ABU DHABI: Investors in Aldar Properties' $1.1 billion sukuk, which is due on November 10, are betting the indebted developer will repay the issue even if it means more aid from Abu Dhabi which bailed the company out this year.
Aldar is limping back to recovery after posting record quarterly losses at the end of 2010, forcing the Abu Dhabi government to step in with a $5.2bn rescue package in January.
The builder of the Yas Marina Formula One circuit in the UAE capital has been forced to cut staff and scale back operations as it grapples with a property collapse in the region.
It has also seen the Abu Dhabi government extend its control over the firm, including replacing its chief financial officer with an executive from state fund Mubadala, which participated in the January bailout.
Despite its troubles, bondholders are betting the developer will pay off the convertible sukuk in full if only because of Abu Dhabi's determination to avoid the embarrassment of a default on its doorstep.
The sukuk was trading just below par on Wednesday, bid at 99.90, one UAE trader said, implying bondholder confidence in the credit.
"There's no doubt about this one. Aldar will pay. If there's a default here, it can trigger others, so they can't afford to miss this one," said CAPM Investment managing director and chief investment officer Mohamed Yasin.
Non-payment of a bond from an Abu Dhabi-linked company would damage the government's reputation, and risk higher borrowing costs for its firms.
The sukuk was arranged as an exchangeable bond by National Bank of Abu Dhabi, Barclays Capital and Credit Suisse, at a conversion price of $1.55 or 5.69 dirhams.
Aldar is due to announce its third-quarter results today, a source said.
"As Aldar has always said, it will meet its obligations," the source familiar with the matter said.