Companies from across the Gulf racked up losses in excess of US$3.5 billion (Dh12.85bn) in the crucial final quarter of last year, research by The National shows. The results suggest that the downturn is still affecting many of the region's economies and may continue to do so for months. Finance and property companies led a rash of fourth-quarter losses, which have weighed heavily on regional markets over recent weeks. A painful combination of debt restructuring and write-downs on investments bruised earnings.
Hefty markdowns on property investments and a debt restructuring meant the Bahrain-based Islamic investment bank Gulf Finance House was the biggest loser in the region, with losses of $607.2 million. It was followed by the Abu Dhabi Commercial Bank (ADCB), which posted a loss of $325.7m after provisions for bad loans more than doubled. Property developers also suffered. Aldar Properties, the Middle East's second-largest developer by assets, blamed revaluations and hotel opening expenses for its fourth-quarter loss of $153.2m, while another UAE developer, Union Properties, posted a full-year loss of $135.5m.
Uncertainty about the outcome of Dubai World's debt restructuring and an expected peak in bad loans may cast a shadow over future banking earnings, say analysts. Further declines in the region's property market could also erode the balance sheets of banks and property developers. "This year could be even more challenging than last year for companies," said Saud Masud, the Dubai-based regional head of research at UBS bank. "There's too many players, too much risk and too few opportunities available."
The Dubai Government-controlled Dubai World's efforts to restructure $22bn of debt could chip away at corporate earnings if creditors agree to take a partial loss on loans extended to the conglomerate, say analysts. "We expect significant deleveraging in Dubai and a further damage in corporate balance sheets across the UAE," said a report released last week from Bank of America Merrill Lynch Global Research.
With much of the detail of the rescheduling process still unknown, the ramifications of any deal with creditors are another big uncertainty weighing on earnings. "The visibility of a lot companies is still quite bad," said Fadi Al Said, the head of regional equities at ING Investment Management Middle East. "If you look at the comments of many banks, they had not set aside money for exposure to Dubai World."
ADCB, the emirate's third-largest bank, said last month it had about Dh9bn in outstanding loans to the company, one of the largest exposures among local lenders. Bank earnings this year are still expected to be strained by the need to set aside more reserves to protect themselves against bad loans. The Central Bank is expecting non-performing loans to rise almost 50 per cent to 6.5 per cent of bank lending this year.
"Non-performing loans have yet to peak so we will continue to see write-downs and the need for provisioning for some time," said Ali Khan, the managing director of Arqaam Capital in Dubai. Developers across the region would continue to make provisions for several more quarters as property values continued to fall, said Mr Masud. A severe correction in the UAE's property sector has already seen estimated price declines of up to 50 per cent in Dubai and 40 per cent in Abu Dhabi.
"We're in the early-to-mid cycle of this property downturn and we've got a long way to go," Mr Masud said. Providing a ray of light in an otherwise bleak corporate earnings outlook for finance and property companies in the region could be Saudi Arabia. Firms in the Gulf's largest economy are expected to benefit from strong counter-cyclical spending by the government, driving growth in the non-oil sector.
tarnold@thenational.ae