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UKCloseThe transparency shortfall
By Simeon Kerr in Dubai
Published: September 4 2008 03:00 | Last updated: September 4 2008 03:00
Oman and Bahrain are home to the most transparent listed companies in the fast-growing Gulf, but the region continues to lag badly behind other developed and emerging markets, according to the latest research.
Skip to main content, accesskey ‘s’
Homepage, accesskey ‘1’
Financial Times FT.comHOME UK
UKCloseThe transparency shortfall
By Simeon Kerr in Dubai
Published: September 4 2008 03:00 | Last updated: September 4 2008 03:00
Oman and Bahrain are home to the most transparent listed companies in the fast-growing Gulf, but the region continues to lag badly behind other developed and emerging markets, according to the latest research.
Hawkamah, a Dubai-based corporate governance institute, and The National Investor, an Abu Dhabi-based investment bank, compiled the research during the past year. It ranked 581 Gulf Co-operation Council listed companies on 43 criteria that covered trading history, corporate disclosure and communications.
On average, the eight largest listed companies scored 40 per cent lower than the largest companies in western and emerging markets, from the US and Australia to to Brazil and India. Even the best scoring GCC companies score 15 per cent below their global counterparts.
The emergence of Oman and Bahrain as the home of companies most likely to score well came as no surprise to the researchers. Previous research had noted the two countries’ well-developed regulatory systems and culture of openness.
“Corporate governance standards are generally high in Bahrain and Oman,” says Nasser Saidi, executive director of Hawkamah.
The survey used a methodology called Basic (standing for “behavioural assessment score for investors and corporations”) to quantify governance standards. This hard data will help the region’s markets develop efficiently, Mr Saidi says.
Kuwaiti and Saudi companies, surprisingly, produced the lowest average scores. These longstanding trading cultures boast the region’s largest pools of liquidity, some of its most sophisticated investors and strong regulations.
One of the metrics used by the research is whether a company publishes annual reports in English. About a third of GCC companies do not, but that rises to 60 per cent in Kuwait and 68 per cent in Saudi Arabia – a large factor in their poor performance.
Companies that publish crucial corporate information in Arabic put a swathe of investors at a disadvantage, the researchers argue.
“With a few small steps, Kuwaiti companies could improve their scores very significantly and very quickly,” says Amer Halawi, a managing director of TNI and co-author of the report.
TNI and Hawkamah argued that companies should seek to improve their valuations to attract more flows from international investors.
Quality of corporate disclosure made up the lion’s share of the scoring system, with about a 60 per cent weighting.
The rest was made up of trading history, which measured volatility as well as length of trading, and corporate communications, such as availability of websites – one in five GCC companies has none – and whether companies announce the dates of annual general meetings and results.
In the GCC, 91 per cent of companies do not let investors know when they will release financial results.
In the UAE, according to Mr Halawani, Abu Dhabi and Dubai score well in terms of use of English, and in terms of corporate communications the UAE is among the best in the region.
But they fall short in other areas. “Abu Dhabi and Dubai are still very secretive,” he says.
The best scores were achieved in more tightly regulated industries, such as finance, and in heavily capitalised sectors, such as utilities and telecoms.
Real estate, however, struggled at an average of 32 per cent compared with banking’s 46 per cent.
Dubai’s property sector has been rocked by a series of arrests amid allegations of fraud and corruption at companies that include Deyaar, Nakheel and Dubai Islamic Bank.
“It is illustrative that real estate is at the heart of recent problems in Dubai,” Mr Halawani says. “Of course, the research can’t test for fraud, but perhaps if there was better governance there would be fewer scandals.”
Individual real estate companies did well, however. Dubai’s Emaar and Abu Dhabi’s Aldar scored best in their respective emirates.
Emaar recently appointed an investor relations manager, one of the parameters that contributed to a company’s score.
This move, says Mr Halawani, came partly because of the mess the company got into last year when it failed to provide clear information about a shares-for-land swap deal with Dubai Holding. The deal, which would have transferred a larger equity stake to the ruling family in return for land, was eventually abandoned.
Arab Insurance Group, a reinsurance company based in Bahrain, scored highest in the region. “It has the best annual report, an outstanding website and long trading history – it’s the best in the east,” Mr Halawani says.
The researchers hope other companies will follow Arig’s lead and seek to improve their scores as part of efforts to improve corporate governance cultures.
“This research is a thermometer, allowing companies to update themselves and compare with other companies in their sector,” Mr Saidi says.
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