Aldar Properties - S&P Lowers Rating to "Junk"

S&P has lowered Aldar's ratings to BB- from A-.   That's a more than one step change! Outlook is negative.  So S&P's message is a significant negative.

"We understand that despite relatively sound overall supply demand fundamentals in the Abu Dhabi property  market," added Mr. Trask, "Aldar has been significantly affected by spill-over effects from the heavily oversupplied Dubai real estate market, characterized by significant declines in rental and market values."

This is having a negative effect on both the demand for, and the price achieved by, Aldar for the sale of real estate in Abu Dhabi.  Based on the pipeline of new supply both in Abu Dhabi and Dubai, we do not anticipate a reversal of this situation anytime soon. 

Two items worthy of comment:

1. The last sentence "We do not anticipate a reversal of this situation anytime soon."   S&P's ratings action also reflected a revision of their assumption re likely government support.
2. Ascription of Aldar's problems to the "spillover" from Dubai.

 On the negative outlook.

We are also assigning a negative outlook, which reflects our view regarding Aldar's future  profitability and cash flow generation in light of the challenging market conditions.

Aldar AED 9.1 Billion Sale of Yas Island Assets = Bailout

In its press release on 2009 performance, Aldar noted it had sold some infrastructure and land assets on Yas Island.  Apparently, as the sale was for only a small amount no further details were felt  necessary.  

A week later when it released its 2009 financial report, Aldar noted the sale had been to the Government of Abu Dhabi for AED9.138 billion (US$2.49 billion).  At that point Aldar did not provide any discussion of the profit on the transaction.  Either they spell الشفافية with a capital ش   in Abu Dhabi.   Or the company and the Government were still figuring how to structure the sale.

Today Aldar responded to a letter from the Abu Dhabi Stock Exchange to advise that the sale had been at cost.

Clearly, the Government of Abu Dhabi is bailing out Aldar - either with some additional cash or loan forgiveness.  It appears we'll have to wait for the release of Aldar's 1Q10 financials or the ADX to send another letter to the company to learn how the bailout was structured.

Yas Island website here.