Rescue of Dubai Bank exposes Emaar again

Emaar could be forced to write-down its entire 30 per cent stake in Dubai Bank.

Emaar Properties, already faced with Dubai's struggling property sector, has run into another obstacle as its investment in Dubai Bank, now state-owned, may soon be wiped out.

The builder of Burj Khalifa, the world's tallest tower, may write down the entire value of its Dh172.4 million investment in Dubai Bank as soon as the second quarter, the investment bank EFG-Hermes told investors in a note yesterday.

The Dubai Government has taken control of the lender and says it will inject capital "to ensure that Dubai Bank's business continues uninterrupted".

Emaar has a 30 per cent stake and Dubai Holding, a company owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, a 70 per cent stake in Dubai Bank.

But the takeover will "effectively dilute the complete" stake of Dubai Holding and Emaar, Dubai Bank said on Monday.

"Emaar's financial associates have been the source of continued provisioning and impairments over previous quarters," said Jad Abbas, the analyst who wrote the EFG-Hermes note.

He said the write-down would prompt EFG-Hermes to lower its full-year profit forecast for Emaar to Dh3.36 billion.

He added that the mortgage lender Amlak was "a more important issue" for Emaar and that the takeover of Dubai Bank might signal that the Government will look at a similar resolution in Amlak's case.

Emaar has a 45 per cent stake in Amlak, valued at Dh795m, while loans extended to Amlak by Emaar are estimated at Dh690m. Trading in the mortgage lender's shares was halted in November 2008 after the economic downturn choked off its access to funding.

Despite these issues, EFG-Hermes has maintained its "buy" rating on Emaar, adding that a write-down was in line with the company's commitment to focus on its main property business.

Emaar shares yesterday rose 1.9 per cent to Dh3.60 in Dubai.