Monday, 17 May 2010
Qatari Diar Real Estate Investment Co., a unit of the emirate’s sovereign-wealth fund, should pay as much as 81 million pounds ($117 million) for abandoning a deal to build luxury apartments at London’s Chelsea Barracks, U.K. developer CPC Group Ltd. said at a trial today.
Qatari had no reason to back out of the project and is now refusing to pay so-called deferred compensation it owes after buying CPC’s share of the development, lawyer Anthony Stephen Grabiner said in opening arguments at a London trial over the contract dispute.
Qatari’s employees made personal allegations against real- estate entrepreneur Christian Candy, who controls CPC, in a “desperate throw of the dice to divert attention from its own actions,” Grabiner said.
The Gulf may be eyeing a strengthening economic recovery, boosted by heavy, oil-fuelled government spending, but the region is not immune to the turmoil in Europe, economists and bankers say.
In spite of company earnings showing signs of recovery from the lows of 2009, Gulf bourses remain affected by global sentiment, which has been spooked by fears over the indebtedness of several European Union countries – Greece in particular.
Shuaa Capital says its Gulf investor sentiment index fell in April, partially over worries about Greece’s sovereign debt crisis. And MSCI Barra’s main Gulf index has shed more than 5 per cent since hitting a 19-month high on April 12.
… unless it introduces more reforms and completes the $25bn restructuring of troubled government-owned holding company Dubai World quickly.
That’s according to a report published by the Institute for International Finance’s Gulf Cooperation Council, issued in Dubai today. The report presents a forecast of 0.5 per cent economic contraction this year after 3 per cent decline in GDP last year.
Elsewhere in the region, the outlook is brighter: the GCC is forecast to grow 4.4 per cent this year on revived oil revenues and continuing reforms, and 4.7 per cent next year.
Gulf shares dropped for a fourth day, led by declines in Oman and Saudi Arabia, as crude oil slid to a three-month low and the euro fell to a four-year low on concern Europe’s sovereign-debt crisis may derail a global recovery.
Oman Telecommunications Co., the biggest telephone company in the sultanate, declined to the lowest in more than a year and National Bank of Abu Dhabi PJSC retreated to the lowest in almost a month. The Bloomberg GCC 200 Index of stocks in the Gulf region decreased 0.2 percent. Oman’s MSM30 Index slumped 1.3 percent, the most since Dec. 9, to 6,570.71. Saudi Arabia’s Tadawul All Share Index fell 0.5 percent.
“The Greek crisis and the fall in oil prices are scaring investors off,” said Haissam Arabi, chief executive officer of Gulfmena Alternative Investments in Dubai. “If the euro continues to plummet and oil prices continue to fall and more people continue to talk about how bad the situation in Europe is, then we should expect the hemorrhaging to continue.”
The Palestine Securities Exchange, where 40 companies from the West Bank and Gaza Strip trade, plans to sell as much as 30 percent to the public this year, the exchange’s chief executive officer said.
The stake sale of between 20 percent and 30 percent had been planned for 2008 and was delayed because of legal reasons which have been dealt with, Ahmad Aweidah told reporters in Abu Dhabi today.
“We are interested in speaking to other exchanges because they will not just bring in capital, they will bring in know- how,” Aweidah said. “Depending on how well that goes, 25 percent or so will be offered to the Palestinian public.”
Founded in 1996, the Palestinian Securities Exchange has sought to encourage investments among local investors as well as from foreigners, particularly Palestinians living abroad, in an effort to boost economic growth in the territories. The Palestine Al Quds Index has added 1.1 percent this year, while the MSCI Emerging Markets Index lost 4.9 percent.
Alliance Medical Ltd.’s lenders are demanding owner Dubai International Capital LLC inject about $145 million of cash to help the company meet loan conditions, two people familiar with the situation said.
Junior lenders, who rank behind senior creditors for repayment, have also hired debt restructuring specialist Houlihan Lokey, said the people, who declined to be identified because the talks are private. Loan holders have agreed to not enforce debt covenants until the end of September while the company renegotiates its debt, the people said.
