Jabal Omar Development, a Riyadh-listed real estate company swung to a second-quarter loss due to lower revenue . Hasan Jamali / AP Photo
Jabal Omar Development, a Riyadh-listed real estate company swung to a second-quarter loss due to lower revenue . Hasan Jamali / AP Photo
Jabal Omar Development, a Riyadh-listed real estate company swung to a second-quarter loss due to lower revenue . Hasan Jamali / AP Photo
Jabal Omar Development, a Riyadh-listed real estate company swung to a second-quarter loss due to lower revenue . Hasan Jamali / AP Photo

Business

Saudi Arabia’s Jabal Omar Development swings to second-quarter loss as revenue drops amid pandemic

The company's sales slumped as hotels and a mall close to Makkah's Grand Mosque were closed in a bid to contain the spread of the coronavirus

Fareed Rahman
Fareed Rahman

August 25, 2020

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Jabal Omar Development, the real estate company that owns a number of mixed-use towers close to Makkah's Grand Mosque, swung to a second-quarter loss as revenue declined and allowances for expected credit losses increased.

The developer reported a net loss of 465.2 million Saudi riyals (Dh455.5m) for the three months ending June 30, compared to a profit of 29.75m riyals a year ago, it said in a statement to the Tadawul stock exchange, where its shares trade. The statement did not include a credit loss figure.

Revenue dropped 99.5 per cent to 1.39m riyals during the period “because operations of hotels and commercial mall were shut down (March to June 2020) due to the precautionary measures taken to limit the spread of the coronavirus pandemic,” it said.

Other income also dropped due to a decline in fair value of investments, while financing costs rose during the period, according to the statement.

Jabal Omar, which is one of the biggest publicly-listed real estate companies in Saudi Arabia, owns six hotels and a commercial mall in towers overlooking the Grand Mosque in Makkah. It is continuing development at the site – a mega-project of more than 2 million square metres.

During the first half of 2020, the company recorded a loss of 682.43m riyals compared to a profit of 31.37m riyals during the same period last year.

The group’s current liabilities exceeded its current assets by 2.17 billion riyals as of June 30, according to the filing. Accumulated losses at the end of June amounted to 864m riyals, equivalent to 9.3 per cent of the company’s capital of almost 9.3bn riyals.

In May, Saudi Arabia tripled VAT from 5 per cent to 15 per cent to shore up the country’s finances that have been hit by low oil prices and the coronavirus pandemic. The move affected a range of sectors in the kingdom, including real estate. To soften the blow, the country’s minister of housing agreed to absorb the tax increase for first-time buyers on units worth 850,000 riyals or less, in an effort to stimulate demand for affordable homes.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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