Dar Al Arkan Says It Can Pay $2.1 Billion Debt Without Tapping Bond Market

Dar Al Arkan Real Estate Development Co., Saudi Arabia’s biggest property company by market value, can repay 7.8 billion riyals ($2.1 billion) of debt maturing within five years without tapping the bond market again, according to its general manager.

“We are on sound footing to manage all of our debts,” Saud Al Gusaiyer said in an interview in Riyadh Dec. 1. The loans are “nothing compared with our assets.”

Rental income from properties in Mecca, Medina and Riyadh will generate 300 million riyals a year and the company plans to raise money by selling residential properties and land in its portfolio, though not fixed assets, Al Gusaiyer said. Dar Al Arkan has total assets worth 23 billion riyals, according to its third-quarter balance sheet.

Debts include a 3.75 billion riyal Islamic bond, or Sukuk, due in July 2012, one for 750 million riyals maturing in 2014 and another totaling 1.7 billion riyals due in 2015. Moody’s Investors Service cut its credit rating on Dar Al Arkan on Nov. 11 to Ba3, the third-highest non-investment grade, citing the maturing debt and a decline in land sales that hurt earnings.

“Concerns about the company’s liquidity position are overstated,” Majed Azzam, a real estate analyst at AlembicHC, said in an e-mail. “The company’s total assets are held at cost, with plot sales margins averaging 45 percent, thus the market value of these assets could be as high as double.” AlembicHC upgraded Dar Al Arkan to “overweight” from “buy” last month.

‘Continued Weakness’

“Dar Al Arkan will need to balance its available cash between debt servicing and reinvestment,” said Asim Bukhtiar, an equity analyst at Riyad Capital. “Continued weakness in land sales are expected through 2011, which could mean cash conservation at the expense of project delays.” Riyad Capital downgraded Dar Al Arkan to “hold” from “buy” in October.

Third-quarter profit fell 53 percent to 289.6 million riyals, the company said Oct. 20. Revenue declined 40 percent to 910 million riyals.

Al Gusaiyer says he expects revenue to increase next year as demand for housing exceeds supply by about 40 percent. He also said he’s confident that Saudi authorities will approve a new mortgage law in the first quarter aimed at increasing lending in the kingdom.

“The real estate market is good,” in Saudi Arabia, Al Gusaiyer said. “Since the beginning of the 1970s, real estate has always been on the increase or on hold, but never in decline.”

Dar Al Arkan shares fell 0.6 percent, to 8.90 riyals at the 3:30 p.m. close in Riyadh today. The stock has lost 37 percent this year, compared with a 4.9 percent gain for Saudi Arabia’s benchmark stock index.

To contact the reporter on this story: Mourad Haroutunian in Riyadh at mharoutunian@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net

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