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PROMISING? Aldar bonds may still offer value after yield plunge

PROMISING? Aldar bonds may still offer value after yield plunge

Aldar, which has developed flagship projects for Abu Dhabi such as the Yas Marina Formula 1 circuit and the world's first Ferrari theme park, has been hit hard by the property crash in the United Arab Emirates. The yield on 2014 bond is at record low after fresh government aid with some referring to the company as "Mubadala without a rating"

January 6, 2012 8:43 by



It was an important signal of Abu Dhabi’s stance towards corporate debt problems within the emirate; although it is not making any explicit guarantee, it has apparently decided that during the current turmoil in global markets, it will ultimately do what is necessary to prevent bond defaults.

“For bondholders the level of comfort from government support has gone from good to great, especially when we consider last week’s announcement over and above the various other developments over recent months,” said Chavan Bhogaita, head of the markets strategy unit at National Bank of Abu Dhabi.

“Even if the yield were to drop over the coming months, Aldar bonds are still likely to command the attention of investors as they are an attractive mechanism for those looking to take on ‘Abu Dhabi Inc’ credit risk.”

Nick Stadtmiller, head of fixed-income research at Emirates NBD, agrees.

“Assuming Abu Dhabi maintains its support for Aldar, there is a compelling case for value in Aldar bonds,” he said.

“The government has not made explicit commitments on further support for Aldar, but the history of support — both directly and through Mubadala — has led many to conclude that Abu Dhabi sees Aldar as strategically important. Any change in the market’s assessment of implied government backing for Aldar, in either direction, would likely have a major impact on bond prices.”

RELATIVE VALUE

Other companies which benefit from strategic importance to Abu Dhabi have also issued bonds, but the level of implied external support for them is already better reflected in their credit ratings and yields.



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