Sher Value: An elegant end.

Just when we thought we are going to be in for a long fight the tables turned neatly with the announcement that Borse Dubai and Nasdaq had arrived at a settlement where by after the purchase of OMX, Borse Dubai will swap all the stock for a stake in both NASDAQ and the London Stock Exchange. In a sense it clearly shows that the spirit of compromise was there on the side of Dubai and that its interest in OMX was not so much about controlling all the stock but to consider viable investments, irrespective of the size of the shareholding. From Borse Dubai’s perspective that is important is that with this deal they get 20% of NASDAQ shares and 25% of LSE stocks, which are significant shareholdings in the exchanges.


The announcement has barely hit the airwaves when there was noise about the ‘implications’ of this deal on ‘US security’. Some have argued that this is reminiscent of the DP World’s take over of P&O which resulted in 6 US ports being owned by DP World and what followed was an over exaggerated drama on security and others aspects. In the end the 6 ports management was sold off to other operators allowing the P&O deal to continue. Senate Banking Committee Chairman Christopher Dodd called for a ‘careful review’ to ensure that there are no security implications from the deal whereby Borse Dubai owns 20% of a US stock exchange.

I find politicians to not only be naïve but also seriously myopic. The honorable Chairman Dodd should ask for the foreign holdings report from the US Treasury department, and indeed he will realize that a 20% stake in their stock exchange is the least of the issues. Foreign Holdings of US treasury debt have increased by 50% between 2003 and 2006. In addition more than half the US current account deficit is funded by foreign government purchases of US Securities(US$448 billion in 2006). Between China, Japan and the Arab oil producing countries they hold 60% of US securities and any decision by them to reduce these holdings will cause a serious damage to the US financial system.

NASDAQ is a US$ 4 billion market cap company, hardly the sort that would cause a national catastrophe if 20% of NASDAQ is owned by Borse Dubai. Indeed as President Bush said a review of the deal is needed and Democratic leader Nancy Pelosi call the deal as being different from the ports deal and more a ‘marketplace’ issue and nothing else.

The hawks in Capitol Hill should be careful about raising the hysteria level too much on what is a simple financial transaction. Let me assure you that a 20% stake cannot do any harm to US security as it does not even give the new shareholder the power to appoint a doorman at the exchange entrance. The vulnerability of the US financial system is through the foreign holdings and more a result of economic weaknesses, as indeed a continuing slide of the US dollar makes the investments for foreigners less attractive. So stop worrying about friends buying some stock.

Sher Value: OMX bid

In the long history of bidding wars, the OMX issue will eventually go down as just another bid. However, the detail in the fine line is always difficult to read; quite simply NASDAQ, the US exchange, bid $3.7 billion for OMX the Nordic exchange. A few days later Borse Dubai bid $4 billion all cash for OMX, in comparison to the partial cash, partial stock deal of NASDAQ. I am no rocket scientist but clearly the Borse Dubai deal is better, but the surprise is that the management of OMX led by Magnus Boecker have seemingly thrown in their lot with the NASDAQ bid.

First of all the rules of any bid are that the management of the company does not take sides. Secondly, it would seem that the NASDAQ proposal is for Mr. Boecker to the chairman of the combined company that will be created by the NASDAQ-OMX combination. Mostly importantly, the NASDAQ bid also assures the senior management will be given generous pay rises which are built into the plan that NASDAQ has submitted for the combined company.

In the most lenient analysis one cannot escape the fact that management is being bribed by the offer, and clearly it is in their interests to work against the Borse Dubai bid for the company irrespective of the merits of the case. The Wallenberg family, who own 10% of the OMX stock have also joined the fray with comments indicating that the NASDAQ bid might actually be higher when analyzed compared to the Borse Dubai bid! This I must see because the NASDAQ offer in August included a swap of stock of 0.502 stock of NASDAQ for each OMX share that are ofcourse susceptible to the vagaries of the stock market. Nevertheless to say that $3.7 billion is more than $4 billion is not the sort of thing that one’s math teacher will be very proud off.

We also have to consider the argument that a transatlantic link up for OMX is better than a link with the markets in Dubai. NASDAQ’s bid comes on the heals of its failed bid for the London Stock Exchange, and increasing pressure from changes to the way securities are being traded in the US, i.e. the proposed Goldman Sachs ‘single dealer platform’ which will drive exchange driven benefits more into a seamless electronic trading environment. But then this could all be an ego trip for Bob Greifeld, the CEO of NASDAQ who loves to battle; just consider the recent move to block LSE from issuing new stock to funds LSE’s proposed take over of Borsa Italiana.

Compare the conduct of NASDAQ as it battles at home, goes nasty after a failed bid for LSE and then basically is offering silver spoons to the management of an exchange it is trying to take over.

