Wednesday, Feb 17, 2010

Fitch Ratings-London/Dubai-17 February 2010: Fitch Ratings has today downgraded Dubai Holding Commercial Operations Group LLC's (DHCOG) Long-term Issuer Default Rating (IDR) and senior unsecured rating to 'B+' from 'BB', respectively. Both ratings remain on Rating Watch Negative (RWN). Fitch has assigned a Recovery Rating (RR) of 'RR4', which represents Fitch's Recovery Rating cap for the United Arab Emirates (UAE). DHCOG's Short-term IDR is affirmed at 'B'. The rating action also affects Dubai Holding Commercial Operations Group LLC's MTN.

The rating action reflects Fitch's amended rating approach for DHCOG. The agency now rates DHCOG on a standalone basis rather than a top down parent and subsidiary basis. This is due to a continuing lack of substantive information on the government's ability to support the group in case of need.

DHCOG's standalone rating is now 'B' reflecting the company's weak underlying business and financial risk, but includes an assumption of ongoing operational government support by way of direct cash and land grants. DHCOG's Long-term IDR rating is notched up one notch to 'B+' from the standalone rating of 'B' to reflect Fitch's view on prospective support for DHCOG from the Dubai Government in case of ultimate need.

The ratings remain on RWN, reflecting concerns that the deterioration in market conditions has weakened DHCOG's operational performance, and will result in reduced interest cover with a risk of a covenant breach at the December 2009 year end test date. The RWN also reflects short-term liquidity risk associated with debt maturities in early H210.

A resolution of the RWN will be contingent upon the receipt of DHCOG's audited 2009 annual accounts, confirming the group's ongoing ability to generate cash flow, retain adequate liquidity and avoid a potential covenant breach at the December 2009 test date. The removal of the rating watch will also be contingent upon DHCOG successfully refinancing the upcoming July 2010 facility, or obtaining additional government funds to repay the facility.

Fitch will attempt to resolve the RWN within the coming few months. The resolution of the RWN could result in a downgrade of DHCOG's ratings by more than one notch.

The group is one of the major government-related masterplan developers in Dubai, and has been gifted land by the government to pursue key infrastructure and real estate developments in the emirate. Dubai aims to be a regional hub for commerce, tourism and leisure and DHCOG is central to the long-term attainment of these strategic goals. The government has provided DHCOG with support so far and Fitch expects that an element of operational support will be provided in the future.

DHCOG's standalone rating reflects Fitch's concerns about its weak credit metrics, poor liquidity, a material new funding requirement related to building-out existing projects (around AED11bn in total across 2010 to 2012) and heightened refinance risk, mainly associated with a July 2010 Revolving Credit Facility maturity. Fitch forecasts that at FYE09 DHCOG's net debt/EBITDA could increase to approximately 13x before averaging around 4.5x in the following three years due to improved EBITDA and delivery of projects, (versus 6.7x at FYE08). The agency expects DHCOG's EBITDAR net interest cover will decrease to 1.5x in 2009, and to a range of 4-4.5x in the following three years.

DHCOG is exposed to cyclical industries, principally Dubai's real estate and hospitality markets which could potentially experience increased vacancy rates and a higher risk of buyer and tenant defaults, although the latter would be closely linked to macroeconomic conditions in Dubai. Weakness in these markets is expected to continue through 2010 and 2011 at least.

DHCOG benefits from contracted rental income from TECOM Investments LLC - and to a lesser extent from Dubai Properties Group (DPG) - in addition to Jumeirah Group hospitality income. This should benefit DHCOG's cash flow stability in the future, as it will become the main revenue contributor as property and land developments are scaled back.

DHCOG is effectively 97.4%-owned by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and ruler of Dubai.

In rating this issuer, Fitch used the master criteria 'Corporate Rating Methodology' dated 27 November, 2009. The criteria are available on Fitch's website at www.fitchratings.com.

Contacts: Bashar Al Natoor, Dubai. +971 4 408 1809; Julian Crush, London +44 20 7682 7370; Fitch Sovereign contact: Richard Fox, +44 20 7417 4357.

Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com.

Additional information is available on www.fitchratings.com.

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(END) Dow Jones Newswires

17-02-10 1225GMT