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Sun 20 May 2007 12:00 AM

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What now for Amlak?

Rivalry and resignations have forced Amlak Finance to make some tough decisions.

Three months ago the region's first business confidence survey, launched by HSBC and YouGov Siraj identified competition as the biggest threat to the future growth of local companies. Just days later one company felt its full force.

Amlak Finance, the UAE's first ever mortgage lender, founded in 2000 and converting to a publicly listed Islamic institution 45% owned by Emaar in 2004, has undergone one of the biggest upheavals of its kind ever seen in the Emirates business community. A pair of strong money-spinning, flexible rival companies; a ‘rejected' Islamic banking licence; two board level resignations and falling profits have forced Amlak to make some tough decisions. As its new chairman Nasser Al Shaikh told
Arabian Business

, in the recent past the company has "lost focus", "committed mistakes" and now needs to seriously address how to turn around its fortunes.

First quarter fall

Competition between wholly or partly government-owned entities has, until now, been a rare occurrence in the region, but times have changed. Amlak's main competitors Tamweel and Dubai Holding's new operation, Dubai First, have rapidly shown how serious they are, announcing huge profits - a fivefold increase for Tamweel as well as rivalling the UAE's first fully fledged property financiers in both size and investment power. In addition, both competitors have also launched new products and taken serious steps to expand further afield across the Middle East and North Africa. Meanwhile Amlak saw its net income in the three months to March 31 drop by 35.4%.

On April 3 Dubai Holding launched its first consumer finance company, Dubai First, which will initially offer credit cards followed swiftly by home mortgages and other undisclosed financial services. Ironically, only a month ago Emaar, Amlak's major shareholder, issued 2.364 billion new shares to Dubai Holding - the government's investment arm and the parent company of Dubai First - in lieu of land, granting the conglomerate a 28% stake in the property giant. At the time Tamer Bazzari, director of Dubai-based Rasmala Investments, described the move as "effectively giving the government of Dubai, in its different entities, control of the company."

This was the first sign of fierce competition between companies of this kind - a groundbreaking move that no one expected. Not only that, it was the starkest warning yet that Amlak seriously needed to re-think its strategy both in the immediate and the long-term future.

The real problems, however, began 12 weeks ago. On March 5 the company's charismatic founding CEO Mohammed Ali Al Hashimi quietly tendered his resignation to concentrate on his other executive chairmanship at private equity and investment business Zabeel. Two months later he stepped down and an immediate replacement was sought.

Three weeks after his resignation on March 29, Amlak held its Annual General Meeting (AGM) receiving two further blows in the process. Its chairman, Mohammed Alabbar, who is also chair of Emaar Properties, announced he was stepping down in order to "fully concentrate on Emaar's growing international focus".

The second blow came only minutes later. During the AGM a comment from the floor suggested that Amlak's application to the Central Bank for an Islamic banking licence looked "unlikely" and that other funding routes, such as a sukuk (similar to its US$200m Islamic bond issue in July 2005) should be considered and made available. If Amlak was successful in applying for a licence it would be able to take deposits and raise additional funds. A spokesperson at the time said the statement was made to "reassure shareholders", while board members announced that the licence had not been ‘rejected' but that the official letter of application was "still being reviewed and that it was still "live".

Only a week ago Al Shaikh declined to comment on the reasons behind the apparent snub and it still remains a mystery why the Central Bank has failed to respond to Amlak's application. Asked if the CB's failure to reply worried the board, Al Shaikh was immediately on the defensive calling the lack of an Islamic banking licence "unimportant".

"We have not been notified by the Central Bank as to why we were rejected but as far as we are concerned the application is still live. Sure, it would reduce the cost of funding if we decided that we needed to raise finance but it is not important right now," he said.

"We do not want to become a large player in Islamic banking, we have one of the best books in the country and it is still easy for us to raise funds. We've done it before and we can do it again."

He added that the business was working with "more than" 10 of the UAE's banks and that this would "hopefully bring an alliance between Amlak and a leading institution to secure its funding for the next two years".

With Amlak's first quarter profits significantly down on market expectations Al Shaikh acknowledged the figures were "disappointing", but added that the company would recover "significantly" in Q2 of this year. "We were the first mortgage and Islamic home financing company in the UAE. We are market makers, not market players, but the market dynamics are changing and more competitors are on stream now," he said.

What came next (during last week's media roundtable) was a brave and important admission, and the only thing he could say in order to clear the matter up, for now. The new chairman and existing board member, Al Shaikh, apologised for not communicating the company's changes quicker to the media stating that he needed "time to better understand the company and that it was "not an easy thing". He told Arabian Business that he was determined to "refocus" the company adding that there was "a lot to do".

"We lost focus for a while and went into corporate financing. We were taken in by the boom in the stock market and went heavily into stocks. It went well for a while but this is not us. We neglected our core business - Islamic home finance - and we have committed a few mistakes that we have learned from."

