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28 Jan 2010
Approximately USD 2.3 billion of rated debt instruments affected
DIFC, January 28, 2010 -- Moody's Investors Service today downgraded the ratings for Aldar Properties
PJSC (Aldar), the Trust Certificates (sukuk) issued by Sukuk Funding
(No. 2) Limited and the guaranteed Notes issued by Atlantic Finance
Limited, to Baa2 from A3. Ratings have been kept on review
for further possible downgrade as part of the ongoing review of government
support for Abu Dhabi and UAE corporates initiated by Moody's on
December 9, 2009.
The two-notch downgrade is a result solely of the impact that the
weaker commercial and residential property market is having on Aldar's
stand-alone profile (referred to as the Baseline Credit Assessment
which has been downgraded to the equivalent of B2 from Ba3), particularly
as it relates to our expectation that unit and land sales volumes will
be cumulatively much lower over the next 24-36 months than had
originally been anticipated. Whilst ratings factor in that the
company remains a recipient of ongoing government recoveries and reimbursements
for public infrastructure projects which have become a proportionally
more important driver of revenues and cash flow, Moody's believes
that any deviations from Aldar's business plan in terms of cash
flow receipts for commercial projects could expose the company to possible
funding gaps beyond 2010 when loans and capital market debt originally
incurred to finance commercial projects and investments mature.
In response to changes in market conditions, Aldar has made certain
adjustments to its business model over the course of 2009 (including completing
and holding residential units for future sale rather than only completing
pre-sold units), which in Moody's opinion is weighing
on liquidity and exposes the company to a higher degree of market risk.
Aldar therefore remains reliant on the future recovery of the current
weak market in order to sell completed units and to ultimately realize
its prior period investments. Offsetting this risk is the fact
that a structural housing shortfall in the Abu Dhabi market is expected
to remain which should support future demand.
Moody's recognizes Aldar's strong liquidity that is expected
to cover 2010 cash outflows and is bolstered by cash balances of ca.
AED 11 billion (as of September 2009 end), which Moody's does
not expect to change materially until year-end 2009. Aldar
has already renewed a large portion of its bilateral facilities falling
due in 2010. Baa2 ratings also assume that Aldar keeps its close
ties to the government of Abu Dhabi, which over the past has transferred
land on favourable terms and awarded Aldar with a high number of public
infrastructure work, which is largely pre-funded by the government.
Ratings have been kept on review for further possible downgrade.
This reflects the ongoing review of all Abu Dhabi and U.A.E.
government-related issuers, including Aldar, that Moody's
had initiated on December 9, 2009 (the day of Aldar's last
rating action), when Moody's placed all ratings under review for
possible downgrade announcing that the rating agency would re-validate,
and possibly reconsider support assumptions.
The principal methodology used in rating Aldar was "The Application of
Joint Default Analysis to Government Related Issuers", published
in April 2005, which 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 we believe are 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 for risk. These
attributes were compared against other issuers both within and outside
of the companies' core industries and ratings are believed to be comparable
to 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.
Aldar Properties PJSC is the leading property developer in Abu Dhabi in
terms of its projects and the size of its land bank. The company
is currently developing an area around one-third the size of Abu
Dhabi City, which is the capital of the UAE.
David G. Staples
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Aldar to Baa2, ratings kept on review
Asst Vice President - Analyst
Corporate Finance Group
Moody's Middle East Ltd.
No Related Data.
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