Shares in Emaar Properties surged to their highest level in nearly six years following news that the stock had been upgraded to investment grade by Standard & Poor's.
Emaar shares rose 4.67 per cent during trading yesterday to close at Dh8.30, their highest level since April 2008, after the ratings agency upgraded Emaar by one level to BBB-minus on Wednesday.
The upgrade was Emaar’s first by S&P since it was cut to junk or BB-plus in December 2009, as the global financial crisis sent Dubai property prices into freefall.
Yields on Emaar's US$500 million sukuk which falls due in July 2019 tightened by 26 basis points to 4.4 per cent, according to Bloomberg data.
“Emaar has a high-grade asset portfolio generating growing earnings and cash flow, an attractive land bank and a reputation for high-quality development,” S&P said in its report.
Mohamed Alabbar, the Emaar chairman, said the upgrade reflected “the strong financial fundamentals of the company”, and its “business expansion into shopping malls and retail, and hospitality and leisure, which contribute significantly to … recurring revenues.”
“The big news here is that Emaar now has access to more investors,” said Sebastien Henin, head of asset management at The National Investor. “Now that Emaar has been upgraded it means that a lot of institutional investors which are only allowed to invest in companies rated as investment grade could now invest. The share price increase we have seen has really been a reaction to that. ”
Shareholders will now be watching closely to see whether the two other big ratings agencies follow S&P’s lead with similar upgrades.
“Usually there is a correlation between the ratings given by the big three ratings agencies and there is seldom more than a few notches difference between them,” Mr Henin said.
“However, there can be delays of between three and six months between ratings changes if there is no one-off event which changes the outlook. Once one ratings agency has acted, the market usually prices in upgrades from the other agencies but some institutional investors may require a stock to be given an investment grade rating by at least two agencies.”
Emaar’s share price has increased by 5.3 per cent since the start of the year as the company has announced a string of new sales launches and renewed confidence in the Dubai property market.
The Burj Khalifa owner and developer has been announcing sales launches for off-plan property at a rate of about one a week since the start of the year. New schemes include three expansions to its Arabian Ranches development as well as a serviced apartments scheme in Downtown Dubai.
Last year Emaar's share price nearly doubled as the company benefited from a market rebound and the news that Dubai is to host the World Expo 2020.
Last year, S&P upgraded the Abu Dhabi-based property developer Aldar by two notches to BB – still two notches below Emaar’s current rating. Moody’s increased its credit rating for Aldar from B1 to Ba1.
lbarnard@thenational.ae
