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DHCOG to repay $500m bond as Fitch ups outlook

By Issac John DUBAI - Dubai Holding Commercial Operations Group , or DHCOG , a real estate and hospitality unit of Dubai Holding, confirmed on Wednesday that it would repay a $500 million bond maturing on February 1.

DHCOG said the repayment would be made using funds from its internal cash flow. The company "continues to meet its financial obligations as and when they fall due," it said in a statement to Nasdaq Dubai.

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

The bond repayment announcement came amid news that Fitch Ratings has revised the company's outlook to stable from negative and affirmed its long-term Issuer Default Rating, or IDR, and senior unsecured rating at 'B'.

Fitch has also affirmed DHCOG 's Short-term IDR at 'B' and Recovery Rating (RR) of 'RR4', which represents Fitch's RR cap for the UAE.

The rating action also affects DHCOG 's medium-term notes senior unsecured rating, said a company statement.

"The outlook 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," the company said.

With the repayment of $240 million in last July and $500 million in the upcoming month, DHCOG has no significant maturities before 2014 as the Dubai group'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," said Bashar Al Natoor, director in Fitch's Emea corporates team in Dubai.

"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," he added.

"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 said.

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 DHCOG is progressing well in the first quarter for its 2012 target. According to Fitch, 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," the ratings agency said.

© Khaleej Times 2012