x Abu Dhabi, UAEWednesday 17 January 2018

Corporate Mr Fixit a fan of reform

Hamed Kazim has seen inside some of the biggest companies in the region as one of the leading financial mechanics.

Hamed Kazim has peaked beneath the hoods of some of the region's most troubled companies and found their problems are not so different from those in the rest of the world.

His diagnosis: laws and regulations in the region are not strong enough to allow companies to restructure in a healthy way.

"The soft infrastructure in most of these countries of the Middle East has lagged behind the hard infrastructure," he says from the Capital Club at the Dubai International Financial Centre, one of his haunts. "We have built the bridges and tunnels, but not the laws and regulations."

Mr Kazim, an Emirati from Dubai, has a broad view of recent events in the region. He was hired by the Dubai Government in 2004 while a partner at the accounting firm Arthur Andersen to join a team that set up the Dubai World conglomerate.

After spending two years helping to build the corporate structure of Dubai World, he went on to help create Dubai Holding and the Investment Corporation of Dubai.

When these entities were created, they were of a more manageable size and their debt was in balance with their ability to make payments.

"What happened after that is mainly a function of uncontrolled expansion," he says.

"Unless you stick to fundamentals, it will backfire one day. The market made it much worse, but this would not have been sustainable, even in good times."

Still, he sees the resolution of the crisis that surrounded the Dubai World debt standstill and subsequent restructuring as being well into execution. The hard part is coming to an end.

These days, Mr Kazim plays the role of the quiet strategic adviser to three major companies with a long reach across the region: PricewaterhouseCoopers, Royal Bank of Scotland and AlixPartners.

The latter was the first to help Dubai World begin its restructuring, but Mr Kazim says he was not involved with AlixPartners at that time.

He also sits on the boards of many companies, including Dubai Bank and Rasmala Investment Bank.

In the past two and half years, he has worked on about 10 major restructurings in the region. In the US, he says, seven of these would have relied on Chapter 11 protection, a provision of the US bankruptcy code that shields a company from its creditors so it can restructure itself and continue in business.

"It's much more painful and costly" without using laws to protect a company during this time, he says. "It elongates and exacerbates the pain. The whole thing gets delayed."

General Motors was one of the largest US companies to file for bankruptcy protection. After restructuring, it reported its first profit in three years at the end of last year's first quarter.

Mr Kazim began consultancy by analysing more modest businesses, such as the manufacturing arm of a white-collar prison outside Houston in Texas.

After graduating from the University of California at San Diego with a degree in economics and electronic engineering, he returned to the UAE for two years to work at Dubai Islamic Bank. He went back to the US and won distinction on the certified public accountant exam while working for Arthur Andersen in Washington DC.

One of his earliest assignments was to audit a small factory that made US postal service mail bags at a prison near Houston.

"It's interesting because you are auditing them, but the ones mopping the floor or serving you are sometimes even more qualified than you," he says. "They are ex-accounts, tax people, lawyers. They used to joke with us, 'you know that we know more about your job than you do, but that's also why we ended up here'."

In 1987, he returned to the UAE to head the Arthur Andersen office. When the Enron scandal blew up, Arthur Andersen, Enron's auditor, became a major casualty of the fallout.

The remnants of Arthur Andersen were bought by Ernst & Young, where Mr Kazim became a partner. He spent a year in Jordan, three in Qatar and honed an ability to "navigate the waters of the Middle East", he says.

He also spent more time underwater as a scuba diver. On a recent trip to Phuket in Thailand, he decided to dive despite having a cold and burst both his eardrums. He was partially deaf for more than a week.

"I love to get away with my family and be outdoors," he says. "I like to get as far away from the office as possible."

Scuba diving, he says, helps him to clear his mind before he ploughs back into the nuts and bolts of financial statements, audit reports and business structures.

The weakness of the "soft infrastructure" in the Mena region has long been a concern of Mr Kazim, but more so lately because of the turmoil in the region.

If the UAE could fast-track the reform of its laws and regulations, and improve transparency, it could enable an even quicker recovery as companies from Bahrain to Egypt try to find a new place to set up their headquarters, he says.

"Some of the money and investments are bound to make their way to the UAE," he says.

"There is an inclination to move to more stable places, and the UAE by far stands out in the middle of all this turmoil in the Middle East as the safest and most mature place for investment, and for residents, too."

While Mr Kazim says he has seen signs that the UAE Government is pushing forward with reforms, he fears the country's advances will be measured against other countries in the region rather than with the best markets in the world.

That would not be a big enough change, in his opinion, to start drawing foreign investment into the country.

"They need to short-cut the process in this case because the world can't wait forever," he says.

"The UAE as a whole is ahead of the game in many ways, but the Middle East is the wrong benchmark. We have to look at Singapore and the West to benchmark properly … It will start dragging the economic gains we have made so far unless they are addressed."

Most of the financial problems at companies in the Gulf are connected with investments in property, Mr Kazim says. And in the case of the quasi-governmental companies, this was made worse by some of their trophy investments overseas and large amounts of debt.

But "the problems are much more deeply rooted", he says. "Many companies started getting into a game they were not familiar with."

What's more, the government needs to refocus on encouraging the private sector rather than its own entities.

"They have to reinvigorate the private sector in the UAE. That is the engine of growth," Mr Kazim says. "Unless they devise ways of helping the private sector, the Government will always end up having to bail them out. It is not viable. It's too costly."

There have been signs in the past year that some of the largest family companies in the Emirates have struggled.Among them are Al Jaber Group, an Abu Dhabi conglomerate that is in talks with lenders to reschedule debt repayments.

Data from the UAE Central Bank show that loans, advances and overdrafts to the private sector declined 3 per cent to Dh588.8 billion (US$160.3bn) between December 2009 and September last year. Of that total, the business and industrial sector experienced the sharpest decrease, a drop of 6.67 per cent to Dh331.5bn.

Public-sector lending ballooned, the data show, with loans to government organisations increasing 8.4 per cent to Dh99.5bn and loans to government-related entities increasing 4.05 per cent to Dh93.57bn.

The private sector must be allowed to grow because it is the source of innovation, Mr Kazim says.

"We may be behind in our regulations and laws, but we are quite ahead in our commercial thinking," he says. "It's driven by historical reasons. For a long time, we didn't have natural resources. When you have to fight for your living, you become creative. That drives all the thinking."