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Epicure Qatar Equity (QIF)

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Tuesday 21 October, 2008

Epicure Qatar Equity

Quarterly update

RNS Number : 1722G
Epicure Qatar Equity Opportunities
21 October 2008

Epicure Qatar Equity Opportunities plc

Quarterly Update to Quarter End September 2008

Report to Shareholders


Epicure Qatar Equity Opportunities plc

Investment Advisers Report - Quarterly Update to Quarter End September 2008

Investment Objective

Epicure Qatar Equity Opportunities plc ('the Company' or 'EQEO') was established to capitalise on attractive investment opportunities in Qatar and the Gulf Cooperation Council ('GCC') region, resulting from the economic boom being experienced in the area. The Company seeks to invest in quoted Qatari equities listed on the Doha Securities Market ('DSM') in addition to companies soon to be listed, with a possible allocation of up to 15 per cent in regional GCC listed companies. The Investment Adviser intends to invest using both a top-down screening process, as well as a fundamental industry and company analysis, and does not intend to benchmark itself to any regional index.

company activity 

During Q3 2008, GCC equity indices saw a sharp decline in value. The Qatari market witnessed substantial volatility during the period - from being the best performing equity market in the GCC region and second best performer in the world, to being one of the worst performing GCC markets in the third quarter. 

Across the GCC, equity markets were subject to severe selling pressure from foreign investors, who the Investment Adviser believes were forced to reduce positions to cover for losses elsewhere and to decrease their exposure to emerging markets in extremely stressed and turbulent global financial markets. This was followed by panic selling from local retail investors. During a period that has historically seen lower activity due to the overlap with the holy month of Ramadan, shares of leading companies fell sharply on considerably reduced trading volumes. The decline in crude oil prices from their recent peaks coupled with concerns over a real estate bubble in UAE also had a negative impact on stock markets during the period. 

Embedded image removed - please refer to the Company's website for a table depicting GCC Equity Market Performance.

Source: Reuters, Qatar Insurance Company S.A.Q.

company update

In line with both regional and world markets, the Doha Stock Market (as measured by the DSM20 index) has also been under pressure losing 2.8 per cent year to date. As a result of the sell off in the market in the third quarter of the year, the Company's NAV has declined from a high of $1.39 on 12 June 2008 to $0.997 on 25 September 2008. The Company has invested in 32 companies in the GCC, with 21 of them being in Qatar and 11 in the UAE and Kuwait. The total market value of the investments was US$259m at the end of the quarter.

corporate profitability

The recent strong sell-off by foreign investors across the GCC markets has left valuations at extremely compelling levels. The total combined net profit for all listed companies in the DSM as of 30 June 2008 amounted to QR 15.54 bn compared to QR 9.52 bn for the same period in 2007. This equates to a 63 per cent increase. Net income at the Company's top 5 holdings grew an average of 75 per cent. Fundamentals remain intact and the Investment Adviser expects robust earnings results to be announced as of this October. 

Embedded image removed - please refer to the Company's website for a chart depicting top five holdings in the Company.

Source: Qatar Insurance Company SAQ.

Embedded image removed - please refer to the Company's website for a chart depicting projected earnings multiple.

Source: HSBC, Bloomberg.

selected macro economic data

The Economic Case for Qatar Revisited

Despite recent global events triggering the current market sell off, the macro fundamentals for the GCC region, and Qatar specifically, remain extremely strong. The generation of a large current account surplus has increased the ability of regional governments to substantially fund the economic expansion, even with the correction of high crude prices and the ability to raise global debt financing being sharply curtailed. 

The Investment Adviser believes that Qatar has one of the best economic fundamentals in the region. Rich in hydrocarbon resources, Qatar has become the largest exporter of liquefied natural gas (LNG) and is home to the world's third largest reserves of natural gas. The development of the LNG business has led the economic change in Qatar. LNG is primarily sold through long term agreements and has price caps and floors to protect both the buyer and the seller. This allows the Qatari Government to have long term visibility on cash flows from the sale of LNG and reduces volatility in government earnings. 

Embedded image removed - please refer to the Company's website for a table depicting selected macro economic data 

Source: Qatar Statistics Authority and QNB.

Qatar's economic diversification efforts and continued expansion in the oil and gas sector will provide a strong foundation for growth for the years to come.  Qatar recorded a nominal GDP growth of 25.1 per cent in 2007 on the back of extremely strong growth over the past five years. The non-oil and gas sector has also shown impressive growth of 27.5 per cent in 2007.  

