Many UAE companies are paying more interest than they need to because they are not transparent about their accounts, according to the head of one of the world's leading credit rating agencies.
Companies gained cheap credit during the boom years, but credit rating agencies soon questioned their ability to repay those debts as the downturn took hold. This led firms such as Dubai Holding Commercial Operations Group, Taqa and Emirates NBD to request that their ratings be withdrawn, saying the assessments did not accurately reflect their creditworthiness.
Deven Sharma, the president of Standard and Poor's (S&P), said companies that shun ratings agencies may pay the price in their ability to raise capital from investors.
"The question is what pricing are they getting? Are they getting what they could be with more transparency? That's the fundamental question, and that's the role we play."
Ratings agencies have seen their reputation tarnished by the financial crisis, when they assigned the highest ratings to thousands of property-related financial instruments known as collateralised debt obligations that turned out to be flawed.
Agencies have learnt their lessons from the crisis and the ensuing losses incurred by banks worldwide, Mr Sharma said.
"We do have to earn credibility back from investors and others who use the ratings," he said.
Jan Willem Plantagie, the regional managing director for S&P, insisted the agency made the right call on many Dubai companies that were downgraded to junk status.
S&P pulled its ratings on Dubai Holding in January, citing a lack of transparency and lack of clarity about the Government's support for the group. Dubai Holding has since announced it is in talks with creditor banks to restructure its debt, and has received a US$2 billion (Dh7.34bn) injection from the Dubai Government.
Mr Plantagie defended the agency's decision: "I think the view on Dubai Holding was forward-looking, because six months later it went into a debt restructuring. I wouldn't say we were right in the end and they were wrong, but we have to call these risks."
He said the analysis of credit for UAE companies was often made more difficult because government support was not enshrined in law.
Philip Smith, a senior director at Fitch Ratings, said the withdrawal of a rating draws attention to the company. "Withdrawing a rating just increases the visibility and attracts attention to the downgrade," he said.
David Staples, a managing director at Moody's in London, said previously unrated companies were seeking assessments to broaden their choice of borrowing.
Companies that disclose financial information are often more attractive to investors, said Karim Khadr, the head of research at Alembic Securities. "We're seeing more and more conference calls. More Gulf companies are travelling to see investors and this is a natural development for an equity market," he said.
"Now it's a regular thing, not just among large-cap companies but mid-caps too."
One banker at a corporate banking division of a UAE bank said the absence of a credit rating had a big impact on the "comfort level" around an investment.
"In the UAE, it's a little more open than in Saudi Arabia," he said. "But I think the bigger problem is that I don't know if a lot of companies would like to be rated or not."
He said that to feel truly comfortable with an investment, it should have a rating from any one of the three agencies. However, he added: "With the ratings fiasco in the US, it's not like you can close your eyes to everything if you have a ratings agency."
[ ghunter@thenational.ae ]
COMPANY PROFILE
Company: Eco Way
Started: December 2023
Founder: Ivan Kroshnyi
Based: Dubai, UAE
Industry: Electric vehicles
Investors: Bootstrapped with undisclosed funding. Looking to raise funds from outside
Company Profile
Company name: Cargoz
Date started: January 2022
Founders: Premlal Pullisserry and Lijo Antony
Based: Dubai
Number of staff: 30
Investment stage: Seed
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.”
A Dog's Journey
Directed by: Gail Mancuso
Starring: Dennis Quaid, Josh Gad, Marg Helgenberger, Betty Gilpin, Kathryn Prescott
3 out of 5 stars
MORE ON TURKEY'S SYRIA OFFENCE
The Bio
Amal likes watching Japanese animation movies and Manga - her favourite is The Ancient Magus Bride
She is the eldest of 11 children, and has four brothers and six sisters.
Her dream is to meet with all of her friends online from around the world who supported her work throughout the years
Her favourite meal is pizza and stuffed vine leaves
She ams to improve her English and learn Japanese, which many animated programmes originate in
Biog:
Age: 34
Favourite superhero: Batman
Favourite sport: anything extreme
Favourite person: Muhammad Ali
RIVER SPIRIT
Author: Leila Aboulela
Publisher: Saqi Books
Pages: 320
Available: Now
THE BIO
Family: I have three siblings, one older brother (age 25) and two younger sisters, 20 and 13
Favourite book: Asking for my favourite book has to be one of the hardest questions. However a current favourite would be Sidewalk by Mitchell Duneier
Favourite place to travel to: Any walkable city. I also love nature and wildlife
What do you love eating or cooking: I’m constantly in the kitchen. Ever since I changed the way I eat I enjoy choosing and creating what goes into my body. However, nothing can top home cooked food from my parents.
Favorite place to go in the UAE: A quiet beach.
