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Emaar’s Burj Dubai Opens: But Who’s Paying?



I got an SMS today inviting me to attend the Grand Opening of Burj Dubai “The Tallest Building in the World”. Not as a VIP I might add, just as a (non-involved) member of the “public”.


I asked my mate Ahmed if he’d like to go but he said that we’d have to pay AED 25 to get in and there wouldn’t be any parking. I said “come on Ahmed, Al Jazeera TV said that the President of UAE and Ruler of Abu Dhabi H.H. Sheikh Khalifa bin Zayed Al Nahyan will be there, and well if it’s good enough for him, then it’s good enough for you and me”.


He said, “Of course he’s going to be there, he’s paying for it”.


I thought that was a bit of churlish comment for such a momentous occasion, particularly since the press reports were saying that two billion people would be watching it live, but that got me thinking, “I wonder who IS paying?”


Anyway I didn’t go, I found out that on top of the AED 25 cover charge they weren’t going to be selling beer, and that clinched it.  So I watched it on Dubai TV; I noticed:


(1): Sheikh Khalifa didn’t show up,


(2): They announced Burj Dubai was re-named…as Burj Khalifa, after Sheikh Khalifa.


(3): Al Jazeera didn’t cover the event live; instead they aired a program on acid attacks on women in Bangladesh.


(4): The firework show was about five minutes - the one they had for the inauguration of the Atlantis Hotel on Nakheel’s Palm was about half an hour (different outfit, they were the ones who had a near death experience with a bond recently) , perhaps Emaar had  budget constraints?


(5): A lot of the dignitaries looked rather glum; I’ve seen more laughs at a funeral.


(6): The promotional videos that accompanied the whole thing reminded me of funeral eulogies, like “don’t speak ill of the dead”.


(7): Ahmed was right, there was no parking.


There wasn’t any explanation on the TV for why Sheikh Khalifa didn’t show up, although I don’t imagine for a moment that it was for the same reasons I didn’t.

Perhaps he wasn’t feeling well?


An explanation I got was that probably he didn’t want to steal the show from Sheikh Mohammed. That could be it, but I must say that if someone was going to name the tallest building in the world after me…I’d show up to the inauguration, particularly if two billion people were watching on TV.


So why did they change the name?


Perhaps it’s something to do with the speech Sheikh Mohammed the Ruler of Dubai gave in November last year when he explained that he wasn’t worried about paying Dubai’s debts?  


That was by-the-way just before the announcement making it clear that most of those debts are not guaranteed by the Government of Dubai; and in that regard, it might be worth remarking that he didn’t say that Dubai’s creditors shouldn’t be worried.


Later in the speech he said, “Everything that belongs to Dubai belongs to Abu Dhabi, and everything that belongs to Abu Dhabi belongs to Dubai”.


I know I don’t read the local newspapers or watch TV enough, but I didn’t catch an announcement from the Ruler of Abu Dhabi confirming the second part of that sweeping statement. But could it be that the re-naming of Burj Dubai has got something to do with the first part?


Of course CNN said that was a condition of Abu Dhabi loaning the $10 billion. Now that’s just a load of baloney, it doesn’t work like that, you can say a lot about the Abu Dhabians, but one thing they are not, is petty.


Oh well anyway, so many things I don’t understand; I must say, it’s difficult to keep up with events these days, perhaps I missed something?


Prospects for Emaar:


Moving on, I understand that Mohammed Al-Abbar the head of Emaar has been all over the news saying that the 2009 results will be out soon (it’s a public listed company).


 That should be an interesting exercise in creative accounting (they call that IFRS these days), particularly since property prices in Dubai halved since the end of 2008.


It’s hard to imagine any new off-plan property was sold, in fact I heard that the main game was trading in the credit notes Emaar issued to people who had paid up money on projects that got cancelled. On top of that all the news about their investments in India, Saudi Arabia, Turkey, USA, Morocco, etc…appears to have been somewhat downbeat over the past year.


For Example:


December 2009: Mumbai Mirror:


The Enforcement Directorate (NYSE:ED) on Thursday raided the offices of realty major Emaar MGF and the homes of several board members in and around Delhi, in connection with the multi-crore money laundering scam involving former Jharkhand chief minister Madhu Koda.


Emaar has also been charged with alleged violation of foreign exchange rules and diverting money abroad.


