Gulf emirate held talks to offload stake in debt-hit developer to protect state investment fund
Abu Dhabi has held talks to offload all or part of a 49 percent government stake in struggling Aldar Properties in an attempt to stop its falling asset value from dragging down state investment fund Mubadala.
According to two sources familiar with the discussions, the talks have been held at the highest levels of government for the last few months. They centre on identifying an existing buyer or setting up a new holding group that could take up the stake.
The sources would not say whether the talks were still ongoing or had stalled, but they said recent discussions revolved around shifting the Aldar stake to an Abu Dhabi-based bank through a swap deal.
Mubadala, which made a loss in 2010 and in the first 2011, would provide an equity bridge loan to the bank for taking up the assets, said one of the sources, both of whom spoke on condition of anonymity.
A spokesman at Mubadala, which has stakes in General Electric and private equity firm Carlyle, denied that such discussions had taken place.
The Abu Dhabi government has given Aldar nearly $10bn bailout funds, almost equivalent to the amount it extended to neighbouring emirate Dubai at the height of its 2009 debt crisis.
While Dubai's crisis came as a shock to global markets, the Abu Dhabi reckoning has been a more gradual and incremental process as real estate values continue to slide in the emirate.
Mubadala, with assets worth around $46bn, also played a key role in Aldar's bailout by subscribing to a $2.8bn bond issued by the developer last March.
Separating Aldar away from Mubadala would improve the state fund's ability to tap capital markets, but finding a place to put Aldar has not been easy.
"Until now, there has been a lot of pushback from other entities to take up the stake," said an Abu Dhabi-based source familiar with negotiations, adding that Aldar was an entity that "no one wants to parent".
The Aldar stake is held in Mubadala's Real Estate & Hospitality arm which manages assets worth AED12.36bn ($3.4bn) spanning 17,000 sq m, according its 2010 annual report. Latest figures were unavailable.
Mubadala converted a portion of its Aldar bonds to equity in December, taking its stake to 49 percent. Full conversion could eventually raise Mubadala's stake to 60 percent.
The investment fund also helped Abu Dhabi-based district cooling firm Tabreed seal a restructuring deal with creditors last year.
Across the oil-rich state, which accounts for more than half of the United Arab Emirates economy, government-backed real estate, commercial and tourism projects, many conceived during the boom years of 2003-2008, are under review and in some cases being delayed or put on hold.
Although it fared better than neighbouring emirate Dubai which saw a collapse in its property market and the restructuring of its flagship firm Dubai World, Abu Dhabi is facing challenges now as a huge supply of high-end homes are expected to enter the market.
Property prices in Abu Dhabi are expected to fall another 14 percent from here, or 60 percent from their peak, a poll showed.
Late in 2010, Mubadala put on hold planned construction of a stadium in Abu Dhabi with capacity for some 50,000 people, citing "proprietary decisions of the government".
Mubadala reported a sharp drop in its total comprehensive loss in the first half of 2011, thanks to higher commodity prices and increased contributions from its semiconductor business.