DUBAI: Dubai Islamic Bank shocked investors by repossessing a “substantial area” of land in a multibillion-dollar luxury theme park yesterday, sending shares down sharply.
DIB shares fell over 4 percent at one point to their lowest level since mid-2007 as investors struggled to calculate how much the high-profile foreclosure will cost DIB, which is already embroiled in a real estate corruption probe.
“We need to know what is going on to see how it will impact the bank’s finances and eventually impact our valuation,” said one equity analyst. A spokesman at DIB, the Gulf Arab trade hub’s biggest Islamic bank by market value, declined to comment about the polo-themed development called the Plantation Project, whose British owner is involved in a wider probe.
Worries about an overheated property market in Dubai, home to three palm-shaped islands and the world’s tallest building, have sent real estate and financial stocks reeling in recent weeks with most indices erasing all 2008 gains.
The government’s anti-corruption campaign in Dubai, which started this year and has also touched DIB, has resulted in a number of arrests. But worries persist that the property boom has resulted in widespread kickbacks, corruption, or waste.
At it’s 2004 launch, the Plantation Project promised to create one of the world’s largest equestrian facilities with air conditioned stables for 800 horses.
Raj Madha, director of equity research at bank EFG-Hermes, said the foreclosure came as a surprise but that DIB would likely be able to limit the damage. “The worst case scenario seems to be a $200 million loan, which is equivalent to 4 percent of market cap and we believe that security is probably strong enough to cover the bulk of that,” he said.
DIB attempted to assure investors that it had adequate security to cover its exposure to the project. “At all times, DIB had strong control of the security had strong control of the security as well as other securities covering the same transaction, and waited on foreclosure as per the legal requirements of the foreclosure process,” DIB said in a statement.
Trade suspended
The Dubai Financial Market (DFM) said yesterday trading in DIB would be suspended until the bank published a disclosure related to a report that it bought the assets of the Plantation Project. A DIB spokesman was not immediately available for comment. DIB said earlier this month that it would buy a majority stake in Industrial Development Bank of Jordan with a view to converting it into an Islamic-complaint institution.
