Damac Properties, which reported on Tuesday its third quarterly profit slump in a row, plans to cut its overall debt by about $500m in three years as the Dubai developer embarks on liability management exercise.
"Our principle objective over the next two-to-three years - I would like to bring [the debt] sub $1 billion dollars. We will be paying down circa of $500m," Adil Taqi, the group chief financial officer of Damac told The National in a phone interview on Tuesday. "What we are managing is the net liability base."
The company currently has roughly $1.45 billion (5.32bn) of debt on its balance sheet, which consists of about $180m in bilateral loans from commercial banks and the remaining accounts for funds raised either through private placements or capital market deals.
A payment of $270m is due in April next year and some of its commercial debt matures in 2018 and beyond. Damac may choose to refinance some of the smaller banking loans, “just to keep the relationship alive” but all the maturities have been well provided for and the company's “cash flows are very well covered”, Mr Taqi noted.
Damac, which owns and operates the only Trump branded Golf resort in the Middle East, has $2bn in cash, of which $350 is unrestricted to be used for any suitable purpose. The company does not have a “cash flow challenge”, is well capitalised and has a good liquidity position, Mr Taqi added.
Egyptian investment bank EFG Hermes earlier this year said that operational and financial challenges are expected to put pressure on Damac in 2018. Cash flow issues at the company are likely to push the dividends lower and the company may have to raise debt to meet Dh2.2bn in repayment obligations over the next 24 months, the investment bank said.
Mr Taqi said Damac in April paid about $250m in dividends, which was lower than the $400m recommended by the board in January, however, it was lowered because “we felt the market will get tougher”.
“We would not have given anything [in dividend] if we felt there were cash flow challenges,” he explained.
Damac on Tuesday said second-quarter net profit plunged 46 per cent as the cost of sales surged. The company’s income in the three months ending June 30 fell to Dh378.2 million from a year earlier, below the average Dh450.7m estimate of analysts polled by Bloomberg.
The cost of sales during the quarter rose 62 per cent to Dh1.16bn from Dh705m reported at the end of the same period last year. Damac recorded revenue of Dh1.79bn, slightly above analysts' estimates of Dh1.77bn.
Quarterly income decline is the third in a row for the company, which in May, reported a 45 per cent slump in first-quarter net profit, also on mounting cost of sales. In February, Damac reported a 47 per cent decline in fourth quarter net profit and a 25 per cent drop in its full-year 2017 net income to Dh2.76bn.
The company, which is on track to deliver a record 4,000 units by end of this year, expects the earnings to follow the first half trend in the remainder of the 2018.
“We are planning for second [half] similar to [that of] the first half,” he said.
To compensate for the lower profitability, Damac is mulling ways to lower costs that include everything from salaries to the company’s market expenses.
“Obviously you would want your money to work harder. We look at different costs individually and see how could we do this better,” he said. “We were making a billion dollars in profitability and we were incurring [that] level of cost. We can’t continue when our revenue line [has] halved and our profitability [has] halved, and leave the cost untouched.”