Strategy Following 25% Losses in Value
Refs: A. Amman 2378
B. Amman 2125
C. Amman 1690
D. Amman 1027
E. 07 Amman 4378
F. 07 Amman 3812
1. (SBU) Summary: Jordan's Social Security Corporation (SSC), faced
with a 25% loss in value of its capital fund, is looking to shore up
its investment strategy by having its investment arm, the Social
Security Investment Unit (SSIU), form and finance three companies to
run its interests in the tourism, infrastructure, and development
zone sectors. The move is noteworthy in that it reflects
recognition by the SSC of the precarious financial risk that the SSC
is exposed to. It remains uncertain if the SSC will be able to
sustain its strategy given the historic tendency of the Government
of Jordan (GOJ) to use SSC funds to finance GOJ capital expenditure
projects and the current budget shortfalls facing the GOJ. End
summary.
25% Losses Drive Need for New Strategy
--------------------------------------
2. (SBU) Jordan's Social Security Corporation (SSC) is reassessing
and amending its investment strategy to ensure long-term
sustainability for its fund in the face of a 25% loss in capital
value largely due to Amman stock market decreases since 2008. Until
recently, 58.6% of the SSC's total investments were with the Amman
Stock Exchange (ASE), which suffered a close to 42% drop in its
share price index between August 2008 and end of August 2009, as a
result of some Ponzi schemes and the impact of the global financial
crisis. The SSC's total asset value dropped from an all-time high
of about $8.8 billion in July 2008 to $6.5 billion by the end of
June 2009, a greater than 25% decrease, $2.3 billion in total, over
12 months.
3. (SBU) The SSC's new strategy aims to reduce exposure at the Amman
Stock Exchange (ASE) and diversify its portfolio by having its
investment arm, the SSIU, enter international markets and
restructure the management of its investments by forming three new
holding companies that would look after its investments in tourism,
infrastructure, and development zones. The companies would be
specialized in their sectors and would have dedicated management and
technical advisory boards to assist in decision making. Faris
Sharaf, Chairman and CEO of the SSIU (and former Deputy Governor of
the Central Bank of Jordan), told EconOffs that he believes that the
new structure should make monitoring, governance, transparency and
accountability easier and more effective where these sectors of SSIU
investments are concerned.
Cautious Off-Loading of Shares
------------------------------
4. (SBU) The SSIU portfolio currently includes 65 companies listed
at the ASE divided into two categories: the strategic and trading
portfolios. The SSIU will be maintaining its shares in 30
"strategic" companies and is planning to sell shares in another 35
in a cautious manner so as not to undermine the market. The
strategic portfolio is valued at $3.56 billion. Of that, 29% is
concentrated in 12 companies, including the Jordan Telecom Group,
the Arab Bank PLC, the Arab Potash Company, the Jordan Lafarge
Cement Factories Company, the Jordan Press Foundation Al-Rai, and
the Jordan Petroleum Refinery Company. The trading portfolio
includes short term investments and investments in ailing companies
that SSIU wants to off-load. Banking sector analysts have told
EconOffs that the SSIU realizes the ASE could not handle the dumping
of a portfolio as large as SSIU's without causing a panic in the
market. They report that while the SSIU has judiciously sold shares
of some companies, it has also re-purchased limited shares once the
share price dropped so that the number of shares held would somewhat
mask the decrease in portfolio value. Another SSIU method to
diversify its investments is through the use of private bilateral
deals with companies and through strategic partnerships away from
the trading floor, an approach used with Jordan Manganese, Jordan
Masaken for Land and Industrial Development Project, Arab
Engineering Industries and others.
Luxury Tourism Projects in the Works
------------------------------------
5. (U) The first company for which the new strategic vision is clear
would look after SSIU's already-significant investments in the
tourism sector. SSIU owns shares in many of the hotels in Jordan.
