Moody's revises Jafz sukuk ratings

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Moody's Investors Service yesterday revised the foreign and local currency issuer ratings of Jebel Ali Free ZoneJebel Ali Free Zone (JafzJafz) and the rating for JafzJafz sukuk's Dh7.5 billion trust certificates due in 2012 to A2 from A1 and placed the ratings under review for further possible change.

"The revision was prompted by the close commercial relationship between JafzJafz and Dubai WorldDubai World, its parent company, which has impacted JafzJafz's baseline credit assessment given the growing financial challenges at Dubai WorldDubai World," Moody's said in a statement.

JafzJafz holds its surplus funds at Dubai WorldDubai World level under shared treasury services and can call these funds on demand. The total inter-company receivables per 2008 year-end amounted to Dh2.1bn, of which about Dh1.7bn relate to Dubai WorldDubai World, the agency said.

"Contrary to assumptions made at the time of the rating assignment and given the interdependency of both entities", Moody's concluded that JafzJafz is "not sufficiently ring-fenced and thus is more aligned to Dubai WorldDubai World, which plays an important role in managing JafzJafz's own funds", it said.

Dubai WorldDubai World's credit profile "is likely to have weakened" given its "significant" property exposure to the Dubai market through its subsidiary NakheelNakheel as well as upcoming refinancing of NakheelNakheel's $3.5bn (Dh12.8bn) sukuk, which matures in December 2009 and which is guaranteed by Dubai WorldDubai World.

"Consequently, Moody's has revised the Baseline Credit Assessment (BCA) of JafzJafz by one notch to reflect the interdependency of both entities in view of the weakened parent firm," it said.

Ratings have been placed under review for possible further downgrade as Moody's seeks to assess the underlying operating performance in the first half of 2009, future prospects and expectations in light of weak global macroeconomic conditions impacting Dubai.

The review will also focus on the relationship with Dubai WorldDubai World and is expected to be concluded by the end of July. The BCA of 11 is underpinned by recurring rental income, a solid track record of consistently high Ebitda margins and low customer concentration, said Moody's. Ratings also take into account the flexibility management has to scale down non-discretionary capital expenditures. Accordingly, Moody's expects the company to be around free cash flow break-even levels in 2009 and 2010 as a reflection of its downscaled expansionary path.

"However, the BCA also reflects the high exposure to a single economy, high financial leverage and weak back-stop liquidity," it said. The last rating action on JafzJafz and JafzJafz sukuk was on April 1, when Moody's changed the outlook to negative.

By Staff Writer

© Emirates Business 24/7 2009