A Quarterly Newsletter from the UAE and Oman member firms of the PKF International Ltd.

VOL 14, Issue 3 July 2012

From the Managing Partner - U.A.E.

“India central bank measures fall short” was the headline in a newspaper recently, citing the measures that India has taken to defend its currency and the slide that it has been experiencing over many months. We all know that financial institutions tend to have a bigger clout than central banks when it comes to moving currencies and this has been demonstrated many times over with many currencies. Economic fundamentals have to change to halt the slide…..or another economy or currency needs to attract attention!

But what does this mean for many? The cheaper Rupee has encouraged people with Dirham deposits here to cash them in and send money to India, presumably to invest. There are those who have borrowed here in Dirhams for the same reason – the Rupee is cheap! History is littered with the corpses of companies that have borrowed in one currency to invest in assets denominated in another – the currency mismatch. Normally one would borrow and invest in the same currency so that there is a natural hedge whichever way the currency moves. What one is hoping for here is that the Rupee is at the bottom and will strengthen, in addition to the borrower keeping his or her job so that he or she has an income denominated in the same currency as the debt and with which to service repayments.

And what of the wider market? Would not the reduction in bank deposits because of flows to India worsen the loan to deposit ratio at banks? Loans taken out here to send the money out compound the issue. Will the flight of currency be so great as to impact the ability to lend in the corporate market here and stifle the growth that we have been seeing recently? Thoughts to mull over indeed.

The Tata Group of India has made headlines in recent years because of their acquisitions, Corus Steel, Jaguar-Land Rover, and Tetley Tea to name a few. In this issue we are pleased to interview their EVP & COO, Mr. Shaukat Ali Mir, who has been driving their business in the region.

Also, commencing from this issue, we will feature topical updates on IFRS.

Please feel free to write to update@pkfuae.com if you would like to express an opinion on any matter inside.

GRAHAM MARTINS