Fitch has also affirmed DHCOG’s short-term IDR at “B” and senior unsecured recovery rating (RR) of “RR4”, which represents Fitch’s RR cap for the UAE.
The rating action also affects Dubai Holding Commercial Operations Group LLC’s medium-term notes’ (MTN) senior unsecured rating, which has been downgraded to “B” from “B+” and “RR4” affirmed.
The rating actions reflect Fitch’s review of DHCOG’s business plan, leverage, operating results, liquidity and financial flexibility.
DHCOG performed within Fitch’s expectations in 2009 and 2010.
Nevertheless, Fitch expects that the market prospects have deteriorated further, especially for Dubai Property Group (DPG) operations.
DHCOG benefits however from contracted rental income from TECOM Investments LLC, and, to a lesser extent, from DPG, in addition to Jumeirah Group hospitality income.
The negative outlook reflects the short-term maturities repayment risks that DHCOG faces over the coming 12 months (namely $40 million) notes due in July 2011 and $500 million notes due in February 2012, as Fitch views DHCOG’s ability to refinance externally as limited.
The outlook also captures the agency’s expectation that all assets will see declining revenues over at least the next three years, with DPG being the most affected and the hospitality being affected to a lesser degree.
Based on Fitch’s rating case, the company’s liquidity profile remains weak, mainly due to the maturing MTNs and the negative free cash flow, which is calculated before the asset disposal.
DHCOG operates with no long-term committed undrawn facilities.
Fitch, however, expects that DHCOG should be able to plug their financing gap from non-core asset disposals (mainly from DPG assets) and disinvest plan in the coming five years, the proceeds of which will be applied to strengthen its financial structure.
While details of the disposals have not been disclosed, DHCOG owns a sufficiently wide array of assets and investments to make the proceeds target achievable.
