Monday, July 30, 2007

Sher Value:Finally a voice for the buyers.

Dubai’s Law no 8, issued in October of last year, but promulgated only last week by its publication into the Official Gazette, brings to the forefront a major development that favor the purchasers of homes. This is a change for a large number of the developers who have been selling off plan units but not linking the payments to the construction schedule. The result of not linking the payments to the construction process has meant that some developers have larger sums of money than the comparative work on the construction itself. For this class of developers the new law will change the way they have been operating.

For those developers who had been linking the payments from the end buyers to the progress of construction the adjustment to the new law will not be an issue. While a few procedural steps have been introduced in the new law, one of he procedures are onerous. Interestingly contractors will like the new law as it will ensure that within seven days of he approval of their bill they will be paid, reducing the risk of delayed payments.

On the face of it the law makes no exceptions for the large developers like Emaar and others who are partially government owned and have established a good track record. In addition, the law does insist on the release of the final 10% after one year and only when all the buyers have registered their units. This does pose some problems as a large number of end buyers do not register their units and rely on the sale and purchase contract as the basis for further sales. I would suggest to the authorities a few clarifications to the law.

I would suggest that provision be made that if a developer is registered with the Department once he would not require re-registration. I also recommend that developers be rated by the Department indicating the number of buildings or projects they have successfully completed and delivered; thus the buyers will know what a 3 star developer is better then a 1 star developer. I would also recommend that provision for the final ten percent be changed to be on either all the units being registered or one year which ever happens first.

The impact of the new law will emerge in the coming weeks. My suspicion is that the speculators who have been buying plots in the past with the intention to flip them will feel the first pinch of the law. On the whole the long term effect of the law will be positive and bring much needed confidence to the market. It must be clear that the law suggests by inference that should a developer build with his own resources and after completion of the building offer completed units for sale the provision of the new law do not apply.

My verdict: a Good law and was much awaited.

Sunday, July 22, 2007

Sher Value: Management Ethos

These days it doesn’t take much for someone to spot a well run company from a terribly run company; all you need is good eyesight. As I move into helping my wife create a new angle to management training by using horses to learn management skills, because horses never lie, I am noticing more things. My vision was always good to spot management practices, but then sometimes we miss out the small detail, and it is there that difference lies.

My case in point of good management manners comes from Dubai Holding, and its many subsidiaries, and I have had the pleasure to visit, on a number of occasions its Chairman and many of its rank and file management and staff. Did you notice they ALWAYS walk you to the elevator and will say their good byes there, even if it’s the Chairman or a manager of small unit of this giant company. Now that is a fascinating management habit, it warm, it’s engaging and most of all a great habit to have. I am told that then they have internal meetings, after the meeting is over everybody, and I mean everybody, will collect their own litter like coffee cups etc and put it away and tidy up the meeting room. No one leaves the room till this is not done. I think this is such a refreshing approach to management, team building and camaraderie that it is almost bespoke and is the hallmark of a company destined to achieve a great deal more.

I have also seen many other companies who could learn from these examples. There are numerous examples of bad management practices too. You walk into some offices and you feel that air of management neglect. The place reeks of it, people’s hollow smiles, and the silent fear are all visible. One has no option but to stand back and evaluate how a company that cannot take care of its people progress. I often have argued that before we are about being in a business we have to first accept we are in the people business.

Many companies have got this wrong, they will under pay, mistreat and allow the worst sort of politics and practices to come into the office environment and then they wonder why people do not work for the company with zeal and enthusiasm.

I am indeed impressed that a huge company like Dubai Holding has developed a management ethos that is so powerful and visible from the outside. It is all the more important because being what Dubai is all about it highlights the management ethos that almost becomes a trademark of its own. Indeed some of the best management practices are rooted in a sense of humility and sincerity. One has to hope now that others will notice and emulate this example of good management. The dividend of this is unseen and unmeasured but trust me its perhaps the strongest item on the balance sheet of the company: Management Ethos.

Sunday, July 15, 2007

Sher Value: Class Actions-A Matter of Business

One of the amazing things about the promotion of capitalism and free economy is that even what are ostensibly service sectors get into the act of making money. Back in the 1960’s the idea of a class action suit was to reduce litigation costs and to bring some equity into the claim process should the class action be successful. It was a bold legal principle meant to champion the cause of the under privileged and the poor who could not afford a battle against a corporate giant.

Fifty odd ears on and class actions have become a business; some banks also have created private equity funds that back the legal and associated costs of class action battles. The result is that mushrooming of court dockets with class action cases some of which have little to do with justice than with the issues of commercialism.

The case of the case against Wal-Mart, Dukes versus Wal-Mart, filed in 2001 indicates how an employee, Betty Dukes, who was reprimanded by a female supervisor for prolonged lunch breaks, brought a $11 billion class action suit against the company on the basis of alleged sexual discrimination at work. Seven years later the battle continues with major funding backing Dukes s the idea of preying on a corporate giant is appealing to many; irrespective of the merits of the case.

Class action lawyers are not the sort of folk I will have for dinner, (does that mean I have violated some right of theirs), not because I question their social or legal skills, but simply because its too predatory a practice for me to accept. I am all for the underdog, I am all for justice, but can I accept the fact that most class action lawyers will take close to 60% of the settlement in cash. In some cases we find that some of the plaintiffs end up with ‘coupon settlements’ where all they get is coupons to buy more of goods and services from the defendant company, while the lawyers, nit surprisingly, have walked off with most of the cash settlement.

