Controversy: The Ghost Stocks of the Gulf

The Merriam-Webster dictionary defines the word ghost as "a faint shadowy trace” which brings to mind several stocks that are apparently listed on the Gulf stock markets. There are two kinds of ghost stocks in the Gulf, those that are actually listed but whose equity is so tightly controlled by a single family or two therefore are rarely traded if ever and those that are heavily traded but have a faint shadowy presence in real life.

DFM Blues

Of the 61 stocks with a listing on the Dubai Financial Market (on March 4th) 40 of them did not have a single transaction. That works out to be an enormous 65% of the stock market listings that remains dormant. If one looks at the remaining 35% of the market, many of them have one or two digit trades, and that’s in a good day. The question that one needs to ask is, why bother listing these stocks in the first place? According to the resourceful web portal Zawya.com, one major trade-starved bank listed on the DFM, has a 10% share free float, hence it is controlled and managed by one single prominent family. This share does not trade and it oddly didn’t decline in the 2005 UAE stock market crash unlike almost every other stock.

A strange phenomenon has to be that of GCC cross border listings. On this day for example, Gulf Finance House which is listed in Kuwait, Bahrain and Dubai with the promise of an upcoming listing in London (see Gulf News November 2006) didn’t have a single trade. It seems that the hopes of the bank’s CEO of becoming “one of the proactive companies in the DFM” vanished sometime ago.

Another abnormal occurrence must be those firms that most people have never heard of such as the “Aerated Concrete Industries” company (zero trades), one simply known as “Shop” (apparently they have malls, also zero trades) as well as the interestingly named “United Kaipara Dairies” (you guessed it, zero trades). Pundits can recall the UAE Ministry of Economy’s ultimatum concerning the listing of all public joint stock companies two years ago, but couldn’t that be coupled with a minimum amount of shares being held by non founders?

Some companies in Saudi Arabia present the second type of ghost shares as there are several well publicized cases of companies that exist on paper but not much else. A case in point would be a firm known as Bishah Agricultural Development Company which was suspended from trading in early 2007. According to Tadawul, the official Saudi stock market website, Bishah whose nominal value was 10 Riyals was trading at eight times its multiple and millions of Riyals in value just one day prior to its suspension. One could ask what were these poor unfortunate investors, estimated at 10,000 people, buying and selling other than empty promises.

Keep in mind that this is a firm that was valued by investors at $120 Million the day before its suspension and had nothing to its name except three derelict pieces of land “in a good location”. Please read the following line carefully, as the herd mentality of the region manifests itself fully. In February 2006, Bishah, which reported impressive profits to the tune of 206,000 Riyals ($55,000) and turnover of One Million Saudi Riyals in 2005, was valued by investors at a staggering 489 Riyal per share giving this grand daddy of all fiascos an astronomical value of 2.5 Billion Saudi Riyals ($650 Million). Fortunately, the Saudi Arabian Capital Market Authority was quick to react and intervened only one year later to suspend the stock’s trading[4]. These fantastical figures translate into a PE ratio of 13,000 (plus or minus one thousand) meaning that should you be a lucky investor in Bishah you will be able to recoup your hard earned cash in the year 15,000 AD or so; a great stock for those of us looking for long term investment opportunities.

What must be done is some form of fine tuning with regards to the regulations to at least maintain a façade of tackling the issue of equity, market and index manipulation. Illiquid stocks should not be featured in the primary market, nor should they be used in the calculation of the index. Regulators should also be more proactive and react quicker against firms such as Bishah to protect investor’s interest. Introducing market reforms such as the above two will provide investors with a more realistic picture of the available investment opportunities in terms of both, the liquidity and the quality of the listed equities./By Sultan Al Qassimi/

The author is a Sharjah-based businessman and graduate of the American University of Paris. He is also founder of Barjeel Securities in Dubai.

