An interview with Wasim Saifi, the chief executive officer of Tamweel Finance, is very special to The Business Weekly for more reasons than one. For one, it comes at a time when the property market of UAE is witnessing the best of times. Tamweel, the fastest growing Islamic mortgage finance company in the country, has also just received a licence to operate in Egypt, another booming economy in the region. On the performance side, Tamweel saw the doubling of its net profit in 2007. As Saifi put it, "Tamweel has big plans for the future and we need funds to support this growth." But as many would think, Saifi didn't seem to be perturbed by the delay in getting a bank licence. "Bank licence will certainly help us access funds more comfortably to the extent of getting funds at a few basis points cheaper. However, it is a misconception that Islamic subsidiaries of banks are getting funds much cheaper from their parent banks. Banks normally would not pass funds on to their subsidiaries at big discounts to market rates," said Saifi who has been in key banking posts, including that of executive vice-president and head of retail and business banking at Dubai Islamic Bank (DIB), for more than two decades.
Established in March 2004, Tamweel became a public joint-stock company in June 2006. It claims to be working with 300 partners across the country and has grown to achieve a majority market share in the UAE's real estate finance industry. Prior to the assignment as chief executive officer at Tamweel, Saifi was a member of Tamweel's board of directors and chairman of its Audit and Risk Management Committee since 2005. Excerpts from the exclusive interview that The Business Weekly's CL Jose had with Saifi:
Let us talk about Tamweel's performance in 2007. The net profit of the company almost doubled. Can you explain how this became possible?
It is true that the 2007 performance was really good. This has taken the earnings per share (EPS) of the company to as high as 45 fils. Interestingly, the price-earnings ratio on the market is still at about 15 times, meaning that on the market, there is enough space for an upside. This is against the fact that generally, Islamic stocks enjoy a high PE ratio.
Moreover, Tamweel has made Dh451 million profit on a capital of just Dh1 billion.
What according to you is the main reason for this sterling performance?
One is that our core business has grown substantially with Islamic financing and investing assets in 2007 rising to Dh5.217 billion, an increase of 102 per cent compared with Dh 2.584 billion in 2006. On the assets side, we are clearly the leader. You have to bear in mind that our securitisation programme has taken off a good portion of our assets from our books.
How many securitisations did you do?
We did only one securitisation for $210 million (around Dh750 million). The second market programme was convertible bonds.
Can you elaborate on your 2007 performance?
Other than the core business of mortgage finance, we have been able to do some good deals in real estate. Since we are involved in the real estate business with close connections with developers, we were able to generate fairly good amounts from those investments.
We had a large land bank in Jaddaf which was valued at around Dh1.7 billion in our books. Almost half of this has been sold off through which we made good profits. We are at an advantage to buy land in wholesale, package this with some financing and sell in the retail market.
Will this continue to shore up your bottom-line?
Yes, our income in the current year will also have income from investments, apart from the core business of mortgage financing.
What sort of a growth in profit do you foresee for this year?
We will continue to grow well at least a high two-digit growth.
What do you have to say on market share?
Our market share should be in the vicinity of 30 to 35 per cent on the financing side.
Are you not going for further securitisations?
We need funds and securitisation is the principal route we have identified for this. We are just watching the market, and once it stabilises, we will come out with new securitisation programmes.
How much will you raise in the coming two years?
We will raise at least $1 billion to $1.5 billion in the next two years through securitisation alone. We may raise funds through other means such as syndications. We are about to close a $200 million syndication. This is being lead-managed by ABN AMRO and Noor Islamic Bank. There will be a whole lot of banks participating in the down-selling exercise.
What will be the total in the next two years?
We may end up raising about $2 billion from the market in the next two years.
You have got a licence to operate in Egypt now. Which are the other markets you are looking at?
During the second quarter, we should be operational in Egypt. We are keen to be present in all GCC countries. In Saudi, we have signed the shareholder agreement with Oula Group, one of the leading developers there. While we will control 70 per cent ownership in the Saudi venture, the remaining 30 per cent will be with the Saudi group and the company is likely to be operational by the third quarter of the current year itself. We will try to forge joint ventures in other countries. In all these ventures, we will be keen to own a majority stake. This arrangement will help the company since it can get mileage from our strong rating from Moody's, A3. And in turn, it will help these firms raise funds from the market much easily.
Will you take these firms to IPOs?
Our prime idea is to strike good partnerships and get the business rolling. We do not want to rule out anything in the future, even IPOs.
What about India and Pakistan?
We will look at Pakistan though we have not drawn a time-frame for that. We would love to go to India once the regulations are established for Islamic finance.
Most banks are launching their Islamic subsidiaries. Don't you think this will have a negative effect on Islamic mortgage companies like yours?
Bank subsidiaries need not necessarily get cheap funds from their parent banks. Of course, these subsidiaries may get funds at a few basis points lower than the market rate. I don't think they are going to have a marked cost advantage over us, but these Islamic subsidiaries can now do Islamic mortgages, from outside of their conventional parent bank platform and this would work as an advantage.
What is the share of Islamic finance in the UAE's mortgage market?
It should be in the region of 65 to 70 per cent of the total home finance market. I think between Tamweel and Amlak, the market share should be in the range of 55 to 60 per cent of the total size. Over and above this, there are several Islamic banks and windows of conventional banks extending sharia'a-compliant home finance.
Do you think religious faith has played a big role in the success of Tamweel and Amlak?
Statistics show that about 30 per cent of our customers are Western expatriates. I am sure we appeal to both Muslims and non-Muslims alike as a viable Islamic mortgage proposition, and we have been successful in this. More than anything, people look at who is the best in mortgages and who can meet their mortgage needs more efficiently.
What do you think is the biggest advantage for customers in going for Islamic mortgage finance?
Religious elements apart, there is a comfort in the payment mode in Islamic mortgage finance. During the period until the property is handed over, you do not pay profit or principal unlike in the conventional, where every quarter or six months, you will be asked to pay the pre-EMI interest portion.
Of course, you will end up paying the profit for this period (in Islamic mortgage) as well, but the borrower can budget his cash flows much more effectively. Moreover, he can sell off his property without having to incur any cash flows from his part during this period even as the property price keeps growing (in the UAE context).
Islamic mortgage companies have been very generous in extending financing up to 80 and 90 per cent of the value of property. What if the property price witnesses a correction or crash beyond 20 per cent?
As you know, if you take the loan-to-value of our portfolio, we are very comfortable. Moreover, these financings are done at different times. On the one hand, while the loan-to-value keeps coming down, the value of property on the other hand, has been growing. Having said this, we are very careful in selecting customers and we do not merely rely on the logic that since the funding is asset-backed, there is no risk. We always make sure whether the customer is capable of servicing the mortgage. Moreover, we, like any credit department of a financial institution, factor the possibility of any corrections that could befall the market.
What is your view on an immediate correction in the market?
I don't see any reason for a correction in the foreseeable future because the liquidity in the market is increasing with high oil prices. Momentum is picking up as the Government, under the wise leadership of the rulers here, comes out with innovative projects regularly. Even skeptics who used to wait on the sidelines have begun jumping on to the bandwagon. More and more institutions from overseas have started showing keen interest in property projects in the UAE. No one wants to miss the opportunity here now. Newer segments of investors are entering the market from the region as well as overseas. The visionary leaders of the country have created a supply-driven market.
Any impact of subprime?
The only impact on our markets is that it has temporarily closed down the securitisation market.
What about bank licence?
The application has not been denied by the Central Bank. We are still hopeful. For the time being, it is not affecting us.
© The Business Weekly 2008
