Moody’s upgrades Aldar outlook to positive

Moody's Investors Service has upgraded Abu Dhabi-based Aldar Properties’ outlook to positive from negative.

It upgraded the outlook for the Corporate Family (CFR) and Probability of Default Rating (PDR) of Aldar Properties and affirmed the B2 CFR and PDR as well as B3 ratings for Aldar's $1.25bn bond (due in 2014 and issued by Atlantic Finance Limited) as well as its Dhs3.75bn sukuk (due in 2013 and issued by Sukuk Funding.

"The asset transaction agreements with the government of Abu Dhabi announced in December 2011 eliminate significant market and execution risk and will allow Aldar to reduce its debt load to an estimated Dh4.5bn by 2015. The total consideration under the agreements amounts to Dh16.8bn, including the cancellation of government debt, and is spread over four years," said Martin Kohlhase, Vice President -- Senior Analyst at Moody's and lead analyst for Aldar.

The Abu Dhabi government gave Aldar  the builder of the Yas Marina Formula One circuit nearly $10bn in bailout funds. The property major recorded full-year net profit of $175 million in 2011 and fourth quarter profit of Dh182 million.

Kohlhase further explained that "the positive outlook reflects the upward pressure on the ratings if Aldar continues to build a solid track record on the recurring revenue front while also maintaining the solid liquidity now in place to address medium-term maturities."

Although Aldar's cash inflows over the coming two years will be materially bolstered by funds from the government of Abu Dhabi and are hence considered of high quality, Moody's is also monitoring Aldar's track record in building over the medium term a recurring income stream from its investment properties. Owing to the difficult market environment of the Abu Dhabi real estate market, Moody's has taken a more cautious stance on how quickly recurring net cash flows are likely to develop.

Nevertheless, in light of the high likelihood of reducing its debt load to Dh4.5bn (compared to our June 2011 estimates of Dh9-10bn excluding government loans; management projects net debt of ca. Dh2.3bn by 2015), Moody’s expects that Aldar will over time (i) generate at least a minimum of Dh500m in recurring cash flows p.a.; (ii) sell its property units and land to non-government third parties in 2012 and 2013; (iii) put in place longer-term financing arrangements for its estimated remaining gross debt of Dh4.5bn maturing between 2014 and 2021, which is expected to occur over the course of the coming 18 months. All these measures when executed could result in higher ratings.

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