The Qatari Government's emphasis on monetising gas reserves has led to massive investments in both upstream and downstream projects in the country. Qatar Petroleum's new five-year plan (2008 - 2012) has budgeted QR 222.7 billion for projects in crude oil, natural gas, gas-to-liquids, refining, petrochemicals, industrial cities and others. This would lead to substantial investment in the country and create a multiplier impact on the country's economy. The Investment Adviser expects that this expansion will continue in the near future and by 2011 Qatar would have contracted exports of approximately 77 million tonnes per annum of LNG, more than doubling the current LNG exports. 

regional allocation

In the coming years, the non-oil and gas sector is expected to contribute significantly to overall GDP, as major initiatives (Qatar Financial Centre, Education CityQatar Science and Technology ParkEnergy City Qatar, Tourism, Construction and Real Estate, Sports, Conferences etc.) diversify the economy. The Non-Oil and Gas sector contributed 43.5 per cent of total GDP in 2007, recording growth of 27.5 per cent over 2006.

As the Qatari government is the primary spender in the local economy and has a direct impact on the revenue and growth of the underlying non-oil economy, a description of the State Budget is provided below:

2008/2009 Qatar State Budget Summary

The 2008/09 State Budget was announced in April 2008 and shows the government's commitment to keeping major infrastructure and other projects on track to meet the growing needs in the coming years. This is the fourth consecutive fiscal year in which the State Budget has had a surplus, primarily indicative of the strength of the oil, gas and petrochemical sector. The 2008/09 Budget forecasts an expenditure increase of 45.9 per cent to reach QR 95.9 bn. This will still leave a surplus, even with crude at $55 p/b. 

Major allocations continue to include large scale infrastructure projects. Spending on major public projects has increased by 160 per cent to reach QR 59.5 bn, compared to QR 22.9 bn in the previous budget. The Public Services and Infrastructure Sectors continue to receive the bulk of the allocations, with an allocation of QR 30.6 bn, accounting for 51 per cent of the total allocations for major public projects.

Embedded image removed - please refer to the Company's website for a table depicting Qatar State Budget Information.

Source: Ministry of Finance

industry allocation

The Company has a substantial weighting in the financial services industry, with 42 per cent of its investments in the banking sector. In light of the current financial sector turmoil, an elaboration of the Qatar banking industry is provided below.  

The Investment Adviser believes that the recent turmoil in the world financial markets will have little or no impact on local financial institutions in the region.

The Investment Adviser also believes that regional governments would act proactively to prevent any contagion risk, however limited, from impacting on the financial sector. The region's banking sector is mainly insulated from the global banking and financial industry. The GCC region is currently undergoing structural change and unlike previous booms, a major part of oil revenues is being invested in the GCC region. The banks' growth and profitability have been driven predominantly by local economic growth, rather than by investing in funds internationally. Local demand has provided sufficient opportunities for the banks to be focused on the region and has also ensured that banks have raised substantial shareholder equity over the past few years (more than doubled). The ratio of total assets to shareholder equity remains similar even though the total banking assets have doubled in the last two a half years.

Embedded image removed - please refer to the Company's website for a table depicting the Qatar Banking Sector.

Source: Banks' Annual Reports and Published Information.

Banks are the prime beneficiaries of the current economic boom in the region:

- Banks have been a key beneficiary in the strong liquidity environment and  

  have witnessed growth in deposits as oil revenues filter their way through the 

  economy and end up, ultimately, in the banking sector;

- Strong economic growth has led to a substantial increase in demand for lending 

  and improved asset quality (e.g. lower provisioning);

- Low real interest rates (often negative) have further propelled loan demand;

- Efforts to diversify from the hydrocarbon sector have led to a pipeline of 

  infrastructure projects, with banks benefiting through provision of project 

  finance, or by capturing tertiary business from contractors, construction 

  companies and other suppliers involved;

- A favorable demographic structure helps retail growth to pick up (young 

  population, influx of expatriates, etc);

- Strong growth, reasonable valuations. The Investment Adviser believes that the 

  investment universe will comfortably deliver a 25 per cent CAGR in 2008-2010E 

  net profit. This is attractive given reasonable valuations.

The services sector, which is broadly defined and includes companies in telecommunications and utilities, accounted for 21.9 per cent of all investments. The Company's exposure to the real estate sector stood at 12.4 per cent at the end of the third quarter 2008. The industries and insurance sectors accounted for a further 16.3 per cent and 5.8 per cent respectively.

Embedded image removed - please refer to the Company's website for a pie chart depicting  Market Values as at 30 September 2008. 

Source: Qatar Insurance Company SAQ.

