Moody’s downgrades Abu Dhabi Aldar Properties

Moody's Investors Service has downgraded the ratings for Aldar Properties PJSC, the Trust Certificates (sukuk) issued by Sukuk Funding (No. 2) Limited and the guaranteed Notes issued by Atlantic Finance Limited, to Baa2 from A3. Ratings have been kept on review for further possible downgrade as part of the ongoing review of government support for Abu Dhabi and UAE corporates.
Aldar Properties PJSC is the leading property developer in Abu Dhabi in terms of its projects and the size of its land bank. The company is currently developing an area around one-third the size of Abu Dhabi City, which is the capital of the UAE.
The two-notch downgrade is a result solely of the impact that the weaker commercial and residential property market is having on Aldar's stand-alone profile, particularly as it relates to our expectation that unit and land sales volumes will be cumulatively much lower over the next 24-36 months than had originally been anticipated. Whilst ratings factor in that the company remains a recipient of ongoing government recoveries and reimbursements for public infrastructure projects which have become a proportionally more important driver of revenues and cash flow, Moody's believes that any deviations from Aldar's business plan in terms of cash flow receipts for commercial projects could expose the company to possible funding gaps beyond 2010 when loans and capital market debt originally incurred to finance commercial projects and investments mature.
In response to changes in market conditions, Aldar made certain adjustments to its business model in 2009 (including completing and holding residential units for future sale rather than only completing pre-sold units), which in Moody's opinion is weighing on liquidity and exposes the company to a higher degree of market risk.
Aldar therefore remains reliant on the future recovery of the current weak market in order to sell completed units and to ultimately realize its prior period investments. Offsetting this risk is the fact that a structural housing shortfall in the Abu Dhabi market is expected to remain which should support future demand.
The Baa2 ratings also assume that Aldar keeps its close ties to the government of Abu Dhabi, which over the past has transferred land on favourable terms and awarded Aldar with a high number of public infrastructure work, which is largely pre-funded by the government.