A $16bn debt restructuring of Dubai developer Nakheel will
not help prevent a slump in third-quarter earnings of property firms in the
United Arab Emirates, as they face a host of challenges amid little inroads
being made to fresh property sales.
Real estate firms in UAE were hit hard by the global
financial crisis in 2008 with property prices dropping by about 60 percent from
Nakheel, the developer at the epicentre of the crisis,
concluded its restructuring in August and issued the first tranche of a AED4.8bn
Islamic bond to trade creditors exposed to the company's debt.
The sukuk could add to the woes of listed builders as it
trades at a discount ahead of quarterly earnings expected to start this week.
"The Nakheel sukuk is trading at a discount, which may
force some companies to take more provisions in their third-quarter
earnings," said Mohammed Yasin, chief investment officer at CAPM
Investments in Abu Dhabi.
"It all depends on the provisions already taken by the
companies against the Nakheel restructuring."
Dubai's largest listed builder Arabtec is one among the many
trade creditors of Nakheel.
Meanwhile, Dubai developers like Emaar Properties and Union
Properties are set to face more gloom as sales dry up and demand falls.
The amount of construction projects cancelled and delayed in
the UAE rose to $170 billion in August, Citigroup said in a recent report.
"Neither us nor the market is factoring any new sales
for property companies in the UAE. However, recurring incomes for Emaar from
its hotels will help its cause," said Mazed Azzam, real estate analyst at
"Despite some progress in the beginning of the year,
our outlook is still cautious as oversupply and global concerns weigh."
The summer and the Muslim Holy month of Ramadan that fell in
the third-quarter also saw a dip in sales a drop in hotel occupancy.
Most analysts polled by Reuters expect Emaar's third-quarter
profits to drop, in line with its performance in the first two quarters this
Egyptian bank EFG-Hermes forecast a net profit of AED386.5m,
a drop of 32 percent from the year-ago period. Bahrain's Securities &
Investment Co (SICO) expects a profit of AED328m, a drop of 46.4 percent.
Emaar's financial strength comes from its recurring income
from hospitality sector.
Moody's upgraded ratings on Emaar this week citing improved
operating and financial performance on the back of increasing contributions
from its recurring revenue segments in 2010 and the first half of 2011.
Aldar Properties, Abu Dhabi's largest developer by market
value, is likely to see modest profits from the sale of some of its residential
units. However, concerns have been raised about the company's ability to repay
a massive debt pile and the government's growing stake in the company.
The developer was rescued by a $5.2bn bailout by the Abu
Dhabi government earlier this year.
"Dilution of shares is the biggest concern about Aldar
for equity investors," said an Abu Dhabi-based real estate analyst.
"After the AED2.8bn convertible bond, state fund
Mubadala will hold over 50 percent stake in Aldar. A single government entity
holding that much stake is worrying."
The company's shares dropped to an all time low on Tuesday,
falling below one dirham.
Sorouh, Abu Dhabi's second largest developer, is expected to
fare better as they factor in revenues from the handover of some units.
"Sorouh may surprise us with good third-quarter earnings,"
Three analysts forecasted the property firm's earnings to
double to about AED130m in comparison to AED59.3m in the same period last year.
The developer secured housing projects worth about AED5.4bn
($1.5bn) over the last two years from the Abu Dhabi government.