In contrast for OMX the opportunities that come from joining one of the most dynamic financial plays of modern history cannot be under estimated. In the first instance the liquidity that comes from the Gulf and through Dubai is phenomenal and through my days as a banker I know that fund managers love investments coming from this region. What OMX will find is a new doorway opens to them, rather than enter portals into the US market that are frankly well traversed and over valued. Yet I would close on the note that NASDAQ doesn’t fight clean, but were it another other competitor than Brose Dubai, who don’t like ugly battles, the chances are Bob and Boeckr would find themselves fighting legal battles for what is essentially a pay off to management.

Sher Value: Inflation Monster

We all, without exception, love growth, it symbolizes that we are doing something positive and the benefits of our policies and hard work are bearing fruit. However, as most economists will tell you, growth comes with its challenges and pitfalls. Some of these can be faced through good fiscal and monetary policy and others can be dealt with in terms of a strategic framework, while not all risks from hyper growth can be mitigated, there is little denying that a good framework is usually a good thing to have.

UAE has been experiencing phenomenal growth, with oil prices having averaged close to US$ 60 per barrel for over a year, a massive expansion in the real estate sector, the growth of banking, hospitality and services all abode well for the future. With growth, usually comes the competition of money seeking those goods and services which become more dear resulting in inflation. Classically, the best way to fight inflation is to have a proactive monetary policy, where indicators are watched and action is taken prior to inflation becoming a chronic problem for growth. Central bank regulators usually balance the needs of economic growth by a variety of measures, the most common and perhaps effective, being the use of interest rates and money supply to either spurt the economy on or rein in too much money supply.

However, for the UAE its linkage to the US dollar creates a unique set of issues, most of which being that while domestic growth has been robust, the UAE Dihram has slid by over 15% last year against the Euro alone on account of the UAE Dihram being pegged to the US Dollar. In addition, while not explicitly stated, UAE interest rate policy closely reflects the movements in the US interest rates creating a dichotomy.

Take the current situation, the US needs to get out of a credit crunch and hence has to make lending easier and provide liquidity to the markets by lowering interest rates. UAE on the other hand had to rein in money supply and curb inflation for which it would typically increase interest rates! While it is commonly stated that a delinking for the US Dollar would reduce the value of UAE’s exports (mostly in dollars) and its investments, (also mostly held in dollars) these adjustments would be notional and allow the UAE to either let its currency float (not recommended by me as it needs active monetary management) or to adjust the peg against the dollar. Ideally, I hae argued that the UAE should create a basket of currencies and adjust its rate against the basket on a regular basis. This will also mean that the UAE Central Bank will have to play a more active part in issuing longer term treasuries to soak in the liquidity and redeem them when it needs to provide liquidity.

UAE, as an economy, is dynamic, robust and becoming more integral to the world capital markets and it has to move away from reactive financial management to a more proactive model. Growth is a great story around the dinner table and something we have to be proud of, but inflation is a pretty stubborn customer that could upset the apple cart.

Sher Value: Labor Issues

Over the past week Al Jazeera International has being running a program on the issues of migrant labor and while investigative and issue provoking the recommendations are more implied than clearly stated. Indeed for the GCC countries issues of migrant labor are becoming important and this is an issue that the media, especially in the West seem to be catching on to. This does not suggest that all matters related to labor are fine, but in my opinion, if you are to discuss an issue the please also recommend what can be done to improve things.


I do feel that labor conditions will be a major issue within the realm of the media and various interested parties in the next few months. On the back of this attention there are some who are not making distinction between state sponsored exploitation of migrant workers and the breaking of laws by private companies. I do believe that GCC countries are concerned about labor issues and I know from being here in UAE that this is a matter of concern to the government. Over the years a number of measures have been taken to improve the situation and I understand that in the coming months the scrutiny on labor camps will become more focused.

However, a large number of the abuses start before the migrant worker has even arrived here. Many workers will tell you of the huge amounts of money they pay agents in their home countries prior to them even getting on the plane. In many cases, if not all, the agents are charging the worker for services, i.e. health checks, tickets, approvals and the visa cost, for which the employer in the GCC country has already paid the agent.

Thus the worker arrives into the country to work with a huge debt burden on his head, at times equal to a full years wages. This is perhaps the most pressing stress on his mind and results not only in depression but in many cases an acceptance of some harsh conditions knowing that he has not other option. There are a number of measures that need to be taken by all countries to fix these issues. Here are some of my recommendations:

Create an intra-governmental NGO comprising of GCC countries and countries from where the major work force comes. This NGO will be empowered with bringing about changes in laws on both sides that will help the workers.
Impose punitive fines and punishment on employers and agents who violate the laws, and this should be transparent and without exception.
Enact minimum wage legislation immediately.
Create a special insurance and pension fund for workers to which governments and employers will contribute, with the aim that when the workers retire they have a meaningful financial investment.
Improve the living conditions for workers and make it mandatory for companies to bring care for their workers.

