Tuesday, Apr 03, 2012

--Mubadala transfer of Aldar shares to ADCB partly to avoid owning controlling stake, source says.

--Company says move allows it to optimize its balance sheet, part of treasury management program.

--Mubadala owned 49% of Aldar prior to financing deal

By Asa Fitch

Of ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--Abu Dhabi strategic investment vehicle Mubadala Development Co. transferred shares in Aldar Properties (ALDAR.AD) to Abu Dhabi Commercial Bank (ADCB.AD) in a loan-and-repurchase deal partly to avoid owning a controlling stake in the developer and the impact that could have on its financial statements, a person familiar with the matter said.

Another objective for Mubadala wanting to shift some of its stake in the developer off its books was simply to secure cheap financing, the person added.

Mubadala, a central cog in Abu Dhabi's drive to diversify its economy away from oil, said in an emailed statement that the transaction was a normal financial management tool and that it remained a "long-term, supportive" shareholder in Aldar.

"This agreement allows Mubadala to optimize its balance sheet and is part of our treasury management program," a Mubadala spokesman said. "It is something the company has done with other equities before."

Mubadala's stake in Aldar rose to nearly half as the result of a capital injection last March. Aldar sold 2.8 billion U.A.E. dirhams ($762 million) of convertible bonds to Mubadala, and Mubadala converted AED2.1 billion of them into Aldar shares in December. That move raised its ownership to 49%. Converting the rest of the bonds, which Mubadala must do by the end of next year, would have raised its stake to nearly 60%.

ADCB and Mubadala announced the loan transaction Thursday, saying in a joint statement that Mubadala would transfer 571.9 million Aldar shares, or about 14% of the developer's share capital, to ADCB in exchange for a secured loan. Under the terms of the agreement, the shares are to be transferred back to Mubadala when the facility matures in April of next year--or earlier if it is terminated before that time, the statement said.

Aldar, which is behind some of Abu Dhabi's biggest real estate developments including the Yas Island project, has suffered in recent years as it sold down assets and received financial support from its shareholders. The Abu Dhabi-listed company reported a AED12.66 billion loss in 2010, followed by a net profit of AED642.5 million last year.

INCORPORATED ACCOUNTS

Accounting standards require that companies incorporate subsidiaries' financial results fully into their own if the parent is determined to have a controlling interest. Control does not necessarily equate to owning 50% or more of a company, accountants say, but passing that threshold is a strong indicator of control.

Widely-adhered-to international and U.S. accounting rules "both require companies that have control over others to consolidate them into the group financial statements," said Binod Shankar, the managing director of the Genesis Institute, a finance and investment education company in Dubai.

Though Mubadala's Aldar shares are scheduled to be returned in a year's time, the person familiar with the deal said the financing package was structured so that it could be sold or transferred to another entity, potentially allowing Mubadala to exit part of its holding in the developer.

But Chavan Bhogaita, the head of markets strategy at the National Bank of Abu Dhabi, said investors in Mubadala debt--the company has sold a number of bonds over the years--were already well-acquainted with the Aldar situation. Any decision to move the holding would likely be made in the context of the Abu Dhabi government's overarching strategy, he said.

"Given the strategic importance of Mubadala and the ownership structure of the entity, investors remain very comfortable with the fact that even with the stake in Aldar, Mubadala's creditworthiness is very solid indeed," he said. "That's not to say that people are not cognizant of the Aldar situation or watching it closely, but frankly at this stage Mubadala remains one of the top tier Abu Dhabi [government-related entities] and -- more importantly -- is seen as such by institutional investors."

Mubadala, ADCB and Aldar are all majority-owned by the Abu Dhabi government, according to Zawya.com data, although each has different shareholders.

Mubadala is directly owned by the government. ADCB is majority-owned by the government through the Abu Dhabi Investment Council. Prior to the financing deal, Aldar was 49% owned by Mubadala and 5.6% owned by Invest AD, which in turn is owned by the Abu Dhabi Investment Council.

It is unclear how Mubadala's financing deal with ADCB might affect Aldar's shareholder structure after its proposed merger. Aldar is currently in government-led talks over a tie-up with Sorouh, another large property developer in Abu Dhabi.

-By Asa Fitch, Dow Jones Newswires, +971 4 446-1685, asa.fitch@dowjones.com

Copyright (c) 2012 Dow Jones & Co.

(END) Dow Jones Newswires

03-04-12 0602GMT