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Dubai Holding to repay $500m debt

Firm will repay from internal cash flow; Fitch upgrades outlook
A Dubai Holding unit said it would repay $500 million in bonds next week.

Dubai Holding Commercial Operations Group ( DHCOG ) confirmed Wednesday it will repay the bonds on Feb. 1, using funds from its internal cash flow.

DHCOG owns the Jumeirah hotel chain and other investments, including a division that runs many of Dubai's free-trade zone business parks.

Fitch Ratings on Wednesday revised ( DHCOG ) outlook to stable from negative and affirmed its long-term Issuer Default Rating (IDR) and senior unsecured rating at 'B'.

The revision reflects the company's good progress with its non-core asset disposal programme and better than expected operating performance in the hospitality and rentals divisions and reduced leverage. Additionally, with the repayment of $240m in July 2011 and $500m in February 2012 as announced today, DHCOG has no significant maturities before 2014 as DHCOG 's debt maturity profile leave some breathing space.

" DHCOG 's current ratings are dependent on execution of targeted non-core asset disposals rather than FCF generation. The disposal of non-core assets, mainly for Dubai Property Group, and the unwinding of its investments will give DHCOG the necessary financial flexibility to cope with the difficult real estate market in Dubai," said Bashar Al Natoor, Director in Fitch's EMEA Corporates team in Dubai.

"Fitch also notes that disposals have been combined with a rebalancing of the portfolio towards build to rent vs. build to sell, which will create sustainable value by generating stable cash flows from its divisions, by increasing the rental income capacity at the level of the group in addition to the existing hospitality cash generative division," Al Natoor added.

The affirmation also reflects DHCOGs' ability to manage its net debt position and Fitch's expectation that it should continue to reduce leverage over coming months. In 2011, disposals have already made a positive contribution to its cash flow and DHOCG is progressing well in Q1 for its 2012 target.

Fitch noted that rentals and hospitality revenues are holding up relatively well and performing better than expected to-date compared with Fitch's base case assumptions. This is partly due to the regional turmoil affecting some of the main regional destinations, which had a positive impact on Dubai's hotel, retail and residential sectors, resulting in better credit metrics and liquidity position albeit still considered weak. This is coupled with the generally healthier economic sentiment towards Dubai.

The rating also continues to reflect Fitch's expectation that market prospects will remain under pressure. Fitch recognises that there is divergence between the performances of the three divisions, as DHCOG continue to benefits from Jumeirah Group hospitality income and contracted rental income from Tecom Investments and to a lesser extent Dubai Property Group (DPG). Nevertheless market prospects for the Dubai property market continue to be challenging especially for DPG property sales.

Jumeirah Revpar has proved resilient, increasing by almost 3.8 per cent in 2011. This was coupled with improved occupancy rates, which had increased by 2.8 per cent in 2011.

Nevertheless, Fitch considered that the main challenge to this sector remains the large supply in the project pipeline and the revival of other tourist markets in the region once political stability returns. Thus Fitch's base case assumptions continue to be conservative. On the rental side, although occupancy and price were under pressure in 2010 and 2011, DHCOG 's gross rental was Dh1.7bn and the same level is expected for 2011 including additional units added during the year.

© Emirates 24|7 2012