Last week, the property developer Union Properties said it was suspending construction of its F1 theme park.
Union Properties opens door to merger
Union Properties, Dubai's third-largest property developer, would welcome a merger if the partner brought a genuine advantage to its overall business operations, the company's chief executive says. Speculation of consolidation among Dubai's biggest developers has mounted since the downturn hit the property sector, where prices have fallen by an average of 25 per cent since their peaks last September, according to a recent report by Morgan Stanley. "I am a big supporter of mergers, especially at times like this," said Simon Azzam, the chief executive of Union Properties. "If a merger makes business sense due to the synergy of the two businesses and adds a genuine advantage to the company's overall operations, brings liquidity and shareholder benefits, then we would welcome such initiatives and discussions." Union Properties is trying to raise finance to complete construction of a Dh1.69bn (US$460 million) Formula One theme park as part of its Dh10bn Motor City development in Dubai. The company last week suspended construction of the park, which was about 50 per cent complete, due to a shortage of cash. Union Properties' shares fell 5.3 per cent to Dh0.72 on the Dubai Financial Market yesterday, its first day of trading since the suspension was announced. The attraction was planned to open during the last quarter of this year, but has now been delayed until next year. Plans for the 28-hectare project include roller coasters, water rides, car-racing simulators, Formula One car displays, shops, restaurants and a copy of a Formula One grid. "We had previously arranged for financing but, unfortunately, due to the current crisis in the financial sector, those facilities have been stopped by the banks and hence we had to replan [the project]," said Mr Azzam. He added that funds were also needed to finish the project's back-office work, such as licensing, graphic design and intellectual property requirements. The majority of the rides to be included in the project have been bought from Europe and the US. Union Properties is now studying ways to finance completion of the project, which is likely be covered by the issuance of Dh2.5m of non-convertible bonds, which have been approved by shareholders. "As soon as we are through with that, the money is going to go straight into the project to complete it," said Mr Azzam. Funds might also be generated from banks as well as strategic partnerships. "There are good signs that the banks may start the lending process soon," he said. "We would welcome all possibilities that help the project because we believe it is very strategic. It's the first of its kind in the world... and I think it's very important for this project to go ahead." Union Properties told Reuters yesterday it expected to report a profit in the first quarter of this year, mainly through income from its rental properties. The company said last week that while annual profit increased by 12 per cent last year to Dh763.1m, it lost Dh37.6m in the fourth quarter due to lower land sales and provisions against further problems caused by the economic slowdown. As Dubai's property firms grapple with the downturn, Nasser al Shaikh, the director general of the Dubai Department of Finance, said last week that funds from a Dh73.4bn sovereign bond programme would initially be channelled towards developers fully or partially owned by the government. On the subject of consolidation between government-related property firms, Mr al Shaikh said the emirate was likely to see more merger activity. "When it comes to companies with government control, the decision has to be made by them - every single company is realising the new realities. If there are any [mergers] happening with the real estate companies, they will announce them at the right time." email@example.com firstname.lastname@example.org