On governance and denial, from the UAE to Wall Street

Last week Arabtec announced a recovery plan, as detailed in a stock market filing. There was no report on how corporate governance would be enhanced for a company that had a loss of Dh2.3 billion in 2015 and Dh3.4 billion in 2016. It is my humble opinion that if things keep going wrong and neither the shareholders nor the board seem to change then changing executive management every couple of years isn’t a strategy, it is random action.

More fascinating was that on the same web page of The National was an article on how Expo 2020 would improve the job market this year. It would seem to me that the sector that would benefit the most from Expo 2020 is construction. And yet Arabtec is saying it will stabilise in 2017, prepare in 2018 and grow only in 2019 – which is really too late to be getting construction orders for the massive project that is Expo 2020.

So the recovery plans – one for a company, one for the economy – seem inconsistent with each other.

Denial isn’t just a river in Egypt folks.


The strange thing, denial, the state of mind not the river, seems to be afflicting analysts. For example, Emirates NBD, currently the largest bank in the UAE, has outstanding loans and receivables of about Dh243 billion as of end of fiscal 2016. Of that Dh130bn, or 54 per cent, is to the International Corporation of Dubai (ICD), a government-related entity that is the 56 per cent majority shareholder of ENBD. ICD, to its credit, issues financial statements. Since it consolidates its share of the financial statements of ENBD, it is too complex to fully study for the purpose of this article. However, it is important to point out that ICD is leveraged 270 per cent and yet ENBD lent ICD 65 per cent of its (ICD’s) equity.

There is absolutely nothing sinister here, in fact there is a refreshing level of transparency. But if we are to avoid falling into a state of denial the financial analysts at the investment banks, asset managers and brokers need to do their job and explain to the investing and depositing public what all this means in terms of their risks and returns. When the government provides such a high level of transparency, why are we not getting the same level of transparency from the financial services sector in the form of a detailed analysis on what this means?


Speaking of denial, Snap, the US social media firm that lost about US$500 million last year, had its IPO recently with a valuation of $27.8 billion. It is important to note that America’s most famous river is the Mississippi. Sadly, demississippi is not a word that describes a state of mind. Perhaps it should be. Demississippi: a denial so big that the patient believes that buying shares in a financially worthless company at extremely inflated prices with the hope that there is someone who is dumber and greedier than them to buy it from them at an even higher price is a sensible investment strategy. I think demississippi is cooler than unicorn. Lots of curves.


Speaking of companies that lose a cool half a billion dollars, Tesla lost $667m last year. I know this because I read an article that headlined Tesla’s revenue in China. The article continued talking about Tesla’s finances with no mention of profit. Always a red flag, that – it’s like hearing “they have a nice personality” in a social situation. Commercial ability 10 per cent, PR ability 110 per cent. I wonder if people realise that unicorns are a fantasy created for children? Coincidence? I think not.


Hat tip to Ali Khaled on his article UAE club football’s finances need urgent attention. Personally, I am terrified that the sports community has come out of its denial while the rest of the economy seems to remain in it, or in some cases in demississippi. Maybe if we could lever our fin­ancial services communities out of their coffee shops, restaurants and international food courts and have them get physically active, so oxygen-carrying blood can reach their brains. Just a theory. But in my defence, a better theory than doing nothing and hoping for a miracle.


Another article proclaims GCC debt draws Asian investors and talks about how the gauge of this investor interest is how much they buy and how much is issued in Asian currencies. I believe that there might be a little confusion here between supply and demand. Interest rates relative to risk is the primary driver of investors, there was no mention of credit risk changes or of interest rate changes. Also, if the total supply of debt increases sharply relative to global issuance then it is not a surprise to see it increase in investor portfolios. The Nile has beautiful cruises, especially embarking in Aswan.


I want to close about an article that covered an Emirati law school graduate who was looking for a job in the Dh9,000 range and turned down an offer of Dh3,000. On LinkedIn, there were several comments that showed people’s unwillingness to read the article and instead jumping to conclusions. Several assumed that since the lawyer had just received a law degree that she was a fresh graduate. Law school is usually post undergrad and the article clearly stated the lawyer was 30 years old. Several of the comments stated that the lawyer should have accepted the Dh3,000-per-month job and built her career, completely oblivious to the statement in the article that the offer was in an unrelated field. What saddens me is that these commenters either can’t read, can’t think or are outright racist.

I’ve said it before and I’ll say it again. The private sector will absolutely comply with the government’s employment objectives. The only choice that these companies have is to do it in an orderly manner now, or have it forced on them later (soon?). Social backlash with regards to ignored government policies, the rights of these Emiratis, will come and those who are found wanting will pay a steep financial price.

Oh, and commercial monopolies and bank security cheques are destroying our economy. Demississippi.

This article was originally published in The National.

3 Comments

  1. Sabah, any idea what ICD’s leverage was pre-Great Recession? Is that information publically available?

    1. It sure but their website has lots of info.

  2. Denial isn’t just a river in Egypt folks. – Nice one

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