Dubai: After going through a year of management restructuring, repositioning of strategy and realignment of its core resources Shuaa Capital, the Dubai based regional financial services company is poised for strong growth this year, Sameer Al Ansari, the firm's Chief Executive Officer told reporters yesterday.
"We undertook a detailed strategic review of our business last year to develop corporate strategy and refocus our business. We now have a robust and efficient business model, solid enough to withstand the most difficult market environments," said Al Ansari.
Shuaa said most of its businesses, with the exception of brokerage, returned to profit by the end of the third quarter last year.
As the economy and the stock markets are poised for recovery this year, the company expects all its business divisions to return to profit. At the end of the third quarter the firm's total assets were at Dh2.17 billion while it held Dh412 million in cash and Dh496 million in total liabilities, with balance sheet liabilities down by Dh200 million during the year.
"Our balance sheet is now strong, de-risked and underleveraged. Excellent liquidity position will allow us to reinvest and focus on the growth of our core business," said Al Ansari.
Shuaa currently holds Dh833 million in its investment portfolio compared to Dh1.6 billion as of September 2009. The company plans to systematically exit these investments to release cash to pursue its core business of fee-based business activities.
"There is no compulsion on us to go on a fire sale of these assets. We will continue to monitor exit opportunities at the right price," Al Ansari said.
Shuaa's top management team, comprising the heads of asset management, investment banking, private equity, capital market business and research, said the region's economic recovery will be reflected in the performance of each individual division this year.
Nadi Bargouti, Managing Director of Shuaa Asset management, said the market is on a recovery path with strong interest coming from foreign institutional investors in both regional equity and fixed income asset classes.
Shuaa's Arab Gateway Fund (AGF) is ranged as the top performing fund in the Middle East and North Africa region. AGF closed the year 19.41 per cent up compared to the Standard and Poor's Pan Arab Composite Index. Looking ahead, the recovery in regional markets is expected to attract more foreign institutional investors to the region.
"After a long pause, foreign institutions and high net-worth individuals have started taking exposure to the local and regional markets. As far as our funds are concerned we see foreign subscriptions on the rise against some redemptions we faced last year. We expect the fundamental strength of the market to bring investors back," said Bargouti.
He expects sustained institutional interest in regional asset classes to eventually increase the confidence of regional and local investors.
As part of its plans to offer diversification opportunities to investors, Shuaa is also focusing on the regional fixed income market.
Although Shuaa sees recovery in the horizon for brokerage, it said the year ahead will be challenging.
"Last year was not one to remember. We will see more firms exiting the brokerage business in the next six months. However, we see ourselves consolidating our market share, as the regional stock markets recover," said Walid Shihabi, Managing Director and Head of Shuaa Securities.
In the private equity arena, Shuaa Partners plans to remain strictly focused on the Gulf and Levant regions with sharp focus on the UAE and Saudi Arabia.
"Although the regional fund-raising environment is expected to remain tough we plan to raise funds as and when we decide to launch new dedicated private equity funds," said Anis Bibi, Head of Shuaa Partners.
Shuaa expects more deal flows this year from infrastructure, oil and gas, logistics and healthcare. In investment banking, it remains cautious this year although it broke even last year.
"We are well positioned to outperform if local markets do revive due to our strong backlog and mandate pipeline. However, local and regional markets are still very tentative," said Makram Kubeisy, Head of Investment Banking.
Credit growth could boost assets
A steady improvement in bank lending is key to economic recovery in the UAE and the Gulf region, but loan growth is expected to remain sluggish for the next two quarters, according to Sameer Al Ansari, Chief Executive Officer of Shuaa Capital.
"Loan growth in both the UAE and Saudi Arabia last year has been marginal," said Al Ansari.
"Lending still remains a challenge in the UAE and I do not see any drastic change in the situation for the next two quarters."
Shuaa officials said yesterday that recovery in asset prices such as equities and real estate will depend on how soon the banks will loosen lending.
They said although the liquidity situation in the UAE has improved substantially, the banks are still risk-averse and are not willing to lend at rates that are acceptable to borrowers.
"Many banks say they are comfortable with their liquidity and the positions on their balance sheets.
"However, the interest rates they are offering are far in excess of the expectations of the borrowers," said Amer Halawi, Shuaa's Managing Director, Research.
In the absence of a strong revival in lending by banks, a recovery in the real estate sector will take much longer than expected.
"If there is adequate stimulus in terms of economic recovery and loan growth in the economy we expect the real estate prices to recover in the next three years.
"In the absence of such measures it could take as long as seven years," said Al Ansari.
Overall, Shuaa said it saw solid fundamentals for the UAE and the region.
"The restructuring of Dubai World and Dubai Holding. and the financial restructuring of many other quasi-government entities appears to be on track.
"This has improved the investors' confidence substantially and helped the Dubai government and companies such as Emaar and Dubai Electricity and Water Authority (Dewa) to return to the market," said Al Ansari.
While the UAE's corporate fundamentals have been rated as strong, with low debt to equity ratios and good dividend yields, the country's stock markets continue to be poorly valued.
Many companies are trading at a considerable discount to other emerging markets.
"There has been huge wealth erosion from the UAE market following the sharp decline in real estate and stock prices," said Halawi
"This has affected the liquidity in the country's stock markets.
"As growth returns, we have the opportunity to reverse the cycle of wealth erosion," he added.