Emaar ratings may prompt bonds sale

Emaar Properties, the largest Arab real estate developer by market value, got its first credit ratings on Tuesday, raising the possibility of its maiden bond sale to finance international expansion.Emaar, which generated 85% of its operating earnings in Dubai last year, may tap strong demand among international investors for Middle East debt to help fund expansion in North Africa, India, Pakistan, and the United States, analysts said.Selling bonds would give Emaar access to longer term funds than bank loans and would give it more flexibility in raising cash as United Arab Emirates rivals Nakheel and Aldar Properties have done in the past year.

"The other real estate firms haven't gotten ratings so Emaar could hit the market at tighter spreads, which compensates them for going through the rating process," said Mohieddine Kronfol, managing director for asset management at Algebra Capital in Dubai."They could come to market between $1 billion and $2 billion. They would want to be benchmark size but not substantially alter their debt profile."By selling most of its Dubai developments off the plan, Emaar has kept its debt levels low and has so far only raised money through bank loans, a model that may not be sustainable as it expands into 16 countries."The company has managed to grow over the past 10 years at a very substantial rate without significant debt. Going forward we expect that to rise but stay at moderate levels," said Philipp Lotter, credit officer at Moody's, which rated the firm A3. Emaar could raise enough cash through bond sales to meet its target of debt not exceeding 25% of capital and 50% of equity, Lotter said. At the end of December, Emaar's debt was 13% of equity.Both Moody's and Standard & Poors, which gave Emaar A-, said the developer's ratings were supported by the Dubai government's stake in the company which could rise to more than 50% after a land-for-shares deal with state-owned Dubai Holding,Emaar has not previously indicated interest in selling bonds. The company did not return telephone calls seeking comment.

Emaar bought U.S. homebuilder John Laing Homes for $1.05 billion last year to reduce dependence on Dubai, where it is building what it says will be the world's largest tower.Both Moody's and Standard & Poor's said Emaar's exposure to Dubai constrained its rating. Investment bank EFG-Hermes has said around 200,000 new apartments would hit Dubai's market in 2007 and 2008, ending years of under-supply."Any changes in the demand and supply pattern in Dubai could have an immediate and severe impact on Emaar," Lotter said. Source