Emaar Properties, the builder of the Burj Khalifa, the tallest building in the world, scored a coup yesterday after pricing a US$500 million Islamic bond at 8.5 per cent - well below the expected 10 per cent range. The developer is raising funds to convert hundreds of millions of dirhams' worth of short-term debt into long-term debt, pay contractors and expand in the region to stave off the impact of the property downturn.
A banker familiar with the transaction, who wished to remain anonymous, confirmed yesterday that the bond, or sukuk, was priced with a return of 8.5 per cent and received $1.7bn in bids.With Emaar's funding needs growing, the cost of borrowing from investors is of crucial concern regarding profits, according to a note from Alembic HC Securities this month. A $500m convertible bond from Emaar with a 7.5 per cent interest rate was announced at the end of last year.
The negotiation rate at 8.5 per cent was a positive sign of both Emaar's position in the market and the growing demand from investors for sukuk issuances. While such issuances declined last year by more than a quarter, they were expected to rebound this year.
Emaar has emerged as one of the strongest developers in the country, primarily because it has built up a large stable of income-producing hotels, rental apartments and shopping malls.
Nomura Securities estimates Emaar will report a total Dh2.8bn in profit for last year, on revenues of Dh11.3bn, while its competitors are likely to post losses. Still, the company has balance-sheet problems to sort out, analysts say. It has not revalued its more than Dh800m investment in Amlak Finance, the mortgage lender that has been frozen for more than two years.
Emaar has also run into trouble with its joint venture in India, called Emaar MGF, which was supposed to sell stock to the public in 2009 but has been repeatedly delayed. Emaar's Saudi unit this month reported a loss for the fourth quarter last year. Emaar Economic City, the company behind the King Abdullah Economic City development, posted a 206.4 million Saudi riyals loss compared with a loss of 69.9m riyals a year earlier.