If regional banks do not loosen credit for UAE companies in the next three to six months, National Central Cooling Company, or Tabreed, could see its regional expansion slow, a top company official said. "There's a big liquidity crisis in the UAE right now," said Karl Marietta, the chief executive of Tabreed. "I'm optimistic that the current conditions won't continue, but if something does not happen it will definitely affect our ability to expand."
Tabreed is not alone in facing the spectre of a prolonged credit crisis. Without the crucial ability to borrow money, many of the region's companies will find it more difficult to complete their projects and continue expanding. Analysts have said that a wave of consolidations, especially in the property and banking sectors, is likely. Amlak Finance and Tamweel, the country's largest home finance providers, said last week they had entered "exploratory merger talks".
Tabreed announced last month that it was planning to begin selling assets to increase profitability and fuel expansion of its district cooling business into other Middle East countries. But the global credit crisis, which has left local banks without the ability to borrow cheaply from larger international institutions, could affect those plans. The company is already established in Qatar, Saudi Arabia, Bahrain, Oman, Jordan and Kuwait, but those operations are handled mostly by joint ventures that need to borrow money to build new cooling plants, Mr Marietta said. Without access to bank loans and few alternatives for financing, they will probably have to put their expansions on hold.
"The banks are just giving very little response at this point," he said. The three-month Emirates interbank offer rate (Eibor) - the interest rate that banks charge each other for loans - climbed to 4.7063 yesterday, according to Bloomberg. That is more than double its rate of less than six months ago. District cooling is a more efficient air-conditioning system that uses central plants to create chilled water, which is pumped into buildings. Since that business was intricately linked with property development, the real problems for Tabreed would begin if people were unable to gain access to attractive mortgages to buy homes, or developers were unable to finish projects, Mr Marietta said.
Nonetheless, the company is moving ahead with its plans to sell between Dh500 million (US$136.1m) and Dh700m worth of assets by the second quarter of next year. The strategy would increase profitability and raise money that could be used to expand the operations in other countries, he said. Tabreed has already been contacted by several large infrastructure funds that indicated they would be interested in investing in the facilities. The funds included Mubadala Development, Sumitomo Corporation, J Power and Korean District Heating Company, Mr Marietta said.
"The banks need to come back to the table," he said. "I know that the rates will change, but we need to at least have the ability to borrow in some way or another." @Email:bhope@thenational.ae
