Shams holding up better than most

Sorouh Real Estate is facing delinquent payments from developers as high as 3 per cent, which analysts say is actually a good performance in a slow market.

ABU DHABI // The Shams Abu Dhabi project on Reem Island is faring better than most major property developments under way in the capital after a sharp downturn that has hit companies across the sector, according to a report from Moody's. Overdue payments by developers to Sorouh Real Estate, the master developer of the Shams project, peaked at 2.81 per cent this summer, said Khalid Howladar, a senior credit officer at Moody's.

So-called delinquencies, which are defined as payments that are more than 45 days late, totalled 2.25 per cent by July. "With the collapse in property last September and the ongoing liquidity shortage, one would have expected an increase in smaller developer defaults on the land purchases," he said. "But so far the defaults in Shams are relatively low". The Shams Abu Dhabi project, a 579-hectare master-planned community at the opposite end of Reem Island from Abu Dhabi Island, will include apartment buildings, offices and retail space. The first part of the project, the Sun and Sky towers, will be ready for people to move in during the first quarter of next year.

Officials at Sorouh said in recent weeks the company had created a working group to help find financing for struggling developers who bought land in the Shams Abu Dhabi project. Smaller developers across the island are facing difficulties because of slowing sales and problems raising financing from banks. By June, nine of the developments on the island had changed hands. Distressed asset funds have started eyeing projects on Reem Island, where prices have dropped as much as 50 per cent since the slowdown began last autumn. Markaz, also known as Kuwait Financial Centre, said it was planning to invest about US$50 million (Dh183.6m) in distressed assets on the island.

Mr Howladar said the low delinquency rate of the Shams project was likely because most of the developers who bought land from Sorouh had already paid between 40 and 50 per cent of the cost. With so much equity in the investment, a developer would suffer a big loss if he defaulted on his payments. However, the project is still not proceeding at the same pace as originally scheduled. The company is behind with its scheduled infrastructure works on the project, Moody's said. Working to a weighted average, where large infrastructure works count for more than smaller ones, Shams is 40 per cent behind schedule, the report said.

"Infrastructure works are now well under way on Shams Abu Dhabi and good progress has been made," Sorouh said. "Earthworks are now finished, with bridges also completed. Essential infrastructure such as water and drainage are now nearing completion and Sorouh continues to invest a significant amount in the infrastructure of Shams Abu Dhabi." Moody's was able to give a more detailed look at the Shams Abu Dhabi project because Sorouh issued a Dh4bn Islamic bond attached to the project last year. As a result, the company has to provide public information about how the project is faring.

"This is the only development in the market where you will get this level of information because it's rated and part of the reporting requirements," Mr Howladar said. "This type of exposure analysis is what, frankly, every prudent developer should be doing if they were interested in the quality of future cashflows." @Email:[e-mail]