A deal that could have been handled better.
Not since the 1956 incident of the Suez Canal has a listed Middle Eastern company with a broad international shareholder base been nationalised 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 around 28 per cent of the real estate giant, thereby bringing the government stake to a convenient 51 per cent, 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 AED27 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.
This deal has also caused a number of rumours 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 rumour mills that are mostly based on, well, other rumours.
The rumours in this case touched upon the reason behind why Emaar’s 2006 dividends were halved to 20 per cent from 40 per cent in 2005, with some people arguing that it 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 recognised 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 advance 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 Shari’ah compliant ﬁrm in order to allow their shareholders to feel secure and possibly seek a DIFX listing if they are accepted to do 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.
This article was originally published in MONEYworks on May 2007. (PDF Download)