Dubai International, the investment fund controlled by the emirate’s ruling sheikh, raised the money in May 2008 to fund its leveraged buyout of the Warwickshire, England-based maker of MRI and CAT scans. Alliance Medical owes a total 555 million pounds ($802 million), including 140 million pounds to junior- ranking mezzanine lenders.
The economies of the member states of the Gulf Cooperation Council (GCC) - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE) - are now recovering and growth this year is likely to average 4.4% and then rise to 4.7% in 2011, following just 0.3% growth in 2009, forecast the Institute of International Finance (IIF). It noted that prospects vary considerably across the region.
On March 29, the first Saudi exchange-traded fund open to foreigners was launched by local brokerage Falcom Financial Services with great fanfare and public relations razzamatazz. It was heralded as a way for international investors to gain access to one of the most tantalizing emerging markets. But, soon after the launch, it emerged that foreigners could only buy the product if they had a Saudi bank account.
The incident more or less sums up the slow liberalization of Saudi Arabia’s Tadawul stock market over the last three years. “It has often been a case of two steps forward and one step back,” says one local banker. “But at least we’re moving in the right direction.”
Despite being one of the largest economies in the world, and the largest stock market in the Middle East and North Africa region, Saudi Arabia still forbids foreign investors from directly owning Saudi stocks. The authorities worry that opening the doors to foreigners will lead to floods of hot money that could destabilize the economy.
I have to begin this article by saying that I have no love for Dr. Omar bin Suleiman the former governor of the DIFC. The photo above was taken at the moment of the DIFX launch on September 26th, 2005. Pictured are the Governor, the CEO and the Chairman of the exchange touching the magic globes which launched the exchange. What you can’t see in the photo is me in the back of that room. I’m there with cell phone ear pieces in each ear communicating with my trading desk and with that of another firm engineering what would become the first trade on the exchange. It was kind of like the Wizard of Oz. There was Dr. Omar the Great and Powerful and I and my colleagues were the men behind the curtain. It was as a man behind the curtain that I got to know Dr. Omar.
Not that Dr. Omar would have any idea who I am. The few times I met Dr. Omar he gave me a handshake and a cold smile which said “kindly disintegrate” as if someone had obliged him to shake hands with a garbage man at the end of a long day of work. Dr. Omar had no desire whatsoever to shake the hands of the people who were actually doing the work that was keeping him in the spotlight. That’s what we were paid to do, we should get on with it. He has a point there. But I think it we also made him a little uneasy. The reason for this was that those of us down in the engine room of the DIFC Technocracy had much insight into what Dr. Omar was, and what he was not.
What he was, was a seducer.
Yes, Dr. Omar was a hit with the ladies, the stories of his hijinx made the rounds of the DIFC. I’m sure they were enhanced with the retelling, but the grains of truth from which they grew however are pretty believable. After all, it’s not difficult to be a success with the ladies when you can decide your own compensation and, in Dubai, the ladies take cash. As interesting as that is, far more important than cutting a swath through Dubai and Moscow’s female populations was the ease with which he penetrated the very masculine world of The City of London.
Dr. Omar’s gilded tongue lured virtually the entire London banking community to Dubai and enabled it to eclipse Bahrain as the regions financial center. It was not a hard sell. Oil was on its way from $50 a barrel to over $150. Most of that money was going to Saudi Arabia and a fair amount to Kuwait, Qatar, and Abu Dhabi. These people were piling up money faster than even the Chinese. They were going to be in desperate need of some serious banking. Who better to do it than the London Banking community? But who wanted to live in those crazy places? Surely not Londoners.
What about the DIFC in Dubai? Well, in Dubai you have nightclubs which have liquor in them as well as a healthy complement of young ladies from Eastern Europe and Southeast Asia. Heck, it’s practically the East End. And what is this DIFC business anyway? Oh, it’s a legal zone with UK Law as opposed to Sharia? Now that’s an even easier sell. What’s that? Zero percent tax for the next 50 years? Outstanding! Our non-US nationals can relocate there and pay zero percent tax (Sorry Americans, you’re globally taxed. The war on terror is not going to pay for itself as it turns out.) Wow, the DIFC/Dubai is like The City, plus the East End, times the reciprocal of your tax rate!! Sign me up Dr. O. And just like that Dr. O built the DIFC into what is: the largest concentration of international financial expertise in the Middle East. By miles. As a seducer Dr. Omar did his job well and in spades.
