Moody's downgrades Aldar to Baa2, ratings kept on review

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Moody's Investors Service today downgraded the ratings for Aldar Properties PJSC (Aldar), the Trust Certificates (sukuk) issued by Sukuk Funding (No. 2) Limited and the guaranteed Notes issued by Atlantic Finance Limited, to Baa2 from A3. Ratings have been kept on review for further possible downgrade as part of the ongoing review of government support for Abu Dhabi and UAE corporates initiated by Moody's on December 9, 2009.

The two-notch downgrade is a result solely of the impact that the weaker commercial and residential property market is having on Aldar's stand-alone profile (referred to as the Baseline Credit Assessment which has been downgraded to the equivalent of B2 from Ba3), particularly as it relates to our expectation that unit and land sales volumes will be cumulatively much lower over the next 24-36 months than had originally been anticipated. Whilst ratings factor in that the company remains a recipient of ongoing government recoveries and reimbursements for public infrastructure projects which have become a proportionally more important driver of revenues and cash flow, Moody's believes that any deviations from Aldar's business plan in terms of cash flow receipts for commercial projects could expose the company to possible funding gaps beyond 2010 when loans and capital market debt originally incurred to finance commercial projects and investments mature.

In response to changes in market conditions, Aldar has made certain adjustments to its business model over the course of 2009 (including completing and holding residential units for future sale rather than only completing pre-sold units), which in Moody's opinion is weighing on liquidity and exposes the company to a higher degree of market risk.

Aldar therefore remains reliant on the future recovery of the current weak market in order to sell completed units and to ultimately realize its prior period investments. Offsetting this risk is the fact that a structural housing shortfall in the Abu Dhabi market is expected to remain which should support future demand.

Moody's recognizes Aldar's strong liquidity that is expected to cover 2010 cash outflows and is bolstered by cash balances of ca. AED 11 billion (as of September 2009 end), which Moody's does not expect to change materially until year-end 2009. Aldar has already renewed a large portion of its bilateral facilities falling due in 2010. Baa2 ratings also assume that Aldar keeps its close ties to the government of Abu Dhabi, which over the past has transferred land on favourable terms and awarded Aldar with a high number of public infrastructure work, which is largely pre-funded by the government.

Ratings have been kept on review for further possible downgrade. This reflects the ongoing review of all Abu Dhabi and U.A.E. government-related issuers, including Aldar, that Moody's had initiated on December 9, 2009 (the day of Aldar's last rating action), when Moody's placed all ratings under review for possible downgrade announcing that the rating agency would re-validate, and possibly reconsider support assumptions.

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.