A Period of Consequence - How Abraaj Sees the World & Outlook, Dec 2008

8/6/2019 A Period of Consequence - How Abraaj Sees the World & Outlook, Dec 2008

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Arif Masood Naqvi Founder and Group CEO

November 2008

Abraaj Capital

A Period of ConsequencesHow we see the world and where its going

Strictly Private & Confidential


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Global Context: Taking Stock


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3

The four most expensive words in the English language are,This time its different.

Sir John Templeton (1912-2008)

He who fails to learn from history is condemned to repeat it.A Wise Person
http://images.google.com/imgres?imgurl=http://www.sourcesofwisdom.org/john_t.gif&imgrefurl=http://www.sourcesofwisdom.org/jt_bio.html&usg=__33hjLmhxWwvIeVts0WDfUxTkMeI=&h=223&w=174&sz=22&hl=en&start=6&um=1&tbnid=mVH-j_oYv4AjRM:&tbnh=107&tbnw=83&prev=/images?q=sir+john+templeton&ndsp=20&um=1&hl=en&rls=com.microsoft:en-us:IE-SearchBox&rlz=1I7GPTB_enAE298&sa=N


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50

75

100

125

150

175

200

1987 1988 1990 1991 1993 1994 1996 1997 1999 2000 2002 2003 2005 2006 2008

US Recession Periods S&P Case-Shiller U.S. National Home Price Index

The greatest housing boom in US history, with prices increasing by 12% per annum from 2001to 2006 (3x the growth rate from 1987 to 2001)

and the latest bubble is considered to be the mother of all crises(1)

Source: S&P

(1) Paul Volcker (inter alios)

1987-2001CAGR 4%

2001-2006CAGR 12%As per a story in the Economist in 2005,

the total value of residential property indeveloped economies rose by more than$30 trillion from 2000-2005 to reach $70trillion, an increase equivalent to 100% of

those countries combined GDP. TheEconomist observed In other words, itlooks like the biggest bubble in history


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The unique combination of cheap money and artificially low inflation (due to cheap imports)resulted in unrestrained debt-fuelled consumption and unsustainably high domestic asset prices

driven by the ultimate economic paradox

Low InterestRates (US)

High EconomicGrowth (US)

IncreasingWealth (US)

IncreasedConsumption &

Low Savings

IncreasedImports from

Emerging Asia

IncreasedSavings in

Emerging Asia

The China Effect

ImprovedProductivity inEmerging Asia

SuppressedInflation

DisproportionateRise in Asset

Prices

RecyclingSurplus into US

Treasuries

IncreasedLeverage

US action/impactAbraaj analysis


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excessive leverage, irresponsible short-termism, and inadequate regulation

Inadequateregulations andover-sophisticationof market players

Exc

essive

lever

age

from

ch

eap

mone

y/

low

savin

gs/h

igh

consu

mpti

on

Irresponsibilityby

m

arketparticipants

inpursuitofshort

termgains

facilitated by a toxic combination of


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-

100

200

300

400

500

600

Jun '00 Jun '01 Jun '02 Jun '03 Jun '04 Jun '05 Jun '06 Jun '070x

2x

4x

6x

8x

10x

12x

Outstanding OTC Derivatives (LHS) Outstanding OTC Derivatives / GDP (RHS)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

US CPI Index YoY % Change Fed Funds Rate

0x

5x

10x

15x

20x

25x

30x

35x

Citi MS HSBC* ML BofA JPM

40%

60%

80%

100%

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

60%

64%

68%

72%

US Household Debt (LHS) Consumption (RHS)

Excessive leverage

across all areas of the financial markets due to protracted monetary easing

US CPI and Fed Funds Rate

An extended period of low inflation and interest rates supported increasing household leverage and consumption

Total US Household Debt and Private Consumption (both as % of GDP)

1. Notional amounts outstanding

Source: Bureau of Economic Analysis, Economist Intelligence Unit, Bank for International Settlements, Bloomberg, Company filings

Average 27x

OTC Derivativesballooned to c. 11x

world GDP

Bank Leverage (Tangible Asset / Tangible Equity)

Global banks became highly levered Unchecked increase in derivative instruments

Outstanding OTC Derivatives(1) (US$ trillion)

As per 3Q 2008 *As per 2Q 2008

2x

European banks,Barclays, CS, UBS and

RBS averaged 46x

I ibili


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14

20

29

43

58

2005 1H06 2H06 1H07 2H07

CDS marketreached 4x US

GDP in 2007

30

45

60

75

2001 2002 2003 2004 2005 2006 2007

0

20

40

60

80

100

2002 2006

Subprime Alt-A Prime Conforming Prime Jumbo Government

Irresponsibility

evidenced most clearly by a reduction in the quality of lending

US Asset Backed Securities Outstanding (US$ trillion)

Substantial increase in loans to high risk borrowers Risk reward ratio for senior loans deteriorating

Increase in securitized products False sense of security through opaque hedging instruments

Credit Default Swap Market(1) (US$ trillion)

Distribution of US$ Mortgage Originations (%) Weighted Average Pricing per Turn of Senior Leverage (Bps)

*End June

1. Notional amounts outstanding

Source: Sequoia Capital, Bank for International Settlements, Fitch Ratings, SIFMA

4.0x

I d t l ti


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Mark-to-model accounting:financial institutions able to bookprofits on CDS transactions

based on assumptions in theirown financial models rather thanmarket price (mark-to-market)

Ratings agencies: inadequatedue diligence led to flawed

ratings, creating a false sense ofsecurity for investors inderivative instruments

Off balance sheet: The off-balance sheet nature ofderivative contracts left theseinstruments virtually uncheckedin the financial system

Naked short selling: nakedshorting led to market-corneringoperations by mismatching longand short positions, therebygrossly inflating volumes

allowed leverage to increase to unsustainable levels, with insufficient checks onunderlying credit quality

Inadequate regulation

Glass-Steagall: Preventedcommercial banks from issuing /underwriting securities. Repeal ofthe Act in 1999 enabled commercial

banks to take on significantly morerisk

Basel II: allowed banks to self-regulate by determining theunderlying risk in their portfolios and

the capital required to be set aside

Leverage: significant increase inleverage at financial institutions, afterthe SEC abolished the net capitalrule for the largest banks, making

these firms more vulnerable tosystemic shocks

Irresponsible lending and absenceof regulatory oversight: allowedbanks and other lenders to issue

loans to individuals with poorcredit, and to use such loans ascollateral for structured products

Banking Sector Derivatives Industry

Self RegulationDelusion

Th b bbl b t h th b i t t i l d d


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-20%

-10%

0%

10%

20%

30%

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

S&P Case-Shi ller Index UK Nationwide Building Society Index

0%

5%

10%

15%

20%

25%

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

85%

87%

88%

90%

91%

93%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

The combination of increasing interest rates and the largest ever resetting of adjustable ratemortgages in US history triggered the sub-prime mortgage collapse

The bubble burst when the sub-prime mortgage sector imploded

Source: CIBC, Bloomberg, U.S. Treasury, Federal Reserve

With adjustable rate mortgages resetting delinquencies began to rise

Delinquency Rates (LHS) Sub-prime as % of Total Delinquencies (RHS)

Subprime as % of total

Subprime variable

Subprime fixed

Prime variable

Prime fixed

at higher interest rates

Fed Funds Rate YoY % Change in US and UK house prices

causing a sharp drop in housing prices

The sub prime crisis led to the broader financial crisis


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0

23

45

68

90

Jan-90 May-92 Sep-94 Jan-97 May-99 Sep-01 Jan-04 May-06 Sep-08

0

50

100

150

200

250

300

Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-080

100

200

300

400

500

600

Dow Jones Commodity Index (LHS) WCAU World Index (LHS)

Crude Oil Index (RHS)

-2.0

0.0

2.0

4.0

6.0

8.0

Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08

The sub-prime crisis led to the broader financial crisis

The sub-prime defaults and US housing market crash triggered wider market dislocations

creating panic as the S&P Volatility Index witnesses itsgreatest rise over the past 18 years

Source: Bloomberg, Bureau of Economic Analysis

Volatility of the S&P 500

1.8x

Early 2000

recession;collapse of thedot-com bubble

Early 1990srecession

World Equity Markets and Commodity Prices

Equity markets

have lost US$ 29 trillionover the last 12 months

Global markets collapse

High Spread between Fed Funds Rate & Inter-bank Overnight Rate highlights the freezing up of liquidity

Central banks coordinateefforts to increase

liquidity (Fed: $43 bn, ECB:$214.6 bn, BoJ: $8.4 bn)

