Left in the dark over Tamweel and Amlak

Retail investors have been waiting for more than a year for access to their shares in the two home lenders. Many are becoming upset at the lack of information.

Eili Ibrahim is an angry man, a very angry man. His stakes in the home lenders Tamweel and Amlak are the cause of his ire. Logically, owning a piece of two of the biggest mortgage lenders in the country should be a matter of pride and joy, if not profits. But speak to him and you will hear the frustration that he and thousands of other retail investors are feeling as the shares have been suspended from trading since late 2008.

Mr Ibrahim, a Syrian national, is a veteran of the shares game. He has been trading stocks on the Dubai Financial Market (DFM) for the past five years and does not mind losing money. In fact, he says he has lost more than he has made. But what he hates most is that nobody will tell him what is going on. "In India, investors riot or do whatever they could. It could be a big issue, but there is nothing," he says.

Mr Ibrahim and the other retail investors are waiting for the final outcome of a government-driven restructuring plan for Tamweel and Amlak. But he is losing patience. Every media blip predicting the future of these troubled lenders and every new guidance by the firms or the government, no matter how vague it is, raises hope that they will finally be able to salvage some of their investment in these stocks. But each time their hopes are dashed.

The Sharia-compliant lenders were the engines of Dubai's six-year property boom, writing the bulk of the mortgages in the emirate. Their collapse is perhaps the best example of how commercial operations are launched in boom times on what prove to be unsound business models. Tamweel and Amlak relied on borrowings to fund the mortgages they wrote. Neither had a banking licence that would have given them the option of taking customers' deposits, the cheapest source of funds for loans.

The gap between the two lenders' long-term assets and their short-term liabilities was exposed when the red-hot property market collapsed towards the end of 2008. The banks' financial troubles were compounded as defaults on mortgages rose with the exodus of many expatriate borrowers, their main clientele. Books laden with bad loans and the virtual standstill in interbank lending, minimising possibilities of raising more funds, posed serious questions on financial viability of both lenders as independent commercial entities.

Subsequently, the Dubai Government had to step in with restructuring plans, including a possibility of merging Tamweel and Amlak, and the Emirates Securities and Commodities Authority (ESCA) suspended their shares from trading. Both stocks were trading close to their one-year peak towards the middle of 2008 and were attracting interest from retail and institutional buyers on higher trade volumes.

Tamweel shares at the start of June 2008 were trading at Dh8.55 (US$2.32) each, while Amlak was at Dh5.15. They declined 88 per cent and 80 per cent, respectively, by November 20 when they were suspended. The shares' sharp declines on low volumes suggested that retail investors were willing to hold on to them, thinking the financial troubles facing the lenders were short term. Little did they know their holdings would prove to be really long term.

Amlak, with its shares at Dh1.02 each at the close of trade on November 20, had a market capitalisation of Dh1.5 billon, while Tamweel, at 99 fils a share, was capitalised at Dh990 million. But traders say closing prices do not reflect the actual losses for investors. "Average price for most investors is way higher than the last closing price," says Kishor Kumar, a trader on the DFM floor. "One of my clients is holding Amlak at an average price of Dh7 per share, so you can imagine the degree of his losses.

"My client can take the losses. It's just another business for him, but there are many whose bread and butter was linked to share trading." Mr Ibrahim agrees: "People can't feed their children. For stockholders, it's a government-made problem not solution." But brokers and analysts say there is a way out for investors, although it is not entirely legal. "Those who can't afford to hold on are selling their stocks at discounted prices in the grey market," says Nour al Zoubi, the general manager at the brokerage MAC Sharaf Securities in Dubai.

The grey market works like this, Mr al Zoubi explains: first the seller has to find a buyer. He can then sign a contract of share transfer in the name of the buyer at a price that can be between 30 and 40 per cent lower than the last closing price. "There is definitely a grey market for these shares and the price discount depends on how desperate the seller is," Mr al Zoubi says. But these transactions are not recognised by the DFM. Ian Munro, the head of equities research at the investment and brokerage company MAC Capital Advisors, says the bourse cannot transfer the shares from a seller to a buyer while trading in them is suspended.

There are recent examples of debt instruments such as bonds being traded despite the fact that the issuers are seeking or in the process of a restructuring. The paper of Dubai World, which had announced its debt restructuring effort in November last year, is a good example. The Dubai-controlled conglomerate is still negotiating terms with more than 90 local, regional and international lenders, and debt instruments issued by the conglomerate's various subsidiaries have been trading regularly across the global markets.

There is no rule here, however, that allows trading of equities in the market when the companies undergo restructuring, Mr Munro says. He says if both the lenders were to go into liquidation today, stockholders would be ranked below the creditors in terms of who gets the money first. But at the moment, the investors have no option but to sit tight and wait for the Government to plot the future course of both firms.

In February, Tamweel said it was preparing to petition ESCA to allow trading of its shares to resume by the end of last month. There was no news of an extraordinary meeting for either company, which would indicate they have received a final proposal from the government. Sheikh Khaled bin Zayed Al Nahyan, the chairman of Tamweel, says: "There are a few ideas that have resurged recently. People are looking for all kinds of alternatives."

The company is still waiting for a final government solution that needs approval from shareholders. "But so far, no concrete proposals have been put out there. No date has been set for the [extraordinary general meeting]," he says. Meanwhile, there are the shareholders. "Please, please, please ? all we need is some news, any news. When will we have the money back?" Mr Ibrahim asks. @Email:[e-mail],