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Dubai-listed Shuaa Capital is looking to foster new partnerships in the region and further afield while its board runs diagnostics to establish the cause of losses which mounted over the previous three quarters.
The investment bank is looking ahead to the next phase of the upswing in GCC market activity amid improving dynamics with investors, stakeholders, regulators and clients, its management said.
It could also entertain offers for its offshore vessel (OSV) fleet, which was established through its Stanford Marine and Allianz Marine transactions, but only at the right price, according to CEO Wafik Ben Mansour.
“I think the market is recognising the effort that has been put in place by the board and the management to turn the corner,” Ben Mansour told Zawya.
The turning point comes after a nearly year-long battle to restructure debt and recapitalise after a bond default in October 2023, barely two months after the exit of its largest individual shareholder.
The Dubai-listed entity on Wednesday reported a loss attributable to shareholders of AED 29.4 million ($8 million) for the second quarter of 2024 narrowing from a loss of AED 95 million in Q1. In Q2 2023 Shuaa posted a profit of AED 5 million.
Revenue reached AED 20 million in Q2 2024, from AED 30 million quarter on quarter (QoQ). Revenue in Q2 2023 was AED 38 million.
Accumulated losses reached 945 million from AED 916 million in the first quarter of 2024 and AED 829 million at the end of 2023.
Beyond M&As
Managing director and board member Ahmed Alahmadi, who returned to Shuaa last year after having previously served from 2019 to 2020, said the entity had a track record that will help achieve objectives and optimisation over the next 12 to 18 months.
Partnership models beyond mergers and acquisitions are being considered to compliment business lines and expand product lines, he said.
Activities in recent years have included serving as financial advisor for the reverse merger of PAL Cooling and Abu Dhabi Securities Exchange (ADX)-listed International Holdings Company (IHC) in 2019 as well as the privatisation of Dubai Parks & Resorts.
Shuaa also placed an alternative debt facility and exited from UAE vertical farm operator Pure Harvest, which raised $180 million from global investors in 2022.
Alahmadi said the future focus will be on mid-market corporates, both sovereign and private-backed entities, and affluent individuals.
“We have a strong existing network of clients and will look to expand our offerings on both investment banking and asset management in the years ahead,” he said.
What went wrong?
Despite losses and a share price which fell in March, Ben Mansour said Shuaa is operationally profitable, but there are two issues, impairments from legacy assets and financing costs due to inherited debt, which the entity has been trying to put behind it.
Auditors Crowe Mak said the group is in breach of the covenants on a bilateral facility, and as a result, an AED 208 million loan is classified as repayable within twelve months.
Shuaa’s share price dipped to AED 0.11 in March 2024 and the company teetered on a cliff edge with its $150 million bondholders after its October 2023 default, coming back from the brink when it reached agreement with bondholders for a second time in April.
Long-dated assets, short-term liabilities, high interest rates
Alahmadi, who is also CEO of Al Baher Real Estate, a significant Shuaa shareholder, said there had been misalignment in the assets and liabilities of the business.
“When you have that asset/liability mismanagement, and when you accumulate to it some risk management procedures that were not as adept as to what a financial services company would expect, you end up where we are today.”
The board is addressing and tightening risk management and governance, with the main focus being on the asset liability mismatch, he said.
He added that entities are exposed to increased risk when long-dated assets held for an extended period are coupled with the maturing of short-term liabilities. This is especially acute in a high interest rate cycle.
One such asset is London luxury property development One Palace Street, which dates from 2013.
While Shuaa’s real estate unit, Northacre, was the developer, the development was owned by special purpose vehicle (SPV) Palace Revive, which went into administration in 2023 with debts including an unpaid development loan of £320 million ($411 million) on a project which was valued at between £600 million and £615 million.
Once a sure bet, the London prime property market has been lashed by the impacts of Brexit, COVID-19 and post-Ukraine war sanctions on wealthy Russians.
Ben Mansour said while the development, which Shuaa inherited as a legacy asset in a reverse merger with Abu Dhabi Financial Group (ADFG), was of good quality, timing and costs were not controlled, and led to “significant losses” and impairment in 2023.
UAE projects will be the future focus, he continued, including W Residences and Ocean House on The Palm Jumeirah, Dubai. He added that significant returns of 30% are expected in 2026 for Ocean House.
Shuaa’s share price rallied upon its return to the market last month following its suspension for delayed filing of Q1 2024 financial results, and it often saw the highest volumes traded on the DFM, but Alahmadi said the share price is just one metric of a company’s performance.
“If you are producing shareholder value and there is belief in the story and philosophy you’re sharing with the market, then your value will catch up to it in the medium or long term,” he said.
The future
Shuaa’s proposed mandatory convertible bonds (MCB) will improve its balance sheet by an additional AED 500 million, Alahmadi said; one tranche of $75 million will be offered to existing holders of its outstanding bond and a second tranche of, $100 million will be offered to new investors.
Linklaters has been appointed as legal advisor, and the MCB proposal is submitted to the UAE regulator the Securities and Commodities Authority (SCA).
Ben Mansour said there is demand for Shuaa asset management from within the region and from international entities looking for partnerships to enter the space in the Middle East, enabling them to combine Shuaa market access with global expertise.
There is cause for optimism, he concluded, with demand and attention coming Shuaa’s way in recent months, as well as new talent being attracted, including hires such as a chief legal officer, head of capital markets and senior executive officer, something that would not have been possible a mere six months ago.
(Reporting by Imogen Lillywhite; editing by Seban Scaria)