President Bushannounces bailoutof US homeowners

Bear Stearns boughtby JPMorgan

Lehman Brothers

files for bankruptcy

Fed makes emergencymove to buy and supportcommercial paper market

Troubled AssetRelief Program

passed in Congress

pushing many financial institutions to the brink of bankruptcy


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Lehman Brothers declares bankruptcy

Bear Stearns purchased in a fire-sale

WaMu the largest bank failure in US history

Northern Rock, RBS, Bradford & Bingley & IndyMac taken into state ownership Partial nationalization of Fortis

AIG taken over by US government in a bailout totaling US$138bn

Ukraine, Hungary and Iceland have resorted to IMF loans for funding

Fannie Mae and Freddie Mac nationalized

The unthinkable: Citi bailed out

Too big to fail theory tested

Total losses estimated at US$ 2.8 trillion(1)

pushing many financial institutions to the brink of bankruptcy

(1) Estimated by the Bank of England (as of October 2008). Source: The Economist; (2) Barclays

Merrill Lynch sold to Bank of America

Goldman Sachs and Morgan Stanley in the process of becoming bank holdingcompanies, instantly changing the face of bulge-bracket investment banking

American Express approved to become a bank holding company

Reassessment of global financial services (especially investment banking) business models

Banks have reported over $690 billion in write-downs and credit losses(2)

Ten worst hit banks accounted for $430 billion in losses(2)

Losses at Wachovia and Citi alone amounted to over $150 billion(2)

Massive asset write-downs across banking sector

and is now beginning to impact the real economy


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3

4

5

6

7

Nov-93 Jan-96 Mar-98 Apr-00 Jun-02 Jul-04 Sep-06 Oct-08

and is now beginning to impact the real economy

with reduced consumer expenditure causing declining earnings and increasedunemployment

S&P 500 Rolling Earnings Surprise % (12mo Fwd Estimates vs. Actuals)

Earnings are down 18% on estimates made 12 months ago Unemployment rate in the US is reaching its highest in 16 years

Unemployment Rate (%)

Several industry majors have already announced earnings declines, losses, job cuts or worse

Source: Sequoia Capital, Factset, Press releases, Administrative Office of the U.S. Courts, The Economist

Business bankruptcy filings have increased 41.6% from June 2007 to June 2008 after declining for three consecutiveyears between 2004 and 2007

As of October 2008, c. 1.2 million total job losses in the US this year

3 million jobs in the US could be lost if the big three US car makers were to fail (unlikely given government support)

Italy's Fiat said its global demand could drop 10% to 20% and profit could fall up to 65%

Hyundai and its Kia affiliate posted a 38% fall in third-quarter net profit

Circuit City filed for bankruptcy protection in November 2008

UK high street retailer Woolworths went into administration and plans to close all stores

Sonys net profit has declined 72% YoY for its fiscal second quarter ended September 30th

Neiman Marcus, J.C. Penney, and Gap reported double digit fall in sales in the year to October

General Electric has stated it is planning on cutting US$ 2 billion of costs next year

?

Grey shading represents US recession

The spent US consumer


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15

,000

,500

,000

,500

,000

,500

,000

,500

20 30 40 50 60 70 80 90

60%

62%

64%

66%

68%

70%

72%

1980 1984 1988 1992 1996 2000 2004 2008

Source: Economist Intelligence Unit, Morgan Stanley, CEPR, NBER, Center for Economic and Policy Research, Center for Retirement Research, FederalReserve NAR Estimate Dean Baker

US consumption hit record levels

The current financial crisis has resulted in a massive loss of wealth that will severely impactUS consumption, which currently accounts for c. 18% of global GDP and 70% of US GDP

The spent US consumer

US Consumption as a % of US GDP

80-89 Avg: 64%

90-99 Avg: 67%

00-08 Avg: 70%

100

103

106

109

112

115

118

121

124

127

130

133

0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75 78 81

months after trough

Average of Past 4 CyclesCurrent Cycle

Index=100 at Business Cycle Troughs

81-month shortfall:

$771.3 billion or 8.9% of real

disposable personal income

Real Private Compensation

Despite a period of modest wage increases

Real Private Compensation

driven in part by a maturing population

Propensity to Spend Expenditure per Capita by Age

that has recently lost a a significant portion of its wealth

Stock market

US households have lostin wealth due to decline in the stock market (Oct-07 to Oct-08)

House prices

US households projected to lose

in wealth due to the drop in home prices by the end of 2008

The Wealth Effect

US median ageof 37 yrs

US$ 7 trillion

US$ 7 trillion

What do public markets tell us?


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9.4%

9.5%

9.5%

10.2%

10.9%

11.1%11.4%

12.3%

14.9%

15.3%

Nov 14, 1929

Feb 11, 1932

Aug 3, 1932

Oct 21, 1987

Oct 28, 2008

Oct 13, 2008Sep 21, 1932

Oct 30, 1929

Oct 6, 1931

Mar 15,1933

16

7,000

8,000

9,000

10,000

11,000

10/1/08 10/7/08 10/13/08 10/19/08 10/25/08 10/31/08

Of the past seven one-day gains of 10% or more, four occurred during the Great Depression

October saw two of the greatest one-day gains since the Great Depression, but where are weheaded?

What do public markets tell us?

Source: Bloomberg, Wall Street Journal, Robert Shiller

Dow Jones Industrial Average October Performance

11.1%10.9%

Ten biggest % gains in the Dow Jones Industrial Average

P/E ratio for the S&P 500 historical context

Where are long-term

interest rates going?

Where are earningsgoing?

Are equities cheap?0

5

10

15

20

25

30

35

40

45

50

1860 1880 1900 1920 1940 1960 1980 2000 2020

Price-EarningsRatio

0

2

4

6

8

10

12

14

16

18

20

Long-TermI

nterestRates

1901

1929

1966

2000

Price-Earnings Ratio

Long-Term Interest Rates

1981

1921

Looking ahead


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More SevereLess Severe

Looking ahead

The likely outcome is expected to be a deep recession, with emerging markets becomingthe new engine of global growth

Most Likely scenario (Abraaj view)

Financial crisis substantiallybehind us

Slight impact on real economyespecially in developed markets

Some sectors experience

consolidation/reorganizationGovernment intervention gains

traction

Market/consumer confidence dropis arrested

Recovery begins relatively quickly(4-5 quarters into slowdown?)

Increased level of governmentregulation and oversight goingforward

Emerging market growth

continues

Overall global economy emergesrelatively intact

Shallow Recession

Financial crisis more behind than ahead

Serious impact on real economy especially indeveloped markets

Further coordinated government interventionrequired to avoid escalation

Market/consumer confidence deeply hurt

Fundamental shift in risk perception, majorchanges in business models

Slow recovery (begins 6-7 quarters intoslowdown?)

Change in government policy mind-set, highlevels of intervention and regulation

Slow but sure transition towards Asia and theemerging markets as new engine of globalgrowth (consumption as well as production)

Deep Recession

Financial crisis lots more tocome

Catastrophic impact on financialand real economy

Massive government intervention

implemented to avert economicmeltdown will not be effective

Market/consumer confidencecrushed

Total shift in risk perception withcurrent business models

debunked

Long period of negative growth,major bankruptcies/failuresacross the board

Diminished drive for free markets

and globalization as governmentsmove towards controlledeconomies and protectionistpolicies

Paradigm Shift

The known unknowns


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The known unknowns

however, downside risks continue to pose a threat to global economic recovery; forexample,

Source: Sir Paul Judge, Sean Clarey , BIS, 1 Alan Mulally (Ford Motors CEO), Merrill Lynch

Other Loans

Commercial property: US$ 25 trillion

Global mortgages outstanding: US$22 trillion

Corporate Bonds: US$ 15 trillion

Credit Cards: US$ 2.5 trillion

Auto Industry

Global slowdown has substantially weakened the autoindustry

The auto industry accounts for nearly 10%1 of the US GDP

2.3 million jobs at risk in the US alone

International motor stocks have fallen on fear of supplierimpact and consumer confidence in the US market

- Toyota US sales plunged 34% in November

GM and Chrysler face bankruptcy without federal support

Derivatives

Sub-prime loans that triggered the current crisis accountedfor US$ 1.5 trillion

Derivatives account for a total of US$ 1.144 quadrillion amounting to over 22x global GNP

- Listed credit derivatives - US$548 trillion

- Over-the-Counter derivatives - US$596 trillion

Interest rate - US$393 trillion+

Credit default swaps - US$58 trillion+

Foreign exchange - US$56 trillion+

Commodity and equity linked - US$17.5 trillion Unallocated - US$71 trillion+

China Growth

Any serious threat to Chinese growth will have dramaticimpact on global economic outlook

- The best thing China can do [about the globalslowdown] is maintain policies that support its own

growth," - Robert Zoellick, World Bank president

Social unrest could be a serious threat to continuing growth

- Laid-off workers in factories in southern China havestaged protests that had to be contained by riot police.