The expansion of this phenomenon has developed two aspects, one is where lawyers are trying to establish international jurisdiction of US courts for class action cases and secondly a move is under way to expand class action norms into the European legal system. This is a dangerous trend as it makes a mockery of what were essentially legal principles to establish fairness and equity. There is talk of bringing class action cases against a number of countries over issues of labor law and other human rights issues. While I am all for fair treatment of people I do have a major problem with American lawyers taking such aggressive positions ignoring their own track record. Have forgotten that some of the ‘Black Code’ laws of the Southern States in the US were formally abolished only about a decade back. Perhaps there is an argument for a class action case against Mississippi for allowing the Jim Crow laws and the Black Codes to continue so far into the progress of human history, and why not file that case in New Delhi? But then this is business not justice.

Saturday, July 14, 2007

Sher Value: Take Over Fever & Diversification

The news is all over the place, a stake in EADS, Barneys under bid, Bank stakes being claimed and the list is getting to be endless. There is a plethora of equity and acquisition deals being done from the Middle East into the Western markets. The deployment of overseas investments representing money leaving the Arab world for investment abroad just this year alone has been estimated at US$40 billion, and probably does not include the reserve transactions from public sector strategic investments. It is estimated that the Kuwait Investment Authority, KIA, according to one public source, has reserves of US$213 billion, and indeed a great deal of this was rebuilt after the devastating impact of 1991 political developments in the region. My personal guess, and I emphasis only a guess, is that the reserves of the GCC countries are perhaps more than $1.2 trillion and perhaps represents the largest singular segment of investment buying power in one region.

Indeed there are a number of countries who singularly have a higher Gross Domestic Product, GDP, than the entire GCC bloc, but it's the financial reserves, especially when related to the population and the investment opportunities within the region that count. Even though the real estate and infrastructure of the region has been expanding at what seems a break neck speed, in the larger scheme of things we have to accept that the growth of financial assets and financial reserves has been more robust and consistent in the past decade than anything else. This means that financial assets and their accumulation is far outstripping the growth in say the real estate sector.

What this does mean is that even though the strong liquidity in the market will continue to fuel the real estate expansion, in addition to other elements of diversification, the need for liquidity to go overseas will be a major drive of the investment philosophy and it is something that cannot really be avoided. The acquisition of financial assets and companies is a normal behavior of this strategy.

As much as targeting mature companies in business conditions where they are either undervalued today or are likely to be great investments over the horizon the strategy again is really akin to stock picking. However, there is an argument to be made of going into economies where the business case is more of an emerging market, where companies may not have emerged into the limelight. I believe both India, and China, and other smaller economies have a number of companies who would be ripe for acquisition and actually be propelled onto the world stage through modernization and proper systems and business positioning. This is where the marvel of capital and expertise can best be applied, keeping in mind the impact of these emerging economies is massive and ignoring them would be a vital mistake.

Wednesday, July 4, 2007

Sher Value: Conservation and Construction

As the week came to an end, for a long time Gulf resident, the news of Oman's Arabian Oryx sanctuary being closed off and losing its Habitat status with UNESCO was a sad event. Once this sanctuary, largely supported by the Government of Oman and PDO (Petroleum Development of Oman) boasted of close to 400 Oryx, today has dwindled to only four pairs of breeding Oryx, as a result of a number of factors, ranging from poaching to mismanagement. This is clearly a case where the intention to do good was always there it was just managed in the wrong way.

For those who know me are aware that I have always advocated conscientious development and this implies the need for sustainable development and most importantly to preserve the natural resources of the country and the region. Indeed, natural reserves like Al Maha are having populations of Oryx that can be developed into sustainable herds, as indeed the program that Abu Dhabi under ERDWA has launched for sustainable sanctuaries. These are important programs and they need careful planning and support.

While there is a propensity for people to believe that because the government has a great deal of money public and corporate funding is not needed, the reality is that we do need the corporate level to be involved in these efforts because if nothing else they increase awareness. In addition, as we continue with the construction boom, we also bring a much needed awareness to the issues of conservation and environmental impact. Admittedly in the past two odd years I have seen the authorities to get really strict about environmental impact of projects a great deal more needs to be done.

As we go off reclaiming land from the sea, and tearing down yet another sand dune we have to be aware that we are dealing with a very fragile environment and steps we are taking today will have profound and perhaps irreversible impact on the environment and the flora and fauna of the region. Call me a traditionalist but I did enjoy, not too long back, the early morning drive, only 10 km from the city to see gazelle and watch them in their habitat, and today that land is being torn down by bulldozers, indeed with the gazelle having been relocated. But we do need to say a lot more about what is being done to balance the needs of construction with the demands for conservation.

Indeed, a lot is being done about it, but a lot more needs to be said about it. It is here that awareness is important and this awareness has to come from the corporate sector and that is the best way forward. I would like to see more companies step up with campaigns for the environment and what needs to be done to save it. This is the way forward and we have to consider it with seriousness. In the same measure it would be good for a more public profile to be taken by the government on the issue of conservation.