The question is, will it recover? Amlak has been the second worst-performing stock on the Dubai index this year, posting its second-smallest quarterly profit in two years in the first quarter of 2007 due, it says, to higher costs and delays in property projects limiting revenue growth.

The turn around plan

The two new men in charge, as well as the newly expanded seven-man board, are now charged with getting the business immediately back into shape.

Career banker and previous head of commercial banking at HSBC Amanah Arif Alharmi replaced Al Hashimi as CEO. He was reluctant to give anything away during our meeting, having only been in charge for two weeks. Al Shaikh, on the other hand took charge of the discussion and added that "Q1 was not what the market expected" and that he was confident Amlak's profits would exceed last year's results. An announcement that he has re-emphasised to the media over the past seven days.

"We will introduce new product lines, take away auto financing and leave that to the banks, attract more international investors and identify new markets for expansion as well as sign deals with other developers," he said.

"We are in discussions with several regulators and developers but not across the Gulf. We have signed an exclusive deal with [Abu Dhabi developer] Sorouh and will form an alliance with Sama Dubai (including the 65 billion dirham waterfront Lagoons project) that has interests in a variety of markets including Morocco," Al Shaikh added.

On the possibility of the real estate bubble bursting towards the end of this and the beginning of next year, he said that Amlak was "fully prepared". "We have also planned for a possible real estate slowdown and any correction in the market as well as any fluctuation in the interest rate with affect our P&L (profit and loss). We are ready for it and this is why we need to look at other markets."

In terms of expansion he was equally confident that Amlak would be able to conquer more ‘emerging markets' in order to make up for the losses incurred in early 2007. "We are licenced in Egypt. In 7000 years of history we are the first Islamic home finance company in the country and we also have a joint venture in Saudi Arabia with Saudi Investment Bank that will be in place by the end of the year. We are also testing the waters in Morocco, Turkey, Pakistan and Syria and we are still working with regulators."

Let's hope the new board can turn things around between now and the end of the year.

Look out for an exclusive interview with the new chairman and CEO of Amlak finance.

Amlak — a brief history

Nov 2000:

Established as conventional mortgage company

Jan 2004:

Converted to a public listed Financial Institution 45% owned by Emaar

Mar 2005:

US$75m real estate fund

Jul 2005:

US$200m Sukuk

Sep 2005:

Capital increase through rights issue

Jan 2006:

Management takes decision to expand locally and internationally

Apr 2006:

Opening of Abu Dhabi branch

Mar 2007:

Establishes Amlak Finance & Real Estate Investment Egypt

Amlak: the last 12 weeks

March 5

CEO Mohammed Ali Al Hashimi resigns and steps down two months two months later

March 29

Annual General Meeting (AGM)

Chairman Mohammed Alabbar steps down

A comment made at the AGM suggests that the licence made to the Central Bank for an Islamic institution looks "unlikely" and that alternative funding routes, such as a sukuk, should instead be considered. A spokesperson at the time said this was to "reassure shareholders". Board members announce that the licence was "not rejected" but that the official letter of application was "still in the process of being reviewed."

April 4

Competition increases for Amlak with Dubai Holding launching ‘Dubai First', its first consumer finance company.

April 24

Amlak, Dubai's second worst performing stock this year, posts its second-smallest quarterly profit in two years after delays in property projects restricted revenue growth. Net income in the three months to March 31 falls 35.4% to 24 million dirhams (US$6.53m), compared with 37.13 million dirhams in the year-earlier.

May 8

Amlak's main rival, Tamweel, posts an almost five-fold surge in first-quarter net profit to 50.47 million dirhams, more than double Amlak Q1 results. According to Azza Al Arabi, an equity analyst at EFG-Hermes, Tamweel was more profitable because it focused more than Amlak on getting revenue from home loans on properties that would be delivered in the future rather than completed projects.

May 9

Amlak Finance announces that it expects profits to grow this year after agreeing with more developers to offer home loans for their projects. "Our goal is, toward the end of the year, to return to profit-growth and for 2007 profit to surpass last year," says newly installed chairman Nasser al-Shaikh.

May 12

The UAE stock market regulator announces it is looking at why shares of Arabtec Holding, the country's largest listed construction company, and the shares of other firms have surged. Arabtec shares jump almost 13.6%, their biggest daily gain in a year. Amlak's shares surge almost 15% on May 9, while shares in Sorouh and Aldar leap 27.6% 16.3% respectively.

May 13

Amlak's new chairman again reiterates that he expects profits to grow in the second quarter. "There will be growth in our profit and we will recover from the deficit." He did not explain why net income would rise.

May 15

Al Shaikh and new CEO Arif Alharmi meet the press for the first time, apologising for not explaining what had happened to the company in Q1 adding that the company had "lost focus". Al Shaikh adds that Amlak will "seek an international credit rating and develop strategic partnerships with key financial institutions.

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