x Abu Dhabi, UAEThursday 18 January 2018

Shuaa lights the touch paper for market lift-off

The UAE's very own Shuaa Capital has become something of a barometer for the health of the Dubai financial community.

It was quite a week for UAE stock markets, with all the indices heading in the right direction for once. Optimism over the two core fundamentals - property and oil prices - combined to produce a wave of positive sentiment for the first time since last autumn, and I believe this will be more than the proverbial "dead cat bounce". Barring major global upsets, the consensus is that energy prices will continue to strengthen for the rest of the year. Property is more uncertain, but with falls of up to 50 per cent already this year, some are beginning to see the bottom. At least one major banking institution is about to publicly "call" the property market, I hear. Brave indeed.

At the heart of last week's surge was the UAE's very own Shuaa Capital, which has become something of a barometer for the health of the Dubai financial community. Shuaa contributed to the optimism on DFM on three fronts: first, it produced research showing that investor confidence in the region was on the up for the first time in many months. A healthy 43 per cent of respondents thought things would improve in the next half year.

Second, Shuaa contributed to the change of international sentiment towards the region, and the UAE in particular, with an investment roadshow in London highlighting the attractions of Gulf equities, now generally reckoned to be undervalued. If the positive sentiment reported back to me from the London conference is anything to go by, we could be in for a sustained bout of foreign buying of regional equities.

Third, Shuaa did its own bit for the DFM with a bullish share price performance. It bumped against the 15 per cent cut-off virtually every day last week, and is now firmly back out of fils territory at Dh1.65 per share. I have always believed Shuaa, as the leading independent bank of the region, was too big to fail, and its ongoing recovery is proof of that. What has prompted the buying spree this time is news that the tricky negotiations over the convertible bond held by Dubai Banking Group are nearing a denouement. By Thursday we will know whether DBG will agree to convert the bond to equity, at what price and with what strings attached. An earlier call for boardroom representation - which would have been a threat to Shuaa's independence - has been watered down. All that represents a vote of confidence in Shuaa, and in the Dubai market. The green shoots are multiplying fast.

Over in the non-quoted sector, and especially in the big family conglomerates that dominate so much of Dubai's commercial life, there must have been much concern at the news from Saudi Arabia that the Algosaibi empire seems to be in serious trouble. The first problems arose in Algosaibi's Bahraini offshoot, The International Banking Corporation, which defaulted on US$1 billion (Dh3.7bn) of bonds, causing consternation in the region's capital markets. Analysts estimate Algosaibi has commitments to Saudi banks amounting to $2.5bn, with several hundred million more owed to international groups like WestLB and BNP Paribas. Algosaibi is also sitting on a $400m portfolio of equity shares that might have to be liquidated, though the company seems to prefer an option of radical restructuring to a fire-sale of assets.

These family-owned conglomerates are one of the business facts of life in the Gulf, originating in the great merchant traders of the region over centuries. In good times, they have a lot going for them - tight, focused management, impeccable connections with the political power structure, and capital resources backed by their good names and reputations. But they are also typically involved in those sectors - consumer, real estate, tourism, financial services - which have been hardest hit by the global crisis. Access to capital - so easy when the markets were awash with liquidity - is suddenly much more difficult. And - a big problem, this, for the ratings agencies which determine their creditworthiness - they are much more secretive and opaque than even the publicity-shy parastatal corporations. So far, Algosaibi has not taken the opportunity to publicly reassure creditors. There are lessons here for the great merchant families throughout the rest of the Gulf. While there is no suggestion that they are in anything like the discomfort Algosaibi is experiencing, their ruling patriarchs might like to dust down, or even draw up, contingency plans for such an eventuality.

While he was ruining my football club, Tottenham Hotspur, the then chairman and owner Sir Alan Sugar told me that football finance would always suffer from the "prune juice" effect - no matter how much money you poured in one end, it all rapidly came out the other - and vanished.

He was right about that at least: despite all the millions he "invested" in Tottenham, he had to eventually withdraw from football ownership, many millions of pounds worse off and with nothing to show for his efforts except the disdain of Tottenham fans. There aren't too many parallels between "Sralan" - as he is known on his television show The Apprentice - and Sulaiman al Fahim, the new owner of Portsmouth, although both are celebrity businessmen and have a big TV presence. There is, however, one significant difference, it seems to me: Sralan has learnt his footballing lesson, while Dr al Fahim is still at the bottom of the learning curve as a Premiership club owner.

After his short-lived involvement with Manchester City, Dr al Fahim has splashed out on Portsmouth, a Premiership club that has been having quite a good time of late. It could prove a shrewd investment - a big catchment area of support in affluent southern England, little local rivalry (nearby Southampton are a busted flush) and a decent, if ageing, squad of players. We haven't seen any financial details yet, but even if he just takes over Portsmouth's estimated £50m (Dh295m) of debt, it is a considerable personal outlay. Let's hope he lasts the full 90 minutes.