- ..the economic crisis of 2009 could pose the toughesttests that the Chinese government has faced since thestudent uprisings of 1989. - Gideon Rachman, FinancialTimes

We believe the current economic deceleration in China isworse than that during the Asia financial crisis DeutscheBank

"As a result, 5 per cent [gross domestic product] growth in the

first half of 2009 is now a reality, not a risk. - Ben

Simpfendorfer, RBS Economist

Cooperation of global leadership


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p g p

Unprecedented circumstances pose a test of global leadership whose actions willdetermine the outcome of the current crisis

are they goodenough? Is there aChurchill, FDR,

Mandela in themaking?

An evolving world order


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Financial order

Will the US be able to continue to borrow and support its deficit

Unipolarity / hegemony

Importance of Emerging Markets (China and India in particular)

Oil

Is the asset allocation model dead (i.e. spread between hedge funds, cash, realestate, equities etc..) given how contagious this round was

Gold

Future of Sterling

g

As the world emerges from the current crisis, players need to be aware of a potentialchange in the global fabric

Comparing risk at Home and Abroad


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The current crisis is leading to a rethinking of the traditional risk paradigm

p g

Political instability

Currency (F/X)

Market fundamentals

Counterparty

Market fundamentals

Structural issues

Legal / Regulatory

Emerging Markets Risks Developed Markets Risks

Low Risk

Low Growth

High risk

High growth

High Risk

Low Growth

High Risk

High growth

Pre-Crisis Thinking

Develo

pedMarketsE

mergingM

arkets

Post-Crisis Thinking

Legal / Regulatory

Environmental

Black Swan moment; risk came from where traditionally it was least expected; the model needsto be re-thought


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Impact on Private Equity Globally

The private equity industry in the current crisis


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Conventional

Private EquityIndustryImpactAnalysis

Exits

Exit multiples impacted significantly

Public markets / recapitalization route closed

Longer holding periods

PortfolioCompanies

Increasing focus on creating value through portfolio management

Reassessment of business plans

Impact of current crisis on industry - focus on survival?

Access to high quality management increasingly available due to downturn

Investors /LPs

Fundraising conditions more difficult

Slowdown in capital distributions (and capital calls?)

Increase in default rate of LPs and growth in secondary LP sales

LPs questioning private equity business model

Are historical returns sustainable given lack of leverage

Is the 2 / 20 model dead?

Deals

Renewed focus on distressed opportunities and LBO debt to keep up return expectations

LBO model under stress as credit crunch impacts availability of leverage

Decreasing returns due to increasing equity requirement

Decreasing deal sizes

Valuations adjusting

Increasingly attractive public-to-private opportunities

The conventional private equity model continues to be impacted by the deterioratingeconomic situation...

An industry in turmoil


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16%

(26%)

(58%) (60%)

(79%) (80%)(85%)

(92%)(95%) (96%)(100%)

(75%)

(50%)

(25%)

0%

25%

Partners Group Ashmore Oaktree Man Group GLG Partners

Blackstone

Group

Och-Ziff Cap

Mgmt

Fortress

Investment Investcorp

Gottex Fund

Management

24

as evidenced by the significant drop in the share prices of leading publicly tradedalternative asset managers

Source: Bloomber * Man Group performance measured a ainst Januar 5, 2007 price as IPO date was in 1994.

IPO Date Mar 06 Oct 06 Jan 07* May 07

UK US

GStrUELSE

Country

Exchange

Dec 06 Jun 07 Nov 07 Feb 07 Dec 06 Nov 07

Switzerland UK US US US US Bahrain Switzerland

SIX LSE NYSE NYSE NYSE NYSE LSE (GDR) SIX

Shifting trends in asset allocation


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89%

75%

65%

35%

52%

83%

57%

40%

11%

30%

Asia (Ex-JANZ)

Russia/CEE

LatAm/Carib.

Middle East

Africa

Projected Strategy (3-5 Years) Current Strategy

0.04%

0.1%

0.2%

0.4%

1.7%

3.3%

Middle East

Latin

America

Russia /

CEE

Asia

Europe

US

which may influence a shift in long term asset allocation strategies towards emergingmarkets

Source: Goldman Sachs, Emerging Markets Private Equity Association Survey *May 2008

Under penetrated industry due to attractive nature of riskadjusted returnsexpected to grow

PE Investments as a % of GDP (2006-2007) Current vs. Projected LP InvestmentStrategy*

Reasons LPs Choose to Increase Investmentin Emerging Markets PE*

3.2x

Attractive risk-adjusted returns

Improvements in politicaland economic risk

More qualified GPs

Portfoliodiversification

Institutional familiaritywith risks andopportunities

Corporate governancestandards

More attractivevaluations

Recent improvementsin performance

25


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Impact on MENASA

Introduction to MENASA (1/2)


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SaudiArabia

Bahrain

1,512

426

1,277

Middle Eas t North Africa South As ia

MENASA has a combined GDP of US$ 3.2 trillion growing at 5.9% p.a., and a population of 1.6billion

119 157

1,294

Middle East North Africa South Asia

Source: Economist Intelligence Unit (November 2008)

Note: Middle East includes GCC states, Jordan, Lebanon and Turkey. North Africa includes Egypt, Libya, Algeria, Morocco, and Tunisia. South Asia includes India and Pakistan.

Significant cultural, political, and economic synergies have

led to strong intra-regional trade links, labor mobility and

investment opportunities

The MENASA Region Population (million)

Nominal GDP (US$ billion)

Qatar

Egypt

Turkey

Libya

Algeria

Tunisia

Jordan

Lebanon

Oman

UAEIndia

Pakistan

Kuwait

Morocco

Introduction to MENASA (2/2)


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28

Key drivers of the MENASA economies include demographics (large and low-cost workforce,domestic demand growth), reform / diversification (including infrastructure investment) andhydrocarbon liquidity

Low CostWorkforce

DomesticDemand

ReformInfrastructure

InvestmentHydrocarbon

Liquidity

- Very Strong - Strong - Moderate - Weak

MENASA in a global context


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Challenging the notion of de-coupling

Impact on public equities

Impact on the banking sector

Impact on oil prices

Impact on real estate

Impact on real economies

Demographic forces

Role of governments (reform and diversification) Infrastructure investment

and oil

Global

Regional

Challenging the notion of de-coupling


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30

Globalization has led to increased financial coupling between the major global economies,including MENASA

Cross border investments

Lines show total value of cross-border investments between regions*, 1999 / 2007Figures in bubbles show size of total domestic financial assets, $ billion, current exchange rates

0.5-1% of world GDP

1-5% of world GDP

5-10% of world GDP

10%+ of world GDP

*Includes total value of cross-border investments in equity and debt securities, lending and deposits, and foreign direct investment.

Source:McKinsey Global Institute Cross-Border Investments Database

Australia,

New Zealand,and Canada3,125

Russia,EasternEurope738

Middle East,rest of world1,710Latin America

1,860

U.K.5,460

Hong Kong,Singapore,Taiwan 1,901

U.S.38,444

Emerging Asia4,585

Japan17,129

WesternEurope20,886

Australia,New Zealand,and Canada8,530

Russia,EasternEurope5,070

Latin America

5,939

U.S.61,194

Japan20,089

WesternEurope52,435

U.K.11,055

Middle East,rest of world5,524

Hong Kong,Singapore, Taiwan4,379

EmergingAsia21,782

20071999

Volatility of capital flows and impact on the real economy


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0.0

2.0

4.0

6.0

8.0

10.0

12.0

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

9.0%

Global Capital Flows World Real GDP Growth EM Real GDP Growth

Real GDP growth and volatility of capital flows

31

Impact on the real economy has been exacerbated by volatile capital flows in previousfinancial crisis, particularly in Emerging Markets

Change in absolute capital inflows, 1996-2006 % average capital flows

Regional public equities down significantly year-to-date

Domestic bank liquidity has tightened in line with other markets

Drying up of liquidity has forced local governments to intervene

Increasing pressure on asset prices including the real estate markets

The current financial crisis has led to forced de-leveraging of Western financial institutionsand resulted in a large out-flow of capital, negatively impacting the region

Global Capital Flows (US$ trillions) and Real GDP Growth (%)

54%

47%

30%

47%

76%

27%

137%

168%

Equity Securities

FDI

Debt Securities

Lending and

Deposits

Emerging Markets

Developed Markets

AsianFinancial

Crisis;Russian

Crisis

DotcomCollapse;

post 9/11

Source: McKinsey Global Institute, Economist Intelligence Unit

Impact on public equities


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32

30

45

60

75

90

105

Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08

Dow Jones MSCI Emerging Markets

MSCI GCC Sensex India

Egypt CASE Turkey ISE

24x

21x

19x

17x

14x

22x

19x

13x

10x 10x

9x

6x

MSCI GCC India Egypt Turkey

2006 2007 Oct-08

Equity markets have declined significantly

Reversal of global capital flows, forced deleveraging and regional anxieties have resulted in acollapse of regional equity markets