SSC is a majority shareholder in two of the main hotel tourism
companies in Jordan: Zara Investment Holding and the Jordan Hotels
and Tourism Company. These two companies own and manage hotels in
Amman, Aqaba, the Dead Sea, and Petra including Jordan's
Intercontinental, Crown Plaza, Holiday Inn, Movenpick, and Grand
Hyatt hotels.
6. (U) The SSIU is looking to increase its income in the tourism
sector. In a related deal concluded in April 2009, the SSC and
Dubai Capital broke ground for a $100 million project in Dibeen for
a luxury hotel and 24 luxury villas, located close to Jordan's
largest pine forest, located just south of Jerash, a tourist site
boasting Jordan's best-preserved Roman city ruins. Another proposed
project would build two five-star hotels and 200 chalets in the
Al-Zara area on the southern shore of the Dead Sea as a joint
venture with Jordan Dubai Capital. SSIU is also planning a
feasibility study to develop a new tourism project in Aqaba that
would include commercial, tourist, cultural and residential
facilities.
Jumping into Infrastructure Megaprojects
----------------------------------------
7. (SBU) The second SSIU holding company will focus on
infrastructure projects with a proposed capital fund for investment
totaling between $100 and $150 million. This Company would
administer SSIU's 9% stake in the Central Electricity Generating
Company (CEGCO). CEGCO is financed by the Government of Jordan
(GOJ) and its 40% stake and a 51% stake held by ENARA, a joint
venture between Jordan Dubai Energy from the UAE, the Malakoff firm
of Malaysia, and Athens-based Consolidated Contractors Company.
8. (U) The SSIU infrastructure company would also examine other
projects that are currently in the pipeline including purchasing a
strategic share of the Disi water project from Turkish GAMA, and
purchasing a strategic share in the Samarah power generation project
that has been awarded recently to a Korean Consortium. The Samarah
project includes setting up two gas turbines with a total generating
capacity of 285 MW costing $195 million in phase one, with an
expansion capacity reaching 900 MW to 1000MW in later phases (ref
A). The project would be located in Qatraneh and potentially be the
largest power generation facility in Jordan. SSIU has also received
approval from the GOJ to hold 9% of the shares of a new proposed
fuel distribution company once the Jordan Petroleum Refinery Company
finalizes its deal with a strategic partner (refs B and C). Another
important project under consideration is for a new Amman Exhibition
and Convention Center on Amman's Airport Road which is still in the
planning phase after two years of discussion on the estimated $1
billion project.
Claiming a Stake in Development Zones
-------------------------------------
9. (U) The third major SSIU holding company was registered in
September 2009 with $140 million in capital to administer SSIU's
interests in its investments in economic development zones in Irbid
and in Mafraq, a town in the northeast of Jordan located at a
crossroads between Syria and Iraq. The development zone project
proposal for Mafraq is valued at $750 million and would include
converting a military airport into a commercial/cargo airport. The
SSIU would hold an 80% stake in the project while the Hashemite Fund
would hold the remaining 20%.
10. (SBU) Comment: The SSC's change in focus to protect its
investment revenues by creating dedicated holding companies to
manage parts of their investment fund is an important step. The SSC
has recognized the underlining risk exposure in its preceding
investment policy and is taking serious measures to adapt its
investment strategy. In addition to this investment strategy, the
GOJ has also pursued legislative reform of the Social Security Law
to help save the SSC (further reporting septel). While the GOJ has
been taking steps to impose budget constraints on its ministries and
independent government entities, there have been historic examples
where GOJ use of the SSC as its checking account continues to be
felt. During the 1990's, the GOJ compelled the SSC to invest in 18
non-performing companies, which are still on the SSC's books and
which continue to be non-profitable. The SSC is mindful of this
risk and its new investment strategy could help it avoid further
losses in value in the context of Jordan's tough budgetary times.
