Fitch Ratings has upgraded Tamweel Residential ABS CI (1) Ltd’s notes.
“The rating actions are driven by the collateral pool’s good performance, the stabilising performance of the Dubai property market and the upgrade of the servicer and originator, Tamweel PJSC.
“The transaction funds a portfolio of Sharia-compliant property leases due from mainly non-Dubai nationals working in the Emirate. The notes funding the portfolio have already amortised to 15% of their initial balance and credit enhancement has accordingly increased to 64.3% for the class A notes, 56.2% for the class B notes and 51.0% for the class C notes. The notes are currently amortising on a pro-rata basis and will switch to sequential when the outstanding note balance has reached $21m (10% of initial note balance). The over collateralisation currently amounts to $16.5m and is due to large available excess spread,” Fitch in a statement said.
Since inception, Fitch added, there have not been any reported defaults. Fitch believes that this is due to the nature of the lease contracts, which allow the lessees to terminate the contracts voluntarily without further payment obligation. As the property titles are with the originator, these are being sold or repurchased by Tamweel and the proceeds are passed on to note-holders. To date, 334 of initially 595 properties have been sold or repurchased. The generated proceeds have accounted for 62% of collateral collections and are continuing to fund a large portion of note payments. As of June 2011, the collateral pool totals 254 leases. Installments in arrears by more 0 to 90 days are at 1.2% of the initial pool balance and 0.8% are in arrears by more than 90 days.
Tamweel’s rating was upgraded following Dubai Islamic Bank (‘A’/’F1’) acquiring a controlling interest in the company. The Dubai property market saw rapid growth in 2007 with house prices doubling within one year. After suffering a 50% drop in 2008, it has now been stable since 2009 and Tamweel returned to profitability in 2010 on the back of declining provisions and improved funding costs. Earnings could strengthen further after Tamweel resumed lending in Q111 after a two-year delay. New business originated by the company is highly selective and in Fitch’s opinion, does not unduly compromise its risk position given that property prices are 50% below the peak.