The UAE’s big banks are set to receive a boost from the restructuring of $14.6 billion of Dubai World debt.
The UAE financial system, and especially Emirates NBD, will benefit, says the ratings agency Moody’s Investor Services. It said that the deal hammered out last month between the investment conglomerate and more than 100 creditors is “credit positive” for the banks, and would reduce total non-performing loans (NPL) by 2.7 percentage points. The full extent of the reduction will be clear once banks report their figures for 2014, Moody’s said.
But it looks as though Emirates NBD, the biggest bank by market share and also the biggest UAE creditor to Dubai World, is an immediate winner. The bank – 56 per cent owned by the government’s flagship investment institution Investment Corporation of Dubai – has been able to reclassify its $2.3bn exposure to Dubai World from “impaired” to “performing”, which will help the bank report a dramatically improved level of bad debts, down from 15.1 per cent to 8.3 per cent in 2014.
Dubai World, which sparked the 2009 financial crisis in the emirate with its surprise request for a “standstill” on debt repayments, reached a deal with creditors to repay some debts ahead of maturity, in return for delayed repayment terms on other debts.
It also agreed to pay higher interest on some $11.7bn of debts and provide collateral in the form of shares in DP World, the global ports operator, 80 per cent owned by Dubai World.
This deal replaced an earlier restructuring which, according to Moody’s, “presented substantial tail risk” for lenders and under which some creditors still classed their loans as “impaired”.
“The January 2015 agreement addresses the key weaknesses of the first restructuring,” said Moody’s.
Khalid Howladar, Moody’s senior credit officer, said: “Dubai World, together with various other distressed Dubai government-related entities, contributed around 30 per cent to the system-wide non-performing loan peak of 10.5 per cent in 2011, and highlighted the concentration risks endemic among the GCC banks.
“Although the recent oil price collapse has increased the downside risks of the regional operating environment for the UAE’s local banks, this more sustainable resolution of the GCC’s largest legacy default reduces one of the key uncertainties facing the UAE banking system,” he adds.
Moody’s added, however, that problem loans could begin to rise again towards the end of 2015 as the effects of low oil prices worked through the UAE economy. The ratings agency also warned that Dubai Holding, the other big government-related enterprise badly hit by the 2009 crisis, would continue to be regarded as a problem loan.
The conglomerate restructured some $10bn of debt last year after long-running negotiations with creditors, but, according to Moody’s, the terms of the restructuring are “non-commercial”.
Moody’s said: “Since 2011, the high government spending [particularly in Abu Dhabi] and continued recovery in core, private sector economic sectors [particularly in Dubai], have driven an overall recovery in the UAE’s operating environment.”
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
More on Quran memorisation:
Zayed Sustainability Prize
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
if you go
The flights
The closest international airport to the TMB trail is Geneva (just over an hour’s drive from the French ski town of Chamonix where most people start and end the walk). Direct flights from the UAE to Geneva are available with Etihad and Emirates from about Dh2,790 including taxes.
The trek
The Tour du Mont Blanc takes about 10 to 14 days to complete if walked in its entirety, but by using the services of a tour operator such as Raw Travel, a shorter “highlights” version allows you to complete the best of the route in a week, from Dh6,750 per person. The trails are blocked by snow from about late October to early May. Most people walk in July and August, but be warned that trails are often uncomfortably busy at this time and it can be very hot. The prime months are June and September.
What can you do?
Document everything immediately; including dates, times, locations and witnesses
Seek professional advice from a legal expert
You can report an incident to HR or an immediate supervisor
You can use the Ministry of Human Resources and Emiratisation’s dedicated hotline
In criminal cases, you can contact the police for additional support
