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Mon 15 Nov 2010 03:54 PM

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S&P's downgrades Aldar over cash fears

Abu Dhabi's largest developer downgraded to B; from ‘BB-’ by ratings agency Standard & Poor’s

S&P's downgrades Aldar over cash fears
ABU DHABIS ALDAR:\nAldar’s total debt is AED30.4bn as of September 30, 2010 (ITP Images)

Aldar, Abu Dhabi’s largest developer, has been downgraded to ‘B’ from ‘BB-’ by credit ratings agency Standard & Poor’s, citing concerns over the company’s future earnings and cash flow.

Aldar’s 'B' long-term and 'B' short-term ratings were placed on CreditWatch with negative implications, the ratings agency said in an emailed statement.

"The downgrade reflects our view of the very challenging real estate market conditions in Abu Dhabi and the reliance of Aldar's future earnings and cash flow on continued demand for both the sale and rental of property and land," said Tommy Trask, S&P's credit analyst.

Aldar’s total debt is AED30.4bn as of September 30, 2010.

New sales of residential units are “extremely slow” and delays in handover have dampened the company’s earnings in the first nine months of this year, S&P said.

Last week the Statistics Centre Abu Dhabi revealed that the emirate has a total of 40,593 vacant properties, with a further 10,149 buildings currently under construction.

“Based on the pipeline of new supply, both in Abu Dhabi and Dubai, we do not anticipate an improvement in market conditions anytime soon,” S&P said.

The company’s ‘B’ rating is based on an assumption of ongoing state support.

S& P forecast the company would see negative discretionary cash flow in the final quarter of 2010, with the firm’s long-term prospects dependant on real estate sales and rents.

Aldar, part-owned by the emirate’s government, has suffered losses for four quarters on poor sales, bad debt provision and tumbling real estate values.

The developer is expected to need AED9.8bn ($2.67bn) by 2011 if it is to survive, a recent report by Bank of America Merrill Lynch said.

Media reports earlier this week suggested the developer could receive a 25-year loan from the government worth tens of billions of dirhams, to be transferred to Aldar over three or four years.