Dubai: Aldar Properties will pay 4 per cent interest on Dh2.8 billion of convertible bonds to be sold as part of its package, a much higher rate than analysts had expected.
Abu Dhabi developer Aldar, which is selling the bonds to state-owned fund Mubadala, announced the coupon in a statement to the bourse yesterday.
Analysts said the market was expecting the interest charged by Mubadala to be notional in view of the government's rescue of the property firm.
Shares drop
"Most probably, the market thought it would be an interest-free convertible bond but clearly that's not the case. This may be the reason for the Aldar shares to drop," said Ahmad Badr, Credit Suisse research analyst. Shares of Aldar were down 3.8 per cent at 0850 GMT, underperforming the Abu Dhabi index that was 0.2 per cent lower.
Aldar was given $5.2 billion (Dh19 billion) by Abu Dhabi in January and announced plans to sell properties such as the Ferrari theme park, the world's first park based on the Italian sports car and racing teams.
The convertible bond was approved by shareholders last month.
Taking money out
"Mubadala are diluting the existing [Aldar] shareholders by taking more money out of the company by way of the coupon," said an Abu Dhabi-based banker who did not want to be identified.
The banker added that Mubadala would need a tangible return on its investment in Aldar.
Meanwhile, credit rating agency Moody's said in a statement that state-owned companies in Abu Dhabi are likely to see continued support from the government.
It highlighted the recent bailout of Aldar and district cooling firm Tabreed.