Thursday looks set to be the crunch date for Aldar Properties with company directors set to gather to discuss the possible sale of assets and a possible government bail-out.
State stake in Aldar set to rise
The Abu Dhabi Government is likely to increase its stake in Aldar Properties, the largest developer in the capital, under a support plan to be voted on this week.
Aldar will convene its board tomorrow to discuss the sale of assets, the issue of convertible bonds, and the conversion of an existing bond owned by Mubadala Development, Aldar said yesterday.
The disclosure comes after months of speculation on how the Government would come to the aid of the company as it contends with a weak property market and more than Dh10 billion (US$2.72bn) of debt coming due this year.
Investors reacted negatively to the disclosure yesterday, with Aldar's stock dropping 4.58 per cent to Dh2.29.
"Until we know the quantums, it is very difficult to say what the impact will be," said Chet Riley, an analyst at Nomura Securities. "With Aldar there has always been a long-term view. It's going to take a long time to monetise what they are doing in Abu Dhabi."
The Government currently owns 38 per cent of Aldar through direct and indirect stakes.
The conversion of the existing bond held by Mubadala, a strategic investment company owned by the Abu Dhabi Government, would bring that state ownership to 44 per cent.
Any new bonds would be likely to push the Government's holding to above 50 per cent, analysts said.
Speculation over what form the Government's assistance would take has been weighing on the company's shares since November, when Aldar said it was in talks with the Government about a funding "framework" that would have been revealed by the end of last year.
The developer sold the racing circuit, marina, yacht club and other infrastructure at its flagship Yas Marina development to the Government last year for more than Dh9bn.
Further asset sales could include more of the Yas Island project, analysts said. The property downturn in the Gulf has eroded Aldar's cash reserves and led it to seek new lines of business, such as building large-scale housing projects for UAE nationals on behalf of the Government and taking on project-management work for the construction of Masdar City, the zero-carbon property development near the capital.
Aldar reported a Dh731.2 million loss in the third quarter of last year, compared with a profit of Dh270.1m in the year-earlier period. The company also saw the replacement of its chief executive, John Bullough, with Sami Asad in November. The company's total debts stand at Dh22.4bn.
The crucial questions to be answered in the coming weeks, analysts say, will be which assets will be sold and for how much as well as the size and nature of any new convertible bonds.
"There's a lot of clarification needed," said Julian Bruce, the director of institutional equity sales at EFG-Hermes in Dubai. "The attractiveness of a single standing stock is related to all these individual factors. They all create a picture."
The fate of minority shareholders was the overriding concern for investors, analysts said. If assistance for Aldar led to a large increase in ownership by the Government, it could dilute the value of current shares. This would happen if another entity bought a large amount of convertible bonds from Aldar. Those bonds can either be paid back in cash or converted into new shares of the company. Yazan Abdeen, a fund manager at ING Investment Management Middle East, said he interpreted the disclosure yesterday as a sign that the Government was limiting the impact on minority shareholders.
"If Mubadala wants to dilute shareholders, they have had more interesting opportunities before now," he said.
"The fact that they did not do that sends a very strong message to shareholders that massive dilution is not the plan."
The support for Aldar is also important for the Abu Dhabi Securities Exchange because it is among the most traded stocks and a bellwether for the market as a whole. On Monday, Aldar's shares accounted for about 70 per cent of trading on the exchange.
Less trading of Aldar would act as a deterrent for foreign investors in the country's equity markets.