The lingering concern over Sorouh Real Estate's financing was lifted yesterday when the developer said it had raised a Dh2.3 billion credit facility. The loan, which is payable over four years, includes a combination of term and revolving credit with conventional and Islamic parts, the developer said in a regulatory statement. The loan is going to be used to pay down its asset-backed sukuk, which has an outstanding balance of Dh1.25bn. Settling the sukuk releases the collateral tied to it, which consists mostly of receivables.
Sorouh stock has lost more than 50 per cent in the past nine months on worries that the developer would not be able to line up additional financing, given the depressed property outlook and a general tightening of credit in the UAE. Last month, Credit Suisse estimated the company could burn through its available cash by the end of the year without additional financing. After Sorouh's announcement of the credit facility, the Japanese investment bank Nomura Securities retained its "buy" rating on Sorouh shares yesterday at a price target of 4.21, a significant premium from yesterday's closing price of Dh1.75.
The share price was unchanged on the day despite strong volumes. The facility provides three key advantages, said Chet Riley, an analyst with Nomura. First, it bolsters Sorouh's liquidity by about Dh1bn, essentially doubling the company's available cash. Second, the four-year loan allows the company to draw down funds gradually for use in near-term commitments, even if additional funds may be required in the years ahead.
Finally, the risk on receivables as prescribed by the sukuk is effectively retired, since the banks that originated the loan were the ones that arranged the 2008 sukuk issue - Abu Dhabi Commercial Bank, First Gulf Bank, National Bank of Abu Dhabi and Noor Islamic Bank. As such, Mr Riley sees the new credit facility as a strong endorsement of the company's long-term prospects. firstname.lastname@example.org