It seems like every hour in Riyadh is rush-hour. Outside the Dar Al Arkan headquarters on Al Ma’ather Street, in the heart of the Saudi capital, the traffic is at a standstill. Not that this bothers Youssef Al Shelash, Dar Al Arkan’s chairman and founder; more traffic means more people, and more people means more demand for the product that Saudi Arabia desperately needs, and which Dar Al Arkan stands ready to provide.
That product, of course, is housing. As the kingdom’s biggest listed developer, Dar Al Arkan, is right now uniquely positioned to benefit from a building boom that will rival anything seen anywhere else on the planet.
“The market and economic conditions that contributed to healthy land sales margins during previous years are gradually re-emerging,” Al Shelash points out. “In addition, the latest developments in the Saudi market are likely to have a positive impact on the real estate industry in general.”
He’s certainly not wrong about that. Last year, HRH King Abdullah made housing one of the key platforms of his $130bn social spending plan; estimates vary, but the current belief is that around 1.65 million homes will need to be completed over the next five years — equating to 275,000 units a year.
But there have been question marks over whether Dar Al Arkan will be able to repay $1bn worth of sukuk maturing in the third quarter. Needless to say, the firm has come out fighting. In a variety of statements, to various news agencies, company officials have made it clear — in some detail — that repaying the debt will not be a problem. In a country where visibility into the inner workings of large companies has not always been apparent, it seems that Dar Al Arkan is being more transparent than most. Al Shelash admits that it has been tricky for the developer to obtain funds as a result of the credit crisis.
“In such a difficult environment, our challenge is not profit maximisation, but rather how to maintain our business commitments and keep our projects on track — as a result, cashflow management has been our key focus these last few years,” he says.
Last year was particularly tough. Revenues dropped 20 percent to SAR3.3bn, while profits fell 25 percent to SAR1.1bn. Al Shelash says that the firm — mindful of its obligations this year — cut capital expenditures to SAR1.6bn, repaid SAR330m of debt, transferred SAR1.3bn to its cash reserves, thus closing out the year with SAR2.5bn in cash.
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