Arabtec and Aldar Properties raise capital through convertible bonds

Need for liquidity made two of the United Arab Emirates' largest property companies, Aldar Properties and Arabtec, sell assets through convertible bonds

Two of the United Arab Emirates' largest property companies are seeking to raise cash from shareholders as they struggle to recover from a sharp slump in property prices that has made banks reluctant to lend.
Indebted Abu Dhabi developer Aldar Properties said on Tuesday it planned to sell assets and issue a convertible bond, while Arabtec, the UAE's largest builder by market value, plans a $108.5 million rights issue and $150 million convertible bond.
"These are signals that both companies have a need for cash and a rights issue or convertible bond will both be dilutive to minority shareholders," said Mohammed Yasin, CAPM Investment chief investment officer in Abu Dhabi.
Aldar shares dropped 5.8 per cent on the Abu Dhabi bourse, while Dubai's Arabtec fell 3.5 per cent at 0846 GMT.
"The UAE property market is still going through a correction and companies cannot find any other source of funding. They cannot sell new projects or borrow more money from banks," said Yasin. "So the only option is to go to shareholders, either old shareholders through a rights issue or new shareholders through a convertible bond."
Real estate companies across the Gulf Arab region have been hit hard by the global financial crisis and the pain is set to continue for Dubai and Abu Dhabi developers, as oversupply and a slump in demand further weigh on prices.
Dubai house prices are about 60 per cent below 2008 peaks, according to a Reuters poll in October.
ALDAR IN THE SPOTLIGHT
Aldar, Abu Dhabi's largest developer by market value, said in a bourse statement that it will also consider converting debt it issued to government investment fund Mubadala in 2008 into Aldar shares. A board meeting is planned on Jan. 13.
"It is too early to come out with a definitive view. Will the government put in new money? What assets will be sold and at what price?" said Majed Azzam, AlembicHC real estate analyst.
"For the convertible to not be dilutive for minority shareholders, it will have to be priced at a premium because Aldar is currently trading at distressed levels."
The Abu Dhabi developer has made a loss for four straight quarters and has $3.8 billion of debt maturing in 2011, according to investment bank EFG-Hermes.
In November, Aldar said it was in the final stages of talks with the government over its cash needs and its chief financial officer told Reuters the framework for a cash deal was expected to be completed by the end of the 2010.
Its shares have fallen more than 50 per cent since it sold assets last March, reflecting shareholders' concerns about the company's financial health.
ARABTEC SEEKS FUNDS TO EXPAND
Dubai builder Arabtec said it will call an extraordinary shareholders meeting to consider an issue of 398.7 million shares at 1 dirhams per share to existing shareholders and the sale of five-year convertible debt.
Arabtec said it will use the proceeds for its expansion plans and increase its working capital.
"Arabtec's move is a sign it is facing cash flow issues - you do not do this is in a depressed market that has low valuations and low volumes unless you are pressed for cash," said CAPM's Yasin.
The company, which is bidding for $ 8.17 billion of work outside its local markets, may look at new funding sources for its expansion plans, its chief financial officer told the Reuters Middle East Investment Summit in Dubai in October.