P / E for Select IndicesEquity Market Performance (YTD)

(33%)

(46%)

(58%)

(54%)

(63%)

(56%)

Source: Bloomber DataStream

Impact on the banking sector (1/2)


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-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Jun-00 Jun-02 Jun-04 Jun-06 Jun-08

Bahrain (20%) Qatar (24%) Kuw ait (17%)

UAE (37%) Saudi (12%) Oman (12%)

Turkey (15%) Egypt (16%)

Increasing reliance on internationalfinancing exposed MENASA economiesto the global liquidity crunch

Concerns over liquidity in the banking system have largely been offset by support fromgovernment institutions

Index of international claims on domestic entities and00-08 CAGR (%)

Source: Bank for International Settlements

RBI made c.$12.4 billion available through a repurchase facility, reducedthe government repurchase rate by 150bps to 6.5% and reduced thebank cash reserve ratio to 5.5%

RBI also increased funds available for banks to refinance export credit tobring liquidity to the countrys $43.7 billion of outstanding trade finance

Saudi Arabia injected US$ 3 billion into the banking system

UAE injected US$ 13.6 billion into the local markets in Septemberfollowed with an additional US$ 19 billion in October and implemented a

3 year deposit guarantee

QIA plans to buy stakes of up to 20% in troubled banks

Oman central bank offered US$ 2 billion to local banks affected by thecurrent crisis

Kuwait government guaranteed bank deposits

The Turkish central bank cut the benchmark borrowing rate 50 bps to16.75% and also cut the overnight lending rate by 100 bps to 18.75%

The government is reportedly working on a stimulus package includingpotential for funding from the IMF

The federal government announced a EGP15 billion (c. US$ 2.5 billion)stimulus package including a EGP12 billion increase in publicexpenditure and subsidies on sales tax and exports

Regional governments have acted swiftly to address the fallout resulting from theinternational financial crisis

Impact on the banking sector (2/2)


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34

13 12 12

18

13

17

15

US G7 Global GCC India Turkey Egypt

358

228

157

87 76 7957

US G7 Global GCC India Turkey Egypt

Strong solvency and

Regional banks in good financial health

liquidity ratios

Source: Merrill Lynch

Capital to Risk Weighted Assets (%) Loans-to-Deposits Ratio (%)

resulting in low risk rankings and high degree of confidence by the central banks

US

UK

China

High Risk Low Risk

HighRisk

L

ow

Risk

UAE QAOM

TRKSA

EG

IN

BH

KU

Global Leverage Risk (Debt Levels + Ratings)

Average ofregional banks

[Qatari banks are] solid, highly capitalized and liquid. Qatari central bankGovernor Sheikh Abdullah bin Saud al-Thani

The effects on the Egyptian banking sector, however, have been minimal inlight of prudent regulations and comfortable domestic liquidity conditions

Central Bank of Egypt

...banks in the UAE had a very small and insignificant 1.2 per thousandexposure [to sub-prime mortgage loans and related structured products].H.E. Governor of Central Bank of the UAE Sultan Bin Nasser Al-Suwaidi

They don't need any assistance, they are highly liquid and have goodcapitalization. Saudi Arabian central bank Governor Hamad Saud al-Sayyari

...[RBI will pay] particular attention to maintain the viability if sectors thatcontribute significantly to employment and exports. Reserve Bank of IndiaPrivate Credit / GDP (Risk Ranking)

Loans/Deposits

(RiskRanking)

3x

Impact on oil prices


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35

Sharp drop in oil prices due to global recession and resulting demand contraction will have ashort-term impact on the GCC economies

2009 to witness sharpest drop in oil demand since 1982 resulting in significant drop in oil prices

Source: Merrill Lynch, Citigroup, Credit Suisse, World Bank, Bloomberg

Oil Demand Growth Y-o-Y (thousand barrels per day) OPEC Reference Basket Price (US$ per barrel), 1996-2008

Global oil demand growth down due to recession in westernmarkets and sharp slowdown in China

Risk of longer recovery if China cannot pull out of slumprelatively quickly

However, oil demand expected to rebound in 2010

Chance of global demand rebound in 2010 by c. 1 million bpd,driven exclusively by non-OECD economies

Non-OPEC supply not robust more reliant on mature (andhyper mature) basins than in previous demand slowdowns (early1990s and early 2000s). Non-OPEC supply growth is virtuallynon-existent

Oil price forecast between US$60-80 per barrel in 2009-2010

World Bank: 2009 US$75, 2010 US$76

Bloomberg consensus: 2009 US$75, 2010 US$97 OPEC announced cuts of 1.5million bpd in order to support oil

prices

Reduction in surpluses expected in GCC due to sharp reductionin oil prices, reduction in production volumes and continuing highlevels of government spending and capital investments

and the GCC has sufficient liquidity to ride out the crisis

Fiscal breakeven price for GCC economies

2008: US$30-55 per barrel

2009: US$55-70 per barrel

Furthermore, GCC countries have accumulated sufficient

surpluses and reserves over the past few years to fundcontinued government spending and capital investment even ifprices fall lower than expected

-500

0

500

1,000

1,500

2,000

North

America

Other

OECD

China Other

Asia

Middle

East

Other World

Y-o-YOilDema

ndGrowth

(Bbl/dayin000s)

2003-2007 Average 2009 2010

Impact on real estate (1/2)

A h i i l i i d h j i


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36

Factors that will lead to price correction

A short-term correction in real estate prices is not expected to have a major impact onregional economies

Significant run-up in prices

Property Price Appreciation Reduction in speculative activity

Reversal in sentiment due to global financial crisis

Government reforms have been put in place to limitspeculative investment in certain markets

Restricted access to credit

Loan-to-value ratios have decreased due to liquidity crunch Interest rates on new home mortgages have increased

Negative wealth effect

Substantial declines in most global asset classes willnegatively impact demand from domestic and internationalinvestors

Abu Dhabi 52% increase in property pricesfrom Jan-Jun 2008

Cairo 100% increase in land prices in 2007

Mumbai 45-50% increase in commercialproperty prices in 2007

Dubai propertyprice index

Impact of real estate correction on regional economies will be manageable

Mortgage Penetration (% of GDP) Limited impact on financial and real economies

Low level of mortgage activity

Households in the region are not overly leveraged

Contribution to consumption limited

Lack of sophistication in the market has not enabledmortgage equity withdrawals to fuel consumer spending

Exposure of financial sector

Banking sector not heavily exposed to real estate pricecorrection

Majority of lending to the real estate sector in the GCC hasbeen to large government-backed local developers(implying sovereign risk)

80%

59%

8% 6%4% 2% 1% 0%

US G7 UAE India Turkey Qatar Saudi

Arabia

Egypt

Source: Morgan Stanley, Global Investment House, Merrill Lynch, CBRE

Impact on real-estate (2/2)

The evolution of the regions real estate sector will lead to creation of a new asset class


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37

54%

35%

US Europe MENASA

The evolution of the regions real estate sector will lead to creation of a new asset class

The region has been undergoing a boom in construction however, the real estate industry has yet to institutionalize

Institutional Ownership of Commercial Real Estate (2007)

A range of reforms are helping to institutionalize the real estate sector and attract foreign capital

Construction industry as % of GDP (2007)

Estimated to beinsignificant

Source: EIU, NAREIT, Abraaj analysis, DTZ, Bloomberg

1998Idea Assessment Position

Exit2000-2003 2004-2005 2006 2007 2008

Turkeyestablishes itsREIT structureAyrimenkulYat

New real estatelaw in KSAallowing non-Saudi residents toown land

Dubai allows100% foreign

ownership indesignated areas

Bahrain, Qatar,and Abu Dhabiallow 100%foreign ownershipin designatedareas

Dubai ratifiesfreeholdownership lawsand DIFCestablishes REITlaw

Oman allows

foreigners to ownland in certaindesignated areas

Dubai introducesEscrow andBrokers laws

Egypt allowsforeign entities toestablish REITs

Pakistan REIT lawestablished

New Saudimortgage law to beannounced shortly

Kuwait revises thebuild, operate andtransfer law

10%

8%7%

5%4%

India UAE KSA Egypt US

Institutionalownership

comprised ofREITs, PE,insurance

companies andpension funds

The real economies within the MENASA region will continue to grow

Three main factors will continue to drive growth in the MENASA region


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38

1,443

1,569

1,698

2002 2007 2012

HydrocarbonBased Liquidity

The GCC nations will receive c.$5 trillionof revenue even if oil stays at an averageof $50 per barrel over the next ten years