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Controversy: The Jews of Arabia

Many of us have heard of the famous advertising empire known as Saatchi and Saatchi, laughed at the jokes of Jerry Seinfeld, tapped our feet to the beats of Paula Abdul and shopped at Max Azria’s BCBG stores. So what do all these successful people from various industries have in common?

They are all of Arab origins.

The Jewish presence in what is now the Arab world dates back thousands of years; in fact, the very religion was founded in this region. Arab Muslims, Christians and Jews have been living in peace and harmony for centuries, so what happened? In short, after the violent wave of European anti-Semitism in the mid-20th century there was an exodus of European Jewry into historic Palestine, much of it forced, armed and violent, lead by groups such as the Hagana and the Irgun (who were responsible for the bombing of the King David Hotel).

Unfortunately, many Muslim Arabs from across the region reacted violently to these developments and decided to reciprocate; as a result, Jews who were living amongst them were shunned and assaulted. In Iraq, for example, about 120,000 Jews were compelled to emigrate to Israel, the US and Europe in just less than three years.

The streets of Cairo, the historic neighbourhoods of Syria, the mountainous terrains of Lebanon and the bustling markets of Baghdad were, for the first time in thousands of years, emptied of one of the most successful ethnic minorities living within their communities. Doctors, architects, businessmen, scientists, poets and writers started to pack up and leave, some with good reason and some to avoid the repercussions of the founding of the state of Israel.

It wasn’t all bad blood between the Arabs and the Jews; in fact, there were stories of heroism that have gone unreported and unnoticed in the Arab media. In the midst of the horrors of the Nazi occupation of France in the 1940s, the imam of the Paris Mosque saved the lives of scores of Jews by issuing certificates stating their faith to be Muslim. In Tunis, entire Jewish families were saved by a local hero, Khaled Abdelwahhab, who hid them in his farm at great risk to himself and his family; he was honoured posthumously for his bravery. As a result of such actions fewer than one per cent of the Jews of Arabia — who numbered in their hundreds of thousands — perished compared to more than 50 per cent of the Jews of Europe.

Since then, there has been predominantly negative coverage of Judeo-Arab relations. Europe, after the Second World War, was able to turn the page almost immediately, yet many Arabs still paint all Jews with the same brush used for Israelis.

In 1975, after the death of the Egyptian revolutionary leader Jamal Abdul Nasser, many countries in which he financed and encouraged revolutions were free from his pan-Arab nationalism and scaremongering and decided to take action in order to restore the social unity of their countries. The pre-Saddam Iraqi Revolution Command Council issued advertisements in The New York Times and elsewhere inviting Jews to return to their home countries and guaranteeing their rights. Sadat’s Egypt and Hafez Al Assad’s Syria also issued such statements.

In recent history it has only been two forward-thinking Middle Eastern kingdoms of Morocco and Bahrain that have broken the mould of suspicion towards their Jewish citizens and integrated them into the social and political spheres. The first with the case of André Azoulay, an adviser to the previous and current kings; and the latter with the recent appointment of Huda Ezra Ebrahim Nonoo as the new Bahraini ambassador to America.

Today in New York City alone there are more than 75,000 Jews of Syrian origin, many of them educated in the best schools, speaking or understanding Arabic and still having an affinity for Syria. Is it not possible to imagine that such persons have the right, if they so choose, to be full citizens of Syria?

Is it not time to reassure the Jews of Arab origin that their ancestral homes are mature enough to welcome them back if they decide to invest, visit or even take up citizenship? If football players who spend a few months in the Middle East are given citizenship, shouldn’t people who have a natural birth-right, tremendous wealth and valuable education and skills be given the same?

