ESCA on Arkans case

Looks like the Emirates Securities and Commodities Authority has finally acted on Arkan. And not before time. Lets hope this shows an increased willingness to clamp down on this sort of manipulation. It is common everywhere in the world, but far more so in the Gulf.

The National, March 10: Arkan Building Materials share prices extended their downwards run by dropping more than 9 per cent on the Abu Dhabi Securities Exchange (ADX) Tuesday, after four investors found guilty of violating trade rules were banned from buying the stock.

The Securities and Commodities Authority (SCA) said it was suspending four investors from buying shares across UAE markets for a year starting March 1, because of manipulation of Arkan stock.

Share prices of Arkan, an Abu Dhabi-based construction firm, have fallen 30 per cent since Feb 25, when the market regulator announced the investors’ suspensions.

Arkan shares fell 9.94 per cent on the ADX yesterday to close at Dh4.71 (US$1.28).

“In light of the investigations that were carried out... and the violations of SCA regulations uncovered during those investigations, the authority has decided to suspend the... investors,” Reuters quoted the regulator as saying.

“The suspension only includes the purchase operations listed in licensed markets in the country.”

The SCA also investigated employees at brokerage firms trading in Arkan stock from April 1 last year.

Arkan shares rose 39.5 per cent between Feb 5 and Feb 11 to an all-time high, bucking the trend during the property downturn.

Since Jan 1 last year, the ADX general index has fallen 48 per cent, while Arkan shares have risen 24 per cent in the same time.

“That’s strong outperformance, which looks odd, especially as there’s no news that came from the company to explain why the firm was performing in this manner,” said Ali Khan, the managing director of the investment bank, Arqaam Capital.

At the time, analysts said a small group of Abu Dhabi investors had been propping up shares.

“Arkan shares saw extraordinary growth earlier this year without good reason, as the building materials sector is expected to slow down,” Ayman el Saheb, the director of operations at Dubai-based Darahem Financial Brokerage, told Reuters. “So there were whispers in the market that something was amiss.”

Arkan posted a net loss of about Dh450m in the fourth quarter of last year as it booked losses on equity investments and the value of its steel inventory declined.