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Sat 1 Mar 2008 04:00 AM

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The art of investment

Andrew White meets Shehab Gargash, CEO of financial services giant Daman Investments, and one of the key figures behind Dubai's emergence as the region's premier financial centre.

Andrew White meets Shehab Gargash, CEO of financial services giant Daman Investments, and one of the key figures behind Dubai's emergence as the region's premier financial centre.

Sat beneath one of the huge paintings that adorn his office high above Sheikh Zayed Road, Shehab Gargash is in a contemplative mood. Briefly, stocks and shares aren't on his mind, although the digression cannot last for long.

I think the decision not to list was the right one, but on the spot it was a very hard one to take, especially with the clock ticking.

"The Middle East arts scene has evolved tremendously over the last few years," he sighs, casting his eye around the room, and over a bookcase stuffed with books on everything from Ghandi to Reagan, via Thomas Friedman. "It is becoming a serious passion, but then with art it is more difficult to make the right investment.

"With art, I would pick up something that I love simply because I love it, even though I know it won't go anywhere as far as money is concerned," he insists. "By contrast, when you manage a fund you really don't hate anything: you like something, and you like something else less. With art there's a lot of emotion and subjectivity in what you see painted.

The past week may have proved an exception to this rule. It has been an emotional seven days for the CEO of financial services firm Daman Investments, and he is urging observers to maintain their subjectivity with regards to an episode that has shaken both Daman and the Dubai International Financial Centre (DIFC).

At the beginning of February, Daman and its US strategic partner, Global Crown Capital, announced that they would be co-lead managers on the IPO of global alternative energy and clean technology company Nanodynamics, Inc.

Nanodynamics intended to be the first US company to list on the Dubai International Financial Exchange (DIFX), and it was hoped the US$11 shares would attract US institutional investors as well as regional Middle East institutions and accredited investors. One day prior to the placement, however, and the bourse announced that Nanodynamics had decided to pull the plug on its listing - a move that has attracted murmurings across East and West.

"We had a very promising and interesting IPO coming together, but as we approached our deadline we were not 100% comfortable that the paperwork was in order, and was adequate for the trading to commence and the protection of the investors," explains Gargash carefully.

"We were listed in anticipation of trading, and when we decided not to trade we informed the market that we would hold back on the trading, so we did not trade on the day we were supposed to," he continues.

We had a couple of days of deliberations with the DIFX and the Dubai Financial Services Authority, subsequent to which the company decided it was in the best interests of everybody to withdraw its listing from the DIFX. We feel that this was the most logical and the most adequate step to take in order to protect the interests of Daman, the company, the investors and the market."

While refusing to go into specific details, Gargash insists that the "unsatisfactory paperwork" which killed the listing was not provided by Nanodynamics, but by some of the "several parties" close to the deal.

"We had a role as sponsor, and when you are sponsor the responsibility is to make sure that everything goes smoothly," he asserts. "It is within that capacity, in doing our reviews of the paperwork, of the submissions, of the representations, that we asked for some clarifications and we did not get the clarifications that we wanted to get."

Gargash insists that relations between Daman and Nanodynamics remain cordial, and reveals that while the financial details of the transaction remain confidential, Daman received its fees in full, and is not in dispute with the US company.

"We fully expect the company some time in the future to go public, and we would very seriously consider taking them back," he smiles. "We have a very good relationship with Nanodynamics, and we continue to have a conversation with them.

Such positive sentiments aside, Gargash accepts that the delisting of Nanodynamics shares has attracted unwelcome headlines across the Gulf and on Wall Street.

"It's certainly a disappointment - we did want to see the IPO succeed, the listing proceed, and people trading the shares today as we speak," he says. "At first look a lot of people will question what happened, and why it happened, but I think that when it's explained people will move on.

"For the company, for Daman and for the market, the paramount concern was that shareholders' rights were preserved and protected," he continues. "The company can always come back to market to list, the market can always have other listings - we will move on and get one deal after another.

"The integrity of the whole proposition was salvaged by a very difficult decision," he admits. "In hindsight I think it was the right decision, but on the spot it was a very hard one to take, especially with the clock ticking.

The fallout from the Nanodynamics episode is difficult to ascertain, particularly at this early stage. However, Gargash is hoping that when the dust settles, investor confidence in the DIFX will remain robust - it should, he insists, take more to scare off the international institutional interest that the exchange has invited over the last 12 months.
We've spent the last week or so just looking at the ramifications of the Nanodynamics episode, but the big picture still remains that the DIFX is a very viable proposition for companies to seek an alternative route to market to NASDAQ or similar others," he insists.

"I think the rawness of the information keeps a lot of people wondering and a lot of ideas floating around. It takes a couple of weeks to get beyond that initial reaction," he continues. "However it doesn't change the prospects around you, it doesn't change the opportunities - and business is all about finding the opportunities, and the right methodology for them.

You’re recalculating every month, and in a historic boom period you’re always worried about a historic bust.

While Nanodynamics was close to becoming the first US company to list in Dubai, the exchange has been attracting international investors for some time. It is the nature of these investors, however, that Gargash insists must change in order for the DIFC to realise its full potential and cement its position as the Middle East's financial hub.

"We have seen a lot of market volatility because the vanguard of this international investment community has been the more aggressive emerging markets, and hedge fund types," he explains. "Those are people who are in with a bit of a ‘slash and burn' approach to the markets. They will come here in waves and go out in waves, and leave death and destruction behind them, like pirates.

