x Abu Dhabi, UAESaturday 20 January 2018

Market braced for Tamweel return

Tamweel's shares are expected to fall sharply on its first day of trading for two years but analysts are more optimistic on its bond

Tamweel shares were just under Dh1 when it was suspended from trading in 2008. Paulo Vecina / The National
Tamweel shares were just under Dh1 when it was suspended from trading in 2008. Paulo Vecina / The National

Shares in Tamweel are expected to fall by as much a third when it resumes trading today for the first time since 2008, analysts believe.

The mortgage provider majority owned by Dubai Islamic Bank, the country's biggest Islamic lender, said last week its stock would start trading on Dubai's stock market today after a hiatus of more than two years.

But market commentators expect the mortgage lender's share price to fall sharply at the open as investors dump their positions in the stock.

"I think there's going to be a lot of selling pressure on the stock; it could lose 30 per cent [of its value]," said Hassan el Salah, the head of institutional sales at Al Ramz Securities. "There's been a freeze in terms of the real estate market in the UAE and the asset quality of a lot of mortgage companies has been in question."

Fitch Ratings, which raised the credit rating on Tamweel by two notches last month to "BBB minus", said the lender's asset quality might deteriorate because the UAE's property industry remained weak.

Tamweel was forced to seek government support in 2008 as frozen global credit markets blocked the company's access to funds. Its stock last traded at just under Dh1 a share in November 2008 when it was suspended from trading.

Amlak, its closest competitor, also had its shares suspended amid speculation the pair would later be merged. Amlak is yet to resume trading.

"While a lot of people who hold it will have written [Tamweel] down to zero and are planning to let it go, others will take a closer look at it," said Julian Bruce, the head of institutional sales at EFG-Hermes in Dubai. "You will see buyers on the stock after the initial relief of the ability to sell."

Dubai Islamic Bank (DIB) stepped in to prop up the company last year when it acquired a 58.3 per cent stake and provided new funds so Tamweel could begin issuing mortgages again.

Last month, Varun Sood, the company's acting chief executive, said Tamweel's mandate was "to get long-term funding" to avoid a repeat of the problems the company had at the onset of the global financial crisis.

Tamweel's Islamic bonds, which it launched in 2008 just before the downturn, are expected to extend a month-long price rally when shares resume trading tomorrow.

The yield on the 4.31 per cent sukuk due in January 2013 dropped 61 basis points last week to 7.9 per cent.

The yield on the sukuk is near the lowest level since September 2008.

Bond prices are inversely correlated to their yields, meaning yields fall when demand increases.

Appetite for corporate debt in Dubai has increased as investors gain confidence from the progress of the Dubai World restructuring.

Tamweel's bond is expected to benefit from "complete access to funding from its well-capitalised parent, DIB", said analysts at Exotix, a frontier markets brokerage that specialises in bonds and structured finance.

"Their non-performing loans have stabilised in the last few quarters and we still have confidence the yield is performing well," said Ahmad Alanani, a debt trader at Exotix.

Net profit at the Islamic lender increased fivefold in the first quarter to Dh27.2 million (US$7.4m) compared with the same period last year.