Aldar Properties has had its credit rating lowered by Moody's as Abu Dhabi's largest property developer faces weakening demand for new homes and offices in the emirate. The agency cut its rating on the company and debt instruments worth about US$2.3 billion (Dh8.44bn) by two notches to Baa2 because of the impact of declining activity within the residential and commercial property markets.
The small number of transactions in the market had raised questions about future cash inflows and how the property developer would repay loans and other obligations coming due beyond this year. Aldar was unavailable for comment. "Despite the fundamental shortfall in residential units, the transactional landscape has come to a halt in terms of [new] residential unit sales and land transactions," said Martin Kohlhase, a Dubai-based analyst with Moody's.
While Moody's said it remained "confident" about Aldar's "strong cash position" - the company had about Dh11bn in cash at the end of September - it was worried about the amount of debt coming due next year and in 2012. "Their cash should bring them through 2010 when they have moderate debt maturities," Mr Kohlhase said. He anticipated "unit and land sales volumes to be cumulatively much lower over the next 24 to 36 months than had originally been anticipated".
Abu Dhabi property prices have fallen by as much as 30 per cent from their peak and developers are under pressure to avoid flooding the market with an oversupply of completed units. In the commercial market, demand for space remains muted after the economic downturn, while available office space is expected to increase by 19 per cent this year, say analysts. On the upside, Moody's acknowledged that orders for large public infrastructure projects from the Government, along with "land transfers [from the Government] on favourable terms", have become a proportionally more important driver of the company's revenues and cash flow. On the downside, it stated an increased risk that any deviations from the company's business plan "in terms of cash flow receipts for commercial projects" could cause future funding gaps.
Mr Kohlhase stressed the downgrade was unrelated to the question of government support, an issue that has been raised by both Moody's and other agencies in relation to their assessment of government-related entities. "The ratings are still under review with regard to the government support assumptions." On December 9, Moody's placed Aldar and six other prominent Abu Dhabi companies on review for a possible downgrade over the issue of government support. At the time, it said it could no longer be certain whether it could assume blanket government support for these companies.
Aldar Properties has the largest land bank of any developer in the emirate and is currently developing an area equivalent in size to one third of the existing city. It has completed some of the emirate's most ambitious projects such as Yas Marina race circuit and is developing Al Raha Beach and the Central Market development. But the developer has struggled to fill its own headquarters building. More than half of the space available in the 23-storey tower is unleased.
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