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Moody's downgrades DIFCI to B3; outlook negative (UAE)

Approximately USD 1,250 of debt securities affected

London, 08 July 2010 -- Moody's Investors Service has today downgraded to B3 from B2 the senior unsecured issuer and debt ratings of DIFC Investments LLC (" DIFCI " or "the Group") and Dubai Sukuk Centre Ltd. At the same time, Moody's has converted DIFCI 's B3 issuer rating into a B3 corporate family rating (CFR) and assigned a probability of default rating (PDR) of B3, in line with the rating agency's practice for corporate issuers with non-investment-grade ratings. The outlook on all ratings is negative.

Today's rating action concludes the review for possible downgrade, which was initiated on 26 November 2009 in response to Moody's reduction in its government support assumptions for 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 DIFCI .

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 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 write-downs in its broader asset portfolio, contributed to a full-year loss from continuing operations of USD480 million.

Moody's adds that, as a GRI, DIFCI 's B3 CFR is based upon a baseline credit assessment (BCA) in the Caa range, and incorporates ratings uplift for the government support that Moody's assumes would be forthcoming in the event of need. The BCA assessment takes account of DIFCI 's unsustainable capital structure, the challenging operating environment and the execution risk associated with its disposal programme, even though Moody's recognises that DIFCI was created with the aim of developing the core infrastructure of the Dubai International Financial Centre ( DIFC ). Moody's assessment of government support reflects that the development of the DIFC as a financial free zone remains an important element in the government's longer-term economic development strategy, and that, if needed, support should remain on a relatively manageable scale in the event that asset disposals proceed as planned.

The B3 PDR 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 USD3 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. The positioning of the PDR reflects the high execution risk associated with the asset disposal strategy, which is required to generate sufficient cash over the next 24 months to meet debt amortisation and maturities -- however, this execution risk is offset to some extent by Moody's assessment 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 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.

Moody's last rating action on DIFCI was implemented on 8 December 2009, when the rating agency downgraded the group's ratings to B2 from Ba1 and maintained the review for possible downgrade that had previously been initiated on 26 November 2009.

The principal methodology used in rating DIFCI was "The Application of Joint Default Analysis to Government Related Issuers", published in April 2005, which is available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. This methodology 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 which Moody's believes are relevant to the baseline credit assessment of the issuers, such as (i) 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 were compared against those of other issuers both within and outside of the companies' core industries with the aim of ensuring that the resulting ratings are comparable with 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.

Based in Dubai in the United Arab Emirates (UAE), DIFC Investments LLC

( DIFCI ) is a wholly owned subsidiary of Dubai International Financial Authority (DIFCA), and incorporates the commercial activities of Dubai's financial free zone, which is called the Dubai International Financial Centre .

- Ends -

London
David G. Staples
Managing Director
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Niel Bisset
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

© Press Release 2010