x Abu Dhabi, UAEThursday 18 January 2018

Emaar uses Dubai Mall as security in $1bn loan

Emaar Properties has used the Dubai Mall to secure financing from three UAE banks.

Dubai Mall has been used as collateral to secure Dh3.6 billion of financing from a trio of UAE banks. Satish Kumar / The National
Dubai Mall has been used as collateral to secure Dh3.6 billion of financing from a trio of UAE banks. Satish Kumar / The National

Emaar Properties has used Dubai Mall, one of the world's largest shopping centres, as collateral to secure Dh3.6 billion (US$980 million) of financing from a trio of UAE banks.

The developer behind Burj Khalifa in Dubaisays it will use the credit line to reduce its short-term debt and lower financing costs. With Dubai property sales slowing, the company has been using funds to expand into other countries around the region, including Saudi Arabia, Egypt and Jordan.

Emaar is carrying $2.7bn of debt, with $1bn scheduled for repayment next year, according to Bloomberg News data.

"It's definitely a positive sign that the company has been able to get financing," said Ankur Khetawat, an analyst with AlembicHC.

The Dubai Mall, which features more than 1,200 shops, is considered one of Emaar's most marketable assets, producing steadier income than residential, office or hotel projects. Part of the downtown Dubai complex and home to one of the world's largest aquariums, it is connected to the Burj Khalifa and the Address hotel.

Shop occupancy rates in Dubai Mall are steadily above 90 per cent, said Matthew Green, the head of research for CB Richard Ellis in the Middle East.

"It's a much higher value than other asset types," Mr Green said. "It's the type of product that never comes up in the market for sale."

The new financing, described as a combination of Islamic and conventional facilities, was arranged through Dubai Islamic Bank, National Bank of Abu Dhabi and Standard Chartered Bank. Fifty per cent of the financing is repayable in five years and the rest is amortized over eight years, the company said.

"The drawdown of the facility will convert the company's debt's maturity profile from short to longer term," the company said. "This new facility will also assist in reducing the overall financing cost of Emaar due to the lower pricing achieved compared to existing borrowings."

In January, Emaar priced a $500m Islamic bond at 8.5 per cent interest, which was considered a good rate at the time. The new financing is priced at "benchmark plus 350 basis points", which is likely to put the interest rate at closer to 5 per cent, analysts say.

The financing will initially be used to repay a $300m facility taken out last year, with subsequent drawdowns made "as required", the company said.

Emaar was known to be seeking financing terms for several months.

"The opportunities for financing and refinancing are excellent and likewise the prices are excellent," Mohamed Alabbar, the chairman, said in an interview with Dubai TV in October.

While a positive development, news of the credit facility will not change fundamental valuations of the company, Mr Khetawat said.

"The market never had refinancing concerns," he said. "Everyone had confidence that Emaar would be able to refinance."

Analysts are more focused on Emaar's international operations, as it tries to diversify away from its core residential business in Dubai. Projects in India, Egypt and Saudi Arabia have been slow to generate the expected revenues, while requiring cash for construction.

"Those factors will have more of a profound impact" on valuations of Emaar, Mr Khetawat said.

Emaar's core Dubai residential business has been slowing in recent months as it completes the handovers of many of its largest projects.

The company's net profit was down 50 per cent for the nine months ending September 30, to Dh1.249bn from Dh2.343bn in the same period last year. Apartment sales were down 86 per cent in the third quarter compared with a year earlier.

In October the company launched a subsidiary, Dawahi Development, to develop "value housing" projects in the region, a departure from its focus on luxury master-planned developments.


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