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Sun 13 Aug 2006 04:00 AM

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Transparency the key, claims Gargash

A leading fund manager has warned that the region must offer “more appropriate investment vehicles, greater transparency and better recourse” in order to entice western investors.

A leading fund manager has warned that the region must offer “more appropriate investment vehicles, greater transparency and better recourse” in order to entice western investors.

Speaking immediately after detailing the closure of Daman UAE Value Fund (DUV)’s flagship investment vehicle this week, Shehab Gargash also claimed that many potential Western investors still lack business knowledge when it comes to the Gulf region.

“International investors have looked at opportunities and liked them,” he told Arabian Business. “However when they come to the region they have two problems: they are not sure which are appropriate vehicles, and if they come in alone they hit walls.

“Marketing glitz is not necessary, now we actually need concrete steps,” he continued. “The most important thing is to tell a credible story.”

The DUV fund was a five-year mutual fund that saw 273.84% returns on the UAE bourse, and annualised returns of 34.76%.

Daman had considered moving into the US real estate debt market in August last year, only to postpone a mooted US$150m part-financing of a US$450m luxury hotel and apartment project for Dubai International Financial Centre.

Although Daman was well-placed to have proceeded entirely using local equity, Gargash felt that Dubai had become a more attractive proposition for global lenders and it was appropriate to explore “a more international methodology”.

“We received lots of interesting proposals but the pricing of debt was way out of line,” he explained. “We’re still awaiting offers.” Gargash confirmed, however, that Daman was slated to “have a deal close in 30 days. Debt compound we’re financing at the IFC”.

Despite recent woes, Gargash says the UAE Capital markets are primed for a significant rebound as core earnings rise, inflation-adjusted interest rates remain low and many of the better-run small companies eye distant public offerings. UAE shares delivered triple-digit returns in 2005 as companies’ earnings growth and liquidity inevitably sparked a buying frenzy. However rationalisation and a failure to fine-tune strategies within some key industries has led to a dire performance in the first half of this year, with some stock nosediving by up to two-thirds.

Gargash said that UAE’s battered bourses are still suffering from a lack of investor confidence, even without the recent violent geopolitical events in the region. He forecast a prolonged period of “low volume and no movement” for the market but suggested that the short three-week trading period between “the summer lull” and Ramadan would be crucial to ascertain the speed of share recovery.

The fund manager insisted, though, that he was cautiously optimistic that the worst was over because the robust economy and surging oil revenues continue to drive investments in large projects. “The big macro-numbers are good but there is a divergence between those numbers and the market and one will have to catch up with the other,” he said.

He blamed the recent south-heading stock on “the failure of corporates to give us the spectacular returns that they delivered last year” and “the immediate pressure on liquidity due to the margin calls by banks”. Gargash believes that the wave of rights issues last year, through which UAE companies were handed billions of dollars, was “the spark that lit the fire.” UAE banks, which he feels were over-eager to lend money to investors against shares, also mishandled the recall of these loans, which contributed to the sharp market slide. “They waited until the end for their margin calls and when they couldn’t wait any longer, they dumped these shares on to the market,” he explained.

Gargash said that, although welcome, the imminent share buyback scheme – designed for companies to return money to the UAE market – was not guaranteed to revive fortunes.

He warned that share buybacks may be abused by those with inside information, and it was still unclear what impact they would have on the market. He reiterated that the key to optimising investor confidence, at both local and international levels, was transparency.

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