| 22 Oct 2009 |
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Saudi to help if KAEC faces hiccups, says EFG-Hermes
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Saudi government may step in to support King Abdullah Economic City (KAEC) if it faces financial difficulties, according to EFG-Hermes.
"We expect the government will step in to aid KAEC if the company faces financial difficulties, given the importance it attaches to the new economic cities. However, we do not know, at this point, what form this aid will take. We believe it could be a mixture of debt, equity and government subsidies to attract industries to the city," the Cairo-based investment bank said in a report on Saudi real estate.
"We are concerned, however, that any equity component will dilute current shareholders, while any debt portion, although possibly offered on reasonable terms, could leave Emaar ECEmaar EC
with a high debt burden in the near term," it said. EFG-Hermes believes economic cities, including KAEC, will be a major driver of construction activity within Saudi Arabia, and Emaar ECEmaar EC
is well-placed to take advantage of public support for new economic development. "The government has stressed many times the city will be developed solely through private investment, but we believe this is not possible in the current climate. Given that the government views its economic cities strategy as a way to create job and housing opportunities and it has invested a great deal of time and money in them, we believe it will step in to make sure KAEC is a success," the report said.
KAEC is the largest of the economic cities, covering 168sqkm. It is located at the Red Sea coast 100km north of Jeddah, and plans to accommodate two million people. Emaar ECEmaar EC
, a publicly-traded subsidiary of the UAE-based Emaar Properties, is the master developer of the project.Emaar ECEmaar EC
is moving towards positioning KAEC as a mixed-use city with both residential and industrial areas. By Parag Deulgaonkar
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