A 40 per cent price drop in the past six months may not be enough to entice buyers for shares of Sorouh, the Abu Dhabi developer. The stock dropped another 3.2 per cent yesterday and Deutsche Bank warned investors to stay away. "We still believe that Sorouh does not provide an appealing investment opportunity," wrote Nabil Ahmed, a research analyst for the bank. "We also believe that ongoing projects will require fund-raising at some point in a challenging credit environment."
Sorouh's shares finished at Dh2.41 yesterday, compared with a peak of Dh4.10 early last October. Sorouh followed the business model of many other master developers in the country, one based on selling the land they were awarded to other sub-developers - on Al Reem Island, for instance - and developing only part of it themselves. This approach has a limited risk of customer mortgage default, but is now also limiting the company's prospects in an environment where land buyers intending to build have become scarce.
Compounding the problem is that its major projects to be delivered this year, the Sun and Sky Towers on Al Reem, are less profitable than expected. Sorouh's net cash position has shrunk to Dh691 million from Dh3 billion in 2008. Its pipeline of developments, which includes the Gate District project on Al Reem, will require additional financing that Deutsche Bank estimates at Dh2bn over the next two years.
The Tala Tower on Al Reem is also more realistically expected to be delivered next year rather than this year, which will further exacerbate the cash depletion. One sign that the company is worried about liquidity was provided yesterday when it awarded a 5 per cent dividend in stock instead of cash. As with other government-related entities, Sorouh would have benefited in the past from implied sovereign support when it went to the market to raise cash.
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