Embedded image removed - please refer to the Company's website for a table depicting  the top five investments of the Company as at 30 September 2008.

Source: Qatar Insurance Company SAQ.

The top five investments of the Company constitute 49.2 per cent of NAV and 43.0 per cent of funds raised. 

regional allocation

Currently, the Company is invested in 21 companies in Qatar, five companies in the UAE and six companies in Kuwait. As at 30 September 2008, investments outside Qatar constituted 12.3 per cent of funds raised.

Embedded image removed - please refer to the Company's website for a pie chart depicting Market Values as at 30 September 2008.

Source: Qatar Insurance Company SAQ.

important news flow

IQ subsidiaries to invest QR21.3bn by 2011

Industries Qatar announced that its business units would invest QR21.3 bn riyals ($5.85 billion) into expansion and new projects by 2011. Qatar Petrochemical Co, Qatar Fertiliser Co, Qatar Fuel Additives Co and Qatar Steel Co would make the investments. Industries Qatar's share of the investments would be QR 14.7 billion riyals.

Qatar Steel out of Guelb el Aouj project

Qatar Steel, an Industries Qatar (IQ) subsidiary, has parted ways with Sphere Investments and Snim on the development of the $2.5bn Mauritanian iron ore project, citing strategic reasons.

QNB acquires 23.8 per cent of the UAE based Commercial Bank International

Qatar National Bank (QNB) acquired 23.8 per cent of the Commercial Bank International (CBI) based in the United Arab Emirates for QR1.1 bn ($302m).

QNB raises its share in the capital of the Housing Bank for Trade and Finance in Jordan

Qatar National bank increased its stake in the Housing Bank for Trade and Finance to 32.5 per cent 

Amlak-Barwa JV gets QCB license

Amlak Finance (Qatar), the home finance joint venture between the Dubai-based Amlak Finance and Barwa Real Estate Company, won an operating licence from Qatar Central Bank. The company expected to commence operations later this year.

Barwa International increases its participation by 2.5 times to establish Shaza Hotels

Barwa Real Estate Company, through its global arm, Barwa International, announced an increase of more than 2.5 times in its capital commitment to its partnership with Guidance Financial Group and Kempinski Hotels that is aimed at establishing Shaza Hotels. Shaza Hotels is the product of partnership between  

Kempinski Hotels and Guidance Financial Group. It is a new lifestyle hotel brand which celebrates the spirit, traditions and art of living of the Middle East and North Africa region in a contemporary, design-led environment.

QIB & Barwa Real Estate sign a finance deal for QR 1.1 bn

During the quarter Qatar Islamic Bank (QIB) and real estate conglomerate Barwa announced a Murabaha Sharia-compliant financing deal worth QR1.1 bn, which has become a part of Barwa's strategic financial structure.

QIB successfully closes a $250 million financing agreement for Ras Lafan Power & Water Project

Qatar Islamic Bank announced it has successfully closed an arrangement for an Islamic Financing for a part of the Ras Lafan Power & Water project (C) that would be performed by Ras Qirtas Power Company at a cost of $250m. The project, six multi-effect distillation desalination units with a total cost of over $3 bn is expected to be completed by 2011.

Commercial Bank Announces Listing of its GDRS on the London Stock Exchange

Commercial Bank of Qatar announced the successful conclusion of its recent capital raising transaction, and the listing of its Global Depository Receipts (GDRs) on the London Stock Exchange.

Doha Bank gets regulator approval to raise stake In India Unit 

Doha Bank received the country's central bank approval to raise its stake in India-based Doha Brokerage Financial Services Co to 80 per cent from a 49 per cent stake. 

Q- Tel secures controlling stake in Indosat

Qatar Telecom received a favorable verdict from the Indonesian Supreme Court to acquire 40.8 percent of Indosat. Q-tel is currently in the process of launching a tender offer to acquire additional shares in Indosat.

Nakilat obtains an additional financing of USD 1.5 billion

Nakilat Inc., a wholly owned subsidiary of Qatar Gas Transport Company Ltd. (Nakilat), has successfully raised US$1.5 bn of debt under its existing programme financing from a group of 12 international and regional banks.

Emirates NBD Plans UAE Expansion, Eyes India, Saudi

Emirates NBD, Middle East's largest lender by assets, revealed plans to double its retail network to 200 branches in the United Arab Emirates over three years and is looking to India and Saudi Arabia for expansion.  

Embedded image removed - please refer to the Company's website for a graph depicting the DSM20 Index (since January 2005)

Source: Reuters, as at 30 Sep2008

Embedded image removed - please refer to the Company's website for a table depicting the NAV performance of the Company (% net in USD).

