Abu Dhabi’s government agreed to buy assets valued at 16.8 billion dirhams ($4.6 billion) from Aldar Properties PJSC to shore up the developer’s finances after property prices plunged in the United Arab Emirates capital.
The government will purchase 760 three-bedroom to five- bedroom homes in the Al Raha Beach development and retire 5 billion dirhams of debt related to infrastructure on Yas Island, Aldar said in a statement today. It will also buy 5.7 billion dirhams of assets in Abu Dhabi’s city center, known as the Central Market, and finance the completion of the district’s redevelopment.
Developers in the United Arab Emirates are struggling to pay down debts after the credit crisis caused property values to plummet and drove speculators out of the market. Today’s agreement takes total Abu Dhabi government spending on Aldar this year to 36 billion dirhams after it paid 19.2 billion dirhams in January for assets including a Ferrari theme park and convertible bonds.
“They are selling those assets before the end of the year because the board needs to balance its liabilities and assets to avoid triggering the immediate payment of certain bonds,” said Mohammed Ali Yasin, chief investment officer at Capm Investment PJSC in Abu Dhabi.
Aldar will receive 4.5 billion dirhams in the next two months as part of the latest agreement, and the balance will be paid over the next four years, according to the statement.
The agreement will immediately reduce Aldar’s debt by 5 billion dirhams and the company will continue to deleverage its balance sheet, according to the statement.
The yield on Aldar’s 10.75 percent dollar bond maturing May 2014 fell two basis points to 5.89 percent today, the lowest since Aug. 4, according to prices compiled by Bloomberg.
Aldar has repaid 14.2 billion dirhams in debt this year including the 4.5 billion-dirham convertible Sukuk on Nov. 10.
The asset sale “demonstrates the support that Abu Dhabi government is giving Aldar, but it also brings into question the future business model for the company,” said Mohammed Ali Yasin, chief investment officer at CAPM Investment PJSC in Abu Dhabi. “Will it continue to be a real estate developer or merely a property management company for the government?”
The developer has cut jobs and changed its business strategy, Chairman Ali Eid AlMheiri wrote in the statement.
On Dec. 15, Aldar said it will convert 2.1 billion dirhams worth of bonds issued to Mubadala Development Co. into shares at 1.75 dirhams each. The transaction has increased Aldar’s equity, the company said today.
The statement was released after the Abu Dhabi market closed. Aldar gained 3.7 percent to 84 fils today, the biggest gain in about two months. The shares have fallen 31 percent in the past six months, while the Bloomberg EMEA Real Estate Index has lost 19 percent.
“This will have a positive sentiment in the market, leading investors to buy the stock aggressively,” said Musa Haddad, head trader at National Bank of Abu Dhabi PJSC’s asset management group said.
© Copyright 2016 Bloomberg News. All rights reserved.