11. (SBU) Comment continued: While this SSC policy might seem to
diverge from the trend toward privatization, the recalibration of
SSC's investments should not be interpreted as the GOJ and SSC
giving up on private firms or privatization (ref F). The SSC will
remain a significant player in the ASE and will remain committed to
much of its current portfolio in it. There are, however,
politically important projects requiring large investments that the
private sector is unwilling or unable to join such as the
development zone in Mafraq. The government will continue to need
the SSC to partner in those projects, which have an economic,
political, and social impact on areas of Jordan that face high
levels of underdevelopment and underemployment. End comment.
Visit Amman's Classified Website at:
http://diplopedia.state.sgov.gov/index.php?ti tle
=Embassy_Amman
BEECROFT
| SOCIAL SECURITY CORPORATION PURSUES NEW INVESTMENT STRATEGY FOLLOWING 25% LOSSES IN VALUE | |
2009 December 9, 11:45 (Wednesday) |
09AMMAN2667_a |
UNCLASSIFIED,FOR OFFICIAL USE ONLY |
UNCLASSIFIED,FOR OFFICIAL USE ONLY |
|
-- Not Assigned -- |
9985 |
-- Not Assigned -- |
TEXT ONLINE |
-- Not Assigned -- |
TE - Telegram (cable) |
|
-- N/A or Blank -- -- N/A or Blank -- |
-- Not Assigned -- |
-- Not Assigned -- |
|
Department of Commerce | Department of the Treasury | Egypt Cairo | Greece Athens | Iraq Baghdad | Israel Jerusalem | Israel Tel Aviv | Lebanon Beirut | Malaysia Kuala Lumpur | Saudi Arabia Jeddah | Saudi Arabia Riyadh | Secretary of State | Syria Damascus | Turkey Ankara | United Arab Emirates Abu Dhabi |
|
Content
Raw content
UNCLAS AMMAN 002667
SENSITIVE
SIPDIS
STATE FOR NEA/ELA AND EEB
E.O. 12958: N/A
TAGS: ECON, EFIN, EINV, PGOV, JO
SUBJECT: Social Security Corporation Pursues New Investment
Strategy Following 25% Losses in Value
Refs: A. Amman 2378
B. Amman 2125
C. Amman 1690
D. Amman 1027
E. 07 Amman 4378
F. 07 Amman 3812
1. (SBU) Summary: Jordan's Social Security Corporation (SSC), faced
with a 25% loss in value of its capital fund, is looking to shore up
its investment strategy by having its investment arm, the Social
Security Investment Unit (SSIU), form and finance three companies to
run its interests in the tourism, infrastructure, and development
zone sectors. The move is noteworthy in that it reflects
recognition by the SSC of the precarious financial risk that the SSC
is exposed to. It remains uncertain if the SSC will be able to
sustain its strategy given the historic tendency of the Government
of Jordan (GOJ) to use SSC funds to finance GOJ capital expenditure
projects and the current budget shortfalls facing the GOJ. End
summary.
25% Losses Drive Need for New Strategy
--------------------------------------
2. (SBU) Jordan's Social Security Corporation (SSC) is reassessing
and amending its investment strategy to ensure long-term
sustainability for its fund in the face of a 25% loss in capital
value largely due to Amman stock market decreases since 2008. Until
recently, 58.6% of the SSC's total investments were with the Amman
Stock Exchange (ASE), which suffered a close to 42% drop in its
share price index between August 2008 and end of August 2009, as a
result of some Ponzi schemes and the impact of the global financial
crisis. The SSC's total asset value dropped from an all-time high
of about $8.8 billion in July 2008 to $6.5 billion by the end of
June 2009, a greater than 25% decrease, $2.3 billion in total, over
12 months.
3. (SBU) The SSC's new strategy aims to reduce exposure at the Amman
Stock Exchange (ASE) and diversify its portfolio by having its
investment arm, the SSIU, enter international markets and
restructure the management of its investments by forming three new
holding companies that would look after its investments in tourism,
infrastructure, and development zones. The companies would be
specialized in their sectors and would have dedicated management and
technical advisory boards to assist in decision making. Faris
Sharaf, Chairman and CEO of the SSIU (and former Deputy Governor of
the Central Bank of Jordan), told EconOffs that he believes that the
new structure should make monitoring, governance, transparency and
accountability easier and more effective where these sectors of SSIU
investments are concerned.
