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

A view of Yas Hotel. Aldar has retired about AED5bn of debt linked to Yas Island

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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