There is no better wake-up call for lazy investors and cynical executives than the saga of Damas International, which last week was revealed to be more convoluted and parlous than previously thought.
Rather than look at the case as an individual incident at a company in Dubai, it should become the definitive guide for the region on how not to make the transition from a family-owned firm to a publicly traded company.
The beginnings of the story are well known. Three sons of the third generation of a 104-year-old jewellery business are held responsible by the regulator of the Dubai International Financial Centre for withdrawing Dh365 million of cash (US$99.3m) and nearly two tonnes of gold from Damas without shareholder approval. After being fined and censured, they resign their executive positions and sign a deal to pay back the company.
But that was more than a year ago. To date, no funds have been paid by the brothers, and the company has not yet come up with a comprehensive agreement between all the parties that will enable it to restructure its debts.
The reason is only now becoming clear. On top of the money the brothers withdrew from the company, they also borrowed Dh1.2 billion from banks, bringing their total obligations to Dh1.8bn. This has held up negotiations between Damas and its banks because about 80 per cent of the brothers' creditors are the same as the creditors of the company.
A complicated web links the three groups - Damas, the brothers and the banks. Some of the brothers' borrowings are guaranteed by Damas assets. The sheer complexity of this arrangement and the involvement of other parties is the reason the situation has taken so long to resolve, although officials from Damas say a final agreement is near.
What comes next will be the painful sale of assets the brothers bought over the years. These include investments in stocks, a shopping mall in Turkey, a hospital in Kuwait and a good deal of property in the UAE. Even with a recovery in the regional markets, these properties and assets are likely to be sold at a discount from the original investment.
Throughout the Gulf, corporate governance is a catchphrase that is often blazed in headlines or bandied about at conferences. It takes a real-world example to truly explain how risky it is not to have strict guidelines in place.
The Damas story, which is far from over, is like a jewel of some kind - each facet representing another consequence of the company's weak safeguards. The problems may have existed well before the company made a public offering of stock in 2008, but they began to affect ordinary and institutional investors and the larger reputation of Dubai only after that point.
A close reading of the enforceable undertaking by the Dubai Financial Services Authority (DFSA) chronicles the problems in detail. The first contravention of its regulations began at the inception of Damas as a publicly traded company.
In July 2008, the Abdullah brothers' advisers informed them they would not be able to find enough investors to subscribe to the minimum 25 per cent free float requirement of the Dubai International Financial Exchange (now known as Nasdaq Dubai). One brother then placed about $100m with Dubai Investment Group, part of the Dubai Holding conglomerate, to invest in Damas's initial public offering (IPO).
Not only did this misrepresent interest in the Damas IPO to everyday investors, but it also left Damas with a large investment in its own stock without board approval. Even for a major corporation, $100m is no small amount of money.
Other transactions disclosed by the DFSA raise questions about whether the company conducted any due diligence on its investments.
For instance, a company owned by the brothers called Damas Real Estate (which had no connection to Damas International) purchased land in Sharjah for Dh5.1m in early 2005. The brothers then used "funds belonging to the Damas Group" to erect a building on the property. Then in March 2009, one brother brought a proposal to the board of Damas to buy the building. It was eventually acquired for Dh85m.
But the DFSA said the brothers did not tell the board they had developed the property with Damas's own funds and that "an important reason for bringing the proposal to the board on this date was in order that the amount of the Abdullah brothers' drawings from [Damas] could be reduced prior to the end of the … financial year".
They did the same thing with another building in the Dubai Multi Commodities Centre free zone. Two plots of land the brothers had bought through one of their companies were sold to Damas for Dh46m without disclosing to the board the full details of their ownership and reasons for bringing the deal before the board.
The Abdullah brothers have yet to speak about the DFSA's enforceable undertaking, which stripped them of their positions at the company.
In the end, they could become the biggest victims of their own violations. After the sale of their assets under the agreement with Damas and the banks, they could even be forced to sell their 51 per cent stake in the company that their grandfather founded.
