UAE Central Bank to oversee UAE Exchange Centre

UAE Exchange Centre operates more than 100 branches in the UAE.

But the last 48 hours have only managed to reveal more problems for the business.

Its parent company, Finablr, said that it will hire a consultancy to look at “insolvency”.

It was Reuters that first reported about the UAE Central Bank taking control of UAE Exchange Centre, and that its inspection team had started examining whether the firm was in “compliance with applicable laws and regulations”.

Biggest player around

Apart from its standard remittance services, UAE Exchange was a big player in the UAE’s “Wages Protection System”, the electronic salary transfer system that allows institutions to pay worker wages through authorized agents approved by Central Bank of UAE. The platform features banks, money exchanges and financial institutions.

The UAE-based Foreign Exchange Remittance Group (FERG), a grouping of currency houses, is expected to issue a statement on the suspension of UAE Exchange services and what it would mean for the market. “The industry is watching all these rapid developments closely - and every effort will be made to reassure UAE residents that their funds are safe,” said Anthony Jos, Executive Director of Joyalukkas Exchange.

This is what Finablr had to say about the Central Bank oversight - "UAE Exchange Centre received a notification from the Supervision Department of the Central Bank of the UAE. The notification stated that the management of UAE Exchange Centre's businesses in the UAE will be conducted under the supervision of the Central Bank with immediate effect.

"The Central Bank has also announced that its inspection team has commenced an examination of UAE Exchange Centre LLC in order to verify its compliance with applicable laws and regulations."

Multiple investigations

This is the second such investigation directed at UAE Exchange Centre in so many days.

The first was announced by its parent company after it found $100 million worth of cheques being issued as security against third-party transactions.

This was immediately followed by the “resignation” of the CEO of Finablr, Promoth Manghat.

Interestingly, the Board of Directors had requested Manghat to “support the Group while the Board finds a suitable successor”.

Whether that cosy arrangement with Manghat continues now that the UAE Central Bank has effectively taken over UAE Exchange operations remains to be seen.

Shadow of insolvency

The investigations into UAE Exchange come even as Finablr itself faces an “insolvency” issue - in other words, of going bust. It was always felt that as long as UAE Exchange kept making money, Finablr itself would manage to plod along.

But now, the “temporary” suspension of services at UAE Exchange itself threatens to push Finablr to the brink.

“Insolvency under UAE laws calls for liquidation of assets to meet secured and unsecured creditor demands,” said Hussain Alladdin, Head of Research at Global Capital Partners. “This is different from bankruptcy, where assets and company operations are reorganised under judicial review.

“If a decision is made for insolvency, the next steps will involve auctioning off of assets under a methodical process.

“This may take a few months - but the goal for potential buyers would be to delineate the assets from the liabilities that are currently attached to business operations.”

This is where things could get tricky for Finablr. With its entrenched presence in the UAE and some of the other markets, UAE Exchange has the qualities and assets that can catch a new buyer’s attention, some of the other Finablr assets may not be equally coveted.

What else does Finablr own?

In 2014, Dr. B.R. Shetty, who founded UAE Exchange Centre and NMC Health, acquired a majority stake in Travelex, a UK based foreign exchange company. The buy valued Travelex at $1 billion. Later, Travelex and UAE Exchange were placed under a holding company - Finablr - and which went on to have a partially successful IPO in May last year. (The stock, which was traded on London Stock Exchange, was suspended on Monday. At the time it was at 10 cents.)

Finablr has admitted to having cashflow issues after being “adversely impacted” by travel restrictions imposed to limit the spread of COVID-19, which have “reduced demand for its foreign exchange and payment services and has restricted the movement of physical currencies that the company needs to operate its businesses”. There has also been a credit downgrade on Travelex’s bonds.

And then there are the “adverse perceptions in the market that the circumstances surrounding NMC Health are relevant to Finablr, which have exacerbated current levels of stress on the Company’s cashflow position.”

This is what has led Finablr to take up the “insolvency” wording. For the 18,000 odd staff at Finablr and UAE Exchange Centre, that’s a future to be dreaded.