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First with Financial Comment from Arabia

Abu Dhabi bails out Aldar Properties with $2.5bn deal

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The balance sheet of Aldar Properties has been transformed by the $2.5 billion sale of most of its Yas Island project, including the Formula One racetrack, to the Abu Dhabi Government.

The cash injection means that Aldar can comfortably settle debts of around $1.2 billion this year and still have enough money to continue with its construction program. Last year Aldar was hit by the real estate crash in the emirates which not only hit Dubai but also brought sales grinding to a halt in the UAE capital city.

2009 very tough

Net profit in 2009 plummeted 71 per cent from $924 million in 2008. Fourth quarter losses came in at $153 million due largely to an absence of land sales and $141 million in project write offs and $46 million in pre-opening costs for Yas Island, chief financial officer Shafqat Malek told Gulf News.

Aldar has developments worth $4.9 billion under construction and net assets at the end of 2009 stood at $4.5 billion. Over 10 years the group is committed to delivering projects in Abu Dhabi worth more than $20 billion.

Abu Dhabi clearly realizes that standing behind its construction industry in the current real estate slump is crucial to meeting its long-term objectives. Survival in a real estate crash is all about cash flow, and moving to guarantee the liquidity of key companies makes sense.

The controversial takeover of contractor Arabtec by a fund owned by Abu Dhabi Government is another example of the state stepping in to secure the future of companies required to build the new Abu Dhabi.

National assets

It makes sense to secure the future of such national champions rather than allow market forces to bankrupt and liquidate companies that have taken years to become established and have a proven track record of delivery on time and to budget.

Market forces do have a habit of shifting from one extreme to the other, and this has certainly been the case in the UAE property sector over the past 18 months. It is to be hoped that similar rescue packages can be engineered in other parts of the UAE where the real estate crash is causing considerable hardship.

And the sooner such clarification and re-capitalization can be achieved the better for all concerned. Abu Dhabi is also making some good long-term investments.

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Written by Peter Cooper

February 17, 2010 at 8:35 am

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