Emaar plans to buy back shares as stock falls

The company's stock has lost almost half its value and this does not reflect the underlying fundamentals.

Emaar Business Park office along Sheik Zayed Road in Dubai.

Emaar Properties, the largest publicly traded property developer in the Middle East, plans to start buying back its shares, which have slumped nearly 50 per cent this year. In announcing the buy-back yesterday, the company said it believed its shares were undervalued. It will start buying back up to 10 per cent of its shares next month. The company received regulatory approval last December from the Securities and Commodities Authority (SCA) to implement a buy-back programme. Today, 68 per cent of the company's shares belong to the public and 31.88 per cent to the Government of Dubai. "At Emaar, we firmly believe that there is no better investment we can make than in our own future," said Mohammed Ali Alabbar, the chairman of Emaar Properties. "The decision taken by the board of directors to buy back Emaar shares reflects our firm belief that those shares are currently undervalued in the marketplace. "Recent declines in regional markets are largely not in line with the fundamentals of the majority of companies listed here, including Emaar. Rather, the recent performance of the markets here reflects global trends such as [the] credit crisis and global economic slowdown that affect investors' sentiments." The programme would not be implemented before Oct 1, in line with the SCA's regulation that companies cannot execute any share buy-back 15 days before the end of the financial quarter, the company said, adding Emaar will buy back its shares from time to time on the open market at prevailing market prices, through block trades or otherwise. The property developer said it would use available cash to fund the buy-back. "When Emaar says 'I am planning on buying back 10 per cent', it doesn't mean that they are going to jump on it and do so," said Ayman el Saheb, the director of operations at Darahem Financial Brokerage. "Emaar has submitted an application to the SCA twice in the past. The deadline came and went, and they didn't buy a single share." SCA approvals usually have an expiry date of one year. "Usually, companies wouldn't want to do buy back shares because they need liquidity for their investments to generate more income," Mr Saheb said. The firm's announcement comes amid recent sharp falls in property stocks in Dubai. Emaar Properties's shares fell 3.57 per cent to Dh7.57 on Thursday and hit a fresh 41-month low last week. The company's shares have slumped 49 per cent this year, while the Dubai Financial Market General Index has dropped 28 per cent. Tamweel shares plunged last week as the mortgage lender came under scrutiny after its deputy group chief executive was questioned by Dubai police. "Given the prices at which Emaar is right now, I believe it would positively impact the stock. Historically every time Emaar announced they would buy back their shares, the market responded positively in the sense that good gains were made," Mr Saheb said. "The question is why are they bringing it up now? Do they want to remind investors that Emaar has the approval to buy back [and] still has three months to December to do so? Do they expect shares to go even further down until October? Do they feel threatened by people buying out controlling shares? "Once you see such a big company lose so much value in the stocks, it is vulnerable to takeover bids, with people moving in and buying as many shares as they can under different people's names and at some point of the time they have a controlling share." Dubai's Islamic mortgage lender, Amlak Finance, said in September of last year that it had received approval to buy back five per cent of its shares. The firm did not say when it would begin buying back shares. Emaar Properties recorded first half net profits of Dh3.31 billion (US$902million) and revenue of Dh8.20bn. Emaar is developing Burj Dubai, the world's tallest building and free-standing structure, and the Dubai Mall, one of the world's largest shopping malls. [e-mail]