700

3,800

6,400

8,800

2007 2012 2016 2020

Oil Price $100

Oil Price $70

Oil Price $50

Oil Price $30

GCC Oil Revenues (US$ billion)

3,200

1,500

1,500

2,600

Leading to Continued Growth

Government Reforms &Diversification

Reform agenda is being used toestablish sustainable growth

Thirteen MENASA countries are nowpart of the WTO

Governments across the region haveemphasized non-oil sector diversificationwithin their economies

Governments are looking to encouragegreater private sector participation

The privatization pipeline in the region is

expected to exceed US$ 900 billion inthe next ten years

Favorable

Demographics

Three main factors will continue to drive growth in the MENASA region

127million

129million

NominalGDP / Cap

$3,096

MENASA Population

$980 $2,048

2008-2013 Real GDP CAGR

Source: Economist Intelligence Unit, McKinsey *Excluding MENASA countries & China

Creates wealth, facilitateseconomic growth, andinfrastructure

expenditure

Facilitates economic growth,and creates investor / business

friendly environments

Creates demand,facilitates productiongrowth, encouragesreform

8.2%

5.9%

3.8% 3.6%

1.6% 1.6% 1.5%

China

MEN

ASA

EM*

LA

TAM

O

ECD

N

orth

Am

erica

E

U-15

Favorable demographics

Young and growing population increasingly focused on realizing their full economic potential


39/66

39

$2.0 $2.0$2.2

$2.5

$2.8

$3.1

2008 2009 2010 2011 2012 2013

South Asia GCC North Af rica Other Middle East

39

9.9%

The demographic shift in population has unleashed consumption-led growth

... and supported by government reform and investments...matched by a growth in working population

Almost 175 million people expected to join the workforcein MENASA over the next decade

Mobile low cost workforce

Young and Growing Population

More than 50% of the regions population is under the age of25

Immense Wealth Creation

GCC GDP per capita to increase to over $30,000 by 2013

Burgeoning Middle-Class

c. 31 million households are expected to join the middle classbetween 2006 and 2010 in India alone

Urbanization

Rapidly growing urban populations across the region

Main sectors:

Energy

Food

Infrastructure

Healthcare

Education

Housing

Nominal Private consumption growth(trillions)

Privateconsumption togrow by US$1.2trillion by 2013

Young and growing population increasingly focused on realizing their full economic potential

Source: EIU, McKinsey, Morgan Stanley, MEED projects, Abraaj analysis, United Nations

Significant governmental investment and reform efforts

High levels of infrastructure investment in attempt to diversifyeconomies and facilitate job creation

More than US$ 2.9 trillion worth of projects planned in the GCCalone

King Abdullah Economic City in Saudi Arabia to create 800,000 jobswith seaport, light industries, tourism and financial services

Move to knowledge-based economies

Monitory and structural support for knowledge economy sectors(healthcare, information technology, media, telecommunications etc.)

Set up of specialized infrastructure: Dubais Knowledge City,Jordans Education initiative, and over 400 SEZ in India primarilycatering to IT and related sectors

High level of investment in primary and secondary education (e.g.25% of UAE budget allocated to education spending)

Males Females

16%

9%

8%

6%

4%

3%

3%

17%

10%

8%

6%

5%

3%

2%

14%

9%

8%

6%

5%

4%

3%

15%

10%

9%

6%

5%

4%

3%

2005 2015Est. total population: 1,562 million Est. total population: 1,800 million

65+

55-64

45-54

35-44

25-34

15-24

0-14

Working

Population43%

Working

Population47%

Government reform & diversification

Government action has played an important role in supporting regional growth


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40

Government action has played an important role in supporting regional growth

Over the past 6 years, the Egyptian government has launched a series of reforms to stimulate theeconomy

A new taxation law has lowered corporate taxes from 42% to 20%

The establishment of numerous economic free-zones and increased privatizations efforts havecaused FDI flows to grow 20x between 2002 and 2007

A generational change in the leadership of GCC countries has set the stage for the modernization of

local economies Significant liberalization and privatization efforts in the banking, telecom and real-estate sectors

have taken place

Independent capital market regulators have been established and formal partnerships withleading global exchanges have been developed

Additionally, low tax rates, increased foreign ownership and over 60 economic free zones havefurther encouraged private sector investment

The Turkish government has taken several steps to promote the private sector and increase foreigninvestment, including an overhaul of monetary policy aimed at controlling inflation, a reduction in

corporate and income tax rates and an increase in privatization efforts

The Indian government has made efforts to improve the business environment and encourage foreigninvestment in the country. These include:

The elimination of many bureaucratic processes required for doing business

The reduction of import tariffs and tax rates

The creation of over 400 special economic zones

Source: McKinse

will continue to drive investment in infrastructure

Large infrastructure projects have driven and will continue to drive growth in the region


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41

1,216 km East-West & 1,330km North-South motorways ($28 billion Algeria)

Kafr-al-Shaikh Refining & Petrochemical Plant ($9.5 billion Egypt)

Trans-Saharan gas pipeline ($8 billion Algeria)

Great Man-Made River Project ($7.7 billion Libya)

Tripoli International Airport ($3 billion Libya)

Tangiers to Casablanca high-speed train ($2.7 billion Morocco) 1,320 MW thermal power plant, Bir El Har ($2.7 billion Morocco)

1,200 MW gas-fired plant ($2 billion Algeria)

Expansion of El-Fateh University ($2 billion Libya)

North Africa

35 greenfield airports ($35 billion India)

Offshore container terminal, Mumbai ($12 billion India)

India-Iran gas pipeline ($7-$8 billion India / Pakistan)

Phase V of the National Highway Development ($8.8 billion India)

Diamer-Bhasha Dam ($6.5 billion Pakistan) Baluchistan oil refinery ($4-$5 billion Pakistan)

Priority line of the Lahore light rail project ($2.4 billion Pakistan)

2,000 MW power project in Tamil Nadu ($2.3 billion India)

South Asia

King Abdullah Economic City ($100 billion Saudi)

Dubai World Central ($33 billion UAE)

Al-Zour oil refinery ($15 billion Kuwait)

Manifa oil field redevelopment ($9 billion Saudi)

Makkah to Madinah rail link ($5.3 billion Saudi) / Dubai light rail transport ($4.2 billlion UAE)

Abu Dhabi International Airport ($6.8 billion UAE) / Jebel Ali container port ($1.5 billion UAE)

IGCC power plant ($6 billion UAE) / Aluminum Smelter ($6 billion UAE)

Doha Airport ($5.5 billion Qatar) / Renovation of Seeb and Salalah Airports ($3 billion Oman)

Kuwait to Oman rail ($5.5 billion Kuwait) / Tiran causeway Saudi to Egypt ($3 billion Saudi)

Tiran causeway Saudi Arabia to Egypt ($3 billion Saudi)

Bahrain Qatar bridge ($3 billion Bahrain/Qatar) / Industrial Wharf ($2 billion Bahrain)

GCC

South Eastern Anatolia Project for construction of dams and powerplans on the Euphrates and Tigris rivers ($32 billion)

Construction of power plants across Turkey ($6.5 billion)

Nabucco oil pipeline ($4.6 billion) and Ceyhan oil refinery ($4.9billion)

Bosphorus underwater tunnel ($3.1 billion)

Sakarya Ankara power grid ($2 billion)

Izmir Port ($1.3 billion)

Istanbul Metro expansion ($1.2 billion)

Turkey

Large infrastructure projects have driven and will continue to drive growth in the region

Source: Business Monitor International Zaw a

Hydrocarbon based liquidity will continue to support growth

Fundamental regional advantage due to high hydrocarbon reserves remains strong despite


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66.4 75.0

96.5 98.0 95.0

Q4 2008 2009 2010 2011 2012

0

20

40

60

80

KSA UAE QA OM BH KW**

Budgeted Oil Price Break-Even Price

45%

5%

12%9%

28%

17%

22%

8%

MENASA North America Europe South America

Oil Reserves Oil Production

*based on official 2008 budget targets, **Kuwait announced one off budget transfer of US$ 20bn to capitalize social security system

Source: Merrill Lynch, McKinsey, BP Statistical Review of World Energy 2007, Bloomberg

Highest reserves to production ratio in the world with budgets balancing at US$50 per barrel or less

resulting in continuing hydrocarbon driven liquidity

GCC breakeven budget* oil price

Fundamental regional advantage due to high hydrocarbon reserves remains strong despiteoil prices coming off peak levels