Source: Galileo Fund Services Ltd  

NAV Performance is unaudited

Performance figures are based on the NAV calculated on the last Thursday of each month and published via the regulatory news service of the London Stock Exchange.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Additional information regarding policies for calculation and reporting returns is available upon request.

Epicure Qatar Equity Opportunities plc

NAV Update

NAV at launch                               US$ 0.96

NAV as at 25 September 2008        US$ 0.99

Inception Date                                31 July 2007

The NAV is estimated net of fees and expenses every week and announced through the regulatory news service of the London Stock Exchange.

As at 25 September 2008

Market Price -Shares            US$0.83

Market Price -Warrants         US$0.04

Key Features

Domicile                 Isle of Man

Shares Issued         247,527,523

Warrants Issued      34,271,000

Maturity                  Continuation vote at 2012 Annual General Meeting

Year End                30 June

Management Fee    1.25% of NAV

Performance Fee

The performance fee is 20% of the increase in Adjusted Net Asset Value per Ordinary Share above the Target Net Asset Valueer Ordinary Share, subject to the achievement of two tests (i) the year end Adjusted Net Asset Value per Ordinary Share is greater than the High Watermark and (ii) the year end Adjusted Net Asset Value per Ordinary Share exceeds the Target Net Asset Value per Ordinary Share during the relevant Performance Period. The Target Net Asset Value per Ordinary Share for the first performance period is the US$1 placing price increased by the hurdle rate of 8% per annum. For further details, please refer to the Company's admission document.

Investment Manager                      Epicure Managers Qatar Limited

Investment Adviser                        Qatar Insurance Company S.A.Q

Administrator                                Galileo Fund Services Limited I.O.M.

Custodian                                     Anglo Irish Bank Corporation (International) PLC

Nominated Adviser and Broker        Panmure Gordon (UK) Limited

Auditor & Tax Adviser                    KPMG I.O.M.

Legal Adviser                                Stephenson Harwood


Ordinary Shares

ISIN                               IM00B1240704

SEDOL                          B124070

Bloomberg ticker            EQEO

Valoren                          3268997


ISIN                              IM00B1240G96

SEDOL                         B1240G9

Bloomberg ticker            EQEW

Valoren                         3271492

Exchange Rate US$1.00=QR3.64



Epicure Qatar Equity Opportunities plc

Leonard O'Brien

T: +41 (22) 908 1190

Nominated Adviser & Broker

Panmure Gordon (UK) Limited

Moorgate Hall
LondonEC2M 6XB

T: +44(0) 207 459 3600

Administrator & Registrar

Galileo Fund Services Limited

Third Floor

Britannia House

St George's Street


Isle of Man, IM1 1JE

T: +44(0)1624 692600

F: +44 (0)1624 692601



Anglo Irish Bank Corporation (International) PLC

Jubilee Buildings

Victoria Street


Isle of ManIM1 2SH

PR/ Media Contact 

Tim Draper

M Communications 

T+44 20 7153 1267

Marylene Guernier

M Communications

T +44 20 7153 1269

1 Ropemaker Street
Ninth Floor


The contents of this document have been prepared by Qatar Insurance Company S.A.Q as Investment Adviser to Epicure Qatar Equity Opportunities plc ('the Company'). This document has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of the Investment Adviser or the Company to any person to buy or sell any security or investment product. Any reference to past performance is not necessarily a guide to the future. The information and analyses contained in this publication have been compiled, or arrived at from sources believed to be reliable, but the Investment Adviser does not make any representation as to their accuracy or completeness, and does not accept liability for any loss arising from their use. The investments discussed in this report may not be suitable for all investors and are provided for information purposes only. The ordinary shares and warrants in the Company have not been, and will not be, registered under the United States Securities Act of 1933 as amended (the 'Securities Act') or qualified for sale under the laws of any state of the United States or under the applicable laws of any of Canada, Australia, Republic of South Africa or Japan and, subject to certain exceptions, may not be offered or sold in the United States or to, or for the account or benefit of, US persons (as such term is defined in Regulation S under the Securities Act) or to any national, resident or citizen of Canada, Australia, Republic of South Africa or Japan. None of the Company, the Manager or any of their respective members, directors, officers or employees nor any other person accepts any liability whatsoever for any loss, however arising, from any use of such information or opinions.

Epicure Qatar Equity Opportunities plc

Registered Office
Third Floor

Britannia House

St George's Street


Isle of Man, IM1 1JE

This information is provided by RNS
The company news service from the London Stock Exchange