Dubai: Azizi Developments is close to securing a Dh700 million plus financing line from an Abu Dhabi bank, which will be used for its ongoing projects at MBR City, Dubai Healthcare City and elsewhere, according to banking sources.
If it goes through, this is rated as one of the bigger exposures to the real estate sector by local banks in recent times. In May, the Sharjah-based developer Arada secured Dh1 billion through two syndicated loans from Mashreq for its two ongoing projects.
And in January, ADNH (Abu Dhabi National Hotels) pulled in Dh1.6 billion to acquire a set of hotels in Dubai from Emaar Hospitality Group. The First Abu Dhabi Bank was the lender.
But if banks are to open up their funding taps to the real estate sector, it could prove a win-win for all, sources add.
The loans to Azizi are to be split into two tranches, according to an industry source. “Local banks are committing themselves to provide project funding and there’s every chance there will be more of such big-ticket loans,” the source said. Details of the loan’s tenor is not known.
Meanwhile, Mika Toivola, who recently joined Azizi as Chief Financial Officer, did not confirm whether a loan deal has already been secured. “We have extremely low leverage (debt) as of this moment and that allows us to discuss future needs with the banks. Fitch (the rating agency) has just given us a BB-, and that’s created a lot of interest among banks. And this rating is much higher relative to the real estate industry.”
“We are in discussions with financial institutions regarding funding ... and banks are ready to lend. And in the future, such funding will be there. That’s all I can say at this moment.”
Get on with projects
For Azizi, it helps secure funds in a low interest rate environment, and with more rate cuts expected to happen. The Riviera, the developer’s flagship community development, features more than 71 mid-rise apartment buildings at Mohammad Bin Rashid City and close to the upcoming Meydan One Mall. (The immediate areas around the Mall is now a hive of activity, with projects from Ellington and Sobha with Hartland representing a major chunk of it.) Azizi currently has projects that would create a further 9,364 units in the next two to three years. “It will keep us busy — easily — for the next two years,” said Toivola. “That will allow us to remain a major player in the affordable luxury category.”
In assigning its rating, Fitch said: Azizi has key relationships with master-developers allowing them to acquire lands in developing communities at proximity to Downtown Dubai and Sheikh Zayed Road. This is indicative of the strategy the company adopts, with an effective cost-construction model enabling Azizi to offer properties in key locations.”
Going forward, developers will feel the need for more support from banks. These days, reliance on offplan sales alone will not get a developer far project-wise. The Dubai Land Department/RERA (Real Estate Regulatory Authority) too is extremely strict over how developers manage their escrow accounts and when those collected funds can be used. More likely than not, developers can only use these funds for the final stretch of their project build up.
“This is why banks can help with funds and ensure a smooth construction schedule,” said a banking source.
Recently, the UAE Central Bank also allowed banks to raise their combined exposure to the real estate and construction sector to more than 20 per cent.