Reserves / Production Ratio

1.6x

0.3x

0.6x

1.0x

Cumulative GCC Oil Revenues (US$ trillions)Consensus Oil (Brent) Price Forecast (US$ per barrel)

and consensus oil price forecasts above US$ 80 per barrel

0.6 1.1 1.5 1.9 2.42.8 3.2

0.91.1

1.31.5

0.81.0

1.31.5

1.5

1.9

2.2

2.6

0.61.1

2.4

3.8

5.1

6.4

7.6

8.8

2007 2008 2010 2012 2014 2016 2018 2020

Oil Price US$100

Oil Price US$70

Oil Price US$50

Oil Price US$30

Reserves and production as a % of global total


43/66

Structural demand-driven opportunity (1/2)

MENASA has experienced historic under-development in key sectors, creating pent up


44/66

44

13,827 15,834

37,374

MENASA 2007 MENASA 2017

At OECD Levels of Beds / 1,000 of Population

MENASA Level of Beds / 1,000 of Population

3

6

16

22

Egypt Saudi Arabia Europe US

50,629

57,230

MENASA Current MENASA 2015

29%

45%

15%

28%

MENASAOil Production

MENASAOil Reserves

MENASAGas Production

MENASAGas Reserves

Education (Total Schools Required)

Medical Labs (Lab Tests per Capita) Oil & Gas (Global Production % vs. Global Reserve %)

Source: World Bank, World Health Organization, McKinseyNote: Hos ital calculation based on 1.2 & 4.1 beds / 1000 o ulation in MENASA and OECD res ectivel as well as current MENASA beds / hos ital ratio

p p y , g p pdemand and high growth potential

Gap16%

Gap7,000

Schools

Healthcare (Total Hospitals Required)

Gap39,000

Hospitals

Gap13%

Gap1.5 BTests

Gap400 MTests

MENASA has experienced historic under-development in key sectors creating pent up

Structural demand-driven opportunity (2/2)


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45

5.4%

7.4%

10.0%

17.0%

1996 2001 2005 2010F

26%24%

9%

4%

USA Europe Asia-Pacific MENA

9.2%

7.5%

4.8%

1.8%1.3%

0.8% 0.7% 0.6%

G7 World India UAE Turkey Egypt Pakistan Saudi

Arabia

158

4475

142

50

60

India / Pakistan North Africa GCC

Installed Gigawatt Capacity Required

Insurance Penetration: Premiums % of GDP (2007) Low Cost Carrier Market Share of Short-haul Market

Power Generation Capacity (Gigawatts) Petrochemicals (MENA % of world Ethylene Capacity)

Source: Swiss Re Sigma Report, McKinsey, Economist Intelligence Unit, Citi Research, Abraaj Capital Analysis

Gap22%

AverageRegional

Economies

Gap

5.8%

(by 2017)

(by 2030)

(by 2015)

Investmentrequirement

US$ 50bn

Investmentrequirement

US$ 90bn

2005-2010CAGR 14%

demand and high growth potential

The outlook

MENASA will be the 2nd fastest growing region in the world over the next 5 years


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46

8.2%

5.9%

3.8%3.6%

1.6% 1.6% 1.5%

China MENASA EM* LATAM OECD North

America

EU-15

Source: Economist Intelligence Unit (November 2008) *Excluding MENASA countries & China


Private equity in MENASA has been less impacted in the current crisis due to a focus on

The private equity industry in MENASA


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47

MENASAPrivate EquityIndustryImpactAnalysis

Exits

Exit multiples impacted significantly

Public markets / recapitalization route closed

Longer holding periods

Increasing exit options via new regional private equity firms / SWFs / andMNCs seeking growth markets

Portfolio

Companies

Increasing focus on creating value through portfolio management

Reassessment of business plans

Impact of current crisis on industry - consolidation opportunitiesemerging in highly fragmented sectors

MENASA attracting world-class management on an unparalleled basis

Investors /LPs

Fundraising conditions more difficult

Increase in default rate of LPs

Increasing interest of regional money in staying local, e.g. SWFs

Potential new external investors focusing on the region due to attractive risk/ return proposition

Deals

Continued value generation via growth capital opportunities

Limited impact of credit crunch (on returns and deal sizes) as industry hashad less reliance on debt / leverage

Valuations adjusting

Attractive public-to-private options as MENASA stock markets have

been particularly hard hit

New, untapped sectors emerging: infrastructure, real estate, SME

growth capital opportunities, minimal use of leverage and an increase in home-grown capital


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Concluding Thoughts

Paradigm shifts continue to alter the global economic landscape and have resulted in Asiai i i i i h ld d i h i

Part of a pattern?


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0%

20%

40%

60%

80%

100%

0 1000 1500 1600 1700 1820 1870 1913 1950 1973 1998 2025 2050

Europe Western* L. Am/Africa Asia

regaining its position as the worlds dominant growth engine

Distribution of Global GDP

*Includes: USA, Canada, Australia and New ZealandSource: Sir Paul Judge

Agricultural Productivity

Industrial Productivity

Information Age

Human Resources

The MENASA region is projected to overtake the US as the worlds 2nd largest economy by2050

MENASA in the long term


50/66

50

0

20

40

60

80

China MENASA* US EU 15 Latin

America*

Southeast

Asia

Japan

0

3

6

9

12

15

18

EU 15 US Japan China Latin

America*

MENASA* Southeast

Asia

2050

Source: Goldman Sachs* MENASA excludes Jordan, Lebanon, Libya, Algeria & Tunisia. Latin America includes Argentina, Brazil, Chile, Colombia, Mexico, Peru, Paraguay, Uruguay & Venezuela

The world in 2050

The world in2007

GDP (US$ trillions)

GDP (US$ trillions at 2007 prices)

however, challenges lie ahead

Demographics a double edged sword

Continuing reform balance between political, economic & social

Conflict and geo-political instability

Oil dependence / economic diversification

Climate change


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Appendix:Country Specific Outlook

High oil prices have allowed the GCC to build a sustainable future

Outlook on the GCC (1/2)


52/66

52

32.030.0

16.213.2

9.67.0

Kuwait UAE Saudi

Arabia

Qatar Oman Bahrain

17.2%

10.7%

10.4%10.1%

9.1%

8.8%

8.4%

8.3%

7.2%

6.6%6.0%

5.1%

5.0%

4.7%

Qatar

China

Kuw aitUAE

Bahrain

India

Argentina

Oman

Russia

TurkeyMalaysia

Thailand

Saudi Arabia

Brazil

GCC Real Non-Hydrocarbon GDP Growth vs. EM Real GDP Growth

Source: Bloomber , HSBC, Passport Capital, Economist Intelli ence Unit, Merrill L nch

High oil prices and prudent budgets have

Growth has been driven by consumption and investment Diversification initiatives are beginning to bear fruit

Historical vs. GCC Budgeted Oil Prices

GCC Consumption and Investment

GCC non-hydrocarbongrowth outpacing

hydrocarbon growth

resulted in significant accumulated surplusesFiscal Balance (% of GDP)

Average 2004-2008

The region will continue to grow at a robust pace of over 5% despite the short term effects ofthe global financial crisis and drop in oil prices

Outlook on the GCC (2/2)


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53

0

20

40

60

80

100

120

2004 2005 2006 2007 2008 2009 2010 2011 2012

0%

2%

4%

6%

8%

10%

EIU Projected Oil Price Consensus Oil Price Real GDP

8.2%

5.6%

4.3%

1.6% 1.5% 1.4%

China GCC EM* OECD EU-15 United

States

0.6 1.11.5 1.9

2.4 2.83.2

0.91.1

1.31.5

0.81.0

1.31.5

1.5

1.9

2.2

2.6

0.61.1

2.4

3.8

5.16.4

7.6

8.8

2007 2008 2010 2012 2014 2016 2018 2020

Oil Price US$100

Oil Price US$70Oil Price US$50

Oil Price US$30

1

20

14

3

31

17

Source: Bloomber , McKinse , Economist Intelli ence Unit, United Nations *Excludes China

Short-term decrease in oil prices will have a temporary

impact on GCC growth rate

the global financial crisis and drop in oil prices

Oil Price and Real GDP Growth Outlook (US$ / Bbl)

However, long term hydrocarbon liquidity outlook remains

positiveCumulative GCC Oil Revenues (US$ trillions)

resulting in healthy long-term GDP growth


Demographics remain a key growth driver in the region

GCC Population Breakdown by Age (millions)

