DUBAI // As the future of the home finance giants Amlak Finance and Tamweel is thrashed out in high-level meetings in Dubai, a small group of increasingly desperate shareholders are trading their stakes at a discount on an unauthorised grey market, traders said yesterday. Dealing in the two companies' stock has been suspended for nearly eight months by regulators, but some investors have opted to sell their shares at discounts as high as 75 per cent through memorandums of understanding that are not recognised by the regulators.
"Yes, it is happening," said one anonymous trader in the Dubai International Financial Centre. "People who have had to hold on to the suspended shares for months grow desperate to sell. I've heard of cases where shares were sold for as little as 30 fils." Amlak's shares were frozen at Dh1.02 (US$0.27) and Tamweel's at Dh0.99 on Nov 20. Analysts said that grey markets, which are unofficial and not recognised by stock market clearance agents, tend to form when small investors start having financial difficulties and become desperate to sell assets for cash.
"Long suspension is leading to unauthorised practices as investors need cash," said Wadah al Taha, a financial analyst and certified fraud examiner in Dubai. "But such deals could spell disaster for both parties as they are not recognised by the law or the market regulators." Mr al Taha said that such a transaction would usually be made with a memorandum of understanding that required the seller to hand over the shares when the suspension was lifted. Another possibility is to give the buyer of the shares power of attorney over them.
Atef Fathy, the vice president of public relations at the Dubai Financial Market (DFM), cautioned investors against making such transactions because they were not accepted by the stock market and would not be viable in a court. "Only deals and transactions done through the trading system are recognised," he said. "From our point of view, the two shares are suspended. Even if some deal is done, it will not be accepted by the DFM when trading is resumed."
The off-market transactions come as members of a government steering committee looking at the future of Amlak and Tamweel have increased the pace and frequency of meetings in the past few weeks, according to insiders. The committee is discussing not only the fate of the two companies, which have been hamstrung by a sharp lack of credit, but the repercussions on the wider property economy of whatever is done to resolve the problems at Amlak and Tamweel. Several specialist firms, including Linklaters, Jones Lang LaSalle and Morgan Stanley, are advising the committee on options.
Amlak and Tamweel were the two largest home finance providers in the country, especially to the host of Dubai property developers, such as Nakheel and Emaar Properties, that are now struggling to sell apartments and villas. If the two finance providers cannot start lending to buyers of these homes, property developers will face even worse difficulties in the months ahead, said Chris Dommett, the chief executive of the mortgage adviser John Charcol in Dubai.
The fate of Amlak and Tamweel will have effects throughout the economy, he said. "Banks, while they have started lending a bit, don't have the liquidity or confidence to pick up the demand for mortgages. The Government cannot afford to let Amlak and Tamweel collapse. It would be very bad for the real estate and finance industries." In November, the Government announced it would deal with the challenging economic conditions by merging the two companies. Days later it said that the newly merged companies would also merge with Real Estate Bank and Emirates Industrial Bank, creating the Emirates Development Bank (EDB).
But in the months since, officials have distanced themselves from this original concept. There is now some doubt as to whether Amlak and Tamweel will be merged and whether those companies would fall under the control of the EDB. Earlier this week the Federal National Council discussed EDB as an investment bank for small and medium-sized enterprises and industrial projects and questioned whether it should be involved in the property sector, which is traditionally dealt with by commercial banks.
In April, Nasser al Shaikh, the chairman of Amlak and a former director general of the Department of Finance, said the priority was to revive lending at the companies first and worry about the merger second. Raj Madha, an analyst at EFG-Hermes, said funding was the key issue for Amlak and Tamweel because their original business plans would no longer hold up in the changed marketplace. "A merger does not make the problems disappear," he said. "For the moment, we only know that they need funding support, which means the Government loans them money. If the situation deteriorates, the Government will have to inject equity into the company, perhaps by a private placing or by buying assets at a subsidised rate."