Dubai developer Damac sees 94% drop in profit

View from Damac hills overlooking Trump golf course and club. Such prestige projects have not prevented a large drop in Damac’s profits. (Shutterstock)
Updated 15 May 2019
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Dubai developer Damac sees 94% drop in profit

DUBAI: The Dubai-listed property developer Damac Properties reported a 94 percent drop in first-quarter net profit on Wednesday, its smallest since going public in 2015.
Damac, owner and operator of the only Trump-branded golf club in the Middle East, said its net profit in the first three months of the year fell to 31.1 million dirhams ($8.47 million) from 483.9 million dirhams in the same period a year earlier.
That compared with a forecast of 270 million dirhams by EFG Hermes.
Revenue fell 53 percent to 896.4 million dirhams.
Damac shares fell 2.2 percent in afternoon trade, reversing early gains. The stock is down nearly 40 percent this year compared to a 2.3 percent gain in the Dubai index.
Dubai property prices have fallen since a mid-2014 peak, hurt by weaker oil prices and muted sales.

 

S&P Global Ratings expects the downturn to continue this year, with residential property prices falling another 5-10 percent due to a continued gap between supply and demand, before steadying in 2020.
Analysts warned the company was likely to continue facing challenges in the coming months with strong competition and the need to conserve additional cash for debt repayments.
The company’s off-plan sales — for properties not yet completed — looked weaker than those of its main rival, Emaar Development, said Ayub Ansari, an analyst at Bahrain’s SICO. That indicated the competitor’s growing dominance in the Dubai off-plan market, he said.
The company reported booked sales of 1.2 billion dirhams ($327 million) in the first quarter of 2019, down 26 percent from a year earlier.
Damac pointed to debt payments in tough market conditions — it paid back $272 million in sukuk, or Islamic bonds, in April and $125 million in September last year — as a sign of its health.
“In a period of six months, amid difficult market conditions, we paid back $400 million of debt ... That is a strong statement,” said Amr Aboushaban, Damac’s head of investor relations.
The company had 1.8 billion dirhams in free cash at the end of the first quarter.
Damac did not pay a dividend in 2018 to keep cash for its debt repayment and an analyst warned the property firm could continue with the same policy in the coming year.
“We see zero catalysts for Damac over the next 3 years, as the company will likely reserve all cash to repay its 2022/23 sukuk,” Mohamad Haidar, an analyst at Arqaam Capital said in a note. “We expect Damac not to pay dividends until all sukuks are repaid.”
As of the end of March, the company had around 4.3 billion dirhams in outstanding sukuk and 693 million dirhams in bank debt.

FASTFACTS

$327 m

Damac’s booked property sales in the first quarter of 2019, down 26 percent from a year earlier.


British Steel collapses, threatening thousands of jobs

Updated 22 May 2019
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British Steel collapses, threatening thousands of jobs

LONDON: British Steel Ltd. has been ordered into liquidation as it struggles with industry-wide troubles and Brexit, threatening 5,000 workers and another 20,000 jobs in the supply chain.
The company had asked for a package of support to tackle issues related to Britain’s pending departure from the European Union. Talks with the government failed to secure a bailout, and the Insolvency Service announced the liquidation on Wednesday.
“The immediate priority following my appointment as liquidator of British Steel is to continue safe operation of the site,” said David Chapman, the official receiver, referring to the Scunthorpe plant in northeast England.
The company will continue to trade and supply its customers while Chapman considers options for the business. A team from financial firm EY will work with the receiver and all parties to “secure a solution.”
“To this end they have commenced a sale process to identify a purchaser for the businesses,” EY said in a statement.
The government said it had done all it could for the company, including providing a 120 million pound ($152 million) bridging facility to help meet emission trading compliance costs. Going further would not be lawful as it could be considered illegal state aid, Business Secretary Greg Clark said.
“I have been advised that it would be unlawful to provide a guarantee or loan on the terms of any proposals that the company or any other party has made,” he said.
Unions had called for the government to nationalize the business, but the government demurred.
The opposition Labour Party’s deputy leader, Tom Watson described the news as “devastating.”
“It is testament to the government’s industrial policy vacuum, and the farce of its failed Brexit,” he said in a tweet.
The crisis underscores the anxieties of British manufacturers, who have been demanding clarity around plans for Britain’s departure from the EU. Longstanding issues such as uncompetitive electricity prices also continue to deter investment in UK manufacturing, said Gareth Stace, the director-general of UK Steel, the trade association of the industry.
“Many of our challenges are far from unique to steel — the whole manufacturing sector is crying out for certainty over Brexit,” Stace said. “Unable to decipher the trading relationship the UK will have with its biggest market in just five months’ time, planning and decision making has become nightmarish in its complexity.”
Greybull Capital, which bought British Steel in 2016 for a nominal sum, said turning around the company was always going to be a challenge. It praised the trade union and management team, but said Brexit-related issues proved to be insurmountable.
“We are grateful to all those who supported British Steel on the attempted journey to resurrect this vital part of British industry,” it said in a statement.