0-19

20-64

65+

20252005 % of Total

33%

62%

5%

40%

57%

2%

Increased workingage population will

result in greaterdomestic consumption

and investment

Consensus oil priceestimates are

projected above US$95 per barrel for 2010,

2011 and 2012

Even if oil drops to$30/bbl, the GCC willbe able to maintaincurrent investment

rates of 6.1%

Outlook on Saudi Arabia

Reform lead growth continues to drive the largest GCC economy


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54

26.6%

17.3%

10.7%9.7%

8.2%

7.2%

6.1%

4.8%

3.8%

2.7%

2.8%

Crude Oil & Natural Gas

Government Services' Producers

Finance, Insurance, Real Estate and

Business servicesOther minning and manufacturing

Wholesale & Retail Trade & Restaurants

& HotelsConstruction

Transport & Storage & Communication

Agriculture Forestry & Fishing

Community & Social & Personal services

Oil Refining

Other

2005 2006 2007

GDP (US$ billion) $316 $357 $382

Real GDP Growth (% pa) 6% 3% 3%

GDP / Capita (US$) $13,650 $15,061 $15,698

Population (m) 23.1 23.7 24.3

Population Growth (% pa) 3% 2% 3%

Inflation (% pa) 1% 2% 4%

Macro Economic Data Outlook

% GDP Contribution

Saudi is the largest economy in the GCC, both in terms ofGDP and population

- Rapidly growing population of c. 25 million, growing at2.4% pa (median age 22)

- GDP base of US$ 382 billion with real GDP growth of 3%

in 2007

Saudi is well positioned to weather the current financial crisis

- Current account balance of 23% of GDP in 2007

- Government budget estimated to breakeven at oil price ofUS$ 45 / bbl in 2008; US$ 700 billion of infrastructureprojects expected to continue over the next 10 years

Saudi has initiated a significant reform campaign to attractforeign investment and increase the countrys globalcompetitiveness

- 2008 World Investment Report highlighted Saudi as theregions most attractive destination for investment

- Increase in net FDI inflows from US$ 1 bn in 2004 toprojected US$ 24 bn by 2008

Despite potential slowdown, Saudi still seen as attractivemarket

- Revised GDP growth of 08-13 CAGR 4.6% still wellabove global average

Source: Economist Intelligence Unit, CIA Factbook, Saudi Arabian Monetary Agency, Credit Suisse

Outlook on the UAE

One of the fastest growing economies in the world, the UAEs growth is increasingly beingdriven by the services sector with non-oil sector accounting for 65% of GDP


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55

2005 2006 2007

GDP (US$ billion) $132 $170 $199

Real GDP Growth (% pa) 8% 9% 8%

GDP / Capita (US$) $28,684 $34,548 $37,690

Population (m) 4.6 4.9 5.3

Population Growth (% pa) 7% 7% 7%

Foreign Direct Investment (US$ billion) $11 $13 $13

Inflation (% pa) 12% 14% 13%

Macro Economic Data Outlook

% GDP Contribution

driven by the services sector with non oil sector accounting for 65% of GDP

The UAE has emerged as the 2nd largest economy in the GCCand one of the most important in the region

- GDP growth has averaged just under 10% over the past 5years

- Diversified economic base with non-oil sector contributing

65% of total GDP, with growth driven by services sector

- The UAE has become a regional hub for finance, tourismand logistics

The UAE is well positioned to weather the current crisis

- Current account balance of 20% of GNP in 2008F

- Government budget estimated to breakeven at oil price ofUS$ 40 / bbl in 2008

- UAE sovereign wealth funds have accumulated c. US$600-900 billion in assets

Robust banking sector

- Strong profitability and balance sheets, with industry ROEof 21% and capital adequacy ratio of 13% (as of Jun-08)

Impact of potential correction in real-estate prices andstrengthening US$ expected to ease inflationary pressure

- Inflation expected to decrease from 13% in 2008 to lessthan 10%

Revised GDP growth of c. 6% still well above global average

Source: Economist Intelligence Unit, Central Bank of UAE, Merrill Lynch, Morgan Stanley, Global Research, UBS

35.0%

13.0%11.0%

8.0%

8.0%

25.0%

Crude Oil and Natural Gas

Manufacturing

Wholesale, Retail trade and Repairingservices

Real Estate and Business Services

Construction

Others

Recent concerns over Dubais leverage and debt servicing ability are misguided

Key perceived risk: Dubais leverage


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While financing conditions are becoming more challenging, we dont consider that the credit-

worthiness of rated domestic entities will be affected.we feel refinancing risks will remain manageable despite reports of a sharp reduction in

international syndications

With a macro perspective, and seeing Dubai and Abu

Dhabi as part of UAE, rather than two independentstates, this widening [of Dubai CDS spreads over Abu

Dhabi spreads] is difficult to justify, in our view.

CDS for Debt Issued by Local Players

0

100

200

300

400

500

600

Apr-07 Aug-07 Dec-07 Apr-08 Aug-08

Abu Dhabi Dubai

we believe thissignificant widening in CDS spreads for Dubai-based institutions(which

effectively imply a 34% probability of sovereign default) is unwarranted and current concerns over

Dubais level of indebtedness to be significantly overblown.

We see little to suggest that this debt level is either unmanageable or unsustainable.

CDS levels of Aa2/AA rated Abu Dhabi and Qatar..

trade wider than Polandrated up to three notches lower.

While our estimated Dubai external debt/GDP ratio of 65-

70% may raise some concerns, our economist and

head of credit research believe market sentiment is

over-exaggerated

Dubais sovereign debts represent only a fraction of the assets of the government and

affiliate companies, and the emirate will meet all its refinancing obligations.

Dubai GovernmentOfficial

Key perceived risk: GCC real-estate sector (1/2)

Short term price correction expected to be most severe for Dubai, with the governmentattempting to ensure a soft landing for the sector


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0

20,000

40,000

60,000

80,000

2008 2009 2010 2011 2012 2013 2014 2015

Government Private Quasi-Government

Long-term outlook generally favorable for the GCC

Most large developers in Dubai are government backed

p g g

Doha

Residential Occupancy: 99%

Commercial Occupancy: 95%

Supply > Demand (year): 2013

Riyadh



Supply > Demand (year): 2014-15

Dubai




Abu Dhabi




Developer Govt. Ownership

Emaar 32%

Deyaar 41%*

Union 48%*

Tatweer 100%

Sama Dubai 100%

Nakheel 100%

Dubai Properties 100%

Source: EFG, Morgan Stanley, Citi Research, company reports/filings, Colliers*Indirect ownershi throu h other semi- ovt. entities

Source: Occupancy & Capacity Estimates - Colliers, Price Expectations- Morgan Stanley

providing a mechanism to control new supply

Upcoming Supply of Housing Units by Ownership (Dubai)

By monitoring supply andsales, the Council is

managing this [real-estate]key sector and ensure that

new supply is properlymanaged. - Mohamed

Alabbar

Impact of downturn in UAE real-estate market expected to be manageable on the downsidewhile also helping to ease inflationary pressures

Key perceived risk: GCC real-estate sector (2/2)


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Consisting primarily

of low cost labor;low contribution

to GDP

The impact of real-estate workforce on the economy is small

A correction of real-estate prices will help ease inflationarypressures

p g y p

Source: Morgan Stanley, Sico Research, CBRE

There has been significant run-up in prices as of late

UAE Employee Breakdown by Sector (2007)

Dubai Residential Apartment Prices (AED / sq ft) Contribution to CPI inflation (UAE)

%

2%

4%

6%

8%

10%

12%

14%

2003 2004 2005 2006 2007 2008E

Other Expenditures

House Rent & Related Housing Expenses

Foodstuff, beverages, tobacco

15%

53%

20%

3% 8% Industry (ex.Construction)

Services (ex. Real-Estate)

Construction

Real Estate

Oil & Agriculture

Banks able to sustain a downturn in current prices due to thesignificant run-up as of late

Mortgage exposure in UAE banking system is relatively small

- 5.4% of total assets in 1Q 2008

- 8% of GDP

According to banks 90% of real-estate related lending is totop-tier clients, including largely govt. or semi-govt. entities

Loans to real-estate developers far more important; however,UAE central bank considering steps to support real-estate

relating lending UAE government has a 20% limit in place (total assets) on

real-estate exposure for banks

Banks not over exposed to the real-estate sector

600 715800800

1,200

1,800

2,200

3,800

1,200

NA

2004 2005 2006 2007 1H08

Mid-end Residential High-end Residential

Outlook on Egypt: The short term view

Egypt has witnessed significant growth in the recent past, however, exposure to externalfactors is expected to cause growth to slow in the short term


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3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2005 2006 2007 2008F 2009F 2010F 2011F 2012F 2013F

Short-term outlook Short term slowdown in growth

Diversified economy

Source: Economist Intelli ence Unit Central Bank of E t Global Research Ca ital Research

