Union Properties could have better utilised new funds to pay down debts
Selling off 40% stake in Dubai Autodrome did fetch a tidy sum
US President Trump’s COVID-19 diagnosis has heightened volatility in global markets - but he remains at a disadvantage in the polls. RealClearPolitics' poll average shows Joe Biden's rating has improved from 50.1 per cent on October 1 to 50.6 per cent on October 4.
Polling trends indicate Biden is maintaining the momentum even after Trump's diagnosis. Traditionally, Democrats have favored more market regulation and may even look to break up companies like Amazon and Facebook to reduce their sway in the tech world. This is a big negative for markets.
Meanwhile, DFM closed lower by 0.88 per cent and ADX ended the day in red by 0.11 per cent. BH Mubasher Financial Services has received an investment management license from the Securities and Commodities Authority (SCA). This should help in diversifying its business.
Some much needed funds
Among other news, Union Properties has decided to sell a 40 per cent stake in it’s subsidiary, Dubai Autodrome, the owner of a race circuit. In a filing with DFM, the reason for the sale has been mentioned as enhancing revenues and diversifying investments. It has also decided to invest part of the proceeds, amounting to Dh250 million, in a property in Business Bay.
In the context of Arabtec's liquidation, the latest moves by Union Properties is disappointing. Let us take a look at how it has fared over the years. The company with a market capitalization of Dh1.18 billion last posted a profit in 2011. This year also looks no different.
Better off clearing debt
According to the latest financial statement, Union Properties has debt of Dh1.82 billion and cash of Dh171.7 million in its books. A preliminary glance indicates that it is in a tough spot. Clearly it would have been financially more prudent for Union Properties to use the cash raised from the proceeds of stake sale in Dubai Autodrome to pay up debt and improve the quality of balance-sheet.
Certainly there are a lot of factors that are beyond the control of a company. In particular, the Dubai real estate sector is plagued by oversupply, which has reduced sales price and rental revenues. And UP has been severely impacted by this dynamic,
So the company cannot be blamed for many of its travails. Nevertheless, an opportunity to improve the liquidity seems to be wasted by the company through investing in another asset.
- Vijay Valecha is Chief Investment Officer at Century Financial.