exceeded that of emerging markets, the yields made the sale of bonds unaffordable.
$20billion
Amount of GCC aid Egyptian authorities have spent since July 2013
31
Trang 34Equities
Saudi Money Managers
Get a Kick from IPOs
funds targeting flotations
is gradually opening up”
For all the pain low oil prices are
causing Saudi Arabia’s financial
markets, at least one area is
flourish-ing The number of active initial public
offering-focused funds in the kingdom
more than doubled in 2015, as
inves-tors responded to the nation’s efforts
to develop its capital markets and
boost participation from institutions
The funds managed more than 4.9
billion riyals ($1.3 billion) by the end of
2015, compared with almost 2 billion
riyals at the end of 2014
Investors are anticipating rule
changes that would see Saudi Arabia
allocate most of its often-lucrative IPOs
to big money managers The Capital
Market Authority is trying to curb price
swings of a stock exchange dominated
by retail investors, as the country
con-tinues a bid to diversify the economy
away from oil The $420 billion bourse
opened directly to foreign institutions
in June and has since lured the likes
of BlackRock and Ashmore Group
“The new regulations are favouring
anyone who goes through an IPO fund,
whether you’re a retailer or institution,
to get a bigger chunk of the IPO,” says
Riyadh-based John Sfakianakis, former
Middle East director at Ashmore,
which set up its own IPO fund in
March “The government is levelling
the playing field.”
Saudi Arabian IPOs offered a return
twice as high as the global average for
deals worth at least $100 million last
year, according to data compiled by
Bloomberg The country’s one-month
performance is second only to China,
where regulators tightly control IPO
pricing Sixteen IPO-focused funds
were set up in Saudi Arabia in 2015, the
most on record, bringing the total to 27
The CMA published draft rules for
public listings last month The
regu-lator said last year it aims to reduce
stock market volatility by attracting
institutional investors The CMA “plans
to allocate 90 per cent of the listing shares to the funds, so individuals are rushing to them,” says Riyadh-based Mazen Abou Atie, a fund manager at
Alkhair Capital, which started its first
IPO fund last year
Still, Saudi stocks were the worst performers in the six-nation Gulf Cooperation Council last year The Tadawul All Share Index dropped more than 17 per cent in 2015, the worst year since 2008 The Saudi stock exchange
on 31 December announced plans to sell shares in an IPO in 2018
“Saudi IPOs tend to be priced at huge discounts to fair valuation, and local fund managers are prevented from participating in IPOs unless they have a fund set up,” says Nayal Khan, the head of institutional equities sales trading at Saudi Fransi Capital “It’s a slow game, but the market is gradually
opening up.”�Daria Solovieva
The bottom line As Saudi Arabia develops its
capital markets, the number of funds focused on Tadawul IPOs has more than doubled since 2014.
Investment Banking
All Laughs Aside, Who’s Fit for Aramco’s IPO?
which banks will assist the listing
an “appropriate percentage”
When one financial adviser heard about Saudi Arabia’s plans to list a company larger than the economies of most nations, he had to pull over his car because he was laughing so hard
Yet the potential initial public offering of its state oil company could be the largest ever, a juicy target for any ambitious Wall Street bank In a country tradi-tionally cold to outsiders, only a few have the experi-ence to win it
Saudi Arabian Oil Company, or Aramco, the
world’s largest oil producer, said on 8 January it’s consider-ing an initial public offering It
confirmed an interview with Deputy Crown Prince Mohammad bin Salman
published in The Economist the day
before The news was greeted with incredulity in the financial industry, according to interviews with a half dozen bankers who do business in the Middle East They asked not to be iden-tified to protect their business interests.For one thing, Aramco’s inner work-ings are opaque, making its true value
a mystery Then there’s the timing The price of crude oil is near its lowest level
in more than a decade Discussions with Aramco about selling assets in the past had been about much smaller parts of the business, five of the people said An initial public offering of the entire enter-prise had only ever been discussed as a joke, one of the people said
JPMorgan Chase and HSBC Holdings are among international
lenders in the best position to win a role if the kingdom goes ahead with an IPO, people familiar with the matter said The two banks—whose presence
in the kingdom goes back decades—helped arrange a $10 billion loan for
the company last year Deutsche
Bank, which advised Aramco on its
$3 billion joint venture with Lanxess
in September, may also be a rite to be hired for a role, the people said, asking not to be identified as the information is private Aramco will also likely appoint some of its key local lenders from the kingdom for the IPO, the people said No mandates have been awarded yet and Aramco hasn’t sent out requests seeking advisory roles, they said
favou-The company could be worth thing from $1 trillion to upwards of
any-$10 trillion, which would make it the most valuable company in the world, according to a note from Jason Tuvey
at research firm Capital Economics The last
mega IPO from the oil indus-try was a decade ago, when Russia’s
Rosneft
raised more than $10 billion
Even if Saudi Arabia sells a small stake,
a listing could easily
surpass that of Alibaba
Group Holding,
32
Markets/Finance