Wednesday, 13 June 2007

What was Emaar thinking?

Not since the 1956 incident of the Suez Canal has a listed Middle Eastern company with a broad international shareholder base been nationalized by an Arab government.

If this was Asmak or Jeema then it wouldn’t raise many eyebrows due to the relatively small shareholder base. But this is the jewel in the crown of the UAE stock market. The blue chip of blue chips.

Thanks to the move by Dubai Holding to acquire a round 28 percent of the real estate giant, thereby bringing the government stake to a convenient 51 percent, shareholders will no longer need to attend the annual general meetings and waste their time as decisions on the future of the company will be taken far away from the hassle of convening costly yearly assemblies. This allows for faster decision making and saves the company the substantial amount of money it spends on hosting the hundreds of shareholders who go out of their way to attend the AGM to finally get their hands on the expensive glossy annual financial reports (last year it came with its very own lock) that are only distributed to the shareholders just as they walk into the dimly lit auditorium in the Dubai World Trade Centre’s Multaqa Ballroom.

The deal is basically a land for equity swap. Dubai Holdings gives Emaar some promised land worth Dh.27 billion that has yet to be identified let alone valued by an independent authority. The share value has seen a decline ever since the announcement, and even in the courteous world of Gulf money markets reporting, pundits have not been able to defend the deal’s secretive approach.

It would be useful if Emaar clarifies its position on whether it is open to other land-for-shares deals in the Emirates or in the region.

Rumor Mill

This deal has also caused a number of rumors to surface. As in any one of the Gulf countries where there is a vacuum in information available to shareholders the corners of majlises, diwaniyas and coffee shops turn into a rumor mill that is mostly based, well, on other rumors.

The rumors in this case touched upon the reason behind why Emaar’s 2006 dividends were halved to 20% from the 40% in 2005; with some people arguing that is was due to the pending announcement of the Dubai Holding deal a fortnight later. The alleged claim is that Emaar wanted to keep the cash in its coffers for the new suitor. It also raises some eyebrows on the reason behind the selling of a majority stake of Dubai Bank to Dubai Holding when the latter was clearly interested in the goose that laid the golden egg.


If Emaar, and by extension the entire UAE stock market family, want to salvage their reputation then they need to employ more corporate governance and transparency laws. In Emaar’s particular case it has to bring in an independent, internationally recognized real estate valuations expert (not Hamptons) to judge whether the value of the land is fair and just for its 50,000 plus shareholders.

Emaar needs to take its shareholders seriously and make sure that the financial statements are received well in advanced so that they are able to study the company’s performance for a period that extends beyond a few minutes.

Emaar should implement international accounting standards rather than claim to be an Islamic Sharia compliant firm in order to allow their shareholders to feel secure and possibly seek a DIFX listing if they are accepted to prove so. These standards include allowing access to their financial controllers and records by large investment banks and independent financial research groups.

Emaar should refrain from fait accompli announcements and give the semblance that the three hour AGMs are there for a give and take reason and not as a take it or leave it deal.

There is no doubt that His Highness Sheikh Mohammed Bin Rashid Al Maktoum, UAE Prime Minister and Dubai Ruler will make sure that the shareholders will not receive the short end of the stick in this deal. Emaar’s Chairman is our very own Donald Trump who has dazzled us with his pioneering initiatives from the planned communities to the fantastic Burj Dubai and Dubai Mall projects that have become iconic symbols of our beloved city and country.

The media plays the role of the guardian of the people’s interests and its duty is to politely but clearly indicate any shortcomings by listed firms that one hopes those responsible would accept with open minds.

If Emaar wants to carry the baton of blue chip firms, it has to start acting like one.

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