Moody's: Consolidation will shape Dubai real estate market

The ramifications of the transaction are discussed in Moody's Special Comment, "The Dubai Property Market in the Wake of Consolidation".

"Moody's recognises that consolidating Emaar and DHCOG's real estate interests into one entity will create a new giant in Dubai's market, with unrivalled access to a sizeable land bank," explains Martin Kohlhase, an Associate Analyst in Moody's Corporate Finance Group based in Dubai and author of the report. "Furthermore, several drivers -- such as the opening of Dubai's Metro (public transportation system), the inauguration of Burj Dubai (the world's tallest skyscraper) and the end of the school year/beginning of the summer period -- will shape Dubai's residential property market in the near term and lead to greater differentiation within Dubai's residential areas, from which Emaar and DHCOG's real estate divisions may benefit."

However, following the announcement of the merger, Moody's placed both Emaar's and DHCOG's long-term issuer ratings on review for possible downgrade on 30 June 2009.

"Larger government ownership in Emaar may not be sufficient to mitigate the detrimental impact that the merger would have on the company's fundamental creditworthiness," says Mr. Kohlhase. "Furthermore, ongoing market weakness and the prospects of weaker cash flow over the near to medium term will impact the combined group going forward."

Moreover, Moody's notes that the Dubai residential property market generally remains oversupplied, and the downward trend in the market is unlikely to stabilise before Q2 2010. Furthermore, large-scale lending has not resumed and property developers have recorded a number of buyer delinquencies.

Moody's review will assess asset valuation, government ownership, dividend policies, the new capital structure and strengths of the combined cash flows, as well as the liquidity profile of the new entity.

Moody's outlook for the GCC real estate sector for the coming 12 to 18 months remains negative (see "Arabian Gulf Property Market Industry Outlook", published April 2009).