Faced with a depressed property market and more than Dh10 billion (US$2.72bn) of debt coming due next year, Aldar Properties has entered talks with the Abu Dhabi Government for financial support.
A senior government official said the assistance could come in the form of a 25-year loan of tens of billions of dirhams that would be transferred to Aldar over three to four years.
Aldar, the developer of Ferrari World Abu Dhabi and the Yas Marina Circuit, said it would disclose the framework of the financial aid package before the end of the year.
Confirmation of the long-anticipated talks came as Aldar reported its heaviest loss yet - Dh731.2 million in the third quarter compared with a profit of Dh270.1m in the same period last year.
It also came hours after the company named Sami Asad as its chief executive to replace John Bullough, who announced his decision to step down last week.
Slow sales, high expenditures and provisions for delayed payments from buyers of land and property were to blame for the loss, according to the company's financial statements.
The nature of the government support is a major issue for Aldar shareholders and potential investors, said Chet Riley, an analyst at Nomura Securities.
"What the market is worried about is that there will be more dilution to current shareholders," he said. "We don't think that will happen because there are a lot of political factors."
Investors initially sold off Aldar shares on news of the talks but shares recovered by midday for a gain of up to 7 per cent before closing at Dh2.29, up 3.2 per cent. The shares are down 54 per cent so far this year.
Mr Riley said the company had become a difficult choice for long-term investment because it had not yet achieved a new business model that rewards shareholders. The company's total debt of more than Dh20bn also present stark challenges.
"With the financing support, the Abu Dhabi Government gives the company breathing space effectively," Mr Riley said.
"Would we still be investors of company? Probably not because all of your returns are actually going to the Government, with low margins."
Aldar reached an agreement to sell the infrastructure of Yas Island, including the roads, utilities and the Formula One track, to the Government earlier this year, providing some support for the company. About 70 per cent of this came in the form of a debt write-down due to the Government from Aldar, while the remainder is due as a cash injection, the company said.
Shafqat Malik, the chief financial officer of Aldar, said the company recognised the "challenging environment" in the property sector but that it was focusing on revenue from hotels, rentals and project management fees.
He said that portion of the company's revenue had risen to Dh584m in the first nine months of this year compared with Dh236m in the same period last year. By 2012 or 2013, he said he expected recurring revenue to play a much greater role in its performance. But that would not offset the large expenditures the company is making on projects across the capital.
In the third quarter, the company's cash reserves fell to just Dh4.6bn - enough to continue operating for about eight months, according to analysts.
Aldar is still in the early phase of several projects, a key driver of profits. By the end of this year, it should deliver between Dh800m and Dh1bn worth of properties, which will bolster its results, said Mr Malik.
He also said the company was having trouble getting land buyers in particular to pay on time, with more than 30 per cent in arrears. Home buyers, by contrast, were less than 7 per cent behind on payments.
Asked whether government support for Aldar would dilute the holdings of investors, Mr Malik said Abu Dhabi had a history of backing the company's investors
"I think the Government has always been supportive of all the investors within Aldar and they have demonstrated that support in the actions of the last few years," he said.
The assistance framework would "address all questions about how Aldar will move forward", said Mr Malik.