“Ten offices of Emaar MGF have been raided in Delhi and Noida in connection with violation of FEMA (Foreign Exchange Management Act) regulations and diverting money abroad,” a source at the directorate said.


Of course that’s not conclusive evidence of anything, using the police to shake down foreigners is the oldest game there is in India.


August 2009 Business Maktoob: “$4.1 bln lawsuit against Emaar denied”.$4_1_bln_lawsuit_against_Emaar_denied/Article.htm


On Aug. 1, the Construction Week website reported that Samsung, South Korea's second largest contractor, was planning to sue Emaar, the Middle East's largest property developer, for $4.1 billion for work it carried out on the tower, according to the Legal 500 2009: Europe, Middle East and Africa, published by UK-based Legalease.


OK so a lot of mud’s getting thrown about…How about the Financials?


The latest numbers I could get were for end 2008 (those used to be on the Emaar website but I couldn’t find them, anyway they were archived on one of the news providers).


They show assets (then) of AED 60.1 billion and liabilities of AED 24.1 billion giving a Net Asset Value (NYSE:NAV) of AED 36 billion (about $10 billion).


Then the shares were trading at an average of AED 12.5.


They are currently trading at AED 3.59 which Dubai-based consultancy HC Brokerage say is about 30% of NAV (presumably they are talking about 2008 December NAV)?  HC Brokerage are also saying that the shares could easily bounce by 80% because they did a valuation, although they don’t say where they got their numbers, I certainly couldn’t find any that made much sense to me.


Of course the hardest part in doing a valuation is figuring out how to value the land and the “for sale” or retained as investment real estate part of the portfolio. The 2008 accounts say comfortingly:


“The fair value of such land was determined by the Group (Emaar) based on valuations carried out by independent valuers”.


So here we have Ernst and Young really earning their keep, 85% of the assets they audited were valued by “independent” valuers hired by the client.

Like the independent valuation of the collateral for the Nakheel sukuk that almost defaulted, which was supposed to be worth $4.5 billion, but when anyone came around to talk about selling it to pay of the bond, well Err…it wasn’t.


Nothing like.


It was good to know that the accounts had been prepared strictly in accordance with International Financial Reporting Standards (IFRS). Now that should also give me a warm fuzzy feeling shouldn’t it?


That was the same story for RBS six days before it collapsed, no one thought presumably to work out what the long-term value of assets was, nothing new there.


Thinking about it:


(1): Given what happened in the Dubai market over the past year plus the nasty rumours from abroad (I went down line by line and took a view), I would be surprised if assets that were valued using RICS at about AED 60 million a year ago are worth any more than AED 38.64 billion today, that’s Market Value using International Valuation Standards (mark-to-market sort of).


(2): Hard to figure the net increase in liabilities, given the stories about reports about how people are “not suing Emaar for $4.1 billion” (AED 15 billion), plus cancelled projects, and the possibility that a good proportion of what actually got built over 2009 was done at a loss, I would be surprised if the liabilities didn’t go up, quite a lot.


Lets say the liabilities went up just a little (we all have to believe in fairies sometimes, or more like it the creditors are going to have to wait because there’s no point in going to Court, and if you don’t pay your debts, and no one can force you to, well they might as well be called assets rather than liabilities), lets say 20% to AED 29 Million.


So “eyeballing”, that would make the Net Asset Value about AED 10 Billion ($2.7 billion).


i.e. more like 28% of what it was supposedly worth in the heady days of end 2008 when Jones Laing LaSalle were proclaiming that the MENA region would be “the best place in the world for real estate investing in 2009”.


At that time the share price was averaging about 12.5. Now it’s 3.59, i.e. about 28% of what it was then.  So that looks about right, but it's hard to see why the price should go up 80% any time soon.


I’m not sure I go with HC Brokers whoever they are, but just eyeballing, and given that Dubai property prices are going to go up (a bit), plus Emaar is a reasonably well run company, their projects (at least in UAE) are well considered and well built, and as far as I know they don’t have any really bad corruption (auditors don't report on that either).Plus they were tough enough and smart enough not to let themselves be forced into a shotgun marriage with some really bad “toxics”.

Put all that in the mixer it doesn't look as if Emaar is broke.

Although whether it makes any sense for them to continue as a real estate developer, or simply to wind down their activities and manage any income bearing property that they have, is debatable.



Disclosure: "No Positions"