Fitch Affirms Majid Al Futtaim Holding LLC 'BBB' Rating; Stable Outlook

Fitch Ratings-Dubai/London-22 March 2012:

Fitch Ratings has affirmed Majid Al Futtaim Holding LLC's (MAF) Long-term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB', with a Stable Outlook. Fitch has also affirmed MAF's Short-term IDR at 'F3'. The rating of MAF Global Securities Limited's global medium-term note (GMTN) programme and MAF Sukuk Ltd were also affirmed at 'BBB'.

"MAF's maintained strong financial metrics in FY10 and FY11, due to its active asset management, despite the challenging property environment in the UAE and exposure to Bahrain and Egypt," says Bashar al Natoor, Director in Fitch's Corporates team in Dubai. "Operational performance was resilient, with the occupancy rate remaining at 98.6% as MAFP benefits from an average lease length of 7.7 years, which compares well with European peers, a quality and diversified tenant base exhibiting an estimated 95% lease renewal rate, and a low tenant default rate below 1%."

The ratings continue to reflect MAF's status - through the property arm of the group, Majid Al Futtaim Group Properties LLC (MAFP) - as one of the largest property investment companies in the Middle East and North Africa region (MENA). The consolidated group has a total retail area of 943,471sqm and MAFP had net fixed assets valued at AED29bn as at FYE2011.

MAFP's centres are prime sites due to their strategic locations in major cities, up-to-date leisure and entertainment facilities and the availability of large parking lots. MAF is also involved in the development of wholly-owned hotels in close proximity to MAFP's shopping mall assets.

Through MAF Retail LLC (MAFR), MAF is also one of the most active retailers in the region, with the exclusive franchise for Carrefour S.A. ('BBB'/Stable) in the Middle East, covering 19 countries mainly in MENA and central Asia. MAFR currently operates 44 hypermarkets across 11 countries and 38 "Carrefour market" stores. The hypermarkets are lodged in a joint venture (JV) with Carrefour SA, 75% of which is owned by MAFR and the remaining 25% by Carrefour SA. In its analysis, Fitch de-consolidates MAFR from group results but takes into consideration the likely sustainable dividend paid by MAFR to its JV owners.

As at February 2012 MAF had over AED7.7bn of liquidity (cash + available lines), of which AED6bn is at the level of MAFH and MAFP. Fitch also notes that in 2011 and 2012 MAF has improved MAF's maturity profile to an average of four years. In 2011 MAF Group was able to refinance USD1.5bn of maturities due in 2012. MAF has also established a USD2bn EMTN program and a USD1bn Sukuk program. On the 31st of January, MAFH issued a USD400m Sukuk due 2017, marking its first offering in the public debt markets. Fitch also notes that MAF continues to have access to bank facilities, from domestic and international banks. Nevertheless, the group still faces moderate refinancing risks in the coming years with almost AED4bn maturing/amortizing in the coming two years. Accordingly, it has a shorter debt maturity profile compared to EU REITS. MAF is expected to further diversify its funding sources and extend its debt maturity profile.

MAF's management reiterates that cash on the balance sheet is accessible in highly liquid money market instruments held with reliable counterparties. The cash can be used at any time to pay down gross debt. MAF runs a large portion of its business (retail) on a positive working capital cycle related to cash collections and term payables. With respect to dividend from retail, MAF effectively controls the dividend policy and also cash can be streamed up to the group via loans.

Fitch expects MAF's EBIT (MAFP rental-derived EBIT and dividends received from MAFR) net interest cover to remain strong, at about 2x in FY12. Although MAF's development pipeline remains large, with potential development exposure of more than AED13bn in the coming five years, MAF's management has stated that its capex is mainly discretionary, not committed, and the maximum exit cost for committed capex at any particular year would be in the range of AED500m.

Downgrade pressure would occur if there was a significant downturn in the markets in which MAF operates, leading to material falls in rental income and interest cover falling below 1.5x over a sustained period. A liquidity shortfall in FY12 and beyond, and/or material reduction in dividends from MAFR would also be considered negative rating factors.

MAF is rated on a standalone basis, including the benefit of MAFP, which guarantees the majority of MAF's debt. As part of its analysis of the group, Fitch calculates the ratio of unencumbered assets to unsecured debt and expects this ratio to be maintained above 2x for an investment grade rating. Fitch notes that two large properties have been developed on land gifted to the ultimate sole shareholder of MAF, Mr Majid Al Futtaim. These properties are held in the shareholder's name for the beneficial interest of MAF. Properties which are built on land gifted by the Ruler of Dubai cannot currently be sold or finance leased, separately, without the prior consent of the Ruler. This limitation could have an impact on the enforceability of these assets under a stress scenario. Unless mitigated, Fitch expects this feature to impact recovery levels should MAF's ratings deteriorate.

Contact:
Primary Analyst
Bashar Al Natoor
Director
+971 4 4081809
Fitch Ratings Limited
DIFC, Gate Village
PO Box 506527
Dubai

Secondary Analyst
Britta Holt
Director
+44 30 530 1335

Committee Chairperson
Frederic Gits
Managing Director
+44 20 3530 1296

Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.

Additional information is available at www.fitchratings.com.

© Press Release 2012