Moody’s Investors Service has assigned long-term local and foreign currency issuer ratings of A3 to Abu Dhabi-based Aldar Properties with a stable outlook. This is the first time that Moody’s has rated Aldar.
“Aldar’s ratings benefit from its leading market position in Abu Dhabi, its strategic role and the public policy mandate it has in developing key residential, commercial and leisure projects in this fast growing emirate,” said Martin Kohlhase, Dubai-based assistant vice-president at Moody’s, who is the lead analyst for Aldar.
“At the same time, the early development stage of Aldar and the ambitious investment plan, which is to further increase leverage over time, are constraining ratings as does the large degree of geographic and project concentration, albeit partly offset by strong macroeconomic fundamentals.”
Aldar’s ratings are supported by its leading market position within Abu Dhabi, whose real estate market is bolstered by a combination of strong demographic growth and a growing domestic economy.
Ratings also benefit from the company’s intention to build a significant rental property portfolio, which will ultimately support a stable and predictable income stream over the medium to long term. Finally, ratings benefit from institutional support by the Government of Abu Dhabi, as evidenced in a land bank valued at around $12 billion (Dh44bn), which has been granted to Aldar by the government, and a sizable government loan with a long maturity.
While the Government of Abu Dhabi holds an indirect stake in Aldar of 25 per cent, Moody’s views Aldar as a government-related issuer as the company “fulfils a highly visible public policy mandate to develop Abu Dhabi’s strategic commercial, residential and leisure infrastructure”.
Conversely, Aldar’s ratings recognise the company’s high exposure to a single economy, as well as a handful of large-scale projects. Any delay in these projects, or changes to the demand and supply patterns of Abu Dhabi’s real estate sector would thus have an adverse impact on the credit profile.
Aldar’s development projects, which are among the most ambitious in the region, carry significant construction and execution risks, Moody’s believes, although Aldar has been partly mitigating these risks by securing long-term building material resources via horizontal integration. Finally, Aldar’s ratings are constrained by high leverage, which is likely to increase significantly as the company executes its considerable investment plan.
Moody’s believes Aldar’s credit risk profile benefits from significant implicit support from the Government of Abu Dhabi given the highly strategic projects in which the company is involved, which represent around 50 per cent of current planned projects in Abu Dhabi.
Therefore, Moody’s assumes and the ratings incorporate that the likelihood of the government providing support to the company in the event of financial distress is high, and as such ratings achieve significant uplift from the company’s fundamental creditworthiness as expressed by its baseline credit assessment of 13. “We also regard the dependence between Aldar and the government as fairly high, given the significant exposure of the company to the local economy,” Moody’s said.
Aldar wins Moody’s A3 rating