bhope@thenational.ae
KILLING OF QASSEM SULEIMANI
Jordan cabinet changes
In
- Raed Mozafar Abu Al Saoud, Minister of Water and Irrigation
- Dr Bassam Samir Al Talhouni, Minister of Justice
- Majd Mohamed Shoueikeh, State Minister of Development of Foundation Performance
- Azmi Mahmud Mohafaza, Minister of Education and Minister of Higher Education and Scientific Research
- Falah Abdalla Al Ammoush, Minister of Public Works and Housing
- Basma Moussa Ishakat, Minister of Social Development
- Dr Ghazi Monawar Al Zein, Minister of Health
- Ibrahim Sobhi Alshahahede, Minister of Agriculture and Minister of Environment
- Dr Mohamed Suleiman Aburamman, Minister of Culture and Minister of Youth
Out
- Dr Adel Issa Al Tawissi, Minister of High Education and Scientific Research
- Hala Noaman “Basiso Lattouf”, Minister of Social Development
- Dr Mahmud Yassin Al Sheyab, Minister of Health
- Yahya Moussa Kasbi, Minister of Public Works and Housing
- Nayef Hamidi Al Fayez, Minister of Environment
- Majd Mohamed Shoueika, Minister of Public Sector Development
- Khalid Moussa Al Huneifat, Minister of Agriculture
- Dr Awad Abu Jarad Al Mushakiba, Minister of Justice
- Mounir Moussa Ouwais, Minister of Water and Agriculture
- Dr Azmi Mahmud Mohafaza, Minister of Education
- Mokarram Mustafa Al Kaysi, Minister of Youth
- Basma Mohamed Al Nousour, Minister of Culture
COMPANY%20PROFILE
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Specs
Engine: Dual-motor all-wheel-drive electric
Range: Up to 610km
Power: 905hp
Torque: 985Nm
Price: From Dh439,000
Available: Now
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The Written World: How Literature Shaped History
Martin Puchner
Granta
If you go
- The nearest international airport to the start of the Chuysky Trakt is in Novosibirsk. Emirates (www.emirates.com) offer codeshare flights with S7 Airlines (www.s7.ru) via Moscow for US$5,300 (Dh19,467) return including taxes. Cheaper flights are available on Flydubai and Air Astana or Aeroflot combination, flying via Astana in Kazakhstan or Moscow. Economy class tickets are available for US$650 (Dh2,400).
- The Double Tree by Hilton in Novosibirsk ( 7 383 2230100,) has double rooms from US$60 (Dh220). You can rent cabins at camp grounds or rooms in guesthouses in the towns for around US$25 (Dh90).
- The transport Minibuses run along the Chuysky Trakt but if you want to stop for sightseeing, hire a taxi from Gorno-Altaisk for about US$100 (Dh360) a day. Take a Russian phrasebook or download a translation app. Tour companies such as Altair-Tour ( 7 383 2125115 ) offer hiking and adventure packages.
COMPANY%20PROFILE
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THE BIO
Age: 30
Favourite book: The Power of Habit
Favourite quote: "The world is full of good people, if you cannot find one, be one"
Favourite exercise: The snatch
Favourite colour: Blue
The past Palme d'Or winners
2018 Shoplifters, Hirokazu Kore-eda
2017 The Square, Ruben Ostlund
2016 I, Daniel Blake, Ken Loach
2015 Dheepan, Jacques Audiard
2014 Winter Sleep (Kış Uykusu), Nuri Bilge Ceylan
2013 Blue is the Warmest Colour (La Vie d'Adèle: Chapitres 1 et 2), Abdellatif Kechiche, Adele Exarchopoulos and Lea Seydoux
2012 Amour, Michael Haneke
2011 The Tree of Life, Terrence Malick
2010 Uncle Boonmee Who Can Recall His Past Lives (Lung Bunmi Raluek Chat), Apichatpong Weerasethakul
2009 The White Ribbon (Eine deutsche Kindergeschichte), Michael Haneke
2008 The Class (Entre les murs), Laurent Cantet
The BIO:
He became the first Emirati to climb Mount Everest in 2011, from the south section in Nepal
He ascended Mount Everest the next year from the more treacherous north Tibetan side
By 2015, he had completed the Explorers Grand Slam
Last year, he conquered K2, the world’s second-highest mountain located on the Pakistan-Chinese border
He carries dried camel meat, dried dates and a wheat mixture for the final summit push
His new goal is to climb 14 peaks that are more than 8,000 metres above sea level
Surianah's top five jazz artists
Billie Holliday: for the burn and also the way she told stories.
Thelonius Monk: for his earnestness.
Duke Ellington: for his edge and spirituality.
Louis Armstrong: his legacy is undeniable. He is considered as one of the most revolutionary and influential musicians.
Terence Blanchard: very political - a lot of jazz musicians are making protest music right now.
The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
North Pole stats
Distance covered: 160km
Temperature: -40°C
Weight of equipment: 45kg
Altitude (metres above sea level): 0
Terrain: Ice rock
South Pole stats
Distance covered: 130km
Temperature: -50°C
Weight of equipment: 50kg
Altitude (metres above sea level): 3,300
Terrain: Flat ice
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
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.”
Shooting Ghosts: A U.S. Marine, a Combat Photographer, and Their Journey Back from War by Thomas J. Brennan and Finbarr O’Reilly
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Company%20Profile
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The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
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