The chief executive of Shuaa Securities missed much of Dubai's market misery but is riding the crest of the recovery.
Walid Shihabi's admirable timing
When he came back from a sabbatical this year, which included a raft of activities including plans to set up a restaurant in Beirut, he returned as the chief executive of Shuaa Securities. He missed much of Dubai's market misery but is riding the crest of the recovery. Frank Kane reports
Walid Shihabi seems to have at least one quality deemed necessary in a stockbroker: foresight.
When the 34-year-old Lebanese took a brief career break from Shuaa Securities last year, to return in September as the head of the Dubai investment bank's brokerage business, he missed out on one of the flattest, dullest periods in UAE stock market history.
While the financial crisis, the summer torpor and the holy month of Ramadan took their toll on daily trading volumes, Mr Shihabi was pursuing other interests, as they say, with a bit of consulting mixed in with a long-held ambition to get involved in the restaurant business in Beirut.
"I decided in the end the time wasn't right for the restaurant, and anyway there was Shuaa to get back to," he says.
His timing looks pretty good so far. The autumn has brought an improvement in trading volumes, a return of some self-confidence in Dubai with the resolution of the Dubai World debt restructuring, and the first initial public offering (IPO) in the region for two years - the sale of a stake in Axiom Telecom, the mobile phone retailer. Shuaa's investment banking arm is doing corporate advisory work on the Axiom flotation.
"There has been more good news lately," he says. "We have begun to understand the scale of the debt problem, both government and quasi-government, and it would have been a problem if we did not understand that.
"We have also learned about the importance of transparency. The crisis was an opportunity and a learning experience in this respect. It would be difficult to backtrack from what we've learned, and I don't think anybody wants to backtrack anyway."
But he obviously did more during his short sabbatical than survey the potential for upmarket dining in Lebanon. It gave him time to reflect on what had gone wrong in Dubai, the emirate where he was born to Lebanese parents, and to think of the way forward.
He, like many others, identifies property as an enduring challenge. "It is still problematic, but at least now investment decisions are being driven more by merit, rather than by speculation. What do companies do with their cash balances? It can no longer be just for the short term."
He believes it is up to the rest of the Dubai economy, the emirate's core strengths, to make up the "real estate gap" - the contribution that will be missing for some time to come as the property sector remains depressed.
What are those core strengths? There has recently been a debate, prompted by the wording of a government bond prospectus that seemed to downgrade financial services, as to whether the financial sector remained part of core Dubai Inc. Mr Shihabi, as a financial-services man through and through, adamantly believes it still is.
"It is still a core element of growth," he says from Shuaa's rather utilitarian offices high in the Emirates Towers office building, overlooking the Dubai International Financial Centre. "It has been volatile, of course, but it has to remain a core activity, because it is a facilitator of everything else. Take Hong Kong and Singapore -they are financial as well as business and trading hubs, and they remain our models."
But if financial services are to remain at the heart of Dubai's model, they have to change, he believes. "This is what brokerage at Shuaa is all about. We've been here 31 years, we have a track record, so we do not have short-term vision about the place. Speculation is not the primary goal of the stock markets, but so far here in the UAE they have not played their essential role as capital-raising mechanisms."
Mr Shihabi is rising to this theme. "Markets here have not accurately reflected the underlying economy. There is too much real estate and commercial banking in the quoted sector, and this understates the other key sectors that really make up Dubai and the UAE: transport, retail is really underrepresented, upstream oil activities are not there, but nor are mid or downstream. Manufacturing, health care, education, hospitality - just look at Jumeirah; what a great indigenous business."
He is getting rather excited now and throws in a fact like a card-player laying down a trump ace: "In Istanbul in the first half of 2010, there have been 25 IPOs, compared to none in the UAE. That should not be."
He obviously believes passionately in the intrinsic power of markets to transform economies. But surely one of the reasons that the UAE has lagged behind Turkey, and certainly western markets, is the overwhelming control of the government sector? Many of the business sectors he has just listed are controlled by government companies, and the Government has been reluctant to see through IPOs of their assets?
This is an invitation to criticise the Government, which could be tricky for him. Shuaa is controlled by Dubai Holding, itself owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai. He ponders the invitation, then declines: "I think that [the reluctance of the Government to float companies] is overstated." But he adds enigmatically: "Anyway, these are commercial entities ahead of their status as sovereign assets." So maybe there is a little impatience at official tardiness in heading for market.
On other issues, he certainly comes down firmly on the side of the reformers and modernisers. On the need to unify the three UAE exchanges: "Yes, there are too many, and I agree unification is best, as long as it's a blend of the best parts of the three and best practice is observed."
On the need for reform of listing requirements: "The 55 per cent rule for IPOs is illogical. It's forcing people to raise more money than they need to and sell too many shares."
On the need to modernise the pricing mechanism: "We need price discovery, not the arbitrary pricing of shares at one dirham. There has to be a change of attitude on these kind of things."
But sometimes Mr Shihabi shows a respect for the traditional and conventional that sits oddly with the moderniser approach. He believes, for example, that the "commanding heights" of the UAE economy are the family-owned businesses with big names and big brands, and that these groups "capture the best of the UAE". Maybe this is the natural inclination of the stockbroker to flatter the potential clients he might be bringing to market, but Mr Shihabi certainly sounds sincere.
In this respect, he seems to have found a natural home at Shuaa. The investment bank is perhaps the most venerable of the local financial institutions and, despite the unseemly battle it fought with Dubai Holding against takeover last year, it has the ear of the Government as an adviser and broker.
This year's third-quarter figures for Shuaa Capital show that progress is being made, with a small profit reported compared with last year's loss of almost Dh270 million (US$73.5m). The brokerage business suffered, as the rest of the industry did, from a lack of volume, but it has given Mr Shihabi a virtually clean sheet to work from, and positions him well to benefit from the influx of foreign capital he fully expects will return to the region.
The brokerage industry in Dubai is also on the verge of significant consolidation, he believes. "We think the number of registered brokers on the UAE exchanges will fall to around 70 by the end of the year. It's currently around 90, so you can see it's a free market, and this is a healthy development.
"The top 10 will control 60 per cent of the market, and efficiencies of scale will prevail. We will continue to see ourselves as one of the leaders in developing the market."
With all that going on, it looks like the restaurant business in Lebanon will have to wait a while longer yet.