The share price of Union Properties fell 10 per cent yesterday after Credit Suisse said the developer's debt burden had almost wiped out its value. Investors sold the issue after the bank cut its price estimate for the stock to just 3 fils. It closed yesterday at Dh0.54 after falling by the most allowed in a single session under Dubai Financial Market rules.
The company has lost about 90 per cent of its value over the past 18 months as the property downturn in the emirate forced developers to delay and cancel projects. Union Properties is Dubai's second-largest developer by assets and the company behind the Formula One-themed MotorCity, which has been hit by a series of delays and setbacks. It was forced to shelve plans to build an amusement park alongside the housing development that was due to be finished by the end of last year. The developer hired the consultancy Ernst and Young last month to help it raise the remaining Dh1.2bn (US$326m) needed to complete the project.
"It is not a surprise to us that other analysts are having a negative view on the stock," said Saud Masud, a senior analyst at UBS bank. "They were trying to pursue financing, they could not get it. They were trying to do an 'M & A' [merger and acquisition] and they could not get it. "They are trying to sell off their assets and they are having a hard time doing that. It is almost like everything that they are trying to do is just not coming through the way they would have liked it to."
House prices have declined by as much as 50 per cent from their peak in the third quarter of last year and could fall a further 30 per cent, UBS estimates. The decline in property prices has deterred lenders from supplying fresh loan finance to help restart stalled projects. Union Properties wrote down Dh167m of the value of its rental properties in the third quarter of last year because of a continuing market slowdown.
The developer made a net loss of Dh152.3m in the third quarter on provisions for likely losses linked to contracts. Analysts expect the company and rival property developers to encounter difficulties collecting final payments from customers because of the steep decline in prices, which has led to a sharp increase in mortgage defaults. @Email:firstname.lastname@example.org