Oil Deal, Debt Deal: Let’s Agree To.. Agree

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While governments try to put out the pandemic’s economic fire with more stimulus, and rush to set up legal frameworks to regulate their world post Covid-19, two negotiations were at the center of Gulf talks this week. 

Oil producers are trying to to talk their way into a deal that could end the price war and stop the bleeding in markets that caused prices to suffer their worst quarter ever. On another front, creditors are negotiating their way out of a financial entanglement with a healthcare giant, with more than half their yearly profits on the line.

“Let us never negotiate out of fear. But let us never fear to negotiate.” John F. Kennedy

A very delicate financial enigma

Day after day, NMC Healthcare’s story is bringing flashbacks to Abraaj’s collapse. It all started when a short seller accused the Abu Dhabi-based company of manipulating its reported numbers, opening a Pandora's box of financial wrongdoings that revealed $4 billion of undisclosed debt. The unfolding of events brings back the memory of Abraaj’s financial scandal that compromised millions of dollars of creditors’ money and shook the banking and private equity grounds in the Middle East.

Abraaj and NMC both have the loud siren of governance deficiencies sounding in common, they however have one major difference: the coronavirus pandemic. 

This week, Abu Dhabi Commercial Bank (ADCB) filed a request to the UK's High Court asking for administrators to take over NMC and launch a full investigation into the company’s finances. The newly-appointed Chairman of NMC directly fought back, warning of ‘considerable downsizes’ to the company and its creditors should an administrator be appointed, highlighting the risk that this step will bring to NMC’s medical facilities that are currently handling Covid-19 cases.

Between the risk of compromising coronavirus treatments and the huge financial repercussions of NMC’s fall on the economy, there doesn’t seem to be an optimistic outcome. 

One winner could however emerge out of this: a potential buyer eying the perfect valuation of NMC’s assets.

Is there a doctor in the house?

Banks will definitely need one. 

In the UAE, analysts are expecting NMC’s fall to slash between 40 and 60% of UAE banks profits this year. Here’s how much banks are exposed to NMC's debt:

On another note, a new relief measure was introduced in the UAE this week to spur lending to the private sector. The Central Bank boosted its stimulus package to banks from $27 to $70 billion, allowing them to pass on the liquidity to customers in the form of loans. 

Will the sector still need surgery though?

Employment security as a priority

While waiting for any comforting sign pointing to job and salary security, employees in the Gulf are seeing their legal relationship with their employers change.

The Saudi government has vowed to pay up to 60% of salaries of nationals to avert massive layoffs. The UAE introduced a new law to regulate employment relationships. Under the new law, companies that have a surplus of non-citizen workers should commit to paying their housing allowance, not their salary, until they are hired by another employer.

Companies have indeed started to announce restructuring schemes and salary cuts. Emaar, Dubai’s largest publicly-listed developer, announced salary cuts by up to 50%. Here's more.

On the other hand, some sectors are recruiting, especially those on the frontlines of the fight against the pandemic. We're keeping an eye on who's hiring in UAE healthcare, check out the postings.

?The truth about a potential oil truce

A ferocious price war and a global demand crisis have pushed oil markets in the last couple of weeks into one of their biggest crashes in history. Now all eyes turn to the trio that might have the fix: a magic agreement that would cut production outputs and lift prices up. Statements from Riyadh, Moscow and Washington resonated in the markets, provoking another week of high volatility. 

Last week, prices received a major shot of hope after President Trump’s tweet saying that Saudi and Russia are working on a deal to cut production by 10 to 15 million barrels per day. But following statements from both countries revealed that the agreement is far from being reached, which crashed markets' hopes.. and prices.

As a result, OPEC+ countries decided to postpone their scheduled meeting. But it seems that Saudi is trying to set up a G20 meeting on Friday, according to the US energy secretary.  

A couple of crucial questions rise to the surface:

• Some analysts expect oil demand to shrink by 30 million barrels per day in April because of the pandemic spread. If that’s the case, would an output cut of just 10 million barrels per day fix markets’ fundamentals?; 
• Will the US join OPEC+ in committing to production cuts?; 
• And if they do, would oil producers in the US comply with the cuts? 

It’s unclear what issues this meeting will solve, and not clear what effects will output cuts have on markets, beyond a short-lived rebound.

Gulf companies are #inittogether 

It’s been another week great initiatives launched by Gulf companies to stand in solidarity with their stakeholders. Some schools have listened to parents’ calls and announced tuition discounts.  

LinkedIn Editors are spotting acts of solidarity from companies, share your company's initiative and join the conversation.

You reap what you sow: Agritech gets funding 

And as we have seen in the last weeks, the high volatility in markets is not getting in the way of startups funding- at least for some. This week, an Abu Dhabi smart farm attracted more that $20 million in series A round, in the largest-ever Agtech financing in the MENA according to Mahmoud Adi from Shorooq Partners.

Thank you Salma for another week of working together, they say the third week of confinement is the toughest!

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