‘There is no shortage of money coming in from the Chinese system into the UAE,’ claims Dubai property tycoon
Friday, 4 September 2015 1:13 AM
Indian property tycoon Kabir Mulchandani stands on the top floor of his flagship Viceroy Dubai Palm Jumeirah project and stares out over the Dubai Marina skyline. The $1bn development, which is three-quarters complete, is six months ahead of schedule and last week he concluded a $300m finance deal to fund his next big adventure. He drives a black Rolls-Royce, lives in the Emirates Hills, recently bought a yacht to park in the marina and the most recent Arabian Business list of the richest Indians in the Gulf put his wealth at a conservative $905m. As the sun sinks towards the horizon over the Arabian Gulf, I ask him whether becoming rich changed him.
Mulchandani takes in a deep breath. “Yes,” he says after a long pause. “When I dropped out of college I was 20 and I wanted to make money. I was very clear. The good thing is when you achieve that, you realise there is a lot more to it, you become more comfortable within yourself and you are not running after the number any more, the number becomes irrelevant.
“Actually, becoming richer helps you focus on the more important things and you then become a lot wealthier. You think, ‘I want to build something and add value’. You focus on the value and suddenly you add another couple of zeros.”
He certainly will be adding some more zeros in the near future as last week he closed a $300m funding deal with a group of seven lenders, including the largest bank in the world and some of the biggest finance names in China.
The syndicated finance package is a dual Islamic and conventional facility and is backed by seven financial institutions, including Abu Dhabi Islamic Bank, Invest Bank and Arab African International Bank and four Chinese banks.
The Asian lenders will include Industrial and Commercial Bank of China, the world’s largest lender by assets and market capitalisation, Agricultural Bank of China, Bank of China and China Minsheng Banking Corp, China’s largest privately owned lender.
“This transaction received AED2.2bn [$585m] in subscriptions, representing an overwhelming interest from some of the world’s foremost financial institutions,” Mulchandani says. “The syndication also demonstrates a firm commitment to Dubai’s growing hospitality sector. Construction work on our flagship project, Viceroy Dubai Palm Jumeirah, is progressing well, setting it on track for completion in the second half of 2016.”
Of course, this deal comes in the midst of one of the biggest upheavals in China in recent years. Two weeks ago, Asian markets had suffered an almost unprecedented period of volatility. Following on from two consecutive days of 8 percent falls on the Shanghai Composite, during what has now been dubbed ‘Black Monday’ (24 September) and 25 September, markets all over the world slumped.
The Gulf markets were not immune, with the Saudi Tadawul, by far the biggest stock market in the region, dropping 6.9 percent on the first day and erasing about $100bn of value off the bourse.
With the China State Corporation not only the main contractors on the Viceroy Palm Jumeirah but also one of its equity investors, is Mulchandani worried that the Chinese golden egg may turn into a poisoned chalice?
“Since the global financial crisis every time there is a small technical play up in the market it goes helter skelter, it is the psychology of panic,” he says. “We had this in Greece in 2010. Markets go into a tizzy for a few weeks and then it is done. It is just another one of those moments.
“The Chinese economy is still growing. If it’s growing at 5 percent is that problem? No, it is still growing. Does the world have to adjust to that? Yes. Is it a recession? Absolutely not. A $7 trillion economy can’t keep growing at 10 percent a year, adding a UAE each year.”
“We have it spread out over three years and we will be repaying most over next year when this project is finished. But we gave the banks a lot more time so there is no pressure for repayment.
“The banks are concerned if the company repay too early, if anything.”
Mulchandani continues: “During this transaction everyone was talking about China but not a single bank has even expressed a degree of concern in closing this transaction. No one was getting cold feet and no one implied they were getting cold feet. I know it’s not a huge transaction but $300m is not a small transaction either.
“We received [offers of] $585m. ICBC still came out and said here’s $240m. China Minsheng Banking Corp came in at about $40m, Bank of China at $75m and Agricultural Bank of China $15m, because they came in late so had only time to get local office approval. There was no shortage of money coming in from the Chinese system into the UAE at all.”
Mulchandani has obviously spent a lot of time in China and SKAI Holdings, his company, has conducted plenty of successful roadshows there, attracting a sizeable number of Chinese investors.
With the majority of these cash buyers he does not need to worry that he will end up like some investors during the Dubai 2008 crash when prices dropped by nearly 60 percent and investors defaulted on repayments and toppled many prominent projects.
“We did [a Chinese roadshow] last week,” he says. “We have received a phenomenal response. I think that at the entrepreneur level, and the normal Chinese business level, the challenges are going up. The feedback we are getting is their margins are squeezed and it is part of the problem but there is an awful lot of money still in China. Just today we received a significant interest from a huge Chinese food and beverage outlet to open in Jumeirah Village so they are still out there to do business. A lot of it is not based on the fundamental story.”
