x Abu Dhabi, UAEFriday 28 July 2017

Dubai Banking Group takes a stake in troubled Shuaa

The Dubai Banking Group said today it would take a 32 per cent equity stake in Shuaa Capital.

Shuaa Capital Was fined for manipulating the price of DP World shares on the DIFX.
Shuaa Capital Was fined for manipulating the price of DP World shares on the DIFX.

The Dubai Banking Group said yesterday it will take a 32 per cent equity stake in Shuaa Capital on Oct 31 by converting Dh1.5 billion (US$408,000) worth of bonds issued by Shuaa last year into shares. This comes just days after the investment bank was fined nearly Dh3.5 million by the Dubai Financial Services Authority (DFSA) for share manipulation. "The action taken by Dubai Banking Group was not decided recently and negotiations must have been ongoing for some time," said Deepak Tolani of Al Mal Capital, a regional brokerage. "Dubai Banking Group knew the investigation was going on and decided to proceed with the purchase; as a big banking group showing faith in Shuaa, this is a positive sign for investors." Talks over the conversion of bonds - at an agreed price of Dh6 per share equating to 250 million shares of Shuaa - have been in the works since last June, according to the Zawya Dow Jones news service. Representatives at Dubai Banking Group, part of the government-owned Dubai Holdings, and Shuaa Capital declined to comment on the acquisition. No one at the DFSA was prepared to comment. Under a statement of terms imposed by the DFSA, the company admitted that it was manipulating share prices. "As a result of this investigation, the DFSA has determined that Shuaa Capital contravened the markets law by manipulating the price of DP World shares on the DIFX and the regulatory law by obstructing the DFSA in the exercise of its powers during the course of its investigation," the DFSA statement - called the enforceable undertaking - said. The enforceable undertaking was signed by executives at Shuaa Capital, including the chief executive Iyad Duwaji, last Wednesday and acknowledged share manipulation and acceptance of fines and restrictions imposed by the DFSA as a penalty for the transgression. The statement, available on the DFSA's website from the day the charges were reported, chronicles the times and amounts of DP World shares traded by Shuaa on March 31 and specifies the laws that were violated by Shuaa as well as the penalties administered, including a fine and the replacement of the company's head of risk management. As the future for Shuaa remains unclear, there is a long way to go to reassure wary investors and restore confidence to the market. "Though the DFSA is putting out an impression of greater transparency, the rumours and chatter on the street suggest people are happy to see Shuaa punished, that they believe lots may still be hidden," said Mr Tolani. "It does pose questions for the system." He added that foreign investors may worry about trading on market prices that were questionably active and true. While many are lauding the DFSA's efforts to target risk management, a few are wondering if Shuaa has been let off lightly. "A million dollars is nothing when compared to actual transactions being done by the firm; this fine is merely a slap on the wrists for Shuaa," said one banking analyst. Questions remain about how a scandal of this nature would have been treated abroad, where measures are thought to be less forgiving and information would be immediately reflected in the share price. "In the US and the UK, the rumours circulating would be priced in the stock; a decline in the share price of Shuaa was expected after news of the fine, but it went up instead," Mr Tolani said. Shuaa's shares, instead of tumbling following the confirmation of a fine by the DFSA, rallied from a three-year low of Dh3.95 last Wednesday and closed at Dh4.17 the next day. The investment bank's share price remained unchanged yesterday, opening and closing at Dh4.17 after a dip to Dh4 at midday. shamdan@thenational.ae