Flagship Abu Dhabi developer Aldar is understood to be seeking a 25-year loan from the Abu Dhabi government worth tens of billions of dirhams, to be transferred to Aldar over three or four years. Aldar, partly owned by the government, has a total outstanding debt of 30.4 billion dirhams (US $8.3 billion), including 10.6 billion dirhams due in the next 12 months.
The news followed the resignation of the developer’s CEO, John Bullough. Bullough's resignation on November 1 had sent the developer's shares tumbling to a seven-week low the next day, weighing on Abu Dhabi's index.
Meanwhile, government statistics released indicated that Abu Dhabi has over 40,000 vacant housing units. Aldar's shares closed down further on the news.
Analysis and Forecast: Increasing Risk
The news surrounding the difficulties facing Aldar are not totally unexpected. Abu Dhabi has been emulating the Dubai model of massive construction, resulting in tens of thousands of residential units being added to the market. With lending from banks all but stalled, the Abu Dhabi real-estate market has suffered substantial losses, on the back of the losses suffered by Dubai. However, the losses suffered by Abu Dhabi’s real-estate sector were in the region of a drop of about a third of prices from peak value, compared to drops of over 60 percent in Dubai.
Aldar is one of the main developers behind the construction boom in Abu Dhabi, and is partially owned by the government. In fact, it is probably the developer most closely associated with the recent construction boom in Abu Dhabi. With many projects in Abu Dhabi coming to completion, massive amounts remain unsold. Aldar has already been helped by the Abu Dhabi government but the combination of recent news demonstrate the seriousness of the situation.
Whilst there is no doubt that Abu Dhabi government can bail out Aldar, the news raises question marks about the ability of Abu Dhabi to sustain growth without significant government support and hence the effectiveness of diversification efforts at least in the short to medium terms.
The figure below shows the share price of Aldar during the past month.