Skip to content

Dubai developer struggling to raise cash for F1 Park

Union Properties has stopped work on the $460 million Park due to the global financial crisis and the lack of lending.

Now it says it if it fails to receive government cash or raise cash through a bonds issue it may cancel the project.

The state of affairs where a major property company cannot raise finance to finish a project despite expecting to return to profit in the first quarter of this year is a sign of deepening problems in Dubai's economy where lack of liquidity is stifling enterprise.

The real estate sector has been badly hit. Residential real estate prices have fallen by an average of 25% since a peak in September according to Morgan and $263 billion of projects have been cancelled or put on hold.

Union Properties chief executive Simon Azzam said that the theme park, part of a multi-billion dollar MotorCity project in Dubai, is the company's main short-term challenge. 'If I get the bond today or government help then I can open the theme park by the end of this year,' he confirmed.

Azzam said financial help from Dubai's government was vital for helping the emirate's once booming property sector. 'If the government gives directly to the real estate sector this will be a critical move and would help stimulate the sector and help give confidence,' he explained.

Last week the Dubai government announced a $20 billion sovereign bond programme to support the economy. Nasser al-Shaikh, director-general of Dubai's department of finance said real estate companies would be among the main beneficiaries of state aid.

What is bewildering is that the company is not in financial difficulties. Azzam said it expects to make a profit in the first quarter of 2009, mainly on income from rental properties, and expects 2009 profit to exceed that of last year.

The developer made a fourth-quarter loss of $10.24 million primarily related to its mechanical, electrical and plumbing business Thermo. Full year net profit would rise as the developer hands over properties sold in previous years and books remaining gains from those sales, he added.

The developer received a licence in November 2006 to develop F1 themed parks with rides, museums, a library and restaurants. Union borrowed $680 million to build part of the park and said in June 2007 it would need more loans.