Abu Dhabi’s Aldar Seeks $1.5bn Finance Before Bond Maturity

Abu Dhabi’s Aldar Properties is talking to banks about raising a bridge loan of up to $1.5 billion with an option to convert it later into a bond, banking and industry sources aware of the matter said on Wednesday.

The proposed financing comes ahead of a $1.25 billion bond maturity in May 2014; Aldar would probably use funds raised through the loan to meet that obligation, said the sources, declining to be named as the matter is not public.

It would be one of the first financings undertaken by the firm since its Abu Dhabi government-backed merger with Sorouh Real Estate was completed in June, creating the second-largest listed property firm in the United Arab Emirates and one of the biggest in the Middle East, with assets of $13 billion.

A spokesman for Aldar, 30.5 per cent owned by Abu Dhabi sovereign fund Mubadala, declined to comment.

Banks have been invited to pitch for the bridge-to-bond financing, the sources said, with two of them stating the loan component would have a one-year lifespan.

Under a bridge-to-bond deal, a firm can often secure cheaper loan funding as banks can earn income from fees paid for arranging the bond.

Should unfavourable market conditions make completing a bond deal uneconomic, the loan would likely be refinanced at maturity, said one of the sources, an Abu Dhabi-based banker.

OPTIONS

When it was struggling during Abu Dhabi’s property market crash, Aldar received government support worth around $10 billion, to be paid in instalments over time, in exchange for assets including Abu Dhabi’s Formula One track, a Ferrari-themed amusement park and residential property developments.

Real estate prices in Abu Dhabi dropped 50 per cent from their 2008 peak after a property bubble burst, causing many proposed developments to be stalled or scrapped.

However, while there are still fears of oversupply in the market, prices have begun to recover in recent months, aided by a directive from the Abu Dhabi government for all state employees who wish to continuing receiving housing allowances to live in the emirate by the end of last month.

Three sources with knowledge of the matter said Aldar had previously been considering a liability management exercise to swap the May 2014 bond for new paper.

Such a move is rare in the Gulf Arab region, with Abu Dhabi National Energy Company and the emirate of Ras Al Khaimah among the few entities to have refinanced bond and sukuk obligations through swaps.

The rationale for such an exercise would have been to allow Aldar to mitigate some of the costs of refinancing and also some of the risk, as existing bondholders would have exchanged their current bonds for new paper, without the need for a sale process which could be hijacked by global economic events.

“If you have got a maturity coming up and it coincides with other expenditures, or if you have a capital structure which you think you can improve, you can look to undertake such an exercise,” said Abdulkadir Hussain, chief executive of Mashreq Capital, adding that the main considerations would be how best to optimise cost of funding and a borrower’s maturity profile.

Aldar’s bond, sold through its Atlantic Finance special purpose vehicle, was trading at 104.9976 on the bid side at 0700 GMT, according to Thomson Reuters data.