Aldar fears fade after $4.6bn Abu Dhabi bailout

Developer sees bonds rally after latest show of financial support from government
A view of Yas Hotel. Aldar has retired about AED5bn of debt linked to Yas Island
By Reuters
Tue 03 Jan 2012 07:44 AM

Aldar Properties Islamic bonds rallied the most in eight months
after the developer got AED16.8bn ($4.6bn) from the Abu Dhabi government,
alleviating concern about its ability to pay debt.

The price of the floating-rate sukuk maturing in June 2013
rose 0.8 percent last week, the most since the week ended April 15, to 96.35
cents on the dollar. The yield has fallen about 27 basis points to 6.03 percent
Monday since Aldar said Dec 28 that Abu Dhabi will buy homes in a development
and retire AED5bn of debt related to infrastructure on Yas Island.

The latest agreement takes the amount of government spending
on Aldar, the emirate’s biggest real-estate company, to AED36bn. Developers in
Abu Dhabi and neighbouring Dubai are struggling to pay off debt after property
prices fell more than half since their peak in 2008.

Abu Dhabi, holder of 7 percent of the world’s proven oil
reserves, is home to one of the world’s largest sovereign wealth funds. Its
investment units also include Mubadala Development Co.

“This agreement should go a long way toward mitigating any
remaining doubts about the level of commitment that both Mubadala and the
government have toward the company,” Chavan Bhogaita, head of the markets
strategy group at National Bank of Abu Dhabi, said in an emailed response Jan
2. “The issue of external support is frankly no longer up for debate.”

The government will buy 760 homes in the Al Raha Beach
development, purchase AED5.7bn of assets in Central Market, a project in
downtown Abu Dhabi, and finance the completion of the district’s redevelopment,
Aldar said.

The decision is “credit positive” for Aldar and will reduce
unease about debt maturing in 2012, Moody’s Investors Service said in a note to
investors on Dec 29. The developer’s credit profile will benefit from increased
certainty about cash flow and less risk from property market volatility, it
said.

Aldar has a long-term credit rating of B2 at Moody’s, the
fifth-lowest non-investment grade ranking. That’s 12 levels lower than Abu
Dhabi, the richest of the United Arab Emirates’ seven sheikhdoms, which is
rated Aa2 by Moody’s.

The company will receive AED4.5bn in the next two months as
part of the agreement and the rest will be paid over four years, Aldar said.
The deal will immediately reduce its debt by AED5bn. The company reported a
third- quarter profit of AED144m after a loss of AED731m a year earlier.

Aldar agreed last January to sell assets including a Ferrari
theme park and convertible bonds to the Abu Dhabi government for AED19.2bn.

Home prices in Abu Dhabi may drop an additional 30 percent,
Dubai-based Rasmala Investment Bank said in October. Almost 25,000 homes in the
capital of the UAE will be handed over this year, including more than 12,000 in
the first half, Asteco Property Management said in a report Dec 13. That compares
with about 10,000 in 2011.

Government-owned Tourism Development & Investment Co
said on Oct 29 that it would delay the Zayed National Museum’s completion as
well as the Louvre and Guggenheim branches due to the “magnitude of work.”

Aldar’s shares, down 60 percent last year, gained 2.2
percent Monday to 94 fils.

The developer said Dec 15 it will convert AED2.1bn worth of
bonds issued to Mubadala into shares at 1.75 dirhams each.

If you believe the Abu Dhabi government will continue to
support Aldar, then there is a compelling case that Aldar’s sukuk offer good
value,” Nick Stadtmiller, head of fixed-income research at Emirates NBD, said in
a phone interview.

The Aldar agreement shows that “they are willing to make
sure that the institution is liquid and can function, and from that aspect
obviously it’s positive for the sukuk,” Abdul Kadir Hussain, chief executive
officer at Mashreq Capital DIFC, said by phone yesterday.

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