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Damac raises $100m via sukuk

The Dubai developer Damac Properties has announced that its main property development arm, Damac Real Estate Development, has issued US$100 million of unsecured debt via a sukuk.

In a brief statement, the company’s chief financial officer Adil Taqi said that the proceeds would be used “for general corporate purposes and for the acquisition of land plots to strengthen and extend the company’s development pipeline, in accordance with our medium-term funding strategy”.

The 18-month debt certificates were secured by way of a private placement and have been rated as BB by the debt agency Standard & Poor’s.

Damac Properties reported a net profit of Dh2.7 billion for the six months to June 30 and a Dh4.7bn turnover. No comparable figures were given for the previous year as it only listed on the Dubai Financial Market in January, but when compared with its London-listed predecessor Damac Real Estate Development its figures represented a 57 per cent hike in profit and a 30 per cent increase in turnover.

Damac Properties finished the period with cash in hand and in its bank balance of US$2.4bn, which was a 32 per cent increase on the amount held six months earlier.

However, when announcing its half-year results Damac said that it could increase its current debt level of $800m to $1.1bn to give it greater flexibility over cash.

Walid Bellaha, an emerging markets analyst with Barclays, said that although the company has healthy cash assets of about $2.4bn, most of this money sits in escrow accounts, which is only made available once new homes are handed over. “The free cash the company has available is only about $350m,” he said.

“They want to have this flexibility for cash. They have started paying significant dividends and they still plan on [launching] new projects.”

This year, Damac announced that it planned to pay two dividends for 2015 totalling 25 per cent – up from 10 per cent in 2014. It also said it would pay dividends of about 25 per cent next year.

Mr Bellaha said this was likely to cost the company $250m during the second half of 2015, plus $400m next year.

However, its current cash pile is also likely to be replenished as it anticipates the handover of 1,500 units in the second half – on top of the 2,500 delivered in the first six months.

“They have said they are comfortable with leverage of 1.1x corresponding to about $1.1bn based on their last reported 12-month Ebota,” he said. “They can add a further $200m this year if they find something opportunistic that they want to employ the money for.”

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