Moody's downgrades Aldar to Ba3 from Ba1; on review for further downgrade
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 billion.
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
Martin Kohlhase
Asst Vice President - Analyst
Corporate Finance Group
Moody's Middle East Ltd.
Telephone: +971-44-01-9536
London
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
Gate Village 4, Level 3
P.O. Box 113355
DIFC - Dubai
UAE
- - -
© Copyright 2010, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc. (together, "MOODY'S"). All rights reserved.
CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S ("MIS") CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. Under no circumstances shall MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY'S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY'S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.
MIS, a wholly-owned credit rating agency subsidiary of MOODY'S Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at
www.moodys.com under the heading "Shareholder Relations - Corporate Governance - Director and Shareholder Affiliation Policy."
Any publication into Australia of this Document is by MOODY'S affiliate MOODY'S Investors Service Pty Limited ABN 61 003 399 657, which holds Australian Financial Services License no. 336969. This document is intended to be provided only to wholesale clients (within the meaning of section 761G of the Corporations Act 2001). By continuing to access this Document from within Australia, you represent to MOODY'S and its affiliates that you are, or are accessing the Document as a representative of, a wholesale client and that neither you nor the entity you represent will directly or indirectly disseminate this Document or its contents to retail clients (within the meaning of section 761G of the Corporations Act 2001).