Business

Tamweel takes a hit as earnings fall due to litigation provision

Tamweel's earnings fell by a third as the company was forced to set aside Dh21.5 million to cover the outcome of court battles.

Gregor Stuart Hunter

April 18, 2012

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Tamweel's earnings fell by a third as the company was forced to set aside Dh21.5 million (US$5.8m) to cover the outcome of court battles.

The Islamic mortgage company reported a 33.6 per cent decrease in profit for the first quarter to Dh18m, compared with the corresponding period a year earlier.

A one-off charge of Dh21.5m set aside to cover the costs of ongoing litigation pushed the company's profit downwards, even though operating income improved by 6.3 per cent to Dh160.9m.

Tamweel did not disclose the nature of the litigation. At the time of the release of its half-year results for last year in July, Tamweel said it was involved in litigation regarding "certain sale and financing transactions", which it had not made provisions for. Despite the dip in profitability, the company was on the right track, said Varun Sood, Tamweel's acting chief executive.

"Despite the one-off litigation provision in this quarter, the operating profitability of the company improved and the successful funding transaction in this quarter strengthened the sustainability of the company and bolstered its business model," he said.

But the company's book of Islamic mortgages was flat at Dh9.2bn, as a price war for interest payments on mortgages ensued among the UAE's banks.

"They're facing competition from banks, which is obviously making it difficult for them to grow their book," said Shabbir Malik, a financial analyst at EFG-Hermes.

Tamweel launched a $300m sukuk during the first quarter, which was guaranteed by its majority shareholder Dubai Islamic Bank (DIB).

DIB increased its stake in Tamweel to 58.3 per cent for Dh374.7m in late 2010, enabling Tamweel to return to lending in November 2010.

Tamweel's mortgage lending had been halted after the onset of the global financial crisis blew holes in its business model, which was dependent on funding from wholesale credit markets.

An aborted merger with Amlak Finance led to both companies' shares being effectively frozen.

Tamweel returned to market trading in May last year, while shares in Amlak Finance remain suspended.

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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.”

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