Shuaa looks to start afresh after slump

What's Down: Shuaa Capital, the country's largest investment bank, has had its shares drop by 35 per cent over the course of the year amid weak markets.

Shuaa Capital, the UAE's biggest investment bank, has not been helped by the malaise in local markets.

Its brokerage unit has been one of the larger players in regional stock trading and has been in discussions with possible target brokerages that have been hit by low trading volumes and a lack of new share sales.

Shuaa's stock, listed on the Dubai Financial Market, has underperformed the market by 25 per cent. The shares have lost almost 10 per cent this week alone to trade at Dh82 fils. The stock is down 35 per cent since January.

"We have made it no secret that we are looking at opportunities to create new synergies and now with a clean balance sheet we are ready for a fresh start," said a company spokesman. "Negotiations are at different stages."

Reports suggested Shuaa was looking at Egypt's Beltone Financial and HC Securities. Shuaa declined to identify the companies.

But analysts are unconvinced such deals would help to contribute to Shuaa's profitability in the near future.

"We believe Beltone could be a target, but a takeover is likely to reduce Shuaa's net asset value and is unlikely to contribute to its earnings in the short term," said Jaap Meijer, a banking analyst at AlembicHC in Dubai.

Beltone is trading at a price-to-book value of 1.07 times while Shuaa is trading at 0.61 times. Beltone Financial recorded losses of 10.2 million Egyptian pounds in the first half of the year because of the slump on the Egyptian Exchange.

Shuaa, which helped to arrange a US$5 billion initial public offering of the Dubai ports operator DP World in 2007, has faced challenges in taking on new mandates because of weak markets.

The investment bank acted as the book-runner for the Dubai telecommunications retailer Axiom last November, but the offering was cancelled on December 7, the day before it was expected to debut on Nasdaq Dubai. The company cited poor market conditions as a reason for the decision.

Shuaa's second-quarter results this year showed it was back in the black, with profits of Dh626,000 after a streak of losing quarters. Investors hoping that the company remains in the black in coming quarters may question the wisdom of the bank extending its footprint in the brokerage business.