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Sun 21 Oct 2007 01:24 AM

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Emaar doubles Dubai land with $16bn deal

Real estate giant replaces scrapped land-for-shares deal with 70mn sq ft Bawadi joint venture.

Emaar Properties, the largest Arab real estate company, has agreed a $16 billion project with Dubai's ruler, almost doubling the land it can develop in its home market until foreign projects make money.

Emaar will invest 3.85 billion dirhams ($1.05 billion) in the venture, which replaces a land-for-stock deal it scrapped in August after investors drove its shares to a 28-month low because they were kept in the dark about the details.

Emaar's partner, Bawadi, will contribute 70 million square feet (6.5 million sq metres) of land, the two firms said yesterday. Bawadi's parent, Dubai Holding, is owned by the emirate's ruler, Sheikh Mohammed bin Rashid al-Maktoum.

The venture will be managed by Emaar through a management and technical services agreement, and governed by a board with equal representation from Emaar and Bawadi, with its chairman appointed by Emaar.

The property lies in Dubailand, a stretch of desert almost five times the size of Manhattan, where Bawadi is building what its says will be the world's longest leisure strip with hotels modelled on Egyptian palaces, Hollywood and London's Houses of Parliament.

The Emaar project, which will include commercial, retail and residential components, will start making money in 2009, it said.

It will include six hotels with 5,150 keys and 1,200 serviced apartments, along with a family-oriented theme park with landscaped parks and lakes.

Emaar had 16.78 million sq metres of land in the United Arab Emirates at the end of 2006, according to its annual report. Around half that lies in Dubai, where property sales account for about 85% of Emaar's revenue.

A plot of land Emaar owns near Bawadi's site is not covered by the deal, a company spokeswoman said.

"This will be a huge addition to Emaar's Dubai land bank, which has been shrinking fast," said Jitesh Gopi, head of research at SICO investment bank in Bahrain.

"Any addition to its land bank at home would be viewed as positive by investors," he said.

Emaar, which is building the world's tallest skyscraper, had planned to acquire more land in Dubai by giving Dubai Holding about $8 billion worth of stock to keep its expansion on track until foreign projects start making money.

It was forced to abandon the deal when its shares hit a 28-month low of 9.75 dirhams because it did not give investors details of the size, location or value of the land.

"The fact that Emaar has given these details is one step toward regaining the confidence of shareholders," said Mohammed Yasin, managing director at Dubai-based Emirates Securities.

"Emaar's success will need to come from Dubai-based projects. Other international projects will take a longer time," he said.

Emaar, which has operations in 16 countries, has traditionally funded expansion through high-margin sales of Dubai land, in the past given virtually free by the government. Revenue from such sales fell 75% in the second quarter when Emaar missed analysts' forecasts.

Emaar's third quarter profit fell and came in at bottom end of forecasts after the company spent more on foreign operations in countries such as Egypt.

Goldman Sachs had forecast that Dubai's share of Emaar's revenues would fall to about 65% in 2010 as earnings from foreign operations grew.

Emaar rode a wave of growth after Dubai began the Gulf Arab real estate boom by allowing foreigners to invest in property five years ago.

Until it ended the land-for-stock on August 25, Emaar's stock had fallen almost 18% from March 19 when the company announced that it would give 2.364 billion new shares to Dubai Holding in exchange for land, giving the government a majority stake.

Emaar and Dubai Holding had said they were planning to work together on property developments in Dubai, the second-largest member of the oil-exporting United Arab Emirates federation.