Of course such statements will be met with criticisms and reminders of what the Israelis are doing to our Palestinian brothers and sisters. To that one can say that in the Middle East, no one has been more cruel and violent to Arabs, more exploitive of the Palestinians and more manipulative of their cause than Arabs themselves. Do we forget it was Iraq that invaded Kuwait, Egypt that encouraged bloody revolutions throughout the region and mostly militants from the Arabian Peninsula responsible for atrocious crimes of terrorism in Iraq? We ourselves have been the victims of unfair generalisations by the Western media, but should we learn from past lessons, or should we continue to reciprocate?/By Sultan Al Qassemi/

The author is a Sharjah-based businessman and graduate of the American University of Paris. He is founder of Barjeel Securities, Dubai.

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Controversy: The Myth of Islamic Finance

One of the latest additions to such urban legends as the Loch Ness monster, UFO’s and environmentally friendly land reclamation is what is now known as Islamic Finance.

A new scam that started in the second half of the twentieth century and only really took off in the last three decades. One could wonder why the Islamic world needed 1,400 years to invent such a system. One may also wonder why we never hear of such terms as Christian, Jewish or Hindu Finance?

How it works?

In a process known as Murabaha a person decides to purchase an asset (car, home) via an Islamic bank which buys it in its own name and immediately “resells” it for a higher amount which ultimately works out to be equal or higher than conventional interest. In the meantime the bank retains ownership of the asset until the client is able to pay back the entire amount plus the finance charges. Basically, Islamic banks make more money and take much less risk, the burden of which rests solely on the Shariah compliant client.

How it started?

The development of this fast growing industry that preys on the religious beliefs of 1.2 billion people is that a few terms were literally translated from English into fancy sounding Arabic words to appeal to the pious. Words such as Lease became Ijara, Bonds turned into Sukuk, Joint Venture changed to Musharaka and Insurance morphed into Takaful.

The truth is, all the above words are literal translations from English to Arabic and have nothing to do with Islam. For non Arabic speakers it is similar to saying flat in British English and apartment in American English which is very acceptable. What is not acceptable however is when one is expected to pay much more to buy the very same flat should the seller decide to call it an apartment in the contract.

Also, for those who believe in the sham of Islamic banking, turning a regular bank into an Islamic one by changing its name or logo does not make it an “Islamic bank”. It is clearly set in Islamic principles that if money that was used to start a business was itself tainted then everything that was built upon it is so and cannot be laundered or white washed no matter how many fatwas are collected.

There are various reasons behind the emergence of this belief-finance system. In Malaysia it was seen as a way to grab a share from the more developed hubs of Hong Kong and Singapore; in the Gulf, Western banks wanted to offset any migration of long established customers to fledgling banks that have window-dressed their names as well as capture a new slice of the $1.5 Trillion estimated wealth in the region.

Is it regulated?

Once again, as in the case of the Arab League, GCC Customs Union and the Peace in the Middle East, it was decided to outsource the establishment of what make up so called Shariah compliant regulations to the Western world. Even so, the current lack of standardization of Islamic Finance came under attack in a recent McKinsey report that called it “an industry that is little more than a collection of national strongholds."

For an industry that claims it has $500 Billion dollars under management having "no common approach on regulatory frameworks” as a KPMG report found coupled with a “lack of transparency in operations" doesn’t bode well for its clients.

Did you ever wonder why in the Kingdom of Saudi Arabia which is the cradle of Islam there isn’t one openly Islamic bank?

And yet the UAE with 20% of KSA’s population has five such banks, three of them white washed. In KSA when a client goes to open a deposit account banks openly ask her if she wants a “riba account” which means an account that pays interest, the majority of clients decline as it is seen as "morally unacceptable" which leaves the banks to rack in the profits. With deposits approaching $150 Billion in 2006 and little interest charges to pay the clients no wonder they are amongst the most profitable banks in the world.

A professor from the Wharton School in the US argued that it serves little purpose to extend financing with interest charges using a set of tricks that disguise them as something else. In today’s world, more and more people are looking for salvation, even if it was a trick; in this case salvation got an Islamic disguise. /By Sultan Al Qassemi/

The author is a Sharjah-based businessman and graduate of the American University of Paris. He is founder of Barjeel Securities in Dubai.

