Shuaa's the UAE's Lehman? Hmm...

Is Shuaa at all like Lehman Brothers, the large US investment bank that collapsed last year? My esteemed colleague Frank Kane (with whom I tend to agree on things) seems to think so, though he admits the analogy is far from perfect. "In the UAE context, Shuaa is simply 'too big to fail,'" he said in a recent column.

There's some merit to this analysis. Yet the idea that Shuaa was even remotely in jeopardy of failure when its shareholders voted last week to keep the company running is nothing short of ludicrous. It's one of those unfortunate examples of the press going crazy over something that turned out to be a non-story.

At the same time, it's hard to blame the press entirely. When you hear about a company's board voting on whether to dissolve the company, it comes across as pure juiciness. My first instinct was to play it up as much as possible, much like Emirates Business 24/7 did ("Shuaa fate in balance") and Gulf News did ("Shareholders to vote whether Shuaa should exist") and the Khaleej Times did ("Shuaa to Dissolve if Shareholders Approve"). In fact, Shuaa was required to raise the issue with shareholders by the local market regulator, the Emirates Securities and Commodities Authority (Esca). It had posted losses last year of over Dh950m, totaling more than half of its capital and triggering the query. It was a technicality.

Still, the fact that Shuaa had to ask its shareholders whether to continue with the business does say something about the trouble the company is in. It has made some jaw-dropping mistakes these past few years, most recently by trying to juice its earnings by manipulating the price of DP World shares on March 31 of last year. Shuaa got caught and had to pay a fine; a raft of departures and reshuffling of the power structure ensued. Of course, the company is also still wrangling with Dubai Banking Group over a convertible bond that was supposed to give DBG a 32 per cent stake in Shuaa last October. DBG backed out when conversion time came and decided to try to renegotiate: if they'd converted to shares, they'd have lost over 50 per cent of their Dh1.5bn investment. These issues--not the possibility of its failure--are the real issues confronting the firm right now.

Of course, this isn't to say Shuaa can't fail. If a recent downgrade from Moody's is any indication, it is inching closer. But it's not time to scream Lehman just yet.