Dubai is in Islamic economy mode. A global summit on all things to do with Islamic finance, business and commerce kicks off in the emirate next week, the culmination of a series of events designed to promote its ambitions to be the world hub of the fast-growing sector.
Ayman Khaleq will be keeping a close eye on the proceedings. The 43-year-old Jordanian lawyer has developed an expertise in Islamic business affairs throughout his career at the helm of several leading law firms. Now, as managing partner of global firm Morgan Lewis & Bockius in the UAE, he is well placed to judge the progress Dubai has made towards its goal.
“Islamic finance has made great strides as an industry in Dubai and around the world,” he says, pointing to the hundreds of billions of assets under management in Sharia-compliant institutions and the steady progress of the market in sukuk (Islamic bonds).
But there is still work to be done before Dubai achieves its aim of being the capital of the global Islamic economy, part of a wider challenge for Islamic finance to rival conventional finance within the Muslim world. “A large amount of money is still sitting in Swiss bank accounts,” he points out.
Mr Khaleq is not the stereotypical model of the Islamic financial expert. Educated at George Washington University Law School in the American capital, he has worked for some of the big-name law firms in the US and the Middle East. He is a regular speaker on the international forums circuit, and figures on several legal “power” lists.
He has firm views on how Islamic finance should proceed from here. “There was a McKinsey report a while back showing that the majority of Islamic investors – those who were not already committed on religious grounds – would prefer to invest in Islamic products if it made financial sense. But it’s hard to demonstrate conclusively that it does,” he says.
“There are also issues of standardisation. Malaysia leads the global field in Islamic finance because it has successfully developed standardised structures. In the Middle East, this has not happened. There are too many authorities, and not enough Sharia scholars,” he adds.
The UAE has started to address this by going down the path of creating a centralised standard Sharia authority, but more needs to be done, he believes. “I’d like to see a training body, an academy, created that turns out scholars who are fluent English speakers, who are trained in conventional economics and finance, and who have had some experience of the world,” Mr Khaleq says.
The Islamic economy initiative has been rolling for the past three years now, at a time when the conventional economy of the Emirates has been facing a series of challenges mainly prompted by the fall in oil prices and the strain on public finances that resulted.
This obviously has a knock-on effect for the business of a transactionally focused law firm such as Morgan. “My view is that it  has been a ‘limbo’ year, neither boom nor bust. Of course as lawyers we can do well at either, but not when the clients are just sitting still, not doing anything.
“Clients are spending more time on due diligence, which of course they should do, but not with the result of not doing any deals. There are more aborted deals than in previous years. The limbo is most noticeable in UAE real estate, where there has been a fall-off in transactions.”
Some economists have forecast that the slowdown in economic activity will lead to a new round of debt-inspired refinancings at big Dubai corporates, and Mr Khaleq agrees, to some extent.
“I don’t think it will be long before we see a new round of restructurings. Some corporates in the upper tier, in construction and retail for example, are feeling the pressure,” he says.
But he does not believe another 2009-type debt crisis is around the corner. “The good news is that the big government-related enterprises who are looking to restructure have been pretty professional in the past few years. They have cleaned up their balance sheets and not taken on too much new debt. On the whole, they have been selling assets rather than buying new ones,” he says.
“Against that background, the banks are more willing to engage in restructuring solutions. The banks themselves are better financed than before, and the new bankruptcy laws are also positive for this process.”
The firm has been making the most of the challenging environment. It has advised on deals including a Dh1 billion fundraising for Meydan Group; the $160 million sale of ProVita International Medical Centre by TVM Capital to UAE healthcare group NMC; and also advised NMC on its acquisition of a 70 per cent stake in the Saudi hospital As Salama, in Al Khobar.
Other big clients include NBK Capital, the investment arm of National Bank of Kuwait; Noor Bank; Mashreq; and the Dubai financial group Evolvence Capital.
Compensating for some of the stalled business in the region is the trend towards outward investment by big regional players. Morgan advised on the recent $125 million US industrial property purchase by GFH Financial of Bahrain.
Morgan, which is headquartered in Philadelphia, does not have an office in Saudi Arabia, in keeping with its model of organising across legal disciplines, rather than physical offices. It has instead relationship partnerships with Saudi firms in Riyadh and Jeddah, which Mr Khaleq believes will keep the firm in the running for the big transactions likely to emerge from Saudi’s ambitious national transformation plan.
“This structure allows us to reach out to other people in different locations for transactions. We have 2,000 lawyers in Morgan and we are a big integrated firm, but we’re not going to open an office in every city in the world,” he says.
The firm with its four partners and 14 lawyers in Dubai is based a stone’s throw from, but outside the jurisdiction of, the Dubai International Financial Centre, and Mr Khaleq feels no urgency to move into the Dubai financial free zone, nor to the new free zone in the capital, the Abu Dhabi Global Market. “I don’t really think we can be in Dubai and Abu Dhabi. I think the Dubai private sector has more depth, so that’s what we’ll focus on,” he says.
At a time when some law firms in the UAE are reducing numbers and closing offices, Morgan is still recruiting, and adopts what Mr Khaleq calls an opportunistic approach to recruitment.
Much of the expansion of recent years has come about through picking up lawyers and offices of firms that found themselves in trouble, such as US firms Dewey & LeBoeuf and Bingham McCutchen. “We’re looking to add in Dubai. We need an energy lawyer at the moment,” he says.
On future prospects, he believes that Dubai property is due for a comeback soon, but warns that the limbo period might prove to be longer than expected. “Many people are saying ‘I can’t wait until 2017’, but they said the same about 2016,” he adds.
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