Emaar Properties in Dubai Downgraded by Standard and Poor

Standard & Poor's Rating Services said today that it had revised its outlook on Dubai-based property developer Emaar Properties PJSC (Emaar) to negative from stable.

"The outlook revision reflects a rapid weakening of the real estate markets in Dubai, and our uncertainties about the depth of the downturn and the pace of eventual recovery. A prolonged downturn could negatively impact our view of Emaar's business risk, and it could also lead to deterioration in Emaar's currently healthy financial position," said Standard & Poor's credit analyst Alf Stenqvist.

The ratings on Emaar continue to reflect the group's important role and strong position in the Dubai property development market and its close relationship with, and 32% ownership by, the government of Dubai (not rated). The rating includes a two-notch uplift from the stand-alone assessment to reflect implicit support from the government of Dubai. The rating also reflects the group's current strong cash flows, low debt leverage, and strong asset base. Constraining rating factors include the weakening of the Dubai real estate market, the concentration of the group's operating cash flows in a relatively small number of large projects, and the group's aggressive geographic expansion into markets with higher political and economic risk. On Sept. 30, 2008, the group had total interest-bearing debt of about UAE dirham (AED) 9.1 billion ($2.5 billion).

Emaar is one of the largest property developers in Dubai, with sales of AED17.6 billion in 2007. The group focuses on residential communities and has until recently benefited from high demand for properties in Dubai, which has been supported by the rapid economic growth of the emirate.

Emaar's expansion in the Middle East and North Africa has so far offered only a limited cushion against the downturn in Dubai, and the company's U.S. operations are loss making. Emaar has, however, recently completed a large shopping mall in Dubai, which should generate quite good and stable rental income in the years ahead.

The negative outlook reflects the weakening of real estate markets in Dubai, which if prolonged and more severe than we currently anticipate, could put pressure on Emaar's cash flows and financial position, and subsequently could lead to a downgrade in the medium term.