Dubai: Emaar Properties will fully write off its investments in Dubai Bank valued at Dh172 million, the company said in a statement to the Dubai Financial Market (DFM) yesterday.

Emaar's decision follows the Government of Dubai's recent announcement that it had taken control of Dubai Bank with immediate effect resulting in full dilution of its shareholders.

"The value of Emaar's investment in Dubai Bank as at March 31 was approximately Dh172 million, which is about 0.3 per cent of Emaar's total assets and 0.56 per cent of the total equity. The value of this investment will be written off during second quarter 2011," the Emaar statement said.

Long-term impact

Analysts said the write-off will negatively impact Emaar's profits in the second quarter.

Although it is seen as a setback for Emaar shareholders in the short term, some analysts said, it (the write-off) would remove the element of uncertainty on Emaar's balance sheet and that will be positive for the company and its shareholders in the future.

The property developer reported net profits Dh421 million in the first quarter of this year, down 44 per cent on the same period last year.

The prospects of a decline in second quarter profits sent Emaar shares down 0.94 per cent to 3.17 on the DFM yesterday.

"We view this clean-up act as positive although pressuring the second-quarter bottom line and share price performance in the near term," Abu Dhabi-based CAPM Investment said in a note.

Emaar, the UAE's largest developer by market value, held a 30 per cent minority stake in Dubai Bank. The remaining 70 per cent was owned by Dubai Banking Group, a part of Dubai Holding.

Dubai Bank was incorporated in 2002 and began operating in August 2002. In 2006 it was converted into an Islamic bank.

Positive aspects

Some analysts said an exit from Dubai Bank even at a cost of Dh172 million is good for Emaar, as it would help the company to focus on its core businesses and reduces the risk of pumping fresh capital into a loss- making entity.

"In the wider scheme of things it may not be that significant…It also means that going forward, as a shareholder it would not have to inject any capital into the bank. This will be taken positively," said Chet Riley, a Nomura property analyst.

Loan losses

At the end of 2009, Dubai Bank had total assets of Dh17.4 billion against total liabilities of Dh15.7 billion. It reported a loss of Dh290.6 million, wiping out 15 per cent of its equity, driven by high loan losses, investment losses and a high cost-income ratio. Customer deposits stood at Dh14.9 billion at the end of 2009.

"The government acquisition [of Dubai Bank] seems more like a sort of bailout for both shareholders, given current efforts at Emaar to refocus its business and the ongoing debt restructuring process at Dubai Holding," said an analyst with an investment bank.