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Al Mal Downgrades Union Properties
DUBAI — Union Properties’ shares on Monday plunged by 9.6 per cent to Dh0.94, bringing its losses this week to more than 18 per cent after the company posted a second quarter loss of Dh227.95 million, with investors getting jittery about the developer’s fragile financial health.
Al Mal Capital downgraded Union Properties to an an ‘underperform’ and slashed its target price by 25 per cent to Dh0.81, citing the company’s precarious liquidity position. Al Mal said its cash of Dh79.4 million, pales in comparison with its short-term debt of Dh3.6 billion, excluding the Dh956 million refinanced as long-term bank loan after the second quarter.
“The biggest concern is how the company will be able to roll over its debts, investors are concerned if investors will restructure their debts,” said Robert McKinnon, managing director
of Al Mal Capital.
Property companies continue to suffer from the property market downturn in Dubai as prices are still declining, although at a much slower pace compared to the drastric declines late last year and in the first and second
quarters this year.
Bobby Sarkar, equity research analyst at Al Mal Capital said Union Properties faces a dire scenario without its parent company’s (Emirates Bank) willingness to convert a portion of its short-term loans into long-term bank loans.
“Union Properties’ equity value continues to be propped up by its beneficial parent, but we wonder for how much longer. If Emirates Bank and other lenders had decided to convert Dh6.3bn in total debt into equity, minority shareholders’ would face very significant dilution.” Dubai’s third biggest property developer has Dh3.1 billion in current assets, while current liabilities total Dh7.58 billion.
Meanwhile, Al Mal Capital kept its ‘outperform’ rating on Abu Dhabi-based natural gas producer Dana Gas PJSC with a target price of Dh1.47, citing the potential upside from the company’s better-than-expected progress in its Eyptian exploration and production operations, as well as its Kurdish sales.
Al Mal said Dana Gas’s recent strategic sale of a 10 per cent stake in its Pearl subsidiary in Kurdistan to Austria’s OMV and Hungary’s MOL validates the company’s growth strategy of investing in attractive greenfield opportunities.
It said any Dana Gas would also reap revenue from the future monetisation of Dana’s remaining interest in Kurdistan. The previous transaction implied a Dh5.4 billion value for Dana’s remaining 40 per cent stake in Pearl Petroleum.
While still embroiled in uncertainty, the UAE-Iran gas supply contract, once it eventually starts, should act as a strong catalyst for Dana shares, said Al Mal. The project is being stalled as the two countries have yet to agree on the gas price. Dana Gas’ second quarter income surged more than ten-fold from a year ago to Dh392million, due largely to a one-off gain in the sale of a 10 per cent stake in its Kurdish operations.
The company’s shares which are listed at the Abu Dhabi Securities Exchange ended 6.6 per cent lower to Dh1.11 on Monday, in line with the market’s overall weakness.
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