Fitch Ratings has affirmed Dubai Holding Commercial Operations Group LLC’s (DHCOG) long-term issuer default rating (IDR) and senior unsecured rating at B, with a stable outlook.
Fitch also affirmed DHCOG’s short-term IDR at B and the Recovery Rating at ‘RR4’. The rating actions also affect the senior unsecured rating assigned to DHCOG’s medium-term notes (MTNs).
As per the agency’s expectation, DHCOG’s rentals and hospitality revenues have shown healthy performance in 2011 and 2012 to date and have potential for a strong start in 2013. However further debt reduction in the coming few years is going to depend on cash proceeds from the completion of its non-core asset and investments disposal plan.
Offices and residential prices and demand are currently stabilising in prime locations in Dubai. However, the benefits Dubai is deriving from being the major preferred destination in the Middle East due to the instability affecting other destinations in the region may not be sustainable over the long term.
Resilient Rentals, Hospitality Revenues: Jumeirah’s Revpar and occupancy rates have proved resilient, with both registering an increase in 2012. Nevertheless, Fitch considers that the main challenge to this sector remains the large supply in the project pipeline and the revival of other tourist markets in the region once political stability returns. Thus Fitch’s base case assumptions continue to be conservative. Pricing and occupancy improvement can be seen in DHCOG’s rental divisions, especially in prime areas bringing DHCOG’s gross rental up in 2012 and the same level is expected for the short term including additional units added during the year.
DHCOG continue to progress with its non-core asset and investment disposal programme. Further debt reduction is expected in the coming few years as a result of cash proceeds from the completion of the asset disposal plan. The company’s successful deleveraging plan could help the rating. However, the group’s inability to execute its asset/divestment plan to further deleverage would have a negative impact on the rating.
Fitch notes that DHCOG will need to raise more debt to finance the fourth phase of the Madinat Jumeirah Project in 2013; however debt is expected to reduce once again over the short term with deleveraging from disinvestments. Significant sustained increase in debt on a DHCOG level could put pressure on the ratings.