What Omar was not was a technocrat.
He’s described this way in both the local and the international press. The story seems to be that during the crisis Sheikh Mohammed removed the “technocrats” to replace them with “loyalists.” Dr. Omar was neither of these. Dr. Omar may be guilty of having expensive tastes in cars. He may be guilty of some spectacularly poor investments. He may be guilty of being a bit haughty toward us unter-menschen down in the DIFC engine room. But, and I can say this from my interactions with him and his staff, he was totally innocent of any knowledge whatsoever of what it would take to make the DIFC a successful center other than as a real estate venture to which he was able to lure international banks as tenants.
He did not concern himself with the minutia of what precisely was necessary for the credibility of the legal system. He did not busy himself with what it would take to ensure the success of the DIFX or how it should interact with other exchanges in Dubai or the region. He also did not consider the possibility of locking in the commitment of the international banks to either the center or the DIFX by parting with equity in them. Rather he had the DIFC take a large equity position in one of the main supporters of the DIFC. This and other investments that Dr. Omar made ultimately came to grief to the great embarrassment of himself and Dubai.
But was he a criminal?
As I write this Dr. Omar is languishing in jail in Dubai. He has been arrested on the charge that he appropriated public funds for his own use. In their article the Abu Dhabi newspaper The National says that he disguised this misappropriation as “annual performance bonuses.” I’m troubled by this for several reasons. First of all it was not a big secret that Dr. Omar was paying himself a kings ransom for doing his work in the DIFC. I’ve written an earlier article on this and my chief source was an article that was published in Bloomberg in 2005 about Dr. Omar’s Ferrari collection.
Second Dr. Omar worked for the state. Therefore any funds derived from his work were therefore “state funds.” It seems to me that “annual performance bonuses” that you spend on yourself are not therefore “misappropriations” they’re “appropriations.” You’re supposed to spend your bonus on yourself. That’s what it’s there for. You can’t criminalize something simply by putting quotation marks around it. If he spent a bunch of money on himself personally and called it “real estate investments” or he pulled an Abdullah Brothers and engaged in some “unauthorized transactions” then I could see it. But it seems to me that the transactions that Dr. Omar engaged in were all “authorized” if not entirely successful. The question to ask is “Did Dr. Omar put Dubai on the map as a financial center in the Gulf?” Yes he did. Is it reasonable to believe that Dubai would pay him based on his performance which was a success? Sure as you’re born.
So one of two things must be true: either Dr. Omar paid himself performance bonuses which were approved by people higher up in the Dubai hierarchy in which case they should be faulted not him, or there was no oversight of the DIFC compensation regime whatsoever in which case Dr. Omar was perfectly justified in paying himself whatever he saw fit and if Dubai is unhappy with this they have no one to blame but themselves. In either case, Dr. Omar should not be in prison. Unless there is something the Dubai authorities are not telling us about the deeds of Dr. Omar he should be freed.
I think the more likely explanation is that Dr. Omar’s investments lost a ton of money and he may not have fully understood some of the more complicated transactions into which he entered. He therefore may have not been totally candid with the Ruler with regard to the financial position in which the DIFC found itself. This is bad but if it is a crime there are any number of other people in Dubai who should be standing tall before the man. Chief among them Sultan Ahmed bin Sulayem the Chairman of Dubai World and the former Chairman of Nakheel who has set his son up in business with the creditors funds only to spin him out with no compensation, obliterated tens of billions of dollars of investor funds, and given Dubai it’s largest black eye so far.
But I am not advocating jail time for either Dr. O or bin Sulayem. Dubai has serious governance issues but this is more a lack of oversight than criminal activities on the part of the managers. In order to recover Dubai needs risk takers and entrepreneurs who operate within a predictable and well governed system. Throwing people in prison for overpaying themselves for doing what you asked them to do and using powers that you gave them is not the way forward. The way forward is to make it clear to the people who are the Stewards of Dubai in what incentive structure they operate then let them go without having to fear prison in the event that Dubai changes its mind. It would be an important step for Dubai to either better explain why Dr. Omar is in prison, or to free him.
Though I dislike him both personally and professionally I suggest the latter.
* username: rupertbu