Struggling developer to raise $2.97bn through sales and reimbursements for some key assets
Abu Dhabi has stepped in with $5.2bn of support for struggling developer Aldar Properties, including buying some of its key assets and subscribing to a bond sale.
Indebted Aldar, part owned by the government, will sell assets worth $1.49bn to the government to meet looming debt obligations. It will also raise $2.97bn through sales and reimbursements for some of its key assets, including its glitzy Ferrari World theme park.
A government rescue for Aldar has been seen as a likely option by analysts since the property crash left the market with few private players willing to buy the developer's assets.
"This shows the effect of the slowdown in the real estate market. Selling to Abu Dhabi was the only alternative for Aldar, as there's no one else,” Mohammed Yasin, chief investment officer at Abu Dhabi based CAPM Investments said.
Real estate companies across the Gulf Arab region have been hit hard by the global financial crisis and the pain is set to continue for Dubai and Abu Dhabi developers, as oversupply and a slump in demand weigh on prices.
Dubai's state owned conglomerate Dubai World sent global markets reeling in 2009 when it requested a standstill on almost $25bn of debt. The company secured unanimous approval for its restructuring plan in under a year.
Aldar, the largest developer by market value in Abu Dhabi, will hold a shareholder meeting to seek approval for a $760m convertible bond issue to state owned fund Mubadala.
The bond will carry a conversion price of 2.3 dirhams a share, Aldar said in a statement. Its shares closed at the same price on the Abu Dhabi bourse Thursday but have fallen more than 50 percent in the last one year.
"Aldar has a buyer in the Abu Dhabi government. At the same time, it will ensure not to increase government stake to levels that will scare away private investors," Yasin said.
The Abu Dhabi government currently owns about 31 percent of Aldar.
Aldar will also take an impairment charge of $2.86bn to reflect a sharp drop in the value of its assets, it said.
"The impairment recognition reflects the adverse conditions that have affected the real estate market, but is an important step in allowing Aldar to achieve long-term sustainable growth," said Ahmed Al Sayegh, the chairman of Aldar.
The company did not name any specific assets earmarked for its $1.49bn sale plan but analysts have said these could include properties such as the Yas Hotel and some commercial and retail developments under construction.
Aldar has been in the spotlight in the past few months amid speculation that it would receive government support to meet its cash needs.
In March last year, Aldar sold its Formula One race track to Abu Dhabi's government for 9.1bn dirhams ($2.5bn). Of this, 6.5bn dirhams were in the form of debt forgiveness and the remainder was booked as receivables to be repaid by the Abu Dhabi government over the next seven years.
Its shares have fallen more than 50 percent since it sold assets last March, reflecting shareholders' concerns about the company's financial health.
In 2008, Aldar issued a 3.56bn dirhams convertible bond to Mubadala that matures in November 2011.
Bank of America Merrill Lynch said in a report in November Aldar needed 9.8bn dirhams ($2.7bn) by 2011.