Moody's assigns B1 rating to Emaar; negative outlook

B1 issuer rating confirmed, then withdrawn and replaced with B1 corporate family rating

DIFC, April 27, 2010: Moody's Investors Service has today assigned a corporate family rating (CFR) and a probability of default rating (PDR) of B1 to Emaar Properties PJSC ("Emaar"). The outlook is negative. At the same time, Moody's has confirmed and subsequently withdrawn the B1 long-term foreign and local currency issuer ratings. The assignment of the CFR and PDR is in line with Moody's practice for non-investment grade rated issuers.

Today's rating action concludes the review initiated on 8 December 2009, when Moody's downgraded Emaar's ratings to B1 and placed them on review for downgrade in response to reductions in government support that had previously been factored into the ratings of all Dubai government-related issuers (GRIs), as well as concerns surrounding the restructuring of the government-owned conglomerate Dubai World and its potential implications for Emaar.

"The B1 rating reflects execution risks that Moody's has identified and that largely relate to the sale of unsold units in Dubai and in international markets, the cash collection of presold property and refinancing," says Martin Kohlhase, a Dubai-based Moody's Assistant Vice President and lead analyst for Emaar. Emaar's Dubai-related inventories of residential properties amount to more than 1,000 units that are earmarked for sale by 2012. Whilst there have been significantly fewer transactions in 2009 than previously, the Dubai market in 2010 remains subdued and is expected to remain so beyond 2010. In addition, although Emaar has collected more than 79% of cash for 75% of its units in Dubai which are under construction, Moody's expresses concerns about the ability to collect future instalments on units for which collection levels are currently below 50%, although the absolute exposure - below AED500 million - is moderate. However, the rating agency notes that Emaar could potentially re-possess properties (in instances where buyers walk away) whilst retaining the downpayments, which would allow Emaar to resell.

"The confirmation of the B1 issuer rating, which was subsequently withdrawn, also takes into account refinancing risks because, historically, a large portion of Emaar's debt has been short-term debt taken out with and rolled over by relationship banks," adds Mr. Kohlhase. Although Emaar's mall and hospitality divisions generate recurring net cash flows of around AED1.5 billion per annum from 2011 onwards, shortfalls in cash collection and/or delays in sales could increase pressure on the company's liquidity profile. According to Moody's, this could be offset if Emaar continues to successfully monetise some of its assets, such as the contemplated Emaar MGF share listing or the disposal of RSH.

The negative outlook reflects refinancing risks that Emaar is facing over the course of the year. More positively, Moody's notes that the outlook could be stabilised and upgrade pressure on the B1 rating could emerge if Emaar establishes a solid track record in the collection of cash for presold units, and is able to sell property that it holds on its book, whilst at the same time terming-out its short-term debt or repaying it as Emaar continues to deleverage further.

The principal methodology used in rating Emaar was "The Application of Joint Default Analysis to Government Related Issuers", published in April 2005, which determines ratings on the basis of a company's baseline credit assessment, as well as credit enhancement for exceptional government support. Accordingly, ratings were assigned by evaluating factors that Moody's believes are relevant to the baseline credit assessment of the issuers, such as the business risk and competitive position of the companies versus others within its industry; (ii) the capital structure and financial risk of the companies; (iii) the projected performance of the companies over the near to intermediate term; and (iv) management's track record and tolerance for risk. These attributes are compared against other issuers both within and outside of the companies' core industries and ratings are believed to be comparable to those of other issuers of similar credit risk. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

The last rating action on Emaar was implemented on 8th December 2009, when Moody's downgraded the ratings to B1 and placed them on review for downgrade.

Based in Dubai, United Arab Emirates (UAE), Emaar Properties PJSC ranks as one of the largest real estate master developers in the GCC. The company's main shareholder is the government of Dubai, with an approximately 32% stake. In 2009, Emaar generated revenues of AED 8.4 billion (USD 2.3 billion).

-Ends-

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