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Controversy: The Sorry State of Real Estate in the UAE

Not a single day can pass without yet another extravagant announcement of a new real estate project that defies gravity, the law of nature and the laws of finance.

There is something to be said about the lack of government supervision that extends from allowing firms to issue press releases that are clearly stretching the truth to broken promises that start from delivering these real estate projects late or never, to jeopardizing the reputation of the UAE by mistreating foreign labour.

A curious case comes to mind with Tameer a local development company that claims to have 300 billion dirhams under development which roughly accounts for 75% the GDP of Abu Dhabi. The firm also announced a project “in excess of $20 Billion” in Libya which has a GDP of $36 Billion. Does this make sense to any one as it clearly escapes my understanding? How does the government allow such press releases, and how does the local press publish it without verification? To put things into perspective, this is similar to someone claiming to have a project “in excess of $7 Trillion” in the USA (roughly 55% of the GDP).

Damac Properties, which is one of the few homegrown brands to go regional claims to have a portfolio “in excess of $40 Billion. This is clearly an example of a company that bit off more than it can chew, a local news report found that out of fifteen advertised projects in Dubai that the company is developing “all are running substantially behind their projected completion schedules” to the extent that investors were threatening to withhold future payments to the developer.

Oddly one of the few publicized cases of real estate developers fleeing the country after selling off plan projects to unsuspecting investors to the tune of AED 14 million has yet to be resolved.

Copy Cats

Another issue plaguing the real estate sector that is quite interesting is the copy cat culture that is about to make our beautiful city of Dubai into a Sameville mini-me of other cities around the world. There is more than one project that promises to replicate the Eiffel Tower of Paris for example, as if copying individual landmarks wasn’t enough one project even threatens to replicate the entire city of Lyon in Dubai. A contender for the most profuse project award has to be the Falcon City of Wonders that promises to replicate “the Pyramids, the Eiffel Tower, the Taj Mahal, the Great Wall of China, and the Leaning Tower of Pisa”. Tatweer also has its own replication process going on within the Bawadi project.

Don’t people realize that what has made Dubai great is the spirit of entrepreneurial originality? Shall we wait for a project that promises to replicate the entire city of Abu Dhabi in Dubai or maybe the holy shrine of Mecca?

Labor Pains

A different case of construction woes emerged in the Fall of 2007 when 40,000 employees of Arabtech went on strike over low wages that according to the official UAE news agency “turned into riots” with stones being thrown at the police, this situation could have been explosive for the entire country if one considers that the size of the Dubai police force is around 15,000 personnel, i.e. they were outnumbered three to one. The management of Arabtech must be proud now that they have reported a 115% increase in profits to $93 Million in 2007 despite the serious damage to the UAE’s reputation and social security.

Basically because the company didn’t meet the laborers demands for AED 90 million increase per year (a sizeable 25% of their profit) the UAE was negatively featured on the front pages of various newspapers, websites and TV stations around the world as a country that doesn’t treat it’s “guest workers” fairly, is this worth the damage?

Other Emirates

Sharjah’s real estate development qualifies to be the least planned in the UAE, with problems in parking, electricity cuts, water stoppages and general frustration on the sorry state of the roads a daily headline in the local press all of which seem to be on course to staying the same.

Abu Dhabi should pay attention to the plight of its sister emirates before launching humongous projects inside the relatively calm capital island that will result in traffic chaos similar to what Dubai is experiencing today.

How to even account for such a fabulous collective failure of engineering imagination and planning?

Clearly the UAE authorities were not prepared for such a fast pace of development. For a country that proudly claims to have $500 Billion worth of real estate projects under development it is high time for the federal government to finally enact serious nation-wide laws and regulations that will set this haphazard industry straight. /By Sultan Al Qassemi/

The author is a Sharjah-based businessman and graduate of the American University of Paris. He is founder of Barjeel Securities in Dubai.

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