Business

National Bonds looks abroad to diversify

The corporation is planning an international expansion drive after selling Dh1 billion (US$272.2 million) of bonds in the first half of the year.

Bradley Hope

August 24, 2010

National Bonds Corporation is planning an international expansion drive after selling Dh1 billion (US$272.2 million) of bonds in the first half of the year, a top official of the Sharia-compliant company says. The expansion plan comes as the company tries to shift its focus from poorly performing investments in property development.

National Bonds, established in 2006, still owns at least one large property, the Dh1.5bn Skycourts in Dubailand that was due to be handed over to buyers more than a year ago. The company is also embroiled in a legal dispute and an arbitration case concerning two other large investments in property, according to court documents and financial statements. Mohammed Qasim al Ali, the chief executive of National Bonds, said the company's new goal was to "inculcate a savings culture that is badly needed" in the UAE and beyond.

Mr al Ali, who was speaking at a corporate suhoor in Dubai on Monday, said the company was in talks with banks, money exchanges and other financial institutions in neighbouring countries about selling its investment product. "More people need to take control of their finances," he said, adding that the company had created a system for UAE residents to automatically buy bonds each month through a standing order with their banks.

In 2007, Mr al Ali said 45 per cent of the funds were invested in property, but on Monday he spoke of a more balanced portfolio. The company had "always gone against the market trend of lending and borrowing" by making "diversified investments", he said. While National Bonds does not issue quarterly statements and gives few details about its investments, the company has previously disclosed that it invests about half of the funds in Sharia-compliant, short-term instruments and the remainder in infrastructure and private equity.

Aside from putting more than Dh1bn into property in 2007 and 2008, other investments include the property management company BCS Strata Management Services, the convenience store chain SouqExtra and a stake in a portfolio of schools through the private operator Taaleem. National Bonds is unique among prize-based savings schemes because it also gives its holders a return on their investments. This return dropped to 3.54 per cent last year, from 7.07 per cent in 2008 and 6.03 per cent in 2007. Investors must buy a minimum of Dh100 worth of bonds, which come in denominations of Dh10, but they can redeem them for cash at any time.

But the larger draw, financial advisers say, is the high-profile but low-probability chance of winning the Dh1m prize draw each month. It also gives out smaller, weekly prizes. In the first half of this year, more than 83,000 bondholders won prizes totalling Dh26m, the company said. More than 8.5 per cent of the UAE population owns the company's bonds. There are a total of 590,000 holders worldwide, the company said.

National Bonds, which is owned by the Dubai Government, Emaar Properties, Dubai Bank and Dubai Holding, uses the proceeds to make investments. The company must give a minimum of 20 per cent of its overall profits to the bondholders, with the remainder divided among its shareholders. The company did not divulge the total amount of funds under its control, but earlier this year it said it had assets of Dh3.7bn.

bhope@thenational.ae

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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