Moody's assigns A3 rating to Aldar Properties PJSC

The outlook is stable. This is the first time that Moody's has assigned ratings to Aldar.

"Aldar's ratings benefit from its leading market position in Abu Dhabi and from the strategic role Aldar plays and the public policy mandate it has in developing key residential, commercial and leisure projects in this fast growing Emirate", says Martin Kohlhase, Dubai/DIFC based Assistant Vice President and lead analyst for Aldar.

"At the same time, the early-development stage of Aldar and the ambitious investment plan which is going to further increase leverage over time are constraining ratings as does the large degree of geographic and project concentration, albeit partly offset by strong macroeconomic fundamentals", Mr Kohlhase adds.

Aldar's ratings are supported by its leading market position within the Emirate of Abu Dhabi, whose real estate market is bolstered by a combination of strong demographic growth and a growing domestic economy.

Ratings also benefit from the company's intention to build a significant rental property portfolio, which will ultimately support a stable and predictable income stream over the medium to long term.

Finally, ratings benefit from institutional support by the Government of Abu Dhabi, as evidenced in a substantial land bank valued at around $12bn, which has been granted to Aldar by the government, and a sizable government loan with a long maturity. While the government of Abu Dhabi holds an indirect stake in Aldar of 25%, Moody's views Aldar as a government-related issuer as Moody's believes that the company fulfils a highly visible public policy mandate to develop Abu Dhabi's strategic commercial, residential and leisure infrastructure.

Conversely, Aldar's ratings recognise the company's high exposure to a single economy, as well as a handful of large-scale projects. Any delay in these projects, or changes to the demand and supply patterns of Abu Dhabi's real estate sector would thus have an immediate adverse impact on the credit profile.

Aldar's development projects, which are among the most ambitious in the region, carry significant construction and execution risks, although Aldar has been partly mitigating these risks by securing long term building material resources via horizontal integration. Finally, Aldar's ratings are constrained by high leverage, which is likely to increase significantly as the company executes its considerable investment plan.

Moody's believes that Aldar's credit risk profile benefits from significant implicit support from the Government of Abu Dhabi given the highly strategic projects in which the company is involved, which represent around 50% of current planned projects in Abu Dhabi.

Therefore, Moody's assumes and the ratings incorporate that the likelihood of the government providing support to the company in the event of financial distress is high, and as such ratings achieve significant uplift from the company's fundamental creditworthiness as expressed by its baseline credit assessment of 13. We also regard the dependence between Aldar and the government as fairly high, given the significant exposure of the company to the local economy.

Aldar's rating outlook is stable. Moody's believes that as the company successfully delivers its projects, generates more long-term rental revenues and improves geographic diversification, its underlying credit profile may benefit over time. Potential upward pressures could result from a significant improvement of company's current financial profile.

For a potential upgrade we would expect retained cash flow to debt to move close to double-digit levels (%), and funds from operations (FFO) to cover interest in excess of 3 times, whilst maintaining debt to EBITDA close or below to 4 times. Negative rating pressure could emerge in the case that there is a step-change in the government's policy towards Aldar.

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. Aldar owns around 34 million square meters of land, comprising freehold and leasehold land at key strategic locations across Abu Dhabi.