ABU DHABI // Aldar Properties' stock sank to a record low this week, but increasing bids for the company's bonds show investors are starting to see value in its debt.
They are hoping that indirect involvement in the company by the Abu Dhabi Government will reduce the risk of any payment delays on its bonds and strengthen its credit portfolio - illustrating how in the Gulf, government connections, even implicit ones, can be important to investor perceptions.
The stock price reached an all-time low of 96 fils on Tuesday, down more than 90 per cent from its 2008 peak and well below this year's high of Dh2.48, as the property sector in the UAE continues to experience oversupply and falling prices.
"Aldar's core business is not doing well, and the company keeps raising the stakes with more projects with high execution risk," said Roy Cherry, a property analyst at Shuaa Capital in Dubai.
"The drop in Aldar's shares reflects in our view the weakness in outlook."
But it has been a different story in the past 10 days for the bonds. Aldar's US$1.25 billion 10.75 per cent 2014 bond was bid at 107.509 on Tuesday, yielding about 7.5 per cent, Thomson Reuters data shows; the yield has tumbled from above 9 per cent early this month.
Much of that improvement is thanks to a partial strengthening of global debt markets in the past 10 days, and Aldar's yield still has not returned to the 7.3 per cent level where it was hovering in the middle of last month.
But traders and analysts said some investors were hoping for the Abu Dhabi Government to play a greater role in the company, the biggest property developer based in the emirate, which still has a major part in Abu Dhabi's development plans.
Abu Dhabi stepped in with $5.2bn of support for Aldar in January.
As part of the rescue, Aldar was to place an issue of convertible bonds worth Dh2.8bn ($762.3 million) with Mubadala Development, a strategic investment company owned by the Abu Dhabi Government; four of Aldar's seven board members are from Mubadala.
The fund owns 28 per cent of Aldar, according to its first-half financial statements.