UAE property: tough times, fewer jobs

Aldar, the Abu Dhabi developer whose $5.2bn bailout became a signal of the outlandish UAE property bubble, has cut jobs again but remained stubbornly silent on how exactly it plans to end its woes.

A “strategic plan” announced by the company on Monday consisted of lay-offs of almost a quarter of its already pared-down 420 staff – but offered few other clues about what it would do to turn itself around.

With a $1.1bn bond repayment due in just ten days time, analysts are still scratching their heads on how exactly one of the UAE’s flagship state-owned companies is going to reinvent itself in tougher times.

The developer of Yas Island, home to the Grand Prix, said it would cut 105 people or 24 per cent of its work force, in a statement to the Abu Dhabi bourse today.

Assuming the job cuts take place before the end of the year the immediate costs may actually rise, considering that severance packages that will need to be paid, according to a note by JPMorgan analysts Muneeza Hasan and Christian Kern. However, for next year it may help to reduce staff costs by 12-15 per cent.

Considering that JPMorgan estimates that staff costs will be around Dh250mn ($68mn) this year, it doesn’t seem that these job cuts will go far to addressing Aldar’s immediate debt repayment.

“It’s more symbolic than it is financial,” says Gus Chehayeb, an analyst at Exotix in Dubai, an investment bank that specialises in illiquid debt. “They’re coming to terms with the economic reality.”

Although the developer is struggling with its debt, it is likely to meet the immediate payment using funds provided to them by the Abu Dhabi government, according to Chehayeb.

Mubadala, a high-profile Abu Dhabi government investment arm, holds a 27.7 per cent stake in Aldar that could increase to as much as 50 per cent if it exercises the Dh2.8bn convertible bond it now owns in the company.

This year Aldar has named two Mubadala executives to help run the company, in the roles of chairman and the chief financial officer.

Another analyst who declined to be named said this is “another signal to show that Mubadala means business.”

The UAE may be cushioned by its massive – and soaring – oil revenues, but the government has been clamping down on what it considers excess spending and wasteful projects over the past few months.

Real estate-related companies in the UAE have had a tough time since the peak of summer 2008. As prices slumped by more than a half, Nakheel a Dubai government-owned developer had to restructure $16bn in debt. Other Abu Dhabi-based companies such as Tabreed, a district cooling company, were also forced to restructure debt as business slowed.

Aldar’s new plan includes taking into account the existing market environment, increasing the value of existing projects, targeting “demonstrable” demand and well as increasing fee-based projects, according to the statement.

JP Morgan maintained a neutral rating on the stock as it still sees potential debt repayment and refinancing risk for maturities beyond 2012 in the absence of any major recovery of demand.

Related reading:
Abu Dhabi shakes up leading company managers, FT
Abu Dhabi: farewell to another property CEO – and another football manager? beyondbrics
Abu Dhabi in $5.2bn Aldar rescue, FT