The UAE's bourses are not looking quite such an attractive place as they were a year ago, either for investors or bankers. Initial public offerings (IPOs) have slowed to a trickle, following a ban by the Economy & Planning Ministry on new firms going public. The slowdown has had little impact on the returns being made by Dubai-based Shuaa Capital. But the local investment banking heavyweight is looking abroad. 'Last year, the [local] markets represented a big opportunity,' says Shuaa chief executive officer (CEO) Iyad Duwaji. 'Recently, the level of activity has dropped.' Greenfield companies cannot go public and we support it. The public are not sophisticated [investors] and the risks are high. But it's a problem in practice. Clearly, there are a number of bottlenecks in the UAE. The whole process is completely different from any other jurisdiction and every transaction takes three times the effort. We've decided to take a step back until the new companies law takes effect.' Shuaa's reaction to the lack of activity is manifold. One solution is teaming up with international banks to bring issues to other markets, such as the $626 million listing of UAE-based Petrofac on the London Stock Exchange. Shuaa partnered JP Morgan Cazenove as co-lead manager, while Credit Suisse First Boston and Lehman Brothers acted as joint lead managers and bookrunners. Dubai International Financial Exchange (DIFX) also offers hope. 'My focus is to promote the flow of investment throughout the world into the region,' says Duwaji. He sees the newly formed exchange, which sits in the Dubai International Financial Centre (DIFC), as the means to do this. 'Issuers in countries other than the UAE are looking for a place from which to tap the liquidity pool. The same applies to a number of regional companies based in states where the capital market has either not developed or is small.'
In addition, Shuaa is expanding its physical presence overseas, starting in the GCC with the launch of an office in Saudi Arabia. 'The business opportunities in the kingdom are enormous,' says Duwaji. 'It's by far the largest market in the region and is going to be very interesting in the next 10 years.' Shuaa will offer all its business lines in the kingdom, including investment banking, brokerage, private equity and asset management. 'Throughout the region, but particularly in Saudi Arabia, local industries are restructuring. I forecast a lot of activity,' he says.The company is not limiting its ambitions to the Arab world. 'In the past few years we've concentrated 90 per cent on the Gulf. However, now we have decided to expand beyond the region and are looking at new markets easily covered from Dubai, including India and Pakistan,' says Duwaji. The company plans to establish liaison offices in both countries and will eventually offer its entire range of financial services. But it is starting with its own portfolio in mind. 'We'll start with [investing] our own money to get a foothold,' he says. 'Stage two is to contact issuers who want to come to the DIFX, seeing Dubai as the gateway to liquidity.'Further afield and on the doorstep of Europe, Turkey is also a tempting place to invest. 'It has a different growth driver and has its potential entry into the EU. It is also a beneficiary of Gulf investment and we want to position ourselves to capture part of that traffic,' says Duwaji. The deal flow includes some hefty transactions, such as Saudi telco Oger Telecom's acquisition of a 55 per cent stake in Turk Telekom last November. The lack of IPO deal flow has made little dent in Shuaa's profitability. The company recently posted healthy net earnings of AED 305 million ($83 million) for the nine months ending 31 December 2005, partly because of its diversified business lines. Shuaa has equity stakes including 50 per cent of brokerage firm Emirates Securities, 60 per cent of consumer finance company Gulf Finance Corporation, 20 per cent
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