Business

UAE banks have "significant" Saudi exposure

Sultan Bin Nasser al Suweidi said the Saudi central bank could not keep its freeze on accounts linked to the two firms forever.

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BASEL/DUBAI, Switzerland // UAE banks have "significant" exposure to trouble Saudi groups Saad and Algosaibi, the UAE central bank governor told Reuters on Monday. Speaking in the Swiss city of Basel, Sultan Bin Nasser al Suweidi said the Saudi central bank could not keep its freeze on accounts linked to the two firms forever and that Gulf countries must find a common and transparent solution to this issue as they are all affected.

"It's a big issue everywhere. All GCC countries are exposed. (The UAE banks' exposure) is significant," Mr al Suweidi said, without detailing how much UAE banks were owed. According to bankers, the Saudi central bank on June 1 froze the accounts of the Saad Group chairman, Maan al Sanea. Mr Suweidi said he believed the groups' troubles were linked to the decline in asset prices as the global financial crisis hit.

"The real reason I think (is) that there is an issue of insolvency," he said. "During the crisis...loans stayed the same and assets went down in value and that is what has resulted in the situation where assets are less than (what is needed) to cover the liabilities." Banks across the Gulf Arab region have revealed various levels of exposure to the troubled business groups. In the UAE, Abu Dhabi Commercial Bank has at least $500 million exposure to the groups, according to a banking source last week.

Rival First Gulf Bank has a small amount of exposure, another banking source said, while Abu Dhabi's largest bank by assets, National Bank of Abu Dhabi has said it has "negligible" exposure to the Saudi groups. "It certainly sounds like he is suggesting there is greater level of exposure than I had assumed," said Raj Madha, banking analyst at EFG-Hermes. Mr Suweidi said the issue could cast doubt on all family businesses in the region if it was unresolved.

Asked what the Saudi Arabian Monetary Agency (SAMA) could do, Mr Suweidi said: "It is central to this issue. The freeze should not stay forever. It's not ring-fenced. This problem, if it stays unresolved, will throw doubt onto all family businesses across all GCC countries." Mr Madha said this could be the first of a number of such problems affecting businesses in the region. "The risk of something similar occurring for other leveraged high-net worth individuals may not be insignificant," he said.

*Reuters

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COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
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Director: Navdeep Singh

Stars: Saif Ali Khan, Manav Vij, Deepak Dobriyal, Zoya Hussain

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RedCrow Intelligence Company Profile

Started: 2016

Founders: Hussein Nasser Eddin, Laila Akel, Tayeb Akel 

Based: Ramallah, Palestine

Sector: Technology, Security

# of staff: 13

Investment: $745,000

Investors: Palestine’s Ibtikar Fund, Abu Dhabi’s Gothams and angel investors

What the law says

Micro-retirement is not a recognised concept or employment status under Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations (as amended) (UAE Labour Law). As such, it reflects a voluntary work-life balance practice, rather than a recognised legal employment category, according to Dilini Loku, senior associate for law firm Gateley Middle East.

“Some companies may offer formal sabbatical policies or career break programmes; however, beyond such arrangements, there is no automatic right or statutory entitlement to extended breaks,” she explains.

“Any leave taken beyond statutory entitlements, such as annual leave, is typically regarded as unpaid leave in accordance with Article 33 of the UAE Labour Law. While employees may legally take unpaid leave, such requests are subject to the employer’s discretion and require approval.”

If an employee resigns to pursue micro-retirement, the employment contract is terminated, and the employer is under no legal obligation to rehire the employee in the future unless specific contractual agreements are in place (such as return-to-work arrangements), which are generally uncommon, Ms Loku adds.

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Favourite book: You Are the Placebo – Making your mind matter, by Dr Joe Dispenza

Hobby: Running and watching Welsh rugby

Travel destination: Cyprus in the summer

Life goals: To be an aspirational and passionate University educator, enjoy life, be healthy and be the best dad possible.

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Though mostly conservative, Florida is usually always “close” in presidential elections. In most elections, the candidate that wins the Sunshine State almost always wins the election, as evidenced in 2016 when Trump took Florida, a state which has not had a democratic governor since 1991. 

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While you're here

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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