"I think ultimately you will get a more stable and predictable international institutional investor, and that's what we are trying to attract," he continues. "They haven't arrived yet, but they have shown up at the shore - and they were not here before.

New arrivals to the Gulf will find a region enjoying an unprecedented economic boom. It is this growth that Gargash anticipated when he established Daman almost ten years ago, focusing on the non-bank financial services - including brokerage, asset management, venture capital, private equity, and corporate finance - that are in demand in every rapidly evolving market. Today, Daman has a market capitalization of around US$54.4m, and has just under US$1.36bn of assets under management.

"I think the original vision has come true in the sense that the raison d'être for Daman has come true," says Gargash. "That was to service a market that will progressively become more sophisticated, better regulated, and attuned to the needs of investors both from the region as well as internationally.

Daman has enjoyed sustained growth on the back of the region's economic success. However, Gargash insists that the firm will remain focused geographically on the GCC and Iraq - don't expect to see Daman land on the shorelines of London, Hong Kong or New York any time soon.

"We're very focused functionally on those areas that we know best, and we try to avoid anything beyond that - there are others that do a better job," he explains. "However, when I say I am not looking outside the region, it's not for a lack of opportunities inside the region.

Sovereign wealth fundsThe SWFs have a less difficult proposition from one side, and a more difficult one from another," suggests Gargash. "It's less difficult because a SWF belongs to a government, which is typically very aligned to world markets, both in its economic and political mindset.

So when Qatar or Abu Dhabi or Dubai comes out and makes an investment, it's typically a welcome investment. The host nation knows the source, and they are comfortable with the objectives of that investment.

"The flipside of that is when the SWFs become too visible and too big, and that's what we're seeing today," he continues. "It's one deal after another, and all of a sudden it raises flags of foul play. These flags may or may not be justified, from regulators, from the business community in the Western countries, even from neighbourhood groups, which we've seen it from New Zealand all the way to the US in varying degrees.

That's when SWFs become perhaps too successful for their own good.

"The SWFs have been a very interesting phenomenon, and it's not the first time we've seen this," notes Gargash. "We've seen the Singaporeans being attacked before, we've seen the Japanese being attacked before, and today it's not just the Middle East but the Chinese who are having fingers pointed at them.

"I think it will always be that the nationalistic xenophobia in any country will always point the finger at SWFs from another land," he concludes.

"They are an easy target, and I think they are being unfairly treated, but on the other hand that's the price of success."

We're very blessed to be working in the space of one of the most historically significant booms in the economy for this region, and it's also challenging to work in that environment because the expectations rise and rise very rapidly," he continues.

These heightened expectations ensure that Daman is "constantly running" to keep up with the pace of change. Gargash must also keep his eyes trained firmly on the road ahead, mindful of the twists, turns and tripwires that await Middle East companies as the region grows.

"You're recalculating every month and in a historic boom period you're always worried about a historic bust, whether or not it's justified," Gargash explains.

"There is more regulation, there are more potholes to be wary of, the customer is more demanding, the choice of product is more elaborate, and the international client has a different set of expectations," he continues. "The proper companies should be able to work in this environment whether it's in boom times or bust times," Gargash adds.

"To be hit here and there is normal, but the company that is set up to live through all these times is the one that is going to be the winner.

He may have had a disappointing couple of weeks, but in the past Gargash has shown himself to be a winner, and the Nanodynamics ‘hit' should be absorbed without leaving a significant mark. His priority is to ensure that Daman's next move is right for the firm and for the DIFC - and so he remains an art lover playing a very scientific game.

In profile Shehab Gargash

A UAE citizen born in 1966, Shehab Mohammed Gargash is part of an established local family with interests in automobile retailing, real estate and investment management. He obtained his college education in the USA, where he earned an MBA in International Business (1988) and a BBA in Marketing (1987), both from The George Washington University in Washington DC.

Gargash has been actively involved in the development of capital markets in the UAE, both through his institutional work and in a personal capacity. His contributions have been both formal and informal, ranging from the development of innovative new capital market products, to extensive sessions with key decision makers and regulators concerned with developing the ongoing structure of the UAE's fast emerging financial markets.

Over 12 years in the UAE banking industry his roles have included Marketing, Distribution, Trade Finance and Investment Banking, first with Citibank (1989-1993) and later on with the Emirates Bank Group (1993-2001).

In 2001 he founded Daman (now Daman Investments PSC), and currently serves as CEO. Daman Investments PSC is a private joint stock company based in Dubai and regulated by the United Arab Emirates Central Bank. Capitalized at US$54.4m, the company is a privately held, non-bank financial services group focused on developing capital market opportunities within the UAE and Middle East, and has just under US$1.36bn of assets under management.

Board Memberships include his position as a Founding Board member of Young Arab Leaders (UAE Chapter) as well as AREIT (Arabian Real Estate Investment Trust), which was the first Real Estate Investment Trust launched for and in the Middle East region.

In March 2007, he was appointed to the Dubai Chamber of Commerce and Industry Board of Directors. Other board memberships include Saraya Real Estate Fund (MENA) a major regional real estate development fund and Saraya Islands (Ras Al Khaimah).

Gargash also serves as Vice Chairman of Trans Iraq Bank as well as Founder Board Member of the Dawood Islamic Bank Limited.

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