Emaar Properties in Dubai Downgraded by Standard and Poor – Outlook Negative on Dubai’s Real Estate Market

STOCKHOLM (Standard & Poor’s) March 17, 2009–Standard & Poor’s Ratings Services said today that it had lowered its long-term corporate credit rating on Dubai-based property developer Emaar Properties PJSC to ‘BBB+’ from ‘A-’. The outlook is negative.

“The rating action reflects the continued weak real estate markets in Dubai, and our increased uncertainties about the depth of the downturn and the pace of eventual recovery. The weak markets are negatively affecting our view of Emaar’s business risk, and are likely to weaken Emaar’s currently healthy financial position in the near to medium term,” 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 government support. The ratings also reflect the group’s current healthy financial position, low debt leverage, and strong asset base. The main constraining rating factors include the inherent risks in the cyclical property development industry and the group’s large exposure to the weakening of the Dubai real estate market.

Emaar is one of the largest property developers in Dubai; it had sales of United Arab Emirates dirham (AED) 16 billion ($4.4 billion) in 2008. 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. Much of the group’s land bank has been gifted by the government for the purpose of developing properties in Dubai in line with a strategy to develop the emirate as a financial, trade, and business centre. Since the end of the third quarter of 2008, prices and demand have fallen rapidly in Dubai. The weakening market conditions are partly a result of fear of oversupply, but also a result of a liquidity squeeze in the emirate, resulting in tighter lending conditions for customers and speculative investors withdrawing from the market. This has lead to most property developers, including Emaar, reviewing and postponing planned projects, which will negatively impact future cash inflows (but also reduce cash outflows).

The negative outlook reflects the weakening of the 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 further downgrade in the near to medium term.