TDIC gets stable outlook from Moody's
Dubai, March 2, 2009
Moody's Investors Service has assigned Aa2 long-term local and foreign currency issuer ratings to the Tourism Development and Investment Company (TDIC).
Abu Dhabi-based TDIC is a 100 [per cent government-owned entity established in 2005. The main area of development is Abu Dhabi City which comprises TDIC's largest project, Saadiyat Island.
The company is currently developing around 60 residential, hospitality and cultural projects with an expected total cost of Dh100 billion ($27 billion).
In fiscal year 2007 TDIC recorded Dh35 million ($10 million) in revenues and reported a profit of Dh65.5 million ($18 million).
In order to carry out its mandate there will be significant funding requirements which are expected to be largely met by third-party debt, land sales and ongoing government subsidies and funding, the ratings agency said in a statement.
Leverage is expected to peak in 2010, but should subside thereafter when developed residential units will be sold.
Given its primary mandate to develop the local tourism industry, the degree of exposure to the real estate market is however relatively limited compared to regional peers, Moodys added.
"The Aa2 rating takes into account the benefits TDIC derives from its very close links to the government of Abu Dhabi, such as 100 per cent government ownership, the public policy mandate and board representation and the government's support as evidenced by land transfers as well as the absence of a profit-maximising motivation for certain projects with a socio-cultural aspect," explained Martin Kohlhase, a Moody's Dubai/DIFC-based assistant vice president and lead analyst for TDIC.
He continued that "the underlying business will rely on ongoing government subsidies and funding as well as third party external debt instruments to meet its funding gap.
The high support firmly expects that the government will meet any exceptional requirements should TDIC not be able to secure funding needs from financial markets."
Moody's assigned a range of 11-13 to the baseline credit assessment (BCA). The BCA takes into account (i) the sizable land bank valued at historic cost (Dh18 billion) and granted by the government, (ii) the ability to monetise the land bank at a significant premium as well as (iii) ongoing support from the government including subsidies, access to funding, day-to-day interaction with relevant government authorities and access to key strategic decision makers in the emirate, it said.
The short track record combined with the evolving nature and shifting capital structure of the company result in an increase of financial leverage on the back of substantial capital expenditure requirements, which weigh on the rating.
The outlook is stable and assumes no changes in ownership structure, public mandate or government support and that the company adheres to its financial target of debt to equity not exceeding 100 per cent.
The Aa2 ratings are in line with the sovereign rating of the Emirate of Abu Dhabi. Consequently any change of the rating of the Government of Abu Dhabi would result in a change of the ratings of TDIC given support and dependence factors of 100 per cent.
A change in the BCA would not have an impact on the Aa2 ratings if support and dependence factors remain at these levels.-TradeArabia News Service