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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 Samuel Potter
The news on Aldar will have a negative initial impact – investors do not want to hear that compatriots have seen their portfolios damaged. But ultimately a clear path forward for Aldar will reassure the local markets and economy, which have been badly shaken by the developer’s problems.
So what of Nakheel? The National reports that the property giant will issue Islamic Bonds to trade creditors in the next three months to the tune of $3.2 billion. That’s assuming it can get 95 percent creditor support, of course, but with 91 percent on board it is getting close.
The bonds will be five year with a 10 percent annual return, and the paper speculates that most contractors are likely to sell them on to get some cash into their businesses. This could mean a long overdue influx of cash to local companies, and an easing of business tensions in the real estate supply chain if nowhere else.
Despite the fact that they are both a result of desperately coping with heavy debt burdens, the Aldar and Nakheel developments remain good news. But there are many more companies out there in the market still grappling with liabilities.
Some are themselves debt free but are owed cash that is not forthcoming, which can be just as serious. The National reports that Al Habtoor Group, one of the largest family businesses in the UAE, is owed more than AED 4 billion by some of the biggest firms in the region. The Group has no debt but the outstanding money is needed, according to Khalaf al Habtoor, the company chairman. “Most of [the clients] have the money. I don’t know why they don’t pay,” he said. “There are only promises and no results on that promise. One day, if they don’t pay we will have no choice but to take it to arbitration. What can we do? We need billions.”
Clearly, we are not out of the woods, but the Aldar and Nakheel news at least shows that we’ve found our way back to the path.
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