DUBAI: The UAE’s government-owned developers are calling the shots on funding — and investors and bankers are hearing them loud and clear.
Nakheel’s closing of its sukuk exposure — paying off Dh4.4 billion to trade creditors — is the latest decisive step — or intervention — GREs (government-related enterprises) have made in recent times. And this when the Dubai and Abu Dhabi property markets are still in soft mode when it comes to buyer demand. Nakheel also made it clear on Monday that it is in the market for a new round of bank finance and that it intends to get it “cheap”.
And just last week, Abu Dhabi based Aldar Properties confirmed it refinanced Dh1.8 billion in existing loans that were due to mature in 2018. It also got another shot in the arm with the rating agency S&P upgrading its short- and long-term corporate credit ratings to BBB/A-2 with a stable outlook. “With a strong capital structure in place we remain well-positioned with a clear strategy,” said Mohammad Khalifa Al Mubarak, CEO of Aldar, said in a statement at the time.
Earlier, Dubai Parks and Resorts (now known as DXB Entertainments) went through a successful Dh1.68 billion rights issue as well as raised funds of Dh993 million to develop a Six Flags project in the city.
Debt exposure
And the informed opinion within industry circles is that, by and large, the UAE’s government-owned developers are in as good a position as they can hope to be under the circumstances. And, once the next turnaround shows up, they will be best positioned to take full advantage of it.
The current combined GRE debt exposure in Dubai could be around $52 billion (Dh190 billion), down from $60 billion-plus. While still substantial by any stretch of the imagination, the big plus is that they have time to meet their obligations.
“Even if Nakheel paying off all its debts is the exception, other Dubai GREs have the bulk of their repayments rescheduled for after 2020,” said Sameer Lakhani, Managing Director at Global Capital Partners. “In Dubai World’s case, 65 per cent is due post 2020, based on IMF estimates of Dubai Inc.’s exposures.
“It means there is ample time for all GREs to meet their commitments. As such, Dubai’s GREs are in far better shape than in 2008. All of them have a much healthier balance sheet to show off; there is focus on annuity cash flows (recurring incomes); and much the same status exists with Abu Dhabi’s GREs as well.”
And with the likes of Nakheel and other GREs active on the project front, funds are flowing through into allied sectors such as construction. Nakheel alone expects to total Dh8 billion worth of contracts before the year is out. Meraas — the parent company of DXB Entertainments — has got multiple projects going on in the city, including a new outlet mall in Jebel Ali.
A recent analyst’s summary from Renaissance Capital talks up DXB Entertainments’ prospects, with the theme park set for an October 31 opening. It “addresses the need for world-class Disney-like theme park destinations in a region that lacks any,” the report says. “What makes DPR’s (Dubai Parks & Resorts) offering strongly viable is its massive scale (25 million square feet), and appeal.
“In the UAE, DPR should, in our view, fend off any potential competition, which is broadly fragmented in nature and of much smaller scale, and see its footfall increase by a 17 per cent CAGR by 2021. Given the fact that at least 50 per cent of DPR’s costs are fixed in nature, footfall growth should bode well for profitability.”
Emaar Properties too gets a thumbs up from S&P in its overview of the developer’s medium-term prospects.
“The stable outlook on Emaar reflects … view that the company should withstand a potential softening in residential prices in 2016,” it states.
“This is thanks to the company’s cushion of recurring cash flow from leasing activities and the build-up of a largely pre-sold, high-margin development pipeline in Dubai.
“We could consider upgrading Emaar if we saw a further increase in the company’s recurring revenues large enough to fully mitigate fluctuations in the operating cash flow and working capital of development-related activities.”
If each of Dubai’s GREs are fighting fit — or slowly getting to that level — it can only do the overall market a world of good.
“There’s no contagion of the sort that was seen right after 2008 ... the problems related to a cash crunch are mostly visible in the small and medium business space,” said Lakhani. “UAE’s government owned developers are in a position to lead a recovery.”
