Optimism lifts Kuwait banks; KFH at 2yr high

Reuters/Dubai

KFH yesterday rose 1.6% to its highest close since December 24, 2008

Kuwait Finance House hit a two-year high yesterday as some traders bet the Islamic lender may announce a capital increase priced at a big discount to its current share price and other local banks also advanced.

Kuwait’s index climbed 0.3% to 6,960 points.

KFH rose 1.6% to its highest close since December 24, 2008.

"Many people expect KFH to make a capital increase and that this will be cheap,” said Essa al-Hassawi, assistant manager at Zumorroda Investment Co in Kuwait.

He said market talk was for a KFH capital increase to be priced at 0.4 to 0.5 dinars per share.

In February, KFH said it was not considering a capital increase "for the time being”, while in October, rival National Bank of Kuwait completed a 10% rights issue that was priced at 0.500 dinar per share.

At the time, NBK stock was trading around 1.500 dinar, so local banks have a precedent for steep discounts on rights issues, even allowing for subsequent dilution.

Other banks also prospered. NBK climbed 1.4% and Gulf Bank added 1.8%.

"People are positive on the banking sector because they think provisions will go down and boost earnings in 2011 - most banks took good coverage for NPLs (non-performing loans) in 2010,” added al-Hassawi.

Abu Dhabi’s Aldar Properties fell 3.5%, equalling Sunday’s five-year low and further declines are forecast to reflect the company’s restructuring plan, which is seen as detrimental to equity holders.

"I don’t foresee a turnaround in UAE property prices in 2011 more supply, absence of encouraging mortgages and the shortcomings of the existing visa law mean higher vacancy rates and further declines in asset values,” said Roy Cherry, SHUAA Capital senior vice-president for research.

He said Aldar remained expensive compared to Dubai rival Emaar Properties, despite its shares dropping 15% unveiling its restructuring plan on January 13.

Abu Dhabi’s index fell 0.3% to a 16-week low.

In Dubai, contractor Drake & Scull climbed 4.6% after it won a $126.6mn contract in Egypt.

Nomura upgraded Drake to "buy” from "neutral.”

Emaar rose 2.1% and builder Arabtec added 2.8%.

"UAE contractors’ earnings should improve in 2011 after they successfully diversified across the region,” added SHUAA’s Cherry. "Emaar’s attractiveness will rely on the strong and sustainable cash flows from its investment properties.”

Dubai’s index rose 1.6% to a two-week high.

Elsewhere, Saudi Arabia’s benchmark rose 0.5% to 6,723 points. Oman’s index dropped 0.6% to 6,965 points and Bahrain’s measure edged up 0.1% to 1,436 points.