3 of Dubai Biggest Firms at Risk of Being Removed by MSCI

Published January 26th, 2019 - 12:26 GMT
3 of Dubai Biggest Firms at Risk of Being Removed by MSCI (Shutterstock)
3 of Dubai Biggest Firms at Risk of Being Removed by MSCI (Shutterstock)

Three of Dubai’s biggest real-estate and development companies are at risk of being removed from one of the world’s most popular emerging-market benchmarks this year as a slowing economy drags down the emirate’s property values. Damac Properties PJSC’s stock has plunged by about two-thirds in the past 12 months, while Emaar Malls PJSC and Emaar Development PJSC are both down 34 percent.

That performance sets them up for exclusion from the MSCI Emerging Markets Index in May under the compiler’s criteria for membership in the gauge, according to Mohamad al-Hajj, equities strategist at the research arm of EFG-Hermes Holding Co. Their exit could lead to combined investment outflows of about $220 million, he said.

The three companies are by far the worst performers in 2019 among the eight stocks on Dubai’s real estate and construction index, a gauge that’s dropped in the past year as building in the emirate outpaced expected demand growth.

The housing component of Dubai’s consumer-price index has fallen for all but three months since at least May 2016, according to data compiled by Bloomberg.

The recent share-price losses put the developers out of the coverage range of compiler MSCI Inc.’s main emerging-market index, which considers only large and midcap stocks, according to Hajj.

Added to that is the fact that they have low free-float levels, he said.

Robert Ansari, head of Middle East business at MSCI, did not respond to a request for comment.

The companies have the lowest weight in the MSCI UAE Index, which is used for calculating the main emerging-markets gauge.

If deleted, they “will no longer benefit from passive inflows into EM beyond May,” Hajj said in an emailed response to questions.

Removal would spark outflows of $80 million each for Emaar Development and Emaar Malls, and $60 million for Damac Properties, he estimated.

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Under one scenario for the review, Abu-Dhabi based Aldar Properties PJSC could be considered the UAE cutoff stock, with Damac being classified as a small-cap and Emaar Malls and Emaar Development being excluded for failing free float, Hajj said.

However, in a second scenario, if the foreign room for another UAE index member, Dana Gas, is above 25 percent at the end of the review period, Damac will end up being the cutoff, potentially saving the status of Emaar Malls and Emaar Development. While too early to confirm, as the considered date is the end of April, “Damac is looking like a high probability deletion,” Hajj said.

Amr Aboushaban, investor relations chief at Damac, said the company qualifies under two of MSCI’s four criteria for staying in the emerging-market measure, and “nothing is stopping us from meeting the additional requirements” as the developer works to reduce volatility in a cyclical stock market.

Damac has “remained focused on the fundamentals of our business” after expecting the real-estate slowdown, enabling it to remain liquid and “capture opportunities,” he said.

Damac stock was downgraded by Bank of America Merrill Lynch to underperform from neutral earlier this month.

CEO Hussain Sajwani holds more than 70 percent of the company’s outstanding shares.

He outlined plans in a Bloomberg Television interview Wednesday to invest as much as $1.3 billion in London’s real-estate market as a weaker pound makes the assets in the U.K. capital cheaper.

The 12-month stock declines at Emaar Development and Emaar Malls have exceeded the combined 25 percent industrywide drop in developing economies.

Spokespersons for the companies did not reply to a request for comment on Hajj’s remarks.

By Abeer Abu Omar and Filipe Pacheco|

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