Shuaa swings to Q1 loss on Abraaj exposure

Company says talks for a potential merger with ADFG are in progress

Shuaa Capital increased assets under management to $14bn by the end of 2019. Jaime Puebla / The National

Dubai investment bank Shuaa Capital, which is in the process of merging with its biggest shareholder, swung to a first-quarter loss due to legacy provisions for its exposure to private equity company Abraaj.

Shuaa posted a Dh24.9 million net loss for the three-month period to the end of March, compared with a Dh11.7m profit a year earlier, according to a statement the company filed to the Dubai Financial Market, where its shares trade. “Certain one-off provisions and a change in accounting standards” also contributed to the loss for the reported period, the company said on Thursday.

Shuaa’s lending division recorded Dh4.4m in losses against a profit of Dh2.2m in 2018. Its corporate business recorded a Dh21.2m loss, compared to Dh7.7m profit in the corresponding period last year, due to provisions relating to its investment in an Abraaj-controlled fund and higher financing costs.

Abraaj, which claimed to have managed almost $14bn in funds, was forced into liquidation last June after a group of investors, including the Bill & Melinda Gates Foundation, the World Bank’s International Finance Corporation and The Overseas Private Investment Corporation, a US government development financing agency, commissioned an audit to investigate the alleged mismanagement of money in its healthcare fund.

Shuaa's revenue rose to Dh55.4m in the first quarter from Dh33.2m at the end of the March 2018.

“Our core operating businesses of investment banking, capital markets and asset management continued to grow in profitability, while certain one-off provisions and higher financing costs dragged our overall results into a loss,” Fawad Tariq-Khan, chief executive of Shuaa, said.

“That said, our continued growth in our core operations continues our strategy of solidifying our recurring revenue base taking us towards sustained long-term profitability.”

The company said plans to merge with Abu Dhabi Financial Group, its biggest stakeholder, are progressing. In March, the company said it was in talks with ADFG for a consolidation and that both entities set up working groups made up of senior executives to review the potential of the tie-up.

On Thursday, Shuaa said merger talks are progressing through a strategic investment structure where the combined entity will continue to operate as a publicly listed company.

“The company is going through final stages before regulatory and shareholder approvals will be sought,” the lender said.

Swiss bank UBS is advising Shuaa, which has also hired law firm Linklaters as legal adviser on the transaction, a person familiar with the matter told The National in March. ADFG, an alternative investment company with $20bn of assets under management, has recruited US lender JP Morgan and law firm Herbert Smith to work on the deal.