Cautious Off-Loading of Shares
------------------------------
4. (SBU) The SSIU portfolio currently includes 65 companies listed
at the ASE divided into two categories: the strategic and trading
portfolios. The SSIU will be maintaining its shares in 30
"strategic" companies and is planning to sell shares in another 35
in a cautious manner so as not to undermine the market. The
strategic portfolio is valued at $3.56 billion. Of that, 29% is
concentrated in 12 companies, including the Jordan Telecom Group,
the Arab Bank PLC, the Arab Potash Company, the Jordan Lafarge
Cement Factories Company, the Jordan Press Foundation Al-Rai, and
the Jordan Petroleum Refinery Company. The trading portfolio
includes short term investments and investments in ailing companies
that SSIU wants to off-load. Banking sector analysts have told
EconOffs that the SSIU realizes the ASE could not handle the dumping
of a portfolio as large as SSIU's without causing a panic in the
market. They report that while the SSIU has judiciously sold shares
of some companies, it has also re-purchased limited shares once the
share price dropped so that the number of shares held would somewhat
mask the decrease in portfolio value. Another SSIU method to
diversify its investments is through the use of private bilateral
deals with companies and through strategic partnerships away from
the trading floor, an approach used with Jordan Manganese, Jordan
Masaken for Land and Industrial Development Project, Arab
Engineering Industries and others.
Luxury Tourism Projects in the Works
------------------------------------
5. (U) The first company for which the new strategic vision is clear
would look after SSIU's already-significant investments in the
tourism sector. SSIU owns shares in many of the hotels in Jordan.
SSC is a majority shareholder in two of the main hotel tourism
companies in Jordan: Zara Investment Holding and the Jordan Hotels
and Tourism Company. These two companies own and manage hotels in
Amman, Aqaba, the Dead Sea, and Petra including Jordan's
Intercontinental, Crown Plaza, Holiday Inn, Movenpick, and Grand
Hyatt hotels.
6. (U) The SSIU is looking to increase its income in the tourism
sector. In a related deal concluded in April 2009, the SSC and
Dubai Capital broke ground for a $100 million project in Dibeen for
a luxury hotel and 24 luxury villas, located close to Jordan's
largest pine forest, located just south of Jerash, a tourist site
boasting Jordan's best-preserved Roman city ruins. Another proposed
project would build two five-star hotels and 200 chalets in the
Al-Zara area on the southern shore of the Dead Sea as a joint
venture with Jordan Dubai Capital. SSIU is also planning a
feasibility study to develop a new tourism project in Aqaba that
would include commercial, tourist, cultural and residential
facilities.
Jumping into Infrastructure Megaprojects
----------------------------------------
7. (SBU) The second SSIU holding company will focus on
infrastructure projects with a proposed capital fund for investment
totaling between $100 and $150 million. This Company would
administer SSIU's 9% stake in the Central Electricity Generating
Company (CEGCO). CEGCO is financed by the Government of Jordan
(GOJ) and its 40% stake and a 51% stake held by ENARA, a joint
venture between Jordan Dubai Energy from the UAE, the Malakoff firm
of Malaysia, and Athens-based Consolidated Contractors Company.
8. (U) The SSIU infrastructure company would also examine other
projects that are currently in the pipeline including purchasing a
strategic share of the Disi water project from Turkish GAMA, and
purchasing a strategic share in the Samarah power generation project
that has been awarded recently to a Korean Consortium. The Samarah
project includes setting up two gas turbines with a total generating
capacity of 285 MW costing $195 million in phase one, with an
expansion capacity reaching 900 MW to 1000MW in later phases (ref
A). The project would be located in Qatraneh and potentially be the
largest power generation facility in Jordan. SSIU has also received
approval from the GOJ to hold 9% of the shares of a new proposed
fuel distribution company once the Jordan Petroleum Refinery Company
finalizes its deal with a strategic partner (refs B and C). Another
important project under consideration is for a new Amman Exhibition
and Convention Center on Amman's Airport Road which is still in the
planning phase after two years of discussion on the estimated $1
billion project.
