Telecoms operators pay royalties to the Government, with Etisalat paying half of net profit. But the annual charges vary for du, whose share was recently raised. Ben Flanagan reports.
The UAE telecommunications market is one of the richest in the world but is also one of uncertainty for investors.
Shareholders in the operator du were spooked this month by the decision by the federal Government to slap a 5 per cent tax on its revenues from last year.
Both du and the incumbent operator Etisalat pay an annual royalty to the Government.
For Etisalat, the charge is 50 per cent of its net profit, for which the operator makes provisions in its annual results.
But for the newcomer du, which launched commercial services in 2007, the royalty rate varies.
In a market where the average consumer has two mobile phones, the local telecoms industry offers rich pickings for investors.
But analysts say the practice of setting the royalty rate for du retroactively causes uncertainty in the market.
In 2010, du was obliged to pay 15 per cent of its net profit to the Government - well below the rate paid by Etisalat.
But for last year, the royalty rate for du was set at 15 per cent of its profit, plus an additional 5 per cent of revenue- which was equivalent to almost 40 per cent of its net profit.
News of the increased royalty rate prompted a sell-off of du shares, which are traded on the Dubai Financial Market.
The company's share price fell by 2.3 per cent - its biggest decline in six weeks - when the announcement was made on February 6.
Matthew Reed, a senior analyst at Informa Telecoms & Media,says the fact that the royalty rate is set retroactively is unsettling for shareholders.
"It creates uncertainty for investors. And that might be off-putting for them," says Mr Reed.
Investors in du were not technically out of pocket because of the increase in royalty fees.
Du makes a provision for the government royalty on its balance sheet, setting aside 50 per cent of its net profit. For the first nine months of last year, du provisioned for Dh657 million (US$178.8m) for the royalty.
Under the royalty rate set by the Government, it will have to pay Dh519m for the first nine months of last year.
Despite this being below what du provisioned for, and less than what its competitor Etisalat pays, investors still reacted negatively.
"Perhaps the investors were hoping that it would stay at the 15 per cent," said Mr Reed. "[The government is] increasing the take quite substantially."
Ibrahim Masood, a director and senior investment officer for asset management at Mashreq, agrees that setting the royalty rate retroactively is "confusing" for shareholders.
He argues that the UAE federal Government should set the royalty rate for local telecoms operators in advance so that investors know where they stand.
"It just makes the investment case that much more certain," he says. "I think the more simplicity and clarity, the better."
Petr Molik, the head of the research division at the financial services group MENA CORP in Abu Dhabi, also says that setting the royalty rate in advance would add clarity for shareholders.
But he says the problem is mitigated by the fact that du made "prudent" provisions for the charge.
"The market would like to be clear in advance what the tax rate will be," says Mr Molik. "It would be good for the market, and for the shareholders, and even for the management to know in advance. It is mitigated by the fact that the management is very prudent, and when the real rate is announced, usually it's a good surprise."
Mr Reed argues that while setting the royalty fee in advance would provide more clarity, the current model gives the Government more flexibility.
"They're imposing these things retrospectively, so presumably the Government has already been able to observe the company during a large part of the year, and tailor what they are going to levy based partly on the performance," he says.
However the royalties are calculated, analysts expect the Government to continue to charge the UAE's two telecoms operators hefty fees.
In other Gulf markets - such as Saudi Arabia, Oman and Qatar - there is a history of governments lowering royalty payments when competition in the local telecoms market increases.
That has not happened in the UAE - and analysts do not expect a reduction in royalty fees anytime soon.
"You're still operating in one of the richest telecommunications markets in the world. And that's what you're paying a royalty for," says Mr Masood. "The argument is pretty strong for the overall royalty to remain significant."
* * *
Yesterday, Etisalat's board proposed a dividend of 60 fils for last year, as well as having discussed an efficiency drive.
The board “discussed the reduction and control of operating expenditures by initiating restructuring and outsourcing plans as a future strategy”, according to a statement issued by the telecoms operator.
That came after it made a net profit of Dh5.8 billion (US$1.57bn) last year, a 24 per cent decline on the year before.
bflanagan@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Install an air filter in your home.
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Dos
- Wear the right fabric for the right season and occasion
- Always ask for the dress code if you don’t know
- Wear a white kandura, white ghutra / shemagh (headwear) and black shoes for work
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Don’ts
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Indoor Cricket World Cup - Sept 16-20, Insportz, Dubai
16 Indoor cricket matches are 16 overs per side
8 There are eight players per team
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5 Five runs are deducted from the score when a wickets falls
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Zones
A Front net, behind the striker and wicketkeeper: 0 runs
B Side nets, between the striker and halfway down the pitch: 1 run
C Side nets between halfway and the bowlers end: 2 runs
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Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
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Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
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iPhone XR
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- Have an up-to-date, professional LinkedIn profile. If you don’t have a LinkedIn account, set one up today. Avoid poor-quality profile pictures with distracting backgrounds. Include a professional summary and begin to grow your network.
- Keep track of the job trends in your sector through the news. Apply for job alerts at your dream organisations and the types of jobs you want – LinkedIn uses AI to share similar relevant jobs based on your selections.
- Double check that you’ve highlighted relevant skills on your resume and LinkedIn profile.
- For most entry-level jobs, your resume will first be filtered by an applicant tracking system for keywords. Look closely at the description of the job you are applying for and mirror the language as much as possible (while being honest and accurate about your skills and experience).
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- Go online and look for details on job specifications for your target position. Make a list of skills required and set yourself some learning goals to tick off all the necessary skills one by one.
- Don’t be afraid to reach outside your immediate friends and family to other acquaintances and let them know you are looking for new opportunities.
- Make sure you’ve set your LinkedIn profile to signal that you are “open to opportunities”. Also be sure to use LinkedIn to search for people who are still actively hiring by searching for those that have the headline “I’m hiring” or “We’re hiring” in their profile.
- Prepare for online interviews using mock interview tools. Even before landing interviews, it can be useful to start practising.
- Be professional and patient. Always be professional with whoever you are interacting with throughout your search process, this will be remembered. You need to be patient, dedicated and not give up on your search. Candidates need to make sure they are following up appropriately for roles they have applied.
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EXPATS
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● Company: Bidzi
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2017: Golden State bt Cleveland 4-1
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2015: Golden State bt Cleveland 4-2
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2013: Miami bt San Antonio 4-3
2012: Miami bt Oklahoma City 4-1
2011: Dallas bt Miami 4-2
2010: Los Angeles Lakers bt Boston 4-3
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