Aldar raises $750m from first sukuk issue since Sorouh merger

Aldar has raised a total of Dh6.7 billion from debt issuance this month. Pawan Singh / The National

Aldar Properties has raised US$750 million through its first sukuk issue since its merger with Sorouh Real Estate in June as the developer seeks to reduce its borrowing costs.

The five-year sukuk, issued with a 4.38 per cent interest rate, was three-and-a-half times oversubscribed by investors in Asia, the Middle East and Europe, the firm said.

The capital’s largest listed homebuilder said the proceeds would be used to refinance some of its Dh11.3 billion of debts maturing over the coming year, as it seeks to lower its interest payments, which are as high as 10.75 per cent on bonds maturing next May.

Aldar has raised a total of Dh6.7bn from debt issuance this month after it secured earlier this month a Dh4bn bank loan with a tenor of three-and-a-half years.

The firm estimated that if interest rates on its US$1.25bn bond were to decline by 50 per cent, it could save $67m a year in interest payments. Aldar said it was expecting interest rates to decline further than that.

The bond is Aldar’s first issue since its credit rating was upgraded by the credit ratings agencies Moody’s and Standard & Poor’s last month, which made its bonds more attractive to investors.

Last month, Moody’s raised Aldar’s credit rating by three notches to Ba1 from B1, after having upgraded Aldar by a notch in July. That same week, S&P raised Aldar by two notches to BB as both ratings agencies improved their assessment of Aldar’s financial health.

Aldar and Sorouh were both hit hard by the global financial crisis, which exposed them to high levels of debt as property prices in the UAE fell by as much as half and development stalled.

Both firms were prompted to sell properties to the Abu Dhabi Government as the emirate’s real estate market dried up.

Aldar said its debt leverage stood at 55 per cent at the end of September, down 144 per cent from the same period last year.

“This transaction fits in well with our financing strategy as it reduces our cost of capital and expands the breadth and depth of our investor base,” said Greg Fewer, Aldar’s chief financial officer. “Aldar’s credit fundamentals are very strong and I am pleased that the market has responded so positively to our first capital markets transaction since the merger with Sorouh.”

Saleem Khokhar, the head of equities at NBAD’s asset management group, said the pricing of the sukuk bond issue at a 4.38 per cent profit rate was a positive step for Aldar.

He said the firm was now achieving far more favourable interest rates than it was able to get a couple of years ago.

“Investors now see that the company has reduced gearing and that the Abu Dhabi property market is beginning to recover,” Mr Khokhar said.

“It was also advisable for Aldar to issue its sukuk in advance of the Expo decision, which could mean the Dubai Government raising billions of dirhams of sukuk bonds of its own, which is likely to push up the price of such debt.”