It is important that these measures are enacted immediately and done so in a fully transparent manner. The problem is that the intent of the government is there it just needs to be given more teeth.

Sher Value: Bringing Meaning into the company

As I am planning to join the ranks of motivational speakers I am doing a fair bit if research and some interesting pieces of information are, ofcourse, popping up. However, the more I am digging into the heart of corporate culture and as a consequence, the nature of humans in management I believe some startling revelations surface.

In the first place examining 15 corporate mission statements for companies in the region I was shocked at the way each has used words that either they don’t understand, or words they preached but never really implement. Superlatives such as ‘excellence’ ‘quality’ ‘care’ and others are dropped with such continuity that it is almost as if the proponents of those words in the vision statements of companies want to believe them also.

When one observes the business leaders of these companies with such super vision companies sooner or later, usually before the 15th minute, they have either contradicted themselves or, more commonly, contradicted the very vision statement that they have so eagerly professed on glossy 300 gram paper. In a few cases if one were to refer to the vision statement of the same company as the business leader of the company and without telling him or her you quote from their own vision it is more likely that the business person will not have picked up you were referring to their, not your, vision statement.

Why does this happen?

A variety of reasons but principally a great deal of them believe in the management hype but not the content of the message. In a great number of cases the vision statement was either drafted by a wordsmith from a public relations company or by the coterie around the business leader without the rank and file of the company being involved. In some disastrous cases the by lines of the corporate brand were developed by a marketing and branding company who really have done nothing other than play with words.

The ethos of a company has to be reflected into the communication strategy and not that first the brand tag lines are ‘invented’ and then ‘owned’ by the company. Great companies learn to deliver what they promise, and deliver day in and day out without exception. Companies like Jetblue airways, the low fare airline that created a buzz, have a work ethic that seeps from the top down which shows the care they put in. David Neeleman, the founder and Chairman of JetBlue Airways flies each week on the airline so he can speak to the customers and he lead question is ‘what can we do to improve things?’

More importantly the company operations team each month will deconstruct each delay and examine the reasons for it and what could have been done for the passenger to improve things. The airline has the second best punctuality record of the airlines in the US. The policy on arrival is that within 20 minutes the baggage should be in the hand of the passenger. ‘Give him a 45 minute wait after a one hour flight and that is the last thing he will remember.’ Neeleman knows most of his employees by their first name and drives himself, no fancy cars and a drummed down lifestyle.


Lets learn.

Sher Value: Escrow Law: adeeper look.

Last week I have established in my mind, unequivocally, that the new law on escrow accounts is indeed in the best interests of the buyer and the market conditions for sure. There are a few refinements to the law, which can be handled through procedures that need to be considered and this is a practical way to see a good law being implemented.

Under the proposed law payments will be certified by the consultants and then the accountants and finally approved by the Land Department. The edict is that the Land Department will approve the payment within 7 days, however, there is no provision in the law to cover the delays. Under current FIDIC procedures, which govern contracts, the employer has 56 days from the day the contractor submits the bill to pay the contractor. In the event that there are delays in this the contractor has the right to claim. These 56 days were determined based upon the time it takes to verify the works, and the documentation of the billing, and hence there never was a chance that a third party (i.e. the Land Department) will check and approve the payment. This means that any delays by the Land Department could most certainly result in a payment delay claim from the contractor. How is this resolved?

Another more crucial element is when there is a dispute between the contractor and the client, then the position of the escrow account and the procedure actually complicate the matter even more. How does then the payment situation resolve itself as under the law as passed there is no provision for the payments to be suspended in such an event.

Interestingly, the banks who are to be the recipients of the escrow funds have suddenly jumped on the issue and some have said that they will have to charge to maintain the escrow account. From what I see in the law the banks have nothing to do in terms of verifying the payments or making any undertaking for the payments. I heard a few developers tell me that banks have suggested a 2% fee for maintaining escrow funds! I think this is totally shameless as banks are not required to do anything extraordinary under the law and I do not see why they should suddenly becomes scalpers in this situation. Indeed I would argue that banks are already holding sale funds that they receive so I do not see any difference on their lives.

One aspect of the law needs to be tightened up is the fiduciary responsibilities of the escrow agents as this is where comfort will be driven into the system. I also feel if escrow agents are specialized accounting and legal firms, as is the case in say the US, then indeed the need for the Land Department to confirm payments does not arise. I am sure these aspects are being looked at and the law will be further refined in its operation.

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.