MATCH INFO
Asian Champions League, last 16, first leg:
Al Jazira 3 Persepolis 2
Second leg:
Monday, Azizi Stadium, Tehran. Kick off 7pm
The Continental: From the World of John Wick
Created by: Greg Coolidge, Shawn Simmons, Kirk Ward
Stars: Mel Gibson, Colin Woodell, Mishel Prada
Rating: 3/5
THE DETAILS
Solo: A Star Wars Story
Director: Ron Howard
2/5
TERMINAL HIGH ALTITUDE AREA DEFENCE (THAAD)
What is THAAD?
It is considered to be the US's most superior missile defence system.
Production:
It was created in 2008.
Speed:
THAAD missiles can travel at over Mach 8, so fast that it is hypersonic.
Abilities:
THAAD is designed to take out ballistic missiles as they are on their downward trajectory towards their target, otherwise known as the "terminal phase".
Purpose:
To protect high-value strategic sites, such as airfields or population centres.
Range:
THAAD can target projectiles inside and outside the Earth's atmosphere, at an altitude of 150 kilometres above the Earth's surface.
Creators:
Lockheed Martin was originally granted the contract to develop the system in 1992. Defence company Raytheon sub-contracts to develop other major parts of the system, such as ground-based radar.
UAE and THAAD:
In 2011, the UAE became the first country outside of the US to buy two THAAD missile defence systems. It then stationed them in 2016, becoming the first Gulf country to do so.
MATCH INFO
Uefa Champions League quarter-final second leg:
Juventus 1 Ajax 2
Ajax advance 3-2 on aggregate
Abu Dhabi traffic facts
Drivers in Abu Dhabi spend 10 per cent longer in congested conditions than they would on a free-flowing road
The highest volume of traffic on the roads is found between 7am and 8am on a Sunday.
Travelling before 7am on a Sunday could save up to four hours per year on a 30-minute commute.
The day was the least congestion in Abu Dhabi in 2019 was Tuesday, August 13.
The highest levels of traffic were found on Sunday, November 10.
Drivers in Abu Dhabi lost 41 hours spent in traffic jams in rush hour during 2019
THREE
Director: Nayla Al Khaja
Starring: Jefferson Hall, Faten Ahmed, Noura Alabed, Saud Alzarooni
Rating: 3.5/5
ROUTE TO TITLE
Round 1: Beat Leolia Jeanjean 6-1, 6-2
Round 2: Beat Naomi Osaka 7-6, 1-6, 7-5
Round 3: Beat Marie Bouzkova 6-4, 6-2
Round 4: Beat Anastasia Potapova 6-0, 6-0
Quarter-final: Beat Marketa Vondrousova 6-0, 6-2
Semi-final: Beat Coco Gauff 6-2, 6-4
Final: Beat Jasmine Paolini 6-2, 6-2
KEY DATES IN AMAZON'S HISTORY
July 5, 1994: Jeff Bezos founds Cadabra Inc, which would later be renamed to Amazon.com, because his lawyer misheard the name as 'cadaver'. In its earliest days, the bookstore operated out of a rented garage in Bellevue, Washington
July 16, 1995: Amazon formally opens as an online bookseller. Fluid Concepts and Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought becomes the first item sold on Amazon
1997: Amazon goes public at $18 a share, which has grown about 1,000 per cent at present. Its highest closing price was $197.85 on June 27, 2024
1998: Amazon acquires IMDb, its first major acquisition. It also starts selling CDs and DVDs
2000: Amazon Marketplace opens, allowing people to sell items on the website
2002: Amazon forms what would become Amazon Web Services, opening the Amazon.com platform to all developers. The cloud unit would follow in 2006
2003: Amazon turns in an annual profit of $75 million, the first time it ended a year in the black
2005: Amazon Prime is introduced, its first-ever subscription service that offered US customers free two-day shipping for $79 a year
2006: Amazon Unbox is unveiled, the company's video service that would later morph into Amazon Instant Video and, ultimately, Amazon Video
2007: Amazon's first hardware product, the Kindle e-reader, is introduced; the Fire TV and Fire Phone would come in 2014. Grocery service Amazon Fresh is also started
2009: Amazon introduces Amazon Basics, its in-house label for a variety of products
2010: The foundations for Amazon Studios were laid. Its first original streaming content debuted in 2013
2011: The Amazon Appstore for Google's Android is launched. It is still unavailable on Apple's iOS
2014: The Amazon Echo is launched, a speaker that acts as a personal digital assistant powered by Alexa
2017: Amazon acquires Whole Foods for $13.7 billion, its biggest acquisition
2018: Amazon's market cap briefly crosses the $1 trillion mark, making it, at the time, only the third company to achieve that milestone