Abu Dhabi tried to get Aldar off Mubadala books

Gulf emirate held talks to offload stake in debt-hit developer to protect state investment fund

The headquarters of Aldar Properties in Abu Dhabi (Credit: Bloomberg News)

The headquarters of Aldar Properties in Abu Dhabi (Credit: Bloomberg News)

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.

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Posted by: Realtywatch

Agree but change to residency is unlikely to happen for the next generation or two. So forget a property investment market comparable to more mature and transparent markets. Companies like Aldar need to take a long hard look at their business, their property portfolio and their accounting practices. Much of the future value has been wiped out and already spent. Generating revenue from overvalued assets will be an arduous task.

Posted by: Budaiya Calling

I believe that long term residency visa should be provided to all expats (and their immediate family) who buy properties for $100K+. We live in the real world and not fantasy land. I as a buyer always look towards UK and other visa friendly countries which afford me the convenience and security of being able to attain a long term visa once I own a property. The UAE needs to position itself as a safe haven (much like the UK) for all those ppl around the world who come from unstable countries (iran/Iraq/Pakistan etc). A long term visa where ppl pay tax on properties is perfect for attracting the middle class and not just the uber rich. Don?t forget non citizens don?t get free healthcare or education so it?s a win win. More tax = more income, more ppl = more sustainability and a home market.

Posted by: eddie murphy

I agree with Mr.hope less.
its about time realistic and concrete steps are taken to boost investor confidence.
It is very reasonable and realistic to have a 10 year residency visa with your property purchase.
Home improvement, furniture purchase and other white goods will stimulate the economy. People will demand better transport and utility services and entertainment outlets.
Long term vision will benefit the UAE.
Mubadala need to off load these properties to genuine investors or else be stuck with these apartments for next 30 years

Posted by: Mr Hope Less

Investors will not be lurred that easely anymore. The legal system that protect investors need to be sorted first. With flexible laws that can be changed at anytime or simply disregarded by lawless developers, the challenge is huge. the latest raw of bad practices in the highlighted by the press in shorline, JBR or remraam are ony the top of the iceberg. Utilities inflated cost and bad quality services are other issues that will continue to push back investors. Till today I hve not seen any positive sign from developers or RERA to tackle the real issues. The trend will continue downwards for the next 5 years. This will continue to impact the preformance of these funds who are linked to RE. The solutions are in front of them but everybody is burrying their heads in sand and refuse to deal with reality.

Posted by: Johnthomas

Yes same supply and demand statistics that affected Dubai now arrive in Abu Dhabi, both countries will have to open up residency in the same manner as Mauritius to attract buyers and will have to get into the retirement market to attract expats to fill these properties.
Welcome to the world of international real estate

Posted by: Mark of Zoro

Very realistic and sensible suggestion. This is what is needed here or you will have a Ghost City in a few years.

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