Dabbling in doom and doubt

Last Wednesday, now carrying various adjectives - the obvious one being Black, a colleague was monitoring the Dubai Financial Market website, his face betraying a certain gloom.

The Emaar share price had dropped below Dh10 and was sliding. Presumably he's at least a dabbler in shares.

By the end of the day, as Emaar closed at Dh9.75, analysts were talking about barriers broken, with the market dropping through the 4,000 level, one of those many psychological levels beloved of the media and other pundits.

On the Tuesday before, Emaar in a conference call had told analysts that third-quarter profits at its US acquisition John Laing Homes would post lower-than-forecast profits, owing to its exposure to the ongoing subprime mortgage market crisis.

The chief financial officer of Emaar Dubai, Amit Jain, said that those profits would be "extremely marginal."

So the US subprime crisis has finally reached these shores, although the contribution of John Laing Homes to the company's overall profit is not more than three per cent.

This quarter the profits from it will come down to about 0.5 to one per cent of the company's total, the CFO said.

While it may downplay the overall impact of the US unit's contribution, nevertheless, to soothe investors' sentiments, or rather prepare them for any such eventuality, the company might have given out messages as the mortgage crisis was unfolding.

An investment analyst privately has told me that he had written to Emaar's investor relations department raising questions about the US unit and what impact it would have, but had received no reply. It is sad, he says, since investors have lost in the process.

So transparency remains an issue, with Emaar again in view. Not only is it the largest Arab property developer, but it also represents 60 per cent of Dubai Financial market's overall trading volume.

Many say Emaar is a proxy for the market, which means that a certain onus rests with the company to lead by example.

Regardless of this latest announcement about the US unit, analysts are still more concerned about the uncertainty surrounding Emaar's land-equity deal with Dubai Holding.

It's been more than five months since the deal was announced and investors have waited to hear the details of the extent and value of the land that will be swapped for Emaar stock.

Doubts

Doubts are being raised whether the deal will come through at all. Emaar has kept its own counsel, except to say that "if it is not good for the shareholders, there will be no transaction." CFO Jain has said that, if it is not good, they will "part ways in the appropriate manner".

Such statements may not be so reassuring to investors who have been badly burned last year. As it is, analysts have vented their frustration on the issue, and some have gone to the extent of blaming Emaar for not helping the cause of the overall market's recovery.

But maybe we should look beyond this one issue and question a bigger one. How long will the market be dependent on Emaar? In other words, when will there be more Emaars, in terms of size and market value, to take our attention?

Regardless of this latest announcement about the US unit, analysts are still more concerned about the uncertainty surrounding Emaar's land-equity deal with Dubai Holding.