Strong returns make Aldar emerging force on bonds market



Aldar Properties is finding favour among bond investors hunting for high yields, as a flood of international liquidity arrives in the Middle East.

Announcements of increased asset-purchase programmes by central banks in the United States, Japan and Europe have resulted in increased investor confidence worldwide.

Steady returns in the fixed income market have fallen sharply, as a rush of capital towards bonds results in yield compression first for sovereign debt, then investment-grade corporate credit.

High-yield debt with a "speculative" rating - sometimes known as "junk bonds" - is now starting to benefit.

Despite its speculative grade credit rating, Aldar now returns the sort of yield usually associated with investment grade companies.

Bond yields move in the opposite direction from price, so a falling yield indicates higher demand among investors. Retail investors are piling into Arabian Gulf bond markets and are "starting to emerge as a powerful force in the market", InvestAD wrote in a research report released yesterday.

The yield on Aldar's bonds has fallen from 6 per cent at the start of the year to 3.7246 per cent yesterday. The bonds mature in 2014.

In theory, the Abu Dhabi Government's backing for Aldar means the two bonds should return similar yields over the same maturity period. Abu Dhabi's equivalent five-year government bonds currently yield 0.3546 per cent, generating a negative rate of return once inflation is factored in.

But the lack of an explicit or implicit statement of intention to support Aldar meant investors could benefit from a higher yield, said Nick Stadtmiller, the head of fixed income research at Emirates NBD.

"There's obviously government support for Aldar, both directly and through Mubadala [a strategic investment company owned by the Abu Dhabi Government], who have offered some support," he said. "But when you are evaluating Aldar's credit you need to focus as a standalone entity and focus on how much support it might get."

That factor can be critical for investors making a worst-case assumption, and result in a higher yield, he added.

Both Aldar Properties and Sorouh Real Estate have been in discussion over a US$13.1 billion merger with the "blessing" of the Abu Dhabi Government since March, with investors eyeing further news on the terms of the deal with interest.

Both companies are due to report earnings today.

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Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Company profile

Name: Tratok Portal

Founded: 2017

Based: UAE

Sector: Travel & tourism

Size: 36 employees

Funding: Privately funded