x Abu Dhabi, UAESunday 21 January 2018

Proposed MSCI upgrade set to lift Qatar utility

Qatar utility pegged to be among big winners if country is promoted to emerging market.

Qatar Electricity and Water (QEWC) could get a jolt if as expected the country is upgraded to an emerging market from its current frontier market status.

Shares in the third-largest traded utility in the Middle East by revenue have increased 27.5 per cent in the past six months but traders expect another boost ahead of a widely anticipated upgrade to the MSCI Emerging Market Index.

Yesterday the stock was rated "buy" in new coverage at Deutsche Bank, with a price estimate of 165 Qatari rials for the company.

It closed 1.49 per cent lower at 132 rials yesterday as the Qatari index had its biggest one-day fall since November.

"There is a sense from some investors that Qatar may be included. As such, some investors remain overweight on Qatar preferring more defensive names such as QEWC," said Scott Darling, an analyst at Nomura.

The MSCI decision on Qatar's market status is expected in June.

Qatar has signalled it is considering implementing short-selling and derivatives trading in line with efforts to upgrade to emerging markets status. The country also said it may raise the percentage of shares that foreigners can own in a company to 49 per cent from 25 per cent, according to Bloomberg.

MSCI classifies all of the Gulf markets as frontier, apart from Saudi Arabia, which is not categorised. This is a designation that typically applies to less developed markets and often deters international investors from buying into such markets because they are considered more volatile.

The Middle East power market is also perceived as a good market to invest in, with most countries' capacity constrained despite strong power demand growth, Mr Darling said.

QEWC is expected to partly mitigate the seasonal swing in demand for power in Qatar by its acquisition of assets of the power company AES, which it completed in the fourth quarter. QEWC bought all of AES's stake in Ras Laffan Power, the owner of an independent power and water desalination plant.

Mr Darling also has a "buy" rating on the stock, with a target price of 151 Qatari rials. He said fourth-quarter results were expected to be positive in addition to dividend growth this year.