Azizi plans to tap global debt market

Dubai: Azizi, the Dubai-based developer, has plans to tap global debt markets to fund its next round of expansion and other needs. This would be the first time Azizi would be doing so, as the company had so far used its own equity or loans from local and regional banks for its operations.

As the first step to be ready for global debt sourcing, Azizi will launch a “programme” by the end of this quarter. “It basically stands for one year and can be extended into a second – during this period we can launch debt issues whenever markets allow,” said Mika Toivola, Chief Financial Officer.

“It’s for funding such as acquiring land that we are looking at debt. This access to global capital markets could be either private or public. If public, you can get higher sizes with five-year maturity for over $300 million. If private, you get smaller placements.

“Sukuks - a benchmark sukuk would be five years - of a reasonable size would fit so well into our development cycle.”

Appetite for M.E. debt issue

Low interest rates will help keep the cost of debt funding in check. And despite recent tensions centred around the Middle East, appetite among global lenders for Middle East debt still remains high.

“We met investors in Singapore, London and Zurich in December, and the feedback we had showed their concerns about Dubai market conditions,” said Toivola. “But they do understand that the region has future potential and there are better returns in residential real estate given that prices have remained depressed for four years.

“When sentiments turn, there will be more appetite among investors with long-term views. We are at the bottom end of the market (cycle) and it is a good time for people to tap into.”

In recent times, the Majid Al Futtaim Group – with a $600 million Sukuk issue – and Aldar, with $500 million, drew heavy interest from lenders.

Need to broaden the horizon

As for Azizi, testing the debt waters gives it the opportunity to broaden its net. “We have been quite comfortable with local banks funding us,” the CFO added. “But as the company expands, we have to look at diversifying funding sources.

“A lot of our existing projects are also funded through equity, through high levels of pre-sales. As of now, more than 81 per cent of the 12,000 units we have under construction is pre-sold. And we have (bank) facilities for project funding, which go directly into escrow.

“But by launching the programme, we are readying ourselves for global capital markets. Once we do that, we can start the debt issues depending on company needs, market conditions and the time.

“To tap debt markets, you really need many things in place. Being a family-owned company, it will need governance policies, and these need to be in place to support the issuance.”

Got the rating to show

Another step in the pre-launch process was to get a rating from a rating agency, which Azizi attained with a “BB-” from Fitch. “We are very happy with Fitch rating,” said Toivola. “This company has grown quickly in a short frame of time – we are a significant developer in Dubai but predominantly done with equity. And until 2018 we had no debt at all. But now, equity alone cannot keep up with such growth targets.”

But can the Dubai property market absorb more launches? Offplan launches dropped across the board since last year, and developers are unlikely to work up any renewed appetite for it.

“In 2018, we launched 18 projects, but in 2019, we launched one and relaunched two. On a net basis, that’s effectively one,” said Toivola. “We have sold a lot of our inventory, and with the sales rate we have, inventory will get smaller. To think of future growth, we have to start launching.

“The softness in the property market could continue a little bit more… but there is bound to be stability on the horizon.”