x Abu Dhabi, UAEFriday 28 July 2017

Damac plan for $500m sukuk seal of confidence in Dubai property market

The company, which raised $348 million in a share sale in London four months ago, aims to build a string of luxury developments, including Donald Trump-branded golf course residences.

Damac is poised to benefit from Dubai’s property revival as the developer that offers free sports cars to luxury apartment buyers plans its first sale of Islamic bonds.

The company, which in January promised Lamborghinis, BMWs and Mini Coopers to lure home buyers, this week completes meetings in Singapore, the United Arab Emirates and London seeking to attract investors to its sukuk sale. Standard & Poor’s rated the proposed notes BB, two levels below investment grade, and expects a US$500 million issue.

“The timing could not be any better for them,” Zafar Nazim, a London-based credit analyst at JPMorgan Chase & Co, said by phone March 27. Damac “is a company taking advantage of the positive sentiment associated with Dubai real estate and the performance of real estate-related bonds,” he said.

Damac’s financing plans underline soaring confidence in Dubai’s real-estate revival. The company, which raised $348m in a share sale in London four months ago, aims to build a string of luxury developments, including Donald Trump-branded golf course residences, with property prices predicted by the emirate’s Land Department to jump as much as 40 per cent in 2014. Emaar Properties’ Islamic bond is returning twice the average of sukuk across the six-nation Gulf Cooperation Council this year, according to data compiled by Bloomberg.

The yield on Emaar’s 2019 Islamic bonds fell 68 basis points this year to 3.9 per cent on March 28, according to data compiled by Bloomberg. That compares with a 29 basis-point drop to 4.35 percent for Middle East sukuk, according to JPMorgan Chase & Co indexes.

“With a booming real estate market in Dubai, Damac is a good name to have now in the market,” Ali Soner Guney, a fixed income fund manager at National Bank of Abu Dhabi, said. A lack of sukuk sales this year and soaring demand for yields above 3 per cent “bode well” for a successful offer, he said.

One dollar-denominated Islamic bond has been sold in the GCC this year, a $300m issue from a unit of Dubai Investments, making this the slowest first quarter for sukuk sales since 2009, according to data compiled by Bloomberg. Saudi Electricity Co is also meeting investors this week before a potential sale.

Damac this month said 2013 profit tripled to $641.5m as apartment prices in Dubai, its main market, climbed 43 percent, according to Cluttons data on Bloomberg.

The company’s dependence on high-end real estate buyers in Dubai exposes it to concentration risk, Richard Segal, head of international credit strategy at Jefferies International in London, wrote in a March 27 note to clients.

“While the real estate market in Dubai is presently robust, some are debating whether bubble-like conditions exist again,” Mr Segal said. “Bubbles can only be determined in retrospect, but it does seem clear that the sector is at least relatively close to a cyclical peak.”