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The impact of falling oil prices on GCC capital markets is unlikely to continue over the longer term thanks to continued high government spending and underlying investments in the oil sector, according to ICAEW, a world leader of the accountancy and finance profession.
ICAEW members and guests gathered at the Jumeirah Emirates Towers in Dubai last week (Sunday, 25th January) to discuss the impact of the oil price correction on capital markets. The event, sponsored by Merrill DataSite, was moderated by David Petrie, Head of Corporate Finance Faculty at ICAEW. Delegates at the event included Fadi Al Said, Director, Portfolio Manager & Analyst at Lazard Gulf; Tim Fox, Group Head of Research and Chief Economist at Emirates NBD; Humayun Shahryar, Founder and CEO of Auvest Group; Wadah Al Taha, Chief Investment Officer at Al Zarooni Group of Companies; and Terry Willis, Regional Director Middle East, Africa and CIS at Energy Industries Council.
The keynote speech was provided by the Right Honourable the Lord Mayor of the City of London, Alderman Alan Yarrow. Speaking at the event, Yarrow said: "The GCC states are fully aware they need to reduce their reliance on hydrocarbons, with the topic in the spotlight over the volatility of oil prices. That is why the Gulf states have put in place bold and ambitious infrastructure plans that will look to diversify their economies into a wide number of sectors.
"The City of London, with the expertise and experience that our financial and professional firms possess, wants to support the Gulf with these plans. We have so much to offer ranging from innovative financing models to our expertise in the insurance and legal markets, education, qualifications and Islamic Finance. My message is clear: we want to be the region's natural economic partner of choice."
Audience and panellists agreed that what matters most for investors is not oil prices but governments' ability and willingness to spend in non-oil sectors. GCC governments' spending is high, at least for the medium term, and they have plenty of reserves that can support their spending plans if needed.
Speaking at the event, David Petrie said: "There is no doubt capital markets were affected by the oil price correction, but this should be short-lived as underlying investment in the sector continues and non-oil businesses remain attractive investment targets.
"There may be a vested interest for GCC oil producers if oil prices trend down even further - this is resulting in shut downs and other commercial inefficiencies in those parts of the world where production costs are much higher, say over US$100 per barrel. "
Event attendees agreed that the oil price correction provided investment opportunities in other sectors such as petrochemicals, trading, light manufacturing, aviation and logistics, and renewable energy.
Alexander Gross, Director at Merrill DataSite, commented: "The recent reduction in oil prices could drive companies in the energy sector to dispose of more non-core assets in order to shore up their main business. As a virtual data room provider, we think this could also lead to an increase in M&A deals, including possible takeover bids for more 'debt-laden' oil & gas companies."
Speakers agreed that the oil price could go down to US$35 per barrel by July 2015, but is expected to rise again to its normal price between US$65 to US$75 per barrel.
The panel also agreed that certain IPOs may be delayed in the short term as liquidity in the market is tight and investors are hesitant, but this will improve with market sentiment and as the oil sector recovers.
There was standing room only at the packed event which was attended by ICAEW members and senior guests representing the major global and regional financial organisations.
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About ICAEW
1.ICAEW is a world leading professional membership organisation that promotes, develops and supports over 142,000 chartered accountants worldwide. We provide qualifications and professional development, share our knowledge, insight and technical expertise, and protect the quality and integrity of the accountancy and finance profession.
As leaders in accountancy, finance and business our members have the knowledge, skills and commitment to maintain the highest professional standards and integrity. Together we contribute to the success of individuals, organisations, communities and economies around the world.
Because of us, people can do business with confidence.
The Corporate Finance Faculty's professional network includes 7,000 members and more than 70 member organisations.
Its membership is drawn from major professional services groups, specialist advisory firms, companies, banks, private equity, venture capital, law firms, brokers, consultants, policy-makers and academic experts. More than 40 per cent of the faculty's membership is from beyond ICAEW.
The faculty is ICAEW's centre of professional excellence in corporate finance. It contributes to policy development and many consultations by international organisations, governments, regulators and other professional bodies.
The faculty supports provides a wide range of services including its magazine Corporate Financier, and regular networking events in the UK and in the GCC.
The faculty initiated the development of the first international Corporate Finance qualification (including the 'CF' designation) for practitioners and now administers the Diploma in Corporate Finance, together with the CISI.
2.ICAEW is a founder member of Chartered Accountants Worldwide and the Global Accounting Alliance.
Media enquiries:
Contact Jamie Douglass, ICAEW press office, on +44 (0)20 7920 8718 or email James.Douglass@icaew.com
Mutaz Albadri, Mojo PR, on +971 (0)50 570 6785 or email mutaz@mojo-me.com
© Press Release 2015
