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Global Credit Research - 09 Aug 2010
Bond/sukuk downgraded to B1 from Ba1; approx. USD 2.27 billion of rated debt affected
DIFC - Dubai, August 09, 2010 -- Moody's Investors Service has today downgraded the issuer rating
for Aldar Properties PJSC ("Aldar") by two notches to Ba3
from Ba1. At the same time, Moody's has converted Aldar's
Ba3 issuer rating into a Ba3 corporate family rating (CFR) and assigned
a probability of default rating (PDR) of Ba3, in line with the rating
agency's practice for corporate issuers with non-investment-grade
ratings. Moody's has also implemented a three-notch
downgrade to B1 from Ba1 of the ratings for Aldar's USD 1.25
billion bond (due 2014 and issued by Atlantic Finance Limited) as well
as for its AED3.75 billion sukuk (due 2013 and issued by Sukuk
Funding (No. 2) Limited). All ratings remain on review for
further possible downgrade. Moody's expects to conclude its
review by mid October 2010.
Today's downgrades are driven by Moody's assessment that Aldar's
H1 results and the weak state of the Abu Dhabi property market have further
weakened the standalone creditworthiness of Aldar, which Moody's
has lowered to 16 from 15 (equivalent to B3 and B2, respectively,
on Moody's global rating scale). Although Aldar has stated
that it expects to achieve significant project completions and increase
opportunities for revenue recognition in H2 2010, Moody's
cautions that the company's cash flow generation remains weak.
Indeed, Aldar's retained cash flow for the past 12 months
ending June 30 reported a loss of AED3.5 billion, whilst
free cash flow also recorded a loss of AED 10.0 billion for the
same period, although it has been improving over recent quarters.
Although Aldar had cash and bank balances of nearly AED7.9 billion
at the end of June 2010, Moody's notes that the company faces
a number of significant debt maturities over the coming 12 months.
These maturities come at a time when Aldar has little amounts available
under undrawn and existing bank facilities and its ability to refinance
is less certain given that free cash flows are expected to remain negative.
In particular, Moody's highlights the July 2011 syndicated
infrastructure loan, of which AED6.38 billion was outstanding
at the end of Q2, as well as the convertible bond of AED4.3
Moody's has also lowered its shareholder support assumptions for
Aldar to moderate from high as actions over recent months have possibly
demonstrated a different stance towards the timeliness of support ,
which Moody's therefore considers to be less certain. Firstly,
the commercial transfer of the Yas Island assets to the government has
created uncertainties regarding the timeliness of government support.
Secondly, the majority of government funding of around AED 2.8
billion has been classified as a non-current receivable (AED 2.435
billion), thereby raising questions over whether the funds will
be provided when Aldar requires them given its potential tight liquidity
situation in the future as debt obligations begin to mature.
Overall, Aldar's ratings continue to reflect the links between
the company and the government, which has not only been providing
Aldar with a significant share of new projects since 2009, but has
also been providing ongoing support via loans and other forms of financing.
As such, Moody's continues to view Aldar as an important agent
of change for the development of the emirate.
Moody's is maintaining the review for possible downgrade of Aldar
in order to assess whether Aldar's main shareholders, which
are linked to the government of Abu Dhabi and hold an aggregate stake
of 37.9% in the company, would still act in concert
and provide exceptional and timely financial support which Moody's
believes will become necessary to bolster Aldar's liquidity profile
over the next 24 months. This could have an impact on all three
factors: Aldar's BCA, support level and CFR.
Aldar's unsecured debt instruments are rated one notch below the
CFR to reflect the lower support assumption where government support might
not be applied equally to secured and unsecured creditors alike as Moody's
had previously assumed when support was higher. The one-notch
differential between the rated debt instruments and the CFR is based on
the significant amount of secured debt that ranks preferentially higher
than the unsecured bonds/sukuks.
The principal methodology used in rating Aldar was "The Application of
Joint Default Analysis to Government Related Issuers -- an Update",
which was published in July 2010 and is available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. This methodology determines ratings on the basis of
a company's baseline credit assessment, as well as credit enhancement
for exceptional government support. Accordingly, ratings
were assigned by evaluating factors that Moody's considers to be
relevant to the baseline credit assessment of the issuers, such
as (i) the business risk and competitive position of the companies versus
others within its industry; (ii) the capital structure and financial
risk of the companies; (iii) the projected performance of the companies
over the near to intermediate term; and (iv) management's track record
and tolerance of risk. These attributes were compared against other
issuers both within and outside of the companies' core industries to ensure
that ratings are comparable with those of other issuers of similar credit
risk. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found in the Rating Methodologies
sub-directory on Moody's website.
Moody's last rating action for Aldar was implemented on 4 March
2010, when the rating agency downgraded the ratings to Ba1 with
a negative outlook from Baa2. At the time, this rating action
concluded the review for downgrade that had previously been initiated
on 9 December 2009.
Aldar Properties PJSC (Aldar) is one of the largest property developers
in the Emirate of Abu Dhabi, the largest of seven emirates that
form the United Arab Emirates (UAE). Aldar reported sales of AED427
million (USD116 million) for the six months ending 30 June 2010 and a
loss of AED789 million.
DIFC - Dubai
Asst Vice President - Analyst
Corporate Finance Group
Moody's Middle East Ltd.
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Middle East Limited
Moody's downgrades Aldar to Ba3 from Ba1; on review for further downgrade
Gate Village 4, Level 3
P.O. Box 113355
DIFC - Dubai
No Related Data.
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