Moody's Investors Service downgraded its rating on Shuaa Capital citing the likelihood that the Dubai investment bank's results will remain negative or at best weak given the "uncertainties" around executing a new business strategy in a difficult environment.
The Moody's analysts Nitish Bhojnagarwala and Yves Lemay lowered their rating to "B1", down from "Ba3" and assigned a "negative" outlook on the company.
"Shuaa faces many challenges in building a sizable franchise given strong competition in the sector and the tough regional and global investment environment," they said. Shares of Shuaa tumbled 4.5 per cent at the bell on Wednesday to trade at 75 fils a share on the Dubai Financial Market General Index. Shuaa, established in 1979, is among the oldest investment banks in the region.
The company has not booked a profit in four years. The shares have lost 72.6 per cent of their value in the same period.
Net loss last year stood at Dh294 million as shareholder's equity continued to be wiped.
"These ongoing losses can be primarily attributed to reduced revenues from all business lines, multiple writedowns of their investment book, coupled with a very high cost base, although this is being addressed with an ongoing downsizing programme that should reduce operating costs once completed."
Shuaa shut its brokerage operations last year as trading volumes collapsed after Europe's debt crisis worsened and popular uprisings toppled leaders in Egypt, Libya, Tunisia and Yemen. The company also drastically cut its research unit as traded value dropped 45 per cent to Dh57 billion last year, effectively ending the lender's activity in the country's equity research sector.
"We expected the rating downgrade … despite the fact that we've done a lot already to improve our results," said Oliver Schutzmann, the company's spokesman in Dubai. "As we will be reporting on our first quarter on 7 May, we haven't really been able to show some of the progress we made since the beginning of the year," he said.
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