Mubadala has converted AED2.106 billion ($573 million) of bonds into shares at a price of AED1.75, Aldar said in a statement to the bourse.

The conversion was at the bottom of the AED1.75 to AED2.30 price range. 

In March, Aldar issued a $2.8 billion convertible bond to Mubadala, which carried a coupon of 4 percent, after securing shareholder approval. 

The move was part of a $5.2 billion rescue plan for the struggling developer finalized in January, which also included the sale of its flagship developments as well as a direct cash injection from the government. 

As per the terms of the convertible bond, Mubadala has until December 2013 to convert the outstanding amount into shares. 

"Mubadala's decision to only convert the minimum amount required at this stage seems a strategic one to keep Mubadala's ownership below the 50 percent level for now and avoid having to fully consolidate Aldar into Mubadala," said Chavan Bhogaita, head of markets strategy unit at National Bank of Abu Dhabi. 

"Within two years, Mubadala's holding will likely go up to nearly 60 percent, effectively making the firm its subsidiary. When this happens, questions may be raised about the future strategy vis-a-vis Aldar's minority shareholders." 

Aldar shares fell over 5 percent to hit a yearly low of 0.91 percent on Thursday, under-performing the broader index which slipped 0.99 percent after index compiler MSCI stopped short of upgrading the UAE to emerging market status. 

Abu Dhabi had fared better during the downturn but is now facing challenges as a huge supply of high-end homes are expected to enter the market.   

As many as 11,000 units will flood the Abu Dhabi market in the next quarter, a report by property consultants Jones Lang laSalle said in October. Prices in Abu Dhabi are expected to fall another 14 percent from here, or 60 percent from their peak, a Reuters poll showed.

But Aldar's bonds have held up well on growing prospects of government support. 

Aldar's 10.75 percent $1.25 billion bond maturing 2014 was trading at nearly 109 on Thursday, and yielding about 6.7 percent, according to Thomson Reuters data. 

"For Aldar bondholders, the increased Mubadala shareholding in the company — and the likelihood of this stake growing further within the next two years — is positive. Mubadala is a much higher-rated credit and very strongly supported by the Abu Dhabi government," Bhogaita added.