Palm Hills fights for survival in 2011

Reuters , Tuesday 15 Mar 2011

Egyptian property developer posts high sales figures but faces legal challenge

Palm Hills Developments, Egypt's second-biggest listed developer, said it faced a battle for survival this year, despite a record year for sales in 2010.

"Our message today is mixed: 2010 was the best year for sales in Palm Hill's history," said Yasseen Mansour, chairman and chief executive officer. "That said, this coming year is going to pose challenges for our continuing survival."

Palm Hills, which builds mostly luxury units, posted a 2.1 per cent fall in fourth-quarter net profit to 181 million Egyptian pounds (LE).

New 2010 contracts jumped to LE4.1bn, from LE3.3bn in 2009, while reservations in the fourth-quarter rose to 1.1 bn. Total new contracts signed in Q4 rose 47 per cent to 1.5bn pounds.

Palm Hills is facing a legal challenge contesting its purchase of a plot of land from the state.

A judicial panel concluded earlier this month that the sale was illegal because it was priced too cheaply and said it should be scrapped.

Palm Hills is the second developer to have faced such a decision, after a court ruled last year that a land deal with Talaat Moustafa Group (TMG) for its US$3bn Madinaty project be scrapped.

The TMG case worried investors about the risks of investing in Egyptian real estate. Those concerns have been exacerbated by the political upheaval that ousted President Hosni Mubarak and prompted trials of former ministers and business executives.

Palm Hill's Mansour is among those facing criminal charges of wasting public money, adding to concerns about the stock, which has not been traded for a month as the bourse remains closed by the political turmoil.

The firm said on Tuesday that in light of the political environment in Egypt, it expected a substantial decrease in 2011 sales and low or no new reservations or contracts to be signed for the first half of the year.

The firm said due to the current national economic climate, it would cut its construction spending by 50 per cent to one billion pounds in 2011 from its initial target of two billion.

"Our plan for 2011 was to transform the stellar sales momentum of 2010 into execution and delivery," Mansour said. "That plan remains in place. We are fully committed to meeting all delivery deadlines for 2011."

Revenue in the quarter jumped 80.5 per cent to LE850m.

Short link: