Looking after the pennies

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Al-Ali aims to double national bonds’ sales to AED5.2bn ($1.41bn) in 2009.

The economic crisis saw more than a quarter of investors redeem their investments in National Bonds, but CEO, Mohammed Qasim Al-Ali tells Claire Ferris-Lay how he plans to entice those investors and plenty more back.

Mohammed Qasim Al-Ali doesn't like banks much. He sees them as a bit of a nuisance.

"Banks will only call you when they are in crisis. My account manager called me up after nine years of being with the bank and I said ‘hello, wake up, I've been here for nine years,'" laughs the CEO of Dubai-based National Bonds.

Joking aside, it is not surprising that Al-Ali dislikes banks; other than ignoring him for past nine years, they are the main reason that deposits in the UAE's national savings scheme, National Bonds, dropped approximately 25 percent between September and January.

"It dropped by 25 percent [between September and January]. It was the lack of trust in the banking system; the banks stopped lending so people had to dip into their savings," he explains.

Based on the longstanding British Premium Bonds scheme, National Bonds was established in March 2006 to encourage more nationals and expatriates to save and become more financially aware. Unlike traditional savings accounts National Bonds offers no fixed return and instead uses prizes of up to AED5m ($1.36m) every month as incentives to save. At the end of the year investors receive a portion of the profits from the local shareholders.

High returns

In 2007 National Bonds made an annual profit of 6.03 percent and the following year announced profits of 7.07 percent. Both years represented the highest returns on any savings account in the UAE, says Al-Ali. "The scheme offers a high return. Even though we don't promise [a fixed return], we offer five million dirhams worth of prizes every month. You can become a millionaire overnight," he says proudly.

It all sounds a bit too good to be true doesn't it? He shakes his head: "The scheme is highly liquid, after 30 days you can get your money back, without exit fees and you don't lose anything. And they [investors] know that the government of Dubai is backing the scheme."

While the government of Dubai holds a 50 percent share in the savings scheme, the remainder is split equally between three Dubai-based companies; Emaar Properties, Dubai Bank and Dubai Holding. But Dubai has suffered immeasurably from the economic crisis and has been forced to raise $10bn for financial support to help state-controlled companies sidestep frozen debt markets.

Emaar Properties, the world's largest real estate developer, was downgraded by Moody's Investors Services to just above "junk" status in April because of its exposure to the real estate sector and has also lost around 75 percent of its value on the local stock exchange, while Dubai Bank had its rating cut from positive to stable.

Al-Ali, who refers to the scheme's backers as Dubai's ‘blue chip' firms, says he isn't concerned that people will no longer trust the savings scheme, despite its backers' significant losses over the last year. "Emaar will stay for generations," he says adamantly. "Dubai Holding will stay for generations. Like any other companies they will go through ups and downs because of the global economic downturn but I am not worried. We know that these firms will be fine ten years down the line."

Inevitably the financial crisis has had some effect on the national savings scheme. In addition to the 25 percent increase in the number of people redeeming their bonds, the economic crisis has forced the state-backed company to rethink its investments going forward.

In addition to generating revenues through its shareholders, National Bonds has also launched a number of initiatives in community development. These include National Properties, its wholly-owned real estate subsidiary which launched Skycourts, a $408m affordable residential community in Dubailand, and Taaleem, a teaching initiative aimed at raising the standards of education in the UAE.

Dubai's real estate collapse, however, has forced the scheme to halt its operations in real estate and concentrate on other more profitable sectors such as healthcare. "Real estate is going through a major correction so we will not do it, but in two to three years we'll do it but not now. We are thinking of launching a private healthcare [scheme] in late 2009," he says without giving further details.

He adds that National Bonds has also been forced to stop its partnership with local mortgage lenders who allowed national bonds to be used as collateral on properties. Although the banking crisis has halted this tie up for the time being, he says that Abu Dhabi's government-owned Al Hilal is in talks.

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