UAE developers may struggle to borrow

Dubai: United Arab Emirates real-estate developers may find it more difficult to tap financing as banks become "more selective" in the wake of the worst financial crisis to strike the world since the 1920s, the chief executive of Abu Dhabi's largest developer said.

UAE banks "will start to be more and more selective about which companies they lend to,'' Ronald Barrott, CEO of Aldar Properties PJSC, said in a telephone interview Thursday from Italy. "I think you may see a slowing in lending."

Emaar Properties PJSC and Aldar, the two largest UAE developers, have tumbled on concern that the US credit crisis will make lending more expensive in the country.

The UAE's three-month Interbank offered rate rose to 3.32 per cent last week, the highest since January, Bloomberg data showed.

The Federal Reserve, the European Central Bank and the Bank of Japan joined with counterparts in Switzerland, the UK and Canada to inject cash into the financial system.

Borrowing between banks seized up last week after Lehman Brothers Holdings Inc. collapsed and the US government bailed out American International Group Inc.

Emaar, the Mideast's big-gest publicly traded realty company, closed down 3.7 per cent at Dh7, the lowest since April 2005. Aldar fell 3.5 per cent to Dh7.09.

No risk appetite

The Dubai Financial Market General Index lost 3 per cent to 3,922.64, its lowest close since May 2007. The Abu Dhabi Exchange General Index retreated 2.6 per cent.

"Banks are facing challenges lending money," Ali Khan, head of equity trading at Dubai's Arqaam Capital Ltd., said in an interview. "The risk appetite is blown to bits."

Inflation in the UAE, which has seen property prices double over the last two years, accelerated to a record 11.1 per cent in 2007 from 9.3 per cent in 2006.

Record prices have been caused mainly by shortages of housing, which has failed to keep pace with an annual 6 per cent increase in the population, Samba Financial Services said in a July report.

"Confidence has eroded by what is happening to Lehman and AIG," Barrott said.

"Companies that don't have the level of management that will give confidence to lending institutions will be affected more."

Aldar has an A3 credit rating from Moody's Investors Service, its seventh-highest investment grade, and an equivalent A- rating from Standard & Poor's.

The company had $3.6 billion (Dh13.2 billion) of bonds and loans outstanding as of June that mature in 2011, Bloomberg data show.