Emaar faces more write-downs

Property company earned Dh802m in the second quarter.

Emaar Properties may have risen above the fray with its recent quarterly profits but it may face further write-downs over the rest of the year as one major debtor is in need of capital and some joint ventures continue to lose money. Emaar has lent some Dh793.1 million (US$215.9m) to Amlak Finance alone. This includes a Dh554.2m credit facility given to the Islamic home finance company for "settlement of instalment payments relating to sale of properties, where customers have availed financing facility from Amlak".

Amlak has been paying Emaar back every quarter, including Dh120.2m in the second quarter, but analysts say the larger issues for the company have not been resolved. Amlak and Tamweel, the biggest lenders in the country for home purchases, have stopped issuing financing since November 2008 and are in need of new funds to jump-start the business. A federal committee is weighing its options on how to deal with the companies.

"If Amlak gets capitalised by the Federal Government, then they won't have any problems paying back," said Majed Azzam, an analyst at HC Securities. "Otherwise, Emaar may not get paid back and they will have to write off the investment." Mr Azzam said he had already accounted for a total write-off in the investment in Amlak and the loan in his valuation of Emaar, even though Emaar has said it is confident of repayment.

Amlak declined to comment yesterday. A more serious issue is whether Amlak will be able to make payments to developers on behalf of their customers. Several buyers have been unable to take control of their properties in recent months because Amlak was slow to make the final payments after the properties were finished. Emaar said the Dh554.2m loan was originally given to Amlak to finance Emaar-developed properties financed by Amlak until 2008, and was being paid back incrementally by Amlak.

Emaar said it recognised revenue from developments "based on completed projects only" in line with international financial reporting standards. Chet Riley, an analyst at Nomura Securities, said he was becoming "more concerned with the prospects for Emaar" because of corporate distractions such as the Amlak investment and its Indian subsidiary Emaar MGF, which has been haemorrhaging cash as it deals with difficulties in making a public offering and disputes over some of its projects.

Mr Riley said the company had managed to begin disposing of its non-core assets, allowing it to focus on the main areas of business: recurring revenue property projects and development. It sold Hamptons Group, the international property agency, for Dh428.1m to Countrywide after acquiring it for Dh560.9m in 2006. It will continue to own and operate the MENA region parts of the property agency, as per the agreement. Emaar also sold its stake in the Singapore private school company, Raffles Campus, for a net loss of Dh14.1m, and one of its prime commercial office buildings in Emaar Square for Dh331m.

Emaar has earned its reputation as the most mature and diversified property company in the UAE's battered sector. It reported profits of Dh802m for the second quarter, while the majority of its peers have reported some of their worst quarters. [e-mail]