Aldar Properties PJSC Islamic bonds rallied the most in eight months after the developer got Dh16.8 billion($4.6 billion) from the Abu Dhabi government, alleviating concern about its ability to pay debt.
The price of the floating-rate sukuk maturing in June 2013 rose 0.8 per cent last week, the most since the week ended April 15, to 96.35 cents on the dollar. The yield has fallen about 27 basis points to 6.03 per cent on Sunday since Aldar said December 28 Abu Dhabi will buy homes in a development and retire Dh5bn of debt related to infrastructure on Yas Island.
The latest agreement takes the amount of government spending on Aldar, the emirate’s biggest real-estate company, to Dh36bn. Developers in Abu Dhabi and neighboring Dubai are struggling to pay off debt after property prices fell more than half since their peak in 2008. Abu Dhabi, holder of 7 per cent of the world’s proven oil reserves, is home to one of the world’s largest sovereign wealth funds. Its investment units also include Mubadala Development Co.
“This agreement should go a long way toward mitigating any remaining doubts about the level of commitment that both Mubadala and the government have toward the company,” Chavan Bhogaita, head of the markets strategy group at National Bank of Abu Dhabi PJSC, said in an e-mailed response January 2. “The issue of external support is frankly no longer up for debate.”
The government will buy 760 homes in the Al Raha Beach development, purchase Dh5.7bn of assets in Central Market, a project in downtown Abu Dhabi, and finance the completion of the district’s redevelopment, Aldar said.
The decision is “credit positive” for Aldar and will reduce unease about debt maturing in 2012, Moody’s Investors Service said in a note to investors on December 29. The developer’s credit profile will benefit from increased certainty about cash flow and less risk from property market volatility, it said.
Aldar has a long-term credit rating of B2 at Moody’s, the fifth-lowest non-investment grade ranking. That’s 12 levels lower than Abu Dhabi, the richest of the United Arab Emirates’ seven sheikhdoms, which is rated Aa2 by Moody’s.
The company will receive Dh4.5bn in the next two months as part of the agreement and the rest will be paid over four years, Aldar said. The deal will immediately reduce its debt by Dh5bns. The company reported a third- quarter profit of Dh144 million after a loss of Dh731m a year earlier.
Aldar agreed last January to sell assets including a Ferrari theme park and convertible bonds to the Abu Dhabi government for Dh19.2bn.
Home prices in Abu Dhabi may drop an additional 30 per cent, Dubai-based Rasmala Investment Bank Ltd. said in October. Almost 25,000 homes in the capital of the UAE will be handed over this year, including more than 12,000 in the first half, Asteco Property Management LLC said in a report December 13. That compares with about 10,000 in 2011.
Government-owned Tourism Development & Investment Co said on October 29 that it would delay the Zayed National Museum’s completion as well as the Louvre and Guggenheim branches due to the “magnitude of work.”
Aldar’s shares, down 60 per cent last year, gained 2.2 per cent on Monday to 94 fils.
The developer said December 15 it will convert Dh2.1bn worth of bonds issued to Mubadala into shares at Dh1.75 each.
“If you believe the Abu Dhabi government will continue to support Aldar, then there is a compelling case that Aldar’s sukuk offer good value,” Nick Stadtmiller, head of fixed-income research at Emirates NBD PJSC, said in a phone interview yesterday.
Aldar’s sukuk is yielding about 170 basis points more than the average yield on Islamic bonds in the six-nation Arabian Gulf, according to HSBC/Nasdaq Dubai GCC US Dollar Sukuk Index.
The region’s Islamic debt returned 7.9 per cent last year, compared with 8.5 per cent for non-Islamic emerging market debt, JPMorgan Chase & Co’s EMBI Global Composite Index shows. Gulf sales of sukuk jumped 62 per cent to $7.35bn last year, according to data compiled by Bloomberg.
The yield on Dubai’s 6.396 per cent sukuk maturing in November 2014 tumbled 91 basis points in 2011 to 5.57 per cent. It was little changed yesterday. The extra yield investors demand to hold Dubai’s bonds over Malaysia’s 3.928 per cent sukuk maturing in June 2015 narrowed 51 basis points last year to 287, data compiled by Bloomberg show. Dubai received a $20 billion bailout from Abu Dhabi in 2009.
The Aldar agreement shows that “they are willing to make sure that the institution is liquid and can function, and from that aspect obviously it’s positive for the sukuk,” Abdul Kadir Hussain, chief executive officer at Mashreq Capital DIFC Ltd said.
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