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

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