Claiming a Stake in Development Zones
-------------------------------------
9. (U) The third major SSIU holding company was registered in
September 2009 with $140 million in capital to administer SSIU's
interests in its investments in economic development zones in Irbid
and in Mafraq, a town in the northeast of Jordan located at a
crossroads between Syria and Iraq. The development zone project
proposal for Mafraq is valued at $750 million and would include
converting a military airport into a commercial/cargo airport. The
SSIU would hold an 80% stake in the project while the Hashemite Fund
would hold the remaining 20%.
10. (SBU) Comment: The SSC's change in focus to protect its
investment revenues by creating dedicated holding companies to
manage parts of their investment fund is an important step. The SSC
has recognized the underlining risk exposure in its preceding
investment policy and is taking serious measures to adapt its
investment strategy. In addition to this investment strategy, the
GOJ has also pursued legislative reform of the Social Security Law
to help save the SSC (further reporting septel). While the GOJ has
been taking steps to impose budget constraints on its ministries and
independent government entities, there have been historic examples
where GOJ use of the SSC as its checking account continues to be
felt. During the 1990's, the GOJ compelled the SSC to invest in 18
non-performing companies, which are still on the SSC's books and
which continue to be non-profitable. The SSC is mindful of this
risk and its new investment strategy could help it avoid further
losses in value in the context of Jordan's tough budgetary times.
11. (SBU) Comment continued: While this SSC policy might seem to
diverge from the trend toward privatization, the recalibration of
SSC's investments should not be interpreted as the GOJ and SSC
giving up on private firms or privatization (ref F). The SSC will
remain a significant player in the ASE and will remain committed to
much of its current portfolio in it. There are, however,
politically important projects requiring large investments that the
private sector is unwilling or unable to join such as the
development zone in Mafraq. The government will continue to need
the SSC to partner in those projects, which have an economic,
political, and social impact on areas of Jordan that face high
levels of underdevelopment and underemployment. End comment.
Visit Amman's Classified Website at:
http://diplopedia.state.sgov.gov/index.php?ti tle
=Embassy_Amman
BEECROFT
Metadata
VZCZCXYZ0000
RR RUEHWEB
DE RUEHAM #2667/01 3431145
ZNR UUUUU ZZH
R 091145Z DEC 09
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC 6478
INFO RUEHAD/AMEMBASSY ABU DHABI 0002
RUEHAK/AMEMBASSY ANKARA 0628
RUEHTH/AMEMBASSY ATHENS 0018
RUEHGB/AMEMBASSY BAGHDAD 6334
RUEHLB/AMEMBASSY BEIRUT 3138
RUEHEG/AMEMBASSY CAIRO 4216
RUEHDM/AMEMBASSY DAMASCUS 4291
RUEHKL/AMEMBASSY KUALA LUMPUR 0057
RUEHRH/AMEMBASSY RIYADH 2253
RUEHTV/AMEMBASSY TEL AVIV 1961
RUEHJI/AMCONSUL JEDDAH 0938
RUEHJM/AMCONSUL JERUSALEM 5724
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
Print
You can use this tool to generate a print-friendly PDF of the document 09AMMAN2667_a.
Share
The formal reference of this document is 09AMMAN2667_a, please use it for anything written about this document. This will permit you and others to search for it.
Submit this story
Help Expand The Public Library of US Diplomacy
Your role is important:
WikiLeaks maintains its robust independence through your contributions.
Please see
https://shop.wikileaks.org/donate to learn about all ways to donate.
e-Highlighter
Click to send permalink to address bar, or right-click to copy permalink.
these highlights
Un-highlight all
Un-highlight selectionu
Highlight selectionh