Text size:

  • Small
  • Normal
  • Large

Strong returns make Aldar emerging force on bonds market

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

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.

ghunter@thenational.ae

Back to the top

More articles


Editor's Picks

 The Greens, villas: Q1 no change. 3BR - Dh210-250,000. 4BR - Dh210-260,000. 5BR - Dh220-300,000. Q1 2013-Q1 2014 5% rise. Pawan Singh / The National

In pictures: Where Dubai rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Dubai have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Above, the private pool of Ocean Heights' five-bedroom penthouse flat. Courtesy Christie’s International Real Estate

In pictures: Penthouse flat is height of Dubai luxury living

A five-bedroom penthouse in Ocean Heights in Dubai Marina is on sale for Dh25 million and comes with a private pool and an unparalleled view of Dubai.

 The cooling towers of the Temelin nuclear power plant near the Tyn nad Vltavou in Czech Republic. The country wants to continue expanding nuclear energy capacity despite cancelling a tender to build two new units. David W Cerny / Reuters

In pictures: Best business images for the week to April 17, 2014

Here are some of the best business images for the week to April 17, 2014.

 Three generations of the Hakimi family tend to their stall Crawford Market in Mumbai. Subhash Sharma for The National

In pictures: Shopper’s delight at Crawford Market in Mumbai

Crawford Market is an old British-style covered market dealing in just about every kind of fresh food and domestic animal imaginable. Later on renamed Mahatma Jotirao Phule, the market remains popular among locals and visitors by its old name, taken from Arthur Crawford who was the first municipal commissioner of the city.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.

Events

To add your event to The National listings, click here

Get the most from The National