Dubai’s Shuaa Weighs Partner or Debt in Quest for Growth

Shuaa Capital PSC may seek a joint-venture partner or raise debt to boost growth at its lending unit as the investment bank controlled by Dubai’s ruler rebuilds the business after five years of losses.

The company, which this year reported two straight quarters of profit for the first time since the financial crisis, is seeking to almost double the loan book at its Gulf Finance Corp. unit, Chairman Sheikh Maktoum Hasher Al Maktoum said in an interview in Dubai yesterday. The bank is seeking to boost lending to about 1.4 billion dirhams ($381 million), from about 800 million dirhams, according to a company presentation.

Options for growth are “either a partnership, or a partial sale, or a bond,” Al Maktoum said. “We would like cheap funding, we would like more deal flow and there are many routes to get to those things” which Shuaa is now exploring, he said.

Shuaa is focusing on so-called recurring revenue, such as from lending and asset management, as it strives for consistent profit, Al Maktoum said. The United Arab Emirates economy, the Arab world’s second-biggest, is accelerating, helped by a rebound in tourism and real estate, which has made Dubai and Abu Dhabi stocks among the best performing globally this year.

The bank reported annual losses since 2008 as the financial crisis hurt share trading volume and battered property prices in the United Arab Emirates, the second-biggest Arab economy. Earlier this year, Shuaa, which unlike traditional retail banks doesn’t have access to cheap customer deposits, completed a restructuring program to reduce non-core assets and cut jobs.

Dubai Holding

Shuaa, 48.4 percent owned by a unit of Dubai Holding LLC, reported a third quarter profit of 3.62 million dirhams ($1 million), compared with a loss of 13.9 million dirhams a year earlier, helped by an increase in lending and gains at its asset management unit. Three quarters of revenue derived from recurring sources such as interest and fees, while profit at its asset management unit almost doubled as share prices recovered.

The bank’s businesses include capital markets, investment banking and brokerage for institutions. The company, which had four chief executive officers in the three years until 2012, withdrew from retail brokerage last year as volume declined.

Shuaa has the option of either attracting a partner for the parent company or one for it’s Gulf Finance Corp. subsidiary to gain resources, Al Maktoum said. It also has the option to raise debt by borrowing from banks, or from a sale of bonds or sukuk or use a combination of these options, he said.

Takeover Interest

Shuaa’s lending business may be the subject of potential takeover interest from local banks following the recent buyout by Abu Dhabi-based First Gulf Bank PJSC of credit-card company Dubai First and lender Aseel Islamic Finance, HSBC Holdings Plc said in a report Nov. 6. HSBC rated Shuaa ‘underweight,’ equivalent to a sell, with a target price off 80 fils.

The shares were unchanged at 90 fils today after gaining 64 percent this year. Dubai’s benchmark index has soared 78 percent.

Gulf Finance Corp. boosted lending 64 percent in the year to September to 814 million dirhams, helped by borrowings by small and medium-sized companies in the U.A.E. and Saudi Arabia.

Shuaa is one of many regional investment banks that have struggled since the crisis as share sales and merger and acquisition deals dried up. EFG-Hermes Holding SAE, Egypt’s largest investment bank, said in May it will sell assets and cut costs by 35 percent after an agreement to create a joint venture with Qatar’s QInvest LLC collapsed because of regulatory delays.

Small, Medium-Sized Companies

Shuaa has directed its investment banking team to focus on small- and medium-sized companies for M&A, advisory and fundraising work, “so we are working on smaller deals but more of them,” Al Maktoum said. It may also raise 200 million dirhams from banks or “other structures” next year, he said.

The combined lending by the U.A.E.’s 51 banks grew 7.2 percent in the nine months to September to 1.18 trillion dirhams, according to data from the central bank. Small and medium-sized companies account for 4 percent of total industry loans, Emirates NBD PJSC, the U.A.E.’s biggest bank by assets, said in October 2011, citing a World Bank study.

“We are looking to grow our debt book, steadily, surely and grow it into a significant size,” Al Maktoum said. “The private sector’s access to funding is still a challenge, that is what I am trying to fulfil.”

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