Aldar upgrade earned thanks to easing of debt burden

Sentiment surrounding Abu Dhabi's main listed developer Aldar Properties is being pulled in two directions.

Aldar’s latest credit rating upgrade reflects the property company’s progress towards reducing its debt burden and increasing its recurring revenues.

But investors are keeping a wary eye on the price of oil and the indirect impact that may have on government construction spending.

That ambivalence was reflected in the company’s stock movement which seesawed yesterday – falling almost 2 per cent before finishing 1 per cent higher.

Moody’s Investors Services said on Wednesday that it had raised its estimate of the creditworthiness of Aldar’s US$750 million Trust Certificates due in 2018 by two notches from Ba1 to Baa3 with a “stable” outlook.

It was the fifth upgrade from Moody's over the past 18 months. In that time the Abu Dhabi government-backed developer has completed its merger with Abu Dhabi-listed rival Sorouh, paid down debt and completed its vast Yas Mall development.

“We have upgraded Aldar’s ratings to reflect its success in reducing financial leverage, lessening development risk and increasing recurring rental income, following the opening of Yas Mall and other investment properties,” said Martin Kohlhase, senior credit officer in Moody’s Dubai office.

“Recurring income from investment properties tends to be low-risk, stable and allows better visibility in terms of future earnings.”

But the developer cannot do anything about the ebb and flow of global energy markets, which threatens to weigh on its share price.

Aldar, which is 29.75 per cent-owned by Mubadala, a strategic investment company owned by the Abu Dhabi government, has relied heavily on government funding. As such, investors are conscious of the impact of the oil price on government-funded contracts.

"Since Yas Mall has been completed Aldar's ability to generate income has grown impressively and the company's gearing has improved significantly over the past 18 months so this upgrade is very positive for the company," said Harshjit Oza, a property and banking analyst at Naeem Brokerage. "On the other hand Abu Dhabi support is critical for Aldar, so declining oil prices – something that is affecting all GCC markets – is worrying investors."

Over the past year Aldar has reduced total debt from Dh13.8 billion at the end of 2013 to Dh9.6bn at the end of this year’s third quarter. It has also boosted recurring revenues to Dh1bn from about Dh420 million before the Sorouh merger.

Aldar said that the upgrade would not affect its existing development strategy.

“This upgrade gives us access to a wider pool of finance. In future when we borrow we can do so from a position of strength,” said the chief financial officer Greg Fewer. “It is an acknowledgement from the market of the de-risking that we have achieved in the business over the last few years and allows us to pursue the same strategy as before, but to do it better and more cost-effectively.”

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