• Home
• Financial Services
• News Article

Dubai-Based DIFC Investments 'B+/B' Ratings Affirmed On Disposal Plan; Off CreditWatch; Outlook Negative

Dubai-based real estate and financial investments group DIFC Investments LLC ( DIFCI ) has embarked on a $1 billion plus restructuring plan aimed to divest its noncore investments by the end of 2011.

We are affirming our 'B+/B' long- and short-term corporate credit ratings on DIFCI , removing them from CreditWatch negative, and assigning a negative outlook.

We are lowering our assessment of the company's stand-alone credit profile to 'B-' from 'B+', while raising our government support assumptions to "moderately high" from "low."

The negative outlook reflects our uncertainties about the timing and success of what we see as an ambitious disposal program.

DUBAI (Standard & Poor's) Aug. 9, 2010--Standard & Poor's Ratings Services said today it has affirmed its 'B+/B' long- and short-term corporate credit ratings on DIFC Investments LLC ( DIFCI ), the infrastructure and investment arm of the Dubai-based financial free-zone DIFC. At the same time, we have removed the ratings from CreditWatch, where they had been placed with negative implications on Nov. 25, 2009. The outlook is negative.

The affirmation reflects our view of DIFCI 's $1 billion plus restructuring program to dispose of its noncore assets. Although we view this as a positive step with respect to DIFCI 's creditworthiness, we think it involves execution risk. We also believe that additional asset disposals are necessary in order to put the company on a self-sustainable footing. The ratings are also based on our view of DIFCI 's weak earnings and operating cash flow. The company has high levels of debt--which stood at $3.1 billion on Dec. 31, 2009, when adjusted by our measurements--and noncore investments in companies and private equity funds that generate little or no dividends. The ratings also factor in a revision to our assumptions regarding the likelihood of extraordinary support from the government of the Emirate of Dubai (not rated), which owns 100% of DIFCI .

The 'B+' rating on DIFCI is based on our view of the company's stand-alone credit profile (SACP), which we assess at 'B-'. The 'B+' rating incorporates two notches of uplift to reflect our opinion that there is a "moderately high" likelihood that the Dubai government would provide timely and what we view to be sufficient extraordinary support to DIFCI in the event of financial distress.

Given the Dubai government's full ownership of DIFCI , we consider DIFCI as a government-related entity (GRE). In accordance with our criteria for GREs, our view of a "moderately high" likelihood of extraordinary government support for DIFCI is based on our assessment of its:

• "Important" role given the critical role of the DIFC in providing a platform for financial services firms in the region, and

• "Strong" link with its parent, the Dubai government, which provides ongoing funding for the company.

DIFCI 's credit strengths include, in our opinion, its stable cash flows from its core business of running the infrastructure of the DIFC, which we believe has a strong market position.

We assess DIFCI 's liquidity as "less than adequate." This view is based on the holding company cash and bank balances on Aug. 5, 2010, which stood at $288 million, balanced by the positive steps taken by management to dispose of non-core assets. It also factors in DIFCI 's debt maturities of about $285 million and potentially negative cash flow after investment and financing activities in the next 12 months. Material delays in the disposal program could negatively affect DIFCI 's liquidity position.

The negative outlook reflects our uncertainties over the timing and success of what we see as an ambitions disposal program for DIFIC. Furthermore, we believe additional disposals will have to be made in order to put the company on a self-sustainable footing.

We could consider downgrading the company in particular if it fails to reduce its debt to around $1.3 billion, a level at which we estimate it will achieve a breakeven operating cash flow. We believe that the government will continue to support DIFCI with ongoing funding to enable it to complete the disposal plan.

RELATED CRITERIA AND RESEARCH
Standard & Poor's Standardizes Liquidity Descriptors For Global Corporate Issuers, July 2, 2010 Use Of CreditWatch And Outlooks, Sept. 14, 2009 Enhanced Methodology And Assumptions For Rating Government-Related Entities, June 29, 2009 Business Risk/Financial Risk Matrix Expanded, May 27, 2009
Principles Of Corporate And Government Ratings, June 26, 2007

-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