$300 mln of rated debt instruments affected
DUBAI - Moody's Investors Service today downgraded the ratings for Qatar Real Estate Investment Company Q.S.C. (QREIC or Alaqaria) and the $300 million Trust Certificates due 2012 (sukuk), issued by Qatar Alaqaria Sukuk Company, to Baa1 from A2. Ratings have been kept on review for further possible downgrade following the company's announcement that it would become a fully-owned subsidiary of Barwa Real Estate Company Q.S.C. (Barwa, not rated) once the transaction closes.
The proposed change in ownership, by which Barwa would become the new direct majority shareholder of QREIC, impacts the high support levels that Moody's has so far incorporated into the ratings as QREIC becomes further removed from government levels. Although the government will retain a minimum direct 45 percent stake in Barwa, in Moody's opinion support mechanisms to Barwa and ultimately QREIC as a subsidiary of Barwa might not be extended in the same way. Accordingly, support assumptions have been lowered resulting in the two-notch downgrade to Baa1.
During the ongoing review of ratings Moody's will assess the status of QREIC as a government-related issuer (GRI) in addition to its baseline credit assessment (BCA). Baa1 ratings continue to take into account the integral part QREIC plays in the economy of Qatar and its strategic importance as a service provider to the national hydrocarbon industry, which warrants uplift from its BCA.
The review will also focus on the BCA, or standalone credit profile including the operating performance, expansion plans, future funding requirements and the funding mix as well as how recurring cash flows match the debt maturities.
On Jan 10, 2010 QREIC and Barwa both announced the agreement of initial terms of their proposed merger under which QREIC will become a subsidiary of Barwa, subject to the acceptance of the tender offer for QREIC shares. Under the proposal, Qatari Diar, which currently directly holds 27 percent of QREIC and 45 percent of Barwa respectively, would retain a minimum 45 percent stake in Barwa and could - depending on the outcome of the tender offer - own indirectly 45 percent of QREIC. It is Moody's understanding that the proposed structure does not trigger a change of control clause of the sukuk as minimum ownership levels and board composition would be maintained.
The principal methodology used in rating QREIC 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 we believe 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, the capital structure and financial risk of the companies, 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 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 QREIC was on Jan 21, 2009 when Moody's placed all ratings under review for possible downgrade.
Also:
DUBAI: Fitch Ratings has today placed Qatar Real Estate Investment Company Q.S.C. (Alaqaria) Long-term Issuer Default rating (IDR) and senior unsecured rating of 'BBB+' on Rating Watch Positive (RWP). Fitch also affirmed the Short-term IDR of 'F2'. This follows the announcement that Barwa Real Estate Company Q.S.C (Barwa) will launch a tender offer for the entire share capital of Alaqaria. Any rating action will affect Qatar Alaqaria Sukuk Company's (QREIC) USD300m of outstanding trust certificates (Sukuk) due 2012.
RWP indicates that the ratings could be upgraded or affirmed. Fitch will seek to resolve the rating watch following completion of the acquisition, which is expected towards the end of Q110. The ratings may be positively affected by evidence of stronger state support, for example increased access to government funds, closer strategic linkage with the state or any formal government guarantee of Alaqaria debt obligations. Fitch does not expect any material changes to Alaqaria's business and financial stand-alone profile as a result of the merger.
Under the terms of the proposed merger, which is still subject to final agreement and approval of the relevant regulatory bodies, the Boards of Directors of Barwa and Alaqaria and shareholders, Alaqaria will become a subsidiary of Barwa. However, it will remain a separate legal entity. Following discussions with Alaqaria's management, Fitch notes that this transaction, if completed, will not result in a requirement to prepay Alaqaria/QREIC debt facilities (including the USD300m outstanding trust certificates).
Alaqaria's Board of Directors, management and operations are expected to remain unchanged. Qatari Diar, the property investment arm of the country's sovereign wealth fund, which currently holds a 45% and 27% stake in Barwa and Alaqaria respectively, will keep its 45% equity holding in the combined group.
Alaqaria's current ratings reflect its position as a leading developer of long-term rental housing projects for both state and corporate entities in the State of Qatar. Its ratings also take into account its strong operational and strategic ties with the State of Qatar and state representation on the company's board.
Alaqaria's close business ties with state-owned Qatar Petroleum (QP) and the importance of QP's projects and thus Alaqaria's activities to the State of Qatar, are factored into its ratings and act as a credit enhancement to Alaqaria's standalone credit profile.
In rating this issuer, Fitch has used the master criteria 'Corporate Rating Methodology' dated 27 November 2009 and available on Fitch's website at www.fitchratings.com.
© Arab Times 2010
