DUBAI, (Reuters) – Dubai’s third-largest property firm may cancel a proposed Formula 1 theme park if it fails to receive government cash or tap debt markets soon, despite expecting to return to profit in the first quarter.
Union Properties Chief Executive Simon Azzam told Reuters in a telephone interview that the theme park, part of a multi-billion dollar MotorCity project in Dubai, was the company’s main short-term challenge.
Last week, Union Properties said it was suspending construction of the $460 million theme park due to the financial crisis and the drying up of liquidity from banks.
Dubai’s property sector is suffering from a slump in prices after a six-year building boom that was spurred by the emirate’s move to allow foreign investors to buy properties and because of buoyant growth in Gulf economies during an oil price rally.
Dubai residential real estate prices have fallen by an average of 25 percent since a peak in September, Morgan Stanley said this month, adding that some $263 billion of projects had been cancelled or put on hold in the United Arab Emirates.
“If I get the bond today then I can open the theme park by the end of this year … Our only short-term challenge is the Formula One theme park and financing,” Azzam said. “Raising financing for that will happen, hopefully, through the bond or through government help.”
He said the issuance of 2.5 billion dirhams ($680.6 million) of non-convertible bonds, which were approved by shareholders in January, would happen “as soon as possible.”
Union’s shares fell more than 5 percent in Dubai .DFMGI, its first trading day since suspending the F1 project, underperforming the market, which closed 0.66 percent lower.
Azzam said financial help from Dubai’s government was vital for helping the emirate’s once-booming property sector.
“If the government gives directly to the real estate sector this will be a critical move and would help stimulate the sector and help give confidence,” Azzam said, adding he was unaware of any specific government measures to help the sector.
Dubai is one of seven emirates in the UAE, the world’s fifth-largest oil exporter.
Real estate companies in Dubai would be among the main beneficiaries of state aid, Nasser al-Shaikh, director-general of Dubai’s department of finance said last week after the government said it would use its $20 billion sovereign bond programme to support government-linked companies through a special fund.
Rents in Dubai could fall as much as 20 percent in 2009 from the peak in 2008 Azzam said.
The company may also look to sell stakes in non-core units such as its district cooling unit EMICOOL, in which it has a 50 percent stake, to raise cash “if need be”.
Q1 PROFIT RISE
Azzam expects to make a profit in the first quarter of 2009, mainly on income from rental properties, and expects 2009 profit to exceed that of last year.
The developer made a fourth-quarter loss of 37.6 million dirhams ($10.24 million) after booking a 500 million dirham provision related “primarily” to its mechanical, electrical and plumbing business Thermo, he said.
Azzam said full-year net profit would rise as the developer hands over properties sold in previous years and books remaining gains from those sales.
“2009 will be stronger than 2008 in terms of net profit. In 2009, we will hand over the majority of our properties. That is when we will start recognising the profit.”