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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

“For the step-up coupon to fall away, the bond issue would have to be upgraded by multiple notches. As per the Department of Finance statement from January 2011 the government of Abu Dhabi views Aldar as a private enterprise, which makes a reclassification as a government-related issuer less likely for the time being,” said Martin Kohlhase, analyst at Moody’s in Dubai, in an emailed response to Reuters this week.

In a public statement following the latest government action, Moody’s said Aldar’s near-term cash flow concerns were more or less taken care of, and that it was in the process of renewing its financial forecasts. So an upgrade by Moody’s cannot be ruled out.

But a seven-notch upgrade by both Moody’s and S&P would be needed to take Aldar’s rating to its original level at the time of issue (A-/A3) and bring the coupon back down to 8.75 percent. The probability of such an event in the short to medium term seems low to many investors.

Aldar has been left with a very small portfolio of assets and its exposure to its core business is now limited, making its future business strategy uncertain. For equity shareholders, this is a concern. But for bond investors, Aldar may remain an attractive option even if the yield drops further.

By Mala Pancholia
(Editing by Andrew Torchia)

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