DIFC unit's debt rating downgraded
Dubai, July 9, 2010
Dubai International Financial Centre's (DIFC) wholly owned subsidiary DIFC Investors Service ((DIFCI) has had its debt rating reduced to B3 from B2 with a negative outlook.
Moody's says that DIFCI's downgrade to B3 reflects the group's highly leveraged financial profile, its expected heavy reliance on asset disposals in the coming 12-24 months in order to build sufficient liquidity to meet maturing debt obligations, and its continued negative free cash flow generation.
While recognising the management's intention to refocus the business, reduce costs and dispose of non-core assets, Moody's points out the risk that these measures may be insufficient to ensure that the group has available funds to meet its maturing financial obligations as they become due over the next two to three years.
The downgrade to B3 also factors in the negative impact that challenging conditions in the Dubai real estate market continue to have on DIFCI's financial profile.
In 2009, the company recorded significant impairments in its real estate portfolio, which, combined with writedowns in its broader asset portfolio, contributed to a full-year loss from continuing operations of $480 million.
The B3 that Moody's has assigned to DIFCI reflects the group's current weak liquidity profile and the three-year exposure to refinancing risk that is associated with its approximately $3 billion debt burden.
Moody's notes that the company is in the process of reviewing its non-property assets with a view to realising funds in order to meet its forthcoming debt obligations.
However, Moody's believes that government support would be available to meet near-term maturities, given the importance of the DIFC to the government's strategic objectives in the region.
Moody's says that conclusion of the review process reflects its view that the rating is better positioned at B3.
The negative outlook nevertheless reflects the rating agency's ongoing concerns about DIFCI's debt burden and liquidity profile, as well as the challenges the group faces in meeting the maturing debt obligations as they become due and in placing its capital structure on a sustainable basis for the longer term.-TradeArabia News Service
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