Most of the major real estate companies registered in the Egyptian Exchange (EGX) enjoy excellent financial leverage in accordance with the budgets that were finalised in 31 December 2015.
Financial leverage is the index that measures corporate debt position by dividing shareholders’ equity on the debt obtained by the company to repay its obligations or finance its projects.
Good financial leverage is also considered as an indicator of the company’s ability to obtain loans and credit facilities at a good interest rate, owing to the low risk of default.
Emaar Misr for Development comes out of top with financial leverage amounting to 0.043 where the value of loans is EGP 216,291 compared to the total of shareholders’ rights at EGP 6.74bn.
Emaar Egypt is classified as a low-risk borrower in financing applications. The average low-risk classification vis-a-vis financial leverage is between 0.5 and 1.
The net working capital of Emaar totals EGP 5.769bn. This amount increased during 2015 compared to EGP 3,912bn in 2014. The total assets of the company are registered at EGP 17,513bn.
The net working capital is the difference between the traded assets and the traded liabilities. It is used to assess the ability of the entity to finance its daily operations and meet its short-term financial obligations.
Madinet Nasr for Housing and Development (MNH) has the second lowest leverage ratio with a posting of 0.105. Its total shareholders’ equity is worth EGP 1,034bn, compared to its short- and long-term loans worth EGP 108,900m.
MNH’s indebtedness amounts to EGP 60,535m, representing withdrawals from the loan the company signed with the Commercial International Bank (CIB) in 2014. The contract allows the company to obtain a loan, up to a maximum of EGP 530m, to finance the construction, facilities, and infrastructure works for the first phase of Tigan project.
MNH’s net working capital increased to EGP 1,02bn from its previous posting of EGP 785,81m; overall assets were reported at EGP 2,518bn.
In third position is Talaat Moustafa Group (TMG) which reported a financial leverage ratio of 0.107. Its loans and credit facilities amount to EGP 2.96bn, compared to its total equity of EGP 27,656bn.
TMG’s net working capital reached EGP 9,469bn compared to EGP 9,549m, and its overall assets are EGP 60,44bn.
Palm Hills came fourth with a financial leverage ratio of 0.227; its net debt is EGP 1,500bn compared to total shareholders’ rights of EGP 6,600bn.
The company’s net working capital reached EGP 3,535bn in 2015 compared with EGP 1,683bn in 2014. The total assets of EGP 18.864bn, compared to EGP 14.89bn during the period of comparison.
The Sixth of October Development and Investment Company (SODIC) came in fifth place with a financial leverage ratio of 0.345. Its 2015 budget for recorded loans is EGP 1.17bn, compared to its total equity of EGP 3,386bn.
While the net working capital was recorded at EGP 910.6m—compared to EGP 2,501bn in 2014—its total assets amounted to EGP 16,758bn.
Heliopolis Company for Housing and Development ranked last with a financial leverage ratio of 1.106. The company’s 2015 budget debt is EGP 565.45m, compared with total shareholders’ rights of EGP 511m. Its net working capital is EGP 519.31m, and has total assets worth EGP 2,284bn.
Heliopolis Company for Housing and Development’s financial leverage ratio reflects the company’s reliance on bank overdraft to finance its commitments. The company’s overdraft credit reached EGP 225.1m at the end of 2015.
The company is trying to reduce its reliance on overdrafts by signing partnership agreements with real estate developers to bear the cost of developing the company’s land; the partners will receive a share of the sale proceeds in return.