Emaar’s communication gap
One of my all-time favourite movie lines is from the 1970s film Cool Hand Luke: “What we’ve got here is a failure to communicate,” says one of the grisly characters in the jail-break drama.
The phrase came back to mind while mulling over the latest events at Emaar, Dubai’s champion in the property business and one of the Emirates’ great standard-bearers on the global scene. For some investors, Emaar is almost a proxy for Dubai and trading in the shares accounts for as much as 40 per cent of the value of the Dubai Financial Market.
So what Emaar says and does is important to the DFM and for Dubai, and this is why there is a crucial need for clarity and accuracy when the company is talking to its shareholders. Sadly this has been lacking recently.
There have been three recent occasions in as many weeks when communications misunderstandings have caused concern among shareholders and volatility in the share price. First there was the confusion about this year’s growth projections, which led some brokers to mistakenly forecast a flat 2008 for Emaar; then there was the uncertainty over the $15 billion flotation of Emaar-MGF in India – calling off the IPO so soon after confident statements that it would go ahead caused more jitters.
Yesterday, there was the crazy mix-up over the use of the word “minimum”. In a statement in Arabic to the DFM on Tuesday night, Emaar appeared to be limiting dividends to 20 per cent of par value for the foreseeable future. That would amount to a dividend yield of less than two per cent, and, if it had been true, be guaranteed to send big investors into panic.
When the English version of the statement appeared, it was obvious that Emaar was committing itself to that rate of shareholder return as a base-level, and the actual pay-out would depend on the usual factors – how well the company was doing in local and global markets and what capital requirements it had to meet in any given year. But, crucially, there was no upward cap put on dividend policy.
For a company like Emaar, it is eminently sensible to take a prudential view of dividend policy. Building a global brand takes long-term financial commitment, and that cannot be achieved if shareholders expect an ever-increasing dividend pot each year. Emaar’s long-termism in this respect is laudable.
But it must also think long-term about its share price. In the confusion over dividend policy, alarming rumours were doing the rounds yesterday. Emaar wanted to depress the share price ahead of a buy-back, it was suggested, or wanted to exert pressure on small, troublesome shareholders to sell the stakes and get big institutions instead. I have no idea whether such rumours are true, but they did cause unnecessary volatility in the share price, and would not have been heard at all if the message had been clear in the first place.
It is not difficult to see how, in a huge multi-cultural organisation like Emaar, such mistakes might happen. I am sure the company and its advisers has a sophisticated understanding of, and commitment to, the best possible communications strategy. But they must ensure that they bridge the gap between understanding and implementation on these crucial issues of shareholder concern.
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