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Abu Dhabi $4.6 Billion Aldar Bailout Eases Concern, Moody’s Says

Abu Dhabi’s Economic Vision Dims as Companies Scale Back
High-rise buildings are seen under construction on Al-Reem island in Abu Dhabi. Photographer: Duncan Chard/Bloomberg

Abu Dhabi’s agreement to provide Aldar Properties PJSC with a 16.8 billion-dirham ($4.6 billion) bailout will alleviate concern about the property developer’s debt, Moody’s Investors Service said.

The decision is “credit positive” for Aldar and will reduce unease about debt maturing in 2012, the ratings company said in a note to investors today. The developer’s credit profile will benefit from increased certainty about cash flow and less risk from property market volatility, Moody’s said.

The government will purchase 760 homes in the Al Raha Beach development and retire 5 billion dirhams of debt related to infrastructure on Yas Island, Aldar said in a statement yesterday. Aldar gained as much as 9.5 percent in Abu Dhabi trading, the biggest increase in two years.

Developers in Abu Dhabi and neighboring emirate Dubai are struggling to pay down debts after property prices fell by more than half since the market’s peak in 2008. The latest agreement takes the amount of government spending on Aldar, Abu Dhabi’s biggest developer, to 36 billion dirhams this year. The state also contributed to a $20 billion bailout of Dubai in 2009.

Yesterday’s agreement “demonstrates the support that the government is giving Aldar, but it also brings into question the future business model for the company,” said Mohammed Ali Yasin, chief investment officer at CAPM Investment PJSC in Abu Dhabi. “Will it continue to be a developer or merely a property-management company for the government?”

Central Market

The government will also buy 5.7 billion dirhams of assets in Central Market, a project in downtown Abu Dhabi, and finance the completion of the district’s redevelopment. Aldar will receive 4.5 billion dirhams in the next two months as part of the agreement and the rest will be paid over four years, according to the statement. The deal will immediately reduce Aldar’s debt by 5 billion dirhams.

The company has repaid 14.2 billion dirhams in debt this year, including a 4.5 billion-dirham convertible Islamic bond, or sukuk, on Nov. 10. In January, the Abu Dhabi government paid Aldar 19.2 billion dirhams for assets including a Ferrari theme park and convertible bonds.

“It’s definitely better news for debt holders than equity holders,” said Ahmed Badr, head of Middle East property research at Credit Suisse Group AG in Dubai. “Going forward, there is hardly any business for Aldar except some recurring income from hotels, schools and malls. Combine that with a soft property market and the outlook remains weak.”

Home prices in Abu Dhabi may drop by an additional 30 percent, Dubai-based Rasmala Investment Bank Ltd. said in October. In Dubai, values have fallen by more than 60 percent since the peak of the market.

Dubai Bailout

State-owned companies including Dubai World ran up debt of at least $129.3 billion transforming the sheikdom into a tourism, trade and financial-services hub. The emirate received a $20 billion bailout from the Abu Dhabi government and the U.A.E.’s central bank in 2009. At the time, Dubai World was the parent company of Nakheel PJSC, builder of a palm-shaped island that received about 8.5 billion dirhams.

Mubadala Development Co., Abu Dhabi’s investment arm, agreed in March to provide 3.1 billion dirhams to National Central Cooling Co., known as Tabreed, as part of a recapitalization.

The yield on Aldar’s 10.75 percent dollar bond maturing May 2014 fell 0.02 percentage points to 5.89 percent yesterday, the lowest since Aug. 4, according to prices compiled by Bloomberg.

On Dec. 15, Aldar said it will convert 2.1 billion dirhams worth of bonds issued to Mubadala Development Co. into shares at 1.75 dirhams each. The transaction has increased Aldar’s equity, the company said yesterday.

Positive Sentiment

Aldar closed up 8 fils at 92 fils. The shares have fallen 61 percent this year, more than double the Bloomberg EMEA Real Estate Index’s 26 percent drop. Aldar has a market value of 2.65 billion dirhams.

Moody’s said it will make a more detailed assessment of the effect of the government aid on the company’s medium-term credit and plans to revise its financial forecasts for the company.

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