Tabreed Announces "Postponement" of Extraordinary General Meeting Due to Lack of Quorum

Tabreed announced on the Dubai Stock Exchange that its recent attempt 28 April (the second one) to hold an EGM failed due to a lack of a quorum.  Next meeting will be held 5 May.

Third time lucky?

Potential Merger of the ADX and DFM - Beginning of the End of Dubai as a Financial Center?

You've probably seen the press reports about the discussion of a potential merger of the Abu Dhabi Exchange and the Dubai Financial Market.  Those I've seen outline the compelling economic case for the merger.  There just isn't enough volume to support two markets in the UAE.  While not as dire a case as that for the merger of Nasdaq Dubai with the DFM, there is strong rationale:  consolidation will lower costs.

Not as often directly emphasized but much more important is that a merger would increase liquidity for both issuers and investors.  A robust capital market in both equity and debt will foster greater economic development.

All well and good. 

But I haven't seen any discussion of what perhaps is another key issue.  Who will control the merged entity?   And  the consequence of that control.

The old saying is that cash is king.  And the guy with the cash  is primus inter pares among royalty. 

Before its recent problems, Dubai had a constrained cashflow from resources and operations  (as opposed to borrowed funds).  That situation has been made even worse by the demands of the DW rescheduling and other likely problems already on the horizon or just below.  A merger offers Dubai the chance to monetize some of its foreign assets (LSE,  Nasdaq) to meet its cash flow needs as it deleverages.  

Abu Dhabi is flush with cash.  And its credit is sterling with bankers and investors.  It has a much stronger hand.  It can make significant new investments - acquisitions and build outs.  It can, if it wishes,  use this opportunity to accelerate a shift in the economic landscape of the UAE.  To become the financial center.

Control of the merged exchange would be more than a matter of prestige, though one shouldn't discount the ego factor as a motive in transactions.  Prior to the takeover by Chemical Bank, Chase Manhattan Bank  was in discussion with Bank of America about a merger.  The deal foundered on the "substantial" issue of where the merged entity's headquarters would be.  San Francisco or New York. Chase wound up as prey not predator.  BofA in less tender hands.

Control of the merged exchange will affect the financial landscape in the UAE.   In rather broad brush strokes we can characterize the current financial situation in the UAE as Abu Dhabi  for project finance and Dubai for more market oriented financial transactions.  

But  if the center of gravity for the  merged stock market shifts to  Sowwah Square  / Sowwah Island, then how seriously does this undermine Dubai's dream of being a full service financial center?

I think fundamentally. 

In such a situation what is the appeal of Dubai?

It's probably not going to be access to issuers at least for several years.  Access to investors?  Maybe.  But if the economy in the Emirate has a slow recovery as is anticipated and Abu Dhabi is relatively speaking booming, where will the interests of investors and bankers be focused? 

To be clear, this isn't a prediction of an immediate reversal of Dubai's role as a financial center.   A financial Armageddon.  Nor is it meant as the sole variable to explain a shift to Abu Dhabi from Dubai.  There are other factors as well.

Rather it's about a shift in emphasis and slower growth in Dubai vis a vis the financial center in Abu Dhabi.  Not the "End"  but the "Beginning of the End".

Think of  Philadelphia and New York.  Within a five minute walk in Philadelphia, you can see the impressive buildings of the first two Banks of the United States.  Once the undisputed financial and commercial capital of the USA, Philadelphia was eclipsed by New York.  Not overnight.  And it still retains its own role and stock exchange.

Islamic Legal Experts Discussion on Dubai, Dubai World and Nahkeel

 

Reuters presents a  short video streaming panel discussion among Islamic financing experts.    

I've included it here primarily because it contains some interesting comments, including something similar you may have read elsewhere about the "Implicit Guarantee".   

There is also an added cultural benefit.  Some rather interesting camera work.  Who would have thought of having the camera linger on water glass or a pencil during a discussion of Islamic financing?  Financial videos saved from being overly boring by a bit of avant garde framing.

Deutsche Bank Converts US$10 Million of Murabaha Loan to Gulf Finance House Shares

GFH announced on the Bahrain Stock Exchange today that DB had converted US$10 million of the earlier US$100 million murabaha financing it had provided GFH into shares.  DB will receive 26,315,789 shares.   This is in addition to its November conversion of US$30 million into 78,947,368 shares. Unless I've missed a conversion, DB now owns 105,263,157 GFH shares.

That would give DB roughly 5.7% of GFH.

DB may be building a strategic stake, though if this is the case it has a long way to go.  It may have a client interested in GFH.  Or it may see the shares as a trading investment.   GFH is listed on the Bahrain Stock Exchange, Dubai Financial Market, Kuwait Stock Exchange (Ticker 813), and the London Stock Exchange.

If it is a trading investment, liquidity will be important.  Let's take a look at how GFH trades on these four markets.

On the BSE, during 2009, the average monthly trading volume in GFH was roughly 5.6 million shares and the average monthly US$ value of US$4.3 million.  In only six months were more than 2 million shares traded.   In 2008 roughly 80 million shares were traded (1.2x 2009's volume) for a total value of US$234 million.  That's roughly just short of 9 million shares a month and US$20 million per month.  Yesterday (18 January) less than 900,000 shares were traded with the largest ticket 220,000 shares.

The story on the Dubai Financial Market is better but still in the "cold comfort" zone.  In 2009 257 million shares traded with a total value of AED417 million (roughly US$114 million).   This is 3.8 times the BSE volume and 2.2 times the value.   But it's not just a question of number of shares and values, it's also a question of frequency of trades.  In 2009 GFH's shares traded on just 80 days.   In 2008 the trading volume was a negligible 1.2 million shares for AED 16.6 million (roughly US$4.5 million) with 74 trading days.  GFH listed on the DFM - I believe - in mid 2006.

Trading in GFH's GDRs on the London Stock Exchange is even more modest both in volumes, values and days traded.

At this point, there is scarcely enough liquidity to deal with DB's position.

But, the story is thankfully quite different up North.  On the Kuwait Stock Exchange, during the first six months of June 2009 (The last report published by the KSE for 2009 is June.  Unclear what why no later reports were issued) some 3.32 billion GFH shares changed hands for KD1.65 billion (US$5.76 billion).  Yes, that's not a typo.  It's billions not millions.  Trading is daily and in substantial amounts.

How's DB's investment been doing?

Well it depends on which part of the glass you focus on.

DB acquired its shares at US$0.38 per share as per the terms of the Murabaha financing.

GFH's closing price yesterday (18 January) was US$0.345 per share.  That translates into a paper loss of US$3.7 million or a -9.2% return from inception.

If one is an optimist, one would note that yesterday's close was up US$0.03 from the previous day, resulting in a gain of roughly US$3.2 million.  Or more precisely a reduction in the loss from inception from US$6.8 million to US$3.7 million. (Rounding).

A bit of trading/price history:  at 31 December 2007, GFH traded at US$3.35 per share and at 31 December 2008, US$0.92 per share.