Fitch Ratings has downgraded Emirates REIT’s (ER) long-term issuer default rating (IDR) following the refinancing of its $400 million sukuk, whose completion was announced last week. 

The IDR is now downgraded to restricted default (RD), while simultaneously, ER’s rating is upgraded to CCC+. However, Fitch has also withdrawn ER’s ratings for commercial reasons. The agency said it will no longer provide analytical coverage for the REIT, giving no other reasons than commercial reasons.  

In a rating action commentary, Fitch said the 'RD' IDR reflects the “distressed debt exchange” (DDE), in which ER’s $400 million sukuk notes were refinanced as $380 million of new two-year (plus one year) secured instruments, with new terms and conditions.  

ER’s IDR had been 'C' since May 2021, reflecting Fitch's expectations that a form of distressed debt exchange would take place, the agency said. 

Among key ratings drivers was the extending of the refinancing risk. Fitch said ER successfully refinanced the sukuk certificates, but given the short two-year maturity, refinancing risk remains, and the principal outstanding has only been reduced by $20 million.  

“The certificates include a one-year extension option, but this can only be exercised if the outstanding debt is reduced by at least $150 million and higher rates will apply,” the agency said. 

“Nevertheless, repaying debt will likely mean disposing of assets, which will reduce cashflows, or raising equity, or refinancing through new debt.” 

However, Fitch added that operating conditions continue to improve in the UAE, with high oil prices and following early border reopening post-pandemic, with increased demand for prime offices and education real estate, which makes up the bulk of REIT’s portfolio.  

(Reporting by Imogen Lillywhite; editing by Cleofe Maceda)