Deyaar, Damas latest Dubai companies to recapitalize
Posted on 29 March 2011 with no comments from readers
Deyaar and Damas are the latest in a long line of Dubai quoted companies to agree debt rearrangements with their bankers, putting the trauma of the two-year recession that followed the global financial crisis behind them.
Yesterday it was revealed that Deyaar, Dubai’s second largest property developer had sold property and land worth $600 million to a ‘related party’ thought to be the Dubai Islamic Bank which has a 40 per cent stake in Deyaar. Dubai Government has a 30 per cent controlling stake in the DIB.
Changing strategy
That still left Deyaar with a thumping $625 million loss for the year. Analysts said Deyaar would now be mainly a management company for its 14,000 units, and speculated that the DIB might be buying the assets for its real estate investment trust joint venture.
Only a few months ago Dubai’s third largest property developer, Union Properties was bailed out by a fire sale of its Ritz-Carlton Hotel in the Dubai International Financial Centre for $400 million to a still unnamed Abu Dhabi buyer.
Earlier this week Dubai jewelry giant Damas signed a $817 million debt restructuring agreement with its 25 creditor banks. This followed the scandal last year when the founders were fined for ‘unauthorised transactions’ involving two tons of gold and $99 million in cash.
But the banks will take priority over shareholders’ dividend payments for the next five years, though Damas only made $1 million profit last year anyway.
Investment opportunity?
For potential investors recapitalizations are always an interesting moment to weigh up a company. If the banks overdo it then there is the possibility of a rapid turnaround, and the shares are underpriced. If the banks have not taken sufficient action then there could be a second day of reckoning and even more pain for shareholders.
So it also comes down to making an assessment of the recovery prospects of Dubai as much as the recovery prospects of individual companies and their new strategies.
The next issue of the ArabianMoney newsletter will consider in detail how the outlook for Dubai is stacking up and whether shares in this city are really cheap or just marking time before another leg down.
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