Union Properties' chief executive quits

Simon Azzam has resigned as the company enters its most challenging period in the aftermath of the global financial crisis.

ABU DHABI// Simon Azzam, the chief executive of Union Properties, has resigned, as the company enters its most challenging period of the global financial crisis. The company gave no reason for Mr Azzam's resignation in its statement to the Dubai Financial Market, and said it had appointed Khalid al Jarwan, a former executive of Dubai Investments Group and Abu Dhabi National Oil Company, as general manager. A spokesman for the company declined to comment further. Chet Riley, an analyst at Nomura Securities, said Mr Azzam had "been under a lot of pressure for a long time". The company is struggling to refinance about Dh1.5 billion (US$408.5 million) of debt that comes due by the end of this year and may be forced to sell its most profitable assets, Mr Riley said. Union Properties had Dh125m in cash reserves at the end of March, it said in a filing last month. "This is a company that is overleveraged and overdeveloped at exactly the wrong time in the cycle," Mr Riley said. "That isn't their fault. They caught the wave at the wrong moment. They have gone from a conservative company with a clear strategy and a relatively mature business plan to having to sell trophy buildings in order to complete their development programme." Nonetheless, Union Properties has seen one of the strongest rallies on the stock market in the past week. Its share price has risen 25.7 per cent since last Monday, closing yesterday at Dh1.27. Property stocks across the region have been rebounding on a spate of positive reports and indications that prices have bottomed out. Union Properties had one of the most dramatic earnings declines among property developers in the first quarter of the year, dropping by 87.4 per cent compared with the same period last year. Net income fell to Dh30m from Dh238.35m last year, which the company said was the result of lower sales and smaller gains on the sale of investment properties. By February, the slowdown had forced the company to put on hold its Dh1.69bn Formula One theme park, which was originally due to open this year, because it could not raise enough funds to finish construction. A deal to sell units worth Dh1.8bn in the 80-storey Index Tower to the Dubai International Financial Centre has also fallen through in recent months, leaving the company with hundreds of offices and apartments to rent out during a time of reduced demand for property. Sana Kapadia, an analyst at EFG-Hermes, lowered her rating of the company's stock last month to "reduce" from "neutral" because of "weakening economic conditions, falling rents in Dubai and the increasing likelihood of buyers defaulting", she said in a research report. Ms Kapadia said if the company could not rent out all its units, it would make sense for it to merge with Deyaar Development. Such a merger has been the subject of speculation since earlier this year, but executives from both companies have denied knowledge of any plans. In an interview last month, Mr Azzam said he believed the company would weather the property downturn because of stronger laws announced by the Government to protect developers if buyers defaulted. Law 9 of 2009 introduced a sliding scale for defaults, where buyers who default on properties in projects that are more than 80 per cent complete forfeit their entire investment. Mr Azzam said most of Union Properties' projects fitted into that category. He said Union Properties was focusing on finishing projects and delivering them so that it could recognise income. Mr Azzam also said the company was looking to raise between Dh2bn and Dh2.5bn through a bond issue, but it was having difficulty because the market was "very dry now". [e-mail]