The syndicate is a dual system, which Mulchandani says is unique in itself: “It is a dual currency, as well as Islamic and conventional, so banks had the option of the Islamic facility or the conventional facility and can participate in dirhams or dollars. ICBC and Bank of China have DIFC offices so prefer to be in dollars. Also, interestingly, ICBC also participated in the Islamic facility, so it is one of the few instances where a mainland Chinese bank has participated in an Islamic facility,” he says, of the make-up of the $300m deal.
The funds will be used to support the construction of SKAI’s flagship project, the Viceroy Dubai Palm Jumeirah, the upcoming Viceroy Dubai Jumeirah Village project and a third project set to be launched soon.
Viceroy Dubai Palm Jumeirah, which is valued at AED4.05bn, will offer guests 477 spacious rooms and suites and 221 serviced apartments with breathtaking views of the Arabian Sea and Dubai’s dramatic skylines.
“We are 75 percent complete now. Our contractual completion date is December 2016. We are very confident that we will definitely finish early. We are currently looking at at least six months early. Completion is when the authorities certify that it is ready for occupation, then we go through the opening process of the hotel.”
In March, SKAI said it would upgrade its Jumeirah Village Circle project to a five-star luxury property and rebrand it Viceroy Dubai Jumeirah Village following the signing of Viceroy Hotel Group as its hotel operator. The AED1.37bn tower will feature 247 hotel rooms and suites as well as 221 one-and-two bedroom hotel apartments and 33 four-bedroom hotel apartments, all with private pools.
In terms of the third project, Mulchandani says it is currently at the concept phase. “We have two or three concepts so I can’t comment… on the costs. It will be hospitality,” Mulchandani says of the development, which is reportedly set to be another AED1bn project in Jumeirah Village Circle, close to the Expo2020 site.
However, some commentators have expressed concern over the Dubai property market and another imminent correction. Last week, Knight Frank’s Global House Price Index for the second quarter of 2015 reported that Dubai’s real estate market prices had fallen by the most in the world. The index ranked Dubai’s property sector 56th out of 56 markets covered around the globe with an annual price slump of 12.2 percent. Knight Frank also said prices in the emirate fell by 6.4 percent in last six months and were down by 2.8 percent in the three months to the end of June.
Despite this, at the top-tier developer level Mulchandani says the lenders are still confident: “Banks are extremely liquid. They are like ‘what’s next?’ However, they are no longer lending to [just] anyone. They have become more careful. There is a lot more money as they are not able to find the quality transactions. That is why they are struggling. There is tonnes of money available for development. If you a have project, it is not challenging but the risk needs to be taken off and the security package needs to be clear.”
Real estate consultancy firm CBRE recently said the slowdown in the real estate market in Dubai was more to do with the tightening of property rules, such as the mortgage caps and increased registration fee, rather than the declining oil price or the drop in sales prices.
“I agree, yes,” Mulchandani says. “The government did this for a reason. They wanted the market not to grow at insane levels. From that perspective, I think the government has done the right thing. It allows us as developers to take a longer view of the market. Volatility is not something that we like. We have a cycle from when we buy land. It is a four-year period from when you buy the land to when you hand over keys. If you have a load of volatility then you have a problem. A stable market is good.
“From a regulatory perspective getting the registration fees up to 4 percent was dramatic in the beginning but the market has absorbed it. But any increase over that would make it a little high. I don’t think they have slowed the market too much. The regulators can relax a bit as they have done what they need to do. We have learnt this from the financial crisis, there should be a certain amount of equity.”
Despite the slowdown this year, Mulchandani says his latest project is still proving to be hugely successful for his investors. “The property value is still 25 percent higher than when we sold it so there is equity for everyone. If someone does face a difficulty it is easy for them to sell and still make a profit.”
With the Viceroy Palm Jumeirah moving into the final stage and plans for the big opening party next year already starting to take shape, I ask Mulchandani what he thinks made him so successful, compared to the millions of other dreamers who landed in Dubai hoping to earn their fortune. After all, his fortunes have seen an astonishing reversal from five years ago, when he was briefly imprisoned as a result of a real estate dispute, before being completely exonerated.
“Hope and commitment,” he says instantly. “It is about executing vision at the end of the day, so for that you need to roll your sleeves up. SKAI is a phenomenal team. When we work with people, we look at their energy, not so much what their CV says.
“The most important part is execution, then hard work and focus… The simple stuff. There is no magic. I go with gut instinct a lot. Have I made 25,000 spreadsheets every time I buy something? No. I feel the energy of the land and see if it feels right. When I came here the energy felt right.”
With the backing of banks from Beijing and Shanghai to Abu Dhabi and Africa, a lot of people are certainly convinced his judgment is right. That should help him add a few more zeros to his bank balance.