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The market’s medicine

The market’s medicine

Abu Dhabi’s investment in Aldar may be a bitter pill for shareholders to swallow, but it’s a darn sight better than the alternative. Meanwhile Nakheel bonds will settle some nerves.

January 16, 2011 3:27 by

We kick off the week with two big bits of news that we hope will steady the markets and the business scene in general. First, as predicted, the Abu Dhabi government has come to the rescue of struggling Aldar, and second, the impending Nakheel bond could raise some much needed capital for the real estate co’s developers, according to local press.

We reported on Aldar, Abu Dhabi’s largest developer, a week or so back. Heavily in debt, it has been the centre of speculation as it makes plans to raise capital. Chief among those plans were a convertible bond issue and asset sales, with the Abu Dhabi government penciled in as a buyer. The result of such a move would be a dilution in share value for shareholders, which isn’t welcome news as far as they’re concerned, obviously.

Well, it’s too bad for them, because it is happening. Reuters reports that Abu Dhabi has stepped in with $5.2 billion, agreeing to buy certain assets and subscribing to a bond sale.

“This shows the effect of the slowdown in the real estate market. Selling to Abu Dhabi was the only alternative for Aldar, as there’s no one else,” Mohammed Yasin, chief investment officer at Abu Dhabi-based CAPM Investments said.

Reports say Aldar will sell $1.49 billion of assets to the government, and will raise a further $2.97 billion through sales and reimbursements. A shareholder meeting is now imminent to seek approval for a $760 million convertible bond issue to Mubadala, the government owned firm.

“Aldar has a buyer in the Abu Dhabi government. At the same time, it will ensure not to increase government stake to levels that will scare away private investors,” Yasin said. Maybe so, but the deals will still leave existing investors worse off. The trouble is, the shareholders really don’t have much of a choice. There is no alternative on the table, and Aldar must raise capital quickly or it will be in mortal trouble. It’ll be a bitter pill, but it’s the only medicine on offer.

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