Aldar Properties, Abu Dhabi's largest developer, will meet all its debt obligations on time, a top official says. The developer told analysts this month it would announce a framework for dealing with its impending debt obligations in the final three months of the year. "Aldar will meet its obligations as and when they are due," said Shafqat Malik, the chief financial officer of the company. Mr Malik's comments came as property analysts said they believed the Government would step in to help the company deal with a funding gap that could rise as high as Dh6 billion (US$1.63bn) next year.
Majed Azzam, an analyst at HC Securities in Dubai, said one possibility for the Government in helping Aldar would involve the company issuing "straight debt to Mubadala [Development, a strategic investment company owned by the Abu Dhabi Government] and several Abu Dhabi banks". This would allow Aldar to get around recent credit ratings downgrades that have unnerved investors over the past month. After Aldar's quarterly loss of Dh789.5 million for the first half of the year, two agencies cut its rating to junk status.
Standard & Poor's cut Aldar to "BB minus" from "A minus", with a negative outlook. Moody's Investors Service reduced the company to "Ba3" from "Ba1", as well as bringing two bonds down to "B1" from "Ba1". Both agencies cited the poor financial condition as reasons for the downgrades. Chet Riley, an analyst at Nomura Securities, said there was a growing belief Aldar would receive some level of support from the Abu Dhabi Government.
One possibility would be a Government statement of support. In May, Standard & Poor's took three Abu Dhabi companies - Tourism Development and Investment Company, Mubadala Development and International Petroleum Investment Company - off review for credit rating downgrades after it determined their ties with the Government were enough to grant them the same rating as the Government itself. The move came less than two months after a government official announced "it was impossible to differentiate between the Government and any of these three entities in terms of credit risk". Mr Azzam said the growing speculation over Government assistance to Aldar has pushed Aldar's sukuk higher in trading.
Aldar's Islamic bond due in November next year rose 1.81 per cent yesterday from a 16-month low on August 11, according to Bloomberg. "Following the Moody's and Standard & Poor's credit downgrades, concerns started to emerge about a potential funding gap in 2011 given the company's diminished ability to access credit markets," Mr Azzam said. Aldar's shares have had the worst performance of any of the UAE's publicly traded developers.
The shares shed another 0.89 per cent yesterday, closing at Dh2.21. The stock has lost 55.6 per cent for the year. While bondholders have shown some confidence in Aldar's ability to tap its Government stakeholders for help, equity holders are worried about getting wiped out, Mr Azzam said. The Government already owns about 37 per cent of Aldar but that stake will rise to 47 per cent at the end of next year, when a loan from Mubadala converts into equity.
"While a default by Aldar is unlikely, giving more comfort to bondholders, equity holders are particularly concerned about potential dilution caused by the Government taking a bigger equity stake at distressed valuations," Mr Azzam said. "Considering the Abu Dhabi Government's long-term goal to develop its capital markets, we are of the view that such a move would be ill-advised." firstname.lastname@example.org