The UAE’s Securities and Commodities Authority (ESCA) must intensify efforts to improve board governance and cut down on corporate manipulation in the capital markets, a senior UAE executive has said.
Shehab Gargash, the chairman of Daman Investments, has urged the regulator to hold the boards of listed companies more accountable to ensure that trust is revived in the system.
His remarks come after Abraaj, the biggest buyout fund in the Middle East and North Africa, collapsed last year following a row with investors over the use of money in a $1bn healthcare fund.
Last week, the Dubai Financial Services Authority (DFSA) also announced that it had imposed a penalty of around $300m on Abraaj Investment Management (AIML) and $15.3m on Abraaj Capital.
The fines were imposed for “serious wrongdoing by two Abraaj group companies included carrying out unauthorised activities in the DIFC and misusing investors’ monies,” the regulator said.
In a presentation to journalists on Sunday, Daman Investments said the UAE capital markets have suffered “major blows to their corporate governance framework” over the past two years.
“Companies have failed in being transparent, accountable, responsible and protecting shareholder rights while ensuring the equitable treatment of all stakeholders, including minority and foreign shareholders,” the company said.
Some of the companies that had major breaches include Abraaj Capital, Air Arabia, Drake & Scull and Marka, among others, it said.
“This has had a direct impact on local and international investor sentiment and confidence. UAE markets have also witnessed several instances of market manipulation, due to which a lot of unsophisticated retail investors lost a significant amount of wealth and insider trading, which gave an unfair advantage to few individuals who had privileged access to critical information,” the company explained.
Calling for the ESCA to hold the board of directors more responsible, Gargash also urged companies to avoid having the same set of board directors.
“It’s an interesting paradigm, the ESCA is extremely strict on some elements of governance and extremely lapse on others. With time I think they are getting better, but they are not there yet,” he told reporters.
“We are also seeing only adhoc governance over traders. This is a very serious problem. We have seen companies that have been completely stripped of their assets,” he said.
Daman shared a list of 16 companies that have accumulated losses of more than 30 per cent of their paid-in capital.
The list of companies – which includes several insurance companies – accounted for 14 per cent of the UAE market cap erosion between 2017 – YTD2019.
“For me as a manager in this universe, I have a much smaller universe of acceptable companies to invest in than I had five years ago. This is a function of bad governance,” added Gargash.