SHUAA Capital reports first half results

This statement follows the publication of preliminary first half results on 17 October 2008.

The company today reports a net loss per diluted share of Dhs0.475 for the first half of 2008 (1H2007: Net profit per share Dhs0.226). The total net loss for the period was Dhs371.1m (1H2007: net profit Dhs128.6m).

SHUAA's results were principally impacted by the global market downturn which has affected all equity markets around the world. This especially affected the Principal Investments business, where 'mark to market' reductions in asset valuations were booked to operating income but remain unrealized; the Investment Banking business, where a number of major capital market transactions have been delayed due to the adverse market conditions.

Mr. Iyad Duwaji, Chief Executive Officer of SHUAA Capital, summarized:

"We considered at length the changes to IAS39 regarding fair value accounting as outlined by the International Accounting Standards Board in its meeting on 16 October 2008 which would have allowed SHUAA Capital to report a net loss of Dhs143.6m instead of Dhs371.1m. However, in order to remain consistent with our accounting policies, we did not re-class any of SHUAA's investments out of its trading portfolio in the interest of maintaining the clarity and transparency of its financial statements. This decision reflects our intention to treat these investments as trading assets so that we can reflect the expected recovery in their prices in our income in future periods."

SHUAA Capital's annuity fee business still performed well, although not at the pace seen in the first quarter, reporting an overall increase of operating income for the half year to Dhs262.4m (H1 2007: Dhs133.1m) and a net profit of Dhs125.5m (1H2007: Dhs68.9m). This was led by the Asset Management, Brokerage and Private Equity divisions which continued to outperform in falling markets. SHUAA's Finance subsidiary generated a record result of Dhs39.3m in operating income (1H 2007: Dhs24.9m) and a net profit Dhs25.1m (1H 2007 Dhs15.3m).

The results of our Group wide investments were mainly affected by Dhs400.1m of unrealised 'mark to market' reductions in asset valuations which were booked to revenues under IFRS accounting standards. These reductions were a result of the fall in global markets. We believe they do not reflect the quality of the assets held or any major change in their trading fundamentals.

Also included in the results are losses in relation to write-downs of Dhs78.6m on structured products and fixed income securities that were exposed to Lehman Brothers and a one-time provision of Dhs45.8m attributable to Orion Holding Overseas.

Principal Investments:

The Principal Investments Division is the proprietary, multi-strategy, investment arm of SHUAA. The Division's objective is to augment SHUAA's shareholder value by actively investing in a diversified portfolio across selected markets and across asset classes, with a bias towards emerging Asian and regional markets.

Operating income was a loss during the first half of Dhs204.8m (H12007 Operating income: Dhs80.4m). The division recorded a net loss of Dhs224.0m (H12007: net profit Dhs57.7m).

The results were mainly affected by the 'mark to market' reductions in asset valuations which were booked to revenues under IFRS accounting standards. These reductions were a result of the fall in global markets and do not reflect the quality of the assets held in the portfolios or any major change in their trading.

In the Principal Investments division our multi-strategy, multi-asset class portfolio has regionally allocated primarily to the GCC and India where we believe the economic growth will slow but we expect a faster market recovery than in developed markets. During the period, the investment portfolio significantly outperformed the relevant indices.

Investment Banking:

The Investment Banking Group provides corporate finance advisory as well as equity and debt capital markets, structured investments and other services. The operating income was a loss of Dhs93.6m (H12007 operating income: Dhs41.9m) while the net loss was Dhs119.4m (H12007 net profit: Dhs28.8m).

The results reflect our clients delaying transactions given the financial turmoil in the international and regional capital markets. However, we expect these transactions to progress when markets recover. In addition, SHUAA is well positioned to capture future mandates with its strong regional focus, well recognized brand name and deep client relationships. During the period our equity capital markets business has increased its number of signed mandates from clients from four to nine.