16.3%

13.2%

11.2%

9.1%8.4%6.9%

6.2%

4.3%

4.1%

3.7%

3.7%

3.6%

3.4%

2.7%3.2%

Oil and Other Manufacturing Industries

Agriculture, Forestry and Fishing

Wholesale & Retail

Natural GasGeneral Government

Oil

Others

Construction and Building

Transport and Warehousing

Financial Services

Tourism

Insurance

Suez Canal

Communication

Real Estate

GDP/capita of US$ 1,719 grown at 16% pa over past 3 years

Significant regulatory reform initiatives to attract FDI Inflowsreached US$ 11 billion in 2007

The banking sector remains strong in the face of the globalcredit crisis. As a result of reforms implemented during the last

economic slowdown it is tightly regulated with no significantliquidity crunch in the domestic banking sector

In the short term GDP growth to decline from 7.2% in 2008 to5.7% and 5.1% in 2009 and 2010 due to:

- Real fixed capital formation expanding at a slower pacedue to tightening of global liquidity, including in the Gulf

- Slowdown in FDI, given that 70% of FDI inflows comefrom US and EU

- Slowdown in global trade: c.30% of exports are to USItaly and Spain; a large part of tax receipts is derived fromeither the Suez Canal or custom duties

-Slow down in export growth will have a knock-on effect

on the domestic manufacturing sector

- Inability to rely on fiscal spending to promote growth dueto the prevailing fiscal deficit

- Tourism expected to slow with 69% of international touristarrivals represented by Europeans

Rising commodity prices, particularly food and oil haveresulted in high inflation which peaked at 23.7% in August2008; however inflationary pressures have eased ascommodity prices have come down

% GDP Contribution

Real GDP Growth

Outlook on Egypt: The long term view

yet, with the largest population in the Arab World and favorable demographics, Egypt ispoised to continue its growth


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8.2%

5.9%

4.3%

1.6% 1.5% 1.4%

China Egypt EM* OECD EU-15 United

States

70.0%

71.0%

72.0%

73.0%

74.0%

75.0%

76.0%

2005 2006 2007 2008F 2009F 2010F 2011F 2012F 2013F

Moderate set back in growth to be limited to the short termdue to diversified GDP, liquid banking system and an underleveraged economy

Egypt is a consumer led economy, stimulated by investments,with its long term prospects assured by demographics andstrategic location

- c.75% of economic growth driven by local demand

- The domestic consumer is largely un-levered with lowpenetration rates of consumer finance products, creditcards and mortgages (1% of GDP)

- Declining inflation will enhance purchasing power and

drive up domestic demand- Favorable factors of production will allow Egypt to attract

FDI in the long-term

4

11

26

32

7

18

37

36

*Excluding China and EgyptSource: Capital Research, United Nations, Economist Intelli ence Unit, Colliers International

Long-term outlook is strong with demographics a key growth driver

resulting in increased consumption leading to healthy long-term GDP growth


Egypt Population Breakdown by Age (millions)

0-19

45-64

65+

20252005 % of Total

38%

18%

8%

36%

15%

5%

Private consumption (% of GDP)

20-44

44% 36%

Although Turkey has grown significantly since 2001 it is still vulnerable to external shocksin the short term

Outlook on Turkey: The short term view


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3.5%

3.0% 3.0%2.7%

2.5%

3.8%

0.9%

2.5%

1.7%

2.1%

3.0%

2.6%

JP Morgan IMF RaymondJames

GoldmanSachs

MorganStanley

Citi

2008 2009

(15%)

(10%)

(5%)

0%

5%

10%

15%

2001 2002 2003 2004 2005 2006 2007

0%

10%

20%

30%

40%

50%

60%

GDP Real Growth (LHS) Budget Balance % of GDP (LHS)

Inflation (RHS)

Private

Consumption

47%

Fixed Capital

Formation

29% Public

Consumption

4%

Net Exports

18%

Inventory

2%

Source: UBS, Goldman Sachs, Economist Intelligence Unit

Turkey has come a long way since the crisis of 2001 with growth being driven by consumption and investment

However, Turkey has relied increasingly on external financingto fund its external deficit

resulting in a slowdown of growth estimates in the face of

the global financial crisis

Real GDP Growth, Budget Balance and Inflation

2008 and 2009 GDP Growth Forecasts

Contribution to GDP Growth (2002-2007)

Share of GDP (%) The role of energy in the current account

however, underlying fundamentals ensure a strong long term outlook for Turkey, which ison track to become the 9th largest economy in the world by 2050

Outlook on Turkey: The long term view


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Turkey expected to emerge as the ninth-largest economy in the world by 2050

Source: Goldman Sachs HSBC

GDP In 2050 (US$ trillions at 2007 prices)

0

10

20

30

40

50

60

70

80

China

US

India

Brazil

Russia

Indonesia

Mexico

UK

Turkey

Japan

France

Germany

Nigeria

Philippines

Canada

Italy

Korea

Iran

Saudi

S.Africa

Vietnam

Thailand

Venezuela

Egypt

Spain

Demographics. Turkey benefits from one of the youngest populations of any emerging market with a median age of 27and a labor force of 50 million.

Productivity. 25% of Turkeys labor force is still employed in the agricultural sector; however, a period of increasingurbanization (from 25% in mid-1900s to 70% today) will lead to further increases in productivity and employment in keysectors such as manufacturing and services.

Reform. Turkeys economy is well positioned long-term due to a range of successful economic policies enacted after the2001 crisis and political reforms executed in pursuit of EU membership. Future business-friendly reforms are expected tocontinue going forward, including reform of pension schemes and rigid labor laws.

Outlook on India: The short term view

Growth in India expected to decelerate but still robust at 6%


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8.0%

6.1%

2.4%

(0.0%) (0.0%)

(0.4%)China India EM* OECD EU-15 United

States*Excluding China and IndiaSource: RBI SEBI CEIC Goldman Sachs Economist Intelli ence Unit *Excludes China and India

GDP Growth - Cyclical Slowdown In Activity

Fundamentally strong banking sector

- Stable with relatively low levels of leverage

- Proactive government support through cuts in CashReserve Ratio and repo rate, with further easing expected

Robust domestic demand

- Growth in income expected to support consumer spending(double-digit growth in private sector pay and 20%increase in public sector salaries)

- Substantial portion of consumption is essential 70% ofrural and 61% of urban consumption

Easing pressure on inflation due to fall in oil, commodities, andfood prices

Liquidity crunch due to global crisis

- Reversal in short term foreign capital inflows from US$108bnin 2008 to US$ 29 billion expected in 2009

- High level of dependence on foreign funding with 30% ofcorporate borrowing from foreign sources in 2008

- RBI intervention to support weakening INR, causing further

tightness in domestic liquidity Exports

- 34% of GDP from exports, mainly to recession-impactedeconomies such as US / Western Europe

Negative wealth effect

- Recent stock market and real estate price corrections will

have negative impact on consumer spending

Short Term Real GDP Growth (2009)

and will continue to be one of the fastest growing economies

as India is impacted by the global nature of the current crisisSlowdown in GDP in the short-term

However India remains well positioned to weather the storm

Favorable demographics and a strong investment regime will make India worlds 3rd largesteconomy by 2050

Outlook on India: The long term view


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23%21% 19%

12%

9%7%

India

Indone

sia

China

Thailand

Malaysia

Philip

pines

56

488

590

112

853

483

Source: Goldman Sachs, Morgan Stanley, CLSA, McKinsey, CMIE, Edelweiss, United Nations, Economist Intelligence Unit

Large Youth population

Large and growing consumer base

- The population in the age group of 20-64 will grow by 260million between 2005 and 2025

- c. 31 million households are expected to join the middleclass between 2006 and 2010

Gross capital formation (GCF) has been a major driver ofeconomic growth in the last decade

- Dramatic increase in GCF driven by increased FDI

- Highest growth among the major Emerging Asianeconomies

Emerging Middle Class Gross Capital Formation (% GDP) GCF Avg Growth, 2003-07 (%pa)

will make India the 3rd largest economy in the world by 2050

Significant increase in the 20-64 bracket

65+

20-64

0-19

2005 2025

26%

37%

Mar-00 Mar-08

Favorable demographic trends supported by continued capital formation and investment

0

20

40

60

80

China

US India

Brazil

Russia

Indone

sia

Mexico UK

Turkey

Japan

Fran

ce

Germany

Nige

ria

Philip

pines

Canada Ita

ly

Korea

Iran

Saudi

S.Africa

Vietnam

Thailand

Vene

zuela

Egypt

Spain

GDP In 2050 (US$ trillions at 2007 prices)

Income by Household

0%

25%

50%

75%

100%

2002 2006 2010

Low Middle Middle-Upper High

Households: 188 mm 204 mm 222 mm


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A Period of Consequence - How Abraaj Sees the World & Outlook, Dec 2008

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