We have finalized our review of Jebel Ali Free Zone FZE (JAFZ) following the conclusion of a significant milestone in the Dubai World Corp. (DWC) debt restructuring process.
We are lowering our long-term rating on JAFZ to 'B' from 'B+' and removing it from CreditWatch negative.
The downgrade reflects our view of: what we see as DWC's lack of transparency and uncertain credit profile; DWC's intentions toward JAFZ; and JAFZ's uncertain stand-alone financial profile after the refinancing of its sukuk in November 2012.
The negative outlook reflects uncertainty over the role that JAFZ will play in the servicing and repayment of DWC debt and the challenge of the AED7.5 billion sukuk refinancing in November 2012.
DUBAI (Standard & Poor's): Standard & Poor's Ratings Services said today that it has lowered its long-term issuer credit rating on Dubai-based free zone company Jebel Ali Free Zone FZE (JAFZ) to 'B' from 'B+' and removed it from CreditWatch, where it was placed with negative implications on Nov. 25, 2009. The outlook is negative.
The downgrade of JAFZ follows the announcement that an agreement has been reached for the restructuring of a significant share of the debt of Dubai World Corp. (DWC), JAFZ's ultimate parent. "The downgrade reflects what we see as DWC's lack of transparency and uncertain credit profile, its intentions toward JAFZ, and JAFZ's uncertain stand-alone financial profile after the refinancing of its AED7.5 billion sukuk in November 2012," said Standard & Poor's credit analyst Tommy Trask.
JAFZ's profitability currently appears satisfactory, benefiting from an effective profit rate of about 5% on its AED7.5 billion sukuk. The sukuk trades at a yield-to-maturity of over 10% in the secondary market, however, a rate at which JAFZ would likely approximately break even at the net profit level based on current earnings.
On June 30, 2010, JAFZ's total debt adjusted by Standard & Poor's was United Arab Emirates dirham (AED) 7.9 billion.
Our assessment of JAFZ's stand-alone credit profile reflects our view of JAFZ's exposure to the tough economic and real estate fundamentals in Dubai, high current capital expenditure levels, and lack of geographic diversity. Mitigating these weaknesses are relatively stable licensing and registration fees as well as lease income generated by land and facilities. We understand JAFZ continues to enjoy a relatively high occupancy level across the free zone.
JAFZ's debt is not guaranteed by the Dubai government. That said, JAFZ, together with Jebel Ali Port and Al Maktoum International Airport, form an integrated trade hub of critical importance to the Dubai economy.
The negative outlook reflects our view of the uncertainty over the role that JAFZ will play in the servicing and repayment of DWC debt and the consequent challenge JAFZ faces in refinancing the AED7.5 billion sukuk in November 2012.
"A further downgrade would likely result from an increase in debt or asset sales at JAFZ and up-streaming of cash to DWC," said Mr. Trask.
We could suspend or withdraw the rating if we consider that we don't have sufficient information about JAFZ's current and prospective obligations.
RELATED CRITERIA AND RESEARCH
- Principles Of Corporate And Government Ratings, June 26, 2007
- Use Of CreditWatch And Outlooks, Sept. 14, 2009
- Enhanced Methodology And Assumptions For Rating Government-Related Entities, June 29, 2009
- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009
- Methodology And Assumptions: Standard & Poor's Standardizes Liquidity Descriptors For Global Corporate Issuers, July 2, 2010
-Ends-
About Standard & Poor's in the GCC
Standard & Poor's is the leading provider of financial market intelligence to customers in the Gulf's credit risk management, wealth management, and data and information markets. Since entering the region in the late 1980's, Standard & Poor's currently has public ratings on more than 100 issuers. In equity markets, Shariah-compliant versions of Standard & Poor's global and regional equity market indices - S&P 500, S&P Europe 350, S&P Japan 500 and S&P/IFCI GCC - have created new opportunities for Islamic investors to benchmark their international investments and for asset managers to create new investment products serving the Islamic community. Standard & Poor's Fund Services launched a qualitative fund management rating service for regional asset managers in 2007 assigning 17 Fund Management Ratings. For further details on Standard & Poor's regional capabilities please visit www.gcc.standardandpoors.com
Press Office Contacts:
London: +44 20 7176 3605
Dubai: +971 4 372 7171
Paris: +33 1 44 20 6740
Frankfurt: +49 69 33999 225
Milan: +39 02 72 111 245
Madrid: +34 91 389 6944
Moscow: +7 495 783 4011
Stockholm: +46 8 440 5914
© Press Release 2010
