DUBAI: The impact of falling oil prices on GCC capital markets is unlikely to continue over the longer term thanks to continued high government spending and underlying investments in the oil sector, according to ICAEW, a world leader of the accountancy and finance profession.
ICAEW members and guests gathered at the Jumeirah Emirates Towers in Dubai to discuss the impact of the oil price correction on capital markets.
The event, sponsored by Merrill DataSite, was moderated by David Petrie, Head of Corporate Finance Faculty at ICAEW. Delegates at the event included Fadi Al Said, Director, Portfolio Manager & Analyst at Lazard Gulf; Tim Fox, Group Head of Research and Chief Economist at Emirates NBD; Humayun Shahryar, Founder and CEO of Auvest Group; Wadah Al Taha, Chief Investment Officer at Al Zarooni Group of Companies; and Terry Willis, Regional Director Middle East, Africa and CIS at Energy Industries Council.
“The GCC states are fully aware they need to reduce their reliance on hydrocarbons, with the topic in the spotlight over the volatility of oil prices. That is why the Gulf states have put in place bold and ambitious infrastructure plans that will look to diversify their economies into a wide number of sectors,” the keynote speech was provided by the Right Honourable the Lord Mayor of the City of London, Alderman Alan Yarrow.
“The City of London, with the expertise and experience that our financial and professional firms possess, wants to support the Gulf with these plans. We have so much to offer ranging from innovative financing models to our expertise in the insurance and legal markets, education, qualifications and Islamic Finance. My message is clear: we want to be the region’s natural economic partner of choice.”
Audience and panelists agreed that what matters most for investors are not oil prices but governments’ ability and willingness to spend in non-oil sectors. GCC governments’ spending is high, at least for the medium term, and they have plenty of reserves that can support their spending plans if needed.
“There is no doubt capital markets were affected by the oil price correction, but this should be short-lived as underlying investment in the sector continues and non-oil businesses remain attractive investment targets.
“There may be a vested interest for GCC oil producers if oil prices trend down even further – this is resulting in shut downs and other commercial inefficiencies in those parts of the world where production costs are much higher, say over US$100 per barrel,” David Petrie, said.
Event attendees agreed that the oil price correction provided investment opportunities in other sectors such as petrochemicals, trading, light manufacturing, aviation and logistics, and renewable energy.
“The recent reduction in oil prices could drive companies in the energy sector to dispose of more non-core assets in order to shore up their main business. As a virtual data room provider, we think this could also lead to an increase in M&A deals, including possible takeover bids for more ‘debt-laden’ oil and gas companies,” Alexander Gross, Director at Merrill DataSite, said.
Speakers agreed that the oil price could go down to US$35 per barrel by July 2015, but is expected to rise again to its normal price between US$65 to US$75 per barrel.
The panel also agreed that certain IPOs may be delayed in the short term as liquidity in the market is tight and investors are hesitant, but this will improve with market sentiment and as the oil sector recovers.
There was standing room only at the packed event which was attended by ICAEW members and senior guests representing the major global and regional financial organisations.