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Union Properties plans to sell some of its assets, which are worth around Dh18 billion, to raise cash, according to the developer’s chairman.

 

Kalban said UP has already sold a commercial centre and a department store in Dubai for AED150 million. He said the sales will be announced pending board approval next week.

 

The developer is close to completing a number of projects in the Dubai International Financial Centre, including Index Tower, Limestone House and the Ritz Carlton Hotel. Kalban said if UP decided to sell the Ritz Carlton Hotel it would be worth about AED 1.5 billion.

 

Union Properties shares closed trading on 27 January after the announcement down 5.6 per cent at AED 0.51. The stock plumbed an intraday level of Dh0.49, its lowest juncture since listing on the Dubai Financial Market in March 2000. The shares have now lost 14 per cent over the past three sessions.

 

January 27, 2010

 

 

Analysis and Forecast: Increasing Risk

 

The announcement of UP’s chairman of planned asset sales somehow contradicts statements made by UP the previous month in which it announced it was not in need of funds. The company is one of the regions largest developers and is 49 percent owned by Emirates NBD Bank, which is 56 percent owned by the Dubai government. Political Capital has warned last month that the statement by UP about its financial health indicates that the state of affairs in the company have worsened and are expected to worsen. The latest announcement therefore confirms this suspicion. For most of 2009, UP has struggled to pay contractors whose workers resorted to holding demonstrations, a rarity in Dubai.

 

With no new projects announced after the completion of major projects that have been instrumental to the Dubai boom, UP’s only short-term prospect of survival would be to transform into a facilities management entity, particularly that a merger with another large developer has been ruled out. It does appear, however, that UP has accumulated massive debt to contractors and that asset sales is necessary. With property prices in Dubai less than 50 percent of what they were before July 2009, the company’s move to sell at this time reflects the gravity of the situation. UP’s estimate of the size of its property portfolio is also hugely exaggerated and may not even be close to paying off the company’s AED 6.8 billion worth of debt.

 

It also confirms that it has not been successful in securing financial help from Emirates NBD or Dubai government to survive. The case of UP shows how third-parties will be affected by financial situation of the Dubai government. UP has been considered one of the country’s best-run companies. This kind of collateral damage will cause tremendous harm on the state of the Dubai economy, given that UP’s size means that it employs thousands of employees, directly and indirectly. The news will also put further pressure on property prices.

 

Below is a figure showing the shares of the UP shares just before and after the announcement. The share price 52 weeks ago stood at AED 1.33.