SHUAA Asset Management:

The division experienced a marked slowdown in the increase in operating income experienced in the first quarter which had been driven primarily by growth in assets under management.

Operating income increased to Dhs67.0m (H12007: Dhs17.0m) and net profit grew to Dhs40.7m (H12007: Dhs2.7m).

SHUAA Asset Management's core proprietary products are the single strategy Gateway Funds first introduced in the year 2000. The flagship product, the Arab Gateway Fund, which has Dhs1.8bn in assets under management and is predominantly invested in GCC markets, has been down 20.44% so far this year, outperforming its benchmark, the MSCI Arabian Markets Index which has been down 26.67% year to date, by 23.36%.

Today, we have seven funds in the Gateway range with the latest addition being the Saudi Gateway Fund, launched in June 2007, which has Dhs624m in assets under management at the end of September 2008.

Brokerage:

SHUAA Securities is the brokerage and portfolio advisory services division. SHUAA Securities offers clients access to 14 exchanges in 12 GCC and MENA markets through one single platform. We recorded over 40,000 clients accounts, and have executed Dhs24.8bn (H12007: Dhs15.7bn) in transactions during the first half of the year 2008.

Brokerage has benefited from increasing market volatility as a result of the global financial turmoil. SHUAA Securities' operating income was up by 31% to Dhs50.1m (H12007: Dhs38.1m) and net profit fell to Dhs3.7m (H12007: Dhs15.6m).

During the period we consolidated our position especially in the UAE and increased the number of new customers by 20% principally due to our ability to protect investors from excessive leveraged exposure. Looking ahead the division will continue to integrate the new brokerage subsidiaries in Jordan, Egypt and Turkey.

SHUAA Partners:

SHUAA Partners manages three private equity funds, as well as the Principal Investments Division's three heritage investments. Operating income increased by 235% to Dhs33.3m (H12007: Dhs9.9m) and net profit increased by 494% to Dhs25.0m (H12007: Dhs4.2m).

In July 2008, SHUAA Partners announced the first closing of its $200m SHUAA Hospitality Fund I and made its first investment. The fund signed a $40m joint venture agreement with Orascom Hotel Holding, the single largest hotel owner in Egypt, and Rotana Hotel Management Corporation, the leading hotel chain in the MENA region, to develop five hotels under the brand Centro by Rotana and will capitalize on the growing need for budget business hotels in Cairo and other strategic locations in Egypt.

The SHUAA Hospitality Fund I will also invest in the $533 SHUAA Saudi Hospitality Fund I that was launched by SHUAA Capital Saudi Arabia earlier in the year.

Finance:

Gulf Finance Corporation ('GFC') is focused on auto and construction equipment finance but is gradually expanding its consumer finance offering, particularly in the area of small and medium-sized commercial businesses. GFC is a wholly owned subsidiary of SHUAA.

GFC had a strong first half reporting a 58% rise in operating income to Dhs39.3m (H12007: Dhs24.9m) and a net profit increase of 64% to Dhs25.1m (H12007: Dhs15.3m). This was principally due to a 55% increase in new business volumes year on year. Assets grew by 26% to Dhs869.3m.

During the period GFC continued to successfully develop its commercial finance capability; executing its first ever performance bond, first ever guarantee and largest ever commercial loan. In addition GFC established a new consumer finance business where it agreed its first ever yacht loan.

Looking ahead GFC plans to increase its focus on Abu Dhabi and the other emirates where the fast growing economy offers significant opportunities, as well as continue to expand its consumer finance business and develop a wider suite of products such as invoice discounting, indemnities and trade finance.

Corporate:

SHUAA Capital Saudi Arabia ('SCSA') got off to a successful start following the award of the Saudi Arabian Capital Markets Authority licence in March. Offering investment banking, private equity, and asset management services. During the period SCSA saw the successful first closing with capital commitment of $240m for the $533m SHUAA Saudi Hospitality Fund I, signed three investment banking mandates and is in the process of licensing three new funds.