Khalid Fouad

A: Let me start by saying that the stock market is the place to be invested for the long run. Over long periods of time the stock market has had far greater returns than any other investment class. The UAE market has a lot to offer for the buy-and-hold investor with an investment horizon of five to 10 years.

It is believed that prior to the actual opening of the Qatari market to foreign investors local Qatari investors built high expectations on the back of this decision that in my opinion affected the stock prices. This sharp upward movement in prices discouraged a lot of foreign investors from entering the market which left the local investors with large positions thus started liquidating which triggered a selling frenzy which in turn affected the market as a whole.

Nevertheless, the Qatari market still has solid potential, especially once the local economy starts to reap the benefits of high oil & gas prices and high government spending on infrastructure projects.

2. The rush to issue IPOs in the UAE and GCC is superficially at least like the dotcom IPO bubble of 1998 to early 2000, i.e. a lot of highly valued start-up companies in an atmosphere of very high optimism about the future. Do you think this is a fair comparison, and if not why not?

A: Comparing the current wave of IPOs in the GCC to the dot-com IPO bubble of 1998 is not a fair comparison for several reasons:

a. During the Dot-com bubble PE ratios of the NASDAQ-100 index reached as high as 500 times and currently (even after the March 2000 crash) it is trading near the 50 mark. The average GCC markets PE are in the 25 - 35 range and this has not entered, in my opinion, the red zone.

b. There is a fundamental difference between investing in a company that promises to derive its revenues from counting eyeballs and clicks and a company that promises to derive its revenues from investing in major projects developing the country's infrastructure, such companies as Al-Dar, Aabar and Surouh.

c. Investors in UAE listed companies hold by virtue of their stock ownership bits and pieces of real assets, such as real estate, oil & gas plants, manufacturing facilities. I find it hard to compare this to investing in information goods that couldn't create competitive advantage or provide significant barriers to entry.

3. TNI has taken a lead role in many IPOs. Do you think that the quality of the candidates for IPO is deteriorating? A lot of the companies are start-ups with nothing more than a business plan, how can you be confident these companies will delivery long-term value to investors? Surely not all the companies will succeed.

A: Looking back at the recent IPOs managed by TNI, namely Finance House, Al-Dar, AIL, Aabar and Surouh, you will recognize that each had its own distinct characteristics and fulfilled a specific market demand.

We have a simple straight forward approach to bringing companies to the market. We work closely with our clients in analyzing underdeveloped or fragmented sectors to look for opportunities to develop a market leader with a clear competitive advantage that could be in a position to consolidate an industry or a sector.

Once we find an opportunity we conduct an extensive market research and a full fledged due diligence to prove or refute our initial views. During this time we work closely with management teams of the new company to prepare the company for public life. This exercise might take more than nine months depending on the readiness of the company.

We are very selective in our screening process; the idea is not just to raise capital, but to provide solid investment opportunities to a market craving for paper. For instance, Al-Dar PJSC acquired ALDAR LLC, an existing company with several promising projects.

The same scenario would happen for AIL PJSC which shall acquire Aramex Int'l Ltd and Aabar PJSC which shall acquire Dalma Energy LLC and these target companies are profitable and enjoy large market shares in their respective sectors.

Furthermore, as a merchant and investment banking firm, we hold positions through our private equity arm and the several funds we manage in most of the companies we bring to the market. So, we put our money where our mouth is.

4. What do you think of the DIFX launch this September? Is this positive for the GCC markets overall?

A: The UAE is becoming a regional hub for business and trading. We believe the DIFX will offer a compelling opportunity for regional companies seeking listing at the same norms of international developed markets.

Moreover, DIFX shall allow the development of more sophisticated products designed specifically for the region. As an active member of the practitioners' committee, we work very closely with the DIFX board and management teams. We believe DIFX will present a significant development for the GCC capital markets as a whole.

5. How do you justify a p/e of 37 for the UAE bourse? That means it takes 37 years of annual profits to pay for a company, is any company worth that much? Does this not signal a bubble in market valuations?

A: In general, the P/E ratio doesn't tell us a whole lot by itself. It's usually only useful to compare the P/E ratios of companies in the same industry, or to the market in general, or against the company's own historical P/E.

Although a high P/E ratio could mean that the market might be overvalued, there is no guarantee that it will come back down anytime soon.

In the US we have been witnessing companies trading at P/E ratios well above the market average, but this wasn't an impediment for those companies to record extraordinary price appreciation on the back of solid fundamentals.

The market P/E fluctuates significantly depending on economic conditions at the time. It's difficult to determine whether a particular company's P/E is high or low without taking into account the company's growth rate and the industry it operates in.

Security analysis and valuations require a great deal more than understanding a few ratios. While the P/E is one part of the puzzle, it's definitely not a crystal ball.

6. Why has TNI been so successful in launching IPOs? Are you going to organize your own IPO soon? If not, why not?

A: Our success stems from:

a. Our shareholders which comprises some of the UAE's most prominent business leaders, with expertise that spans across the Middle East. This unique shareholder base has allowed TNI to leverage its wide network of relationships in the UAE and the GCC;

b. Our solid relationships we enjoy with the regulators, strategic business partners and existing clients across the region positions us as the partner of choice;

c. Our flawless execution capability and unsurpassed expertise in regional equity offerings that attracts more clients and thus widens the gap between us and the other players in the market;

d. Our diverse team of professionals which has domestic, regional and international expertise that could offer our clients a fully integrated service. We are still considering various options, but once this is finalized we shall relay it to the market.