5bn Saudi riyal loan a boost for Emaar EC

A multibillion-dirham loan from the Saudi Arabian government has boosted investor interest in the company behind the kingdom's largest private development.

Shares in Emaar, The Economic City (Emaar EC) jumped 9.5 per cent to 8.1 Saudi riyals a share after the 5 billion riyal (Dh4.89bn) deal was announced to help finance new construction of King Abdullah Economic City, a 100bn riyal development north of Jeddah. The stock slipped back to 7.9 riyals a share yesterday, but it was still trading at its highest levels in nine months.

Shares in Emaar EC have been languishing for months as investors worried about how the developer would fund the project.

"The challenge for private lenders is that it will still be a long time for the project to mature," said John Harris, the co-head of the Saudi Arabia office for Jones Lang LaSalle, a property consultancy.

Emaar EC is a joint venture between Emaar Properties, Dubai's largest developer, and Saudi investors. The project was originally launched in 2005 with the Saudi Arabian General Investment Authority listed as the "prime facilitator for the development". A year later the developer raised 2.25bn riyals with an initial public offering of 30 per cent of the company.

But the project has been slow to come together. The company reported a 583.8 million riyal loss for last year, compared with a 308.9m riyal loss in 2009.

The company's cash reserve fell to 339m riyals last year, according to a report by Deutsche Bank.

But the cash infusion from the Saudi government has renewed confidence that the project will move forward. Emaar EC will have 10 years to repay the loan and will not have to make any payments for the first three years.

The company is likely to use the funds to build badly needed infrastructure on the project, analysts say.

The centrepiece of the development is expected to be a new port capable of handling the world's biggest ships, due for completion in 2013. The project is the kingdom's first development in which foreigners will be allowed to own property, although officials have yet to release details on licensing and visas.

kbrass@thenational.ae