Aldar shares fall on news of bond issuance

Aldar's shares dropped sharply today after shareholders agreed to give Mubadala Development a better deal on a convertible bond it was buying from Aldar.

The shares of Aldar Properties yesterday dropped to Dh1.42, the lowest in its more than five-year history, after shareholders voted to approve the issuance of a convertible bond to Mubadala Development.

The existence of the Dh2.8 billion bond - part of a broad package of support from the Abu Dhabi Government - has been known since last month.

But at a meeting on Sunday, many investors saw the terms of the borrowing changed in such a way that could eventually dilute shareholders by an additional 9 per cent.

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A convertible bond is a type of debt that usually has the option of being paid back with interest or to be converted into new shares of the company that is doing the borrowing. The conversion option is based on an agreed "strike price", which determines how many new shares must be issued.

In Aldar's case, the original strike price was to have been Dh2.30 a share, but shareholders voted on Sunday to set the price at a range from Dh1.75 to Dh2.3 a share. Mubadala Development is a strategic investment company owned by the Abu Dhabi Government, and is Aldar's largest shareholder.

Chet Riley, an analyst at Nomura Securities, said in a note the change would mean even more shares would be issued by Aldar, reducing the value of existing shares.

Mr Riley said there was also a new "sweetener" in the deal for Aldar, where not all of the shares would be converted in December this year as originally planned. Now, the deal says a minimum of Dh2.1bn will be converted then, and the remaining Dh700 million could be converted any time between December this year and December 2013.

Before the announcement of the financial support package for Aldar earlier this year, investors expressed concern that the package would negatively affect smaller shareholders.

The deal as structured - with the Government acquiring Dh10.9bn of infrastructure built by the company on Yas Island and Dh5.5bn of its residential units and land, as well as the sale of the bond to Mubadala Development - is considered by some analysts to be much better than had been expected.