profile search
NEWS
18 Jun | Tuesday
Fitch Affirms Jebel Ali Free Zone FZE at 'B+'; Outlook Stable

 (The following statement was released by the rating agency)
 
 LONDON, June 18 (Fitch) Fitch Ratings has affirmed Jebel Ali Free Zone FZE's 
 (JAFZ) Long-term Issuer Default Rating (IDR) at 'B+', with a Stable Outlook. 
 Fitch has also affirmed JAFZ Sukuk (2019) Limited's senior secured rating of 
 'B+'/'RR4'.
 
 On 11th June 2013, Brookfield Asset Management announced the acquisition of EZW 
 Gazaley LTD from Economic Zones World, part of Dubai World. Under the provisions 
 of JAFZ's AED4.4bn (USD1.2bn) Islamic facility, a guarantee was provided by EZW 
 and linked to the completion of a full or partial disposal of Gazeley, which 
 would lead to a mandatory prepayment but limited to greater of USD300m or two 
 thirds of net cash proceeds. EZW will be making an initial pre-payment of AED1bn 
 on 19th June 2013. This pre-payment is in line with the guarantee given by EZW 
 under Islamic Facility Financing and it represents 90% of the guaranteed amount 
 of USD300m. 
 
 The agency notes the positive impact the sale of Gazaley will have on JAFZ's 
 capital structure, liquidity and debt serviceability. However, it was expected 
 and was considered in JAFZ's current rating, giving the current rating level 
 more headroom.
 
 KEY RATING DRIVERS
 
 Significant Contribution to Economy: The rating reflects the fact that JAFZ's 
 activities are important to Dubai's economy, accounting for approximately 20% of 
 Dubai's GDP, and the fact that they represent a key driver for the development 
 of trade and transport. However all of JAFZ's operations are based in Dubai 
 which entails a high concentration risk. 
 
 Stable Performance: JAFZ's rentals and revenues from the administration of real 
 estate have held up relatively well in the past three years, despite Dubai's 
 challenging real estate market conditions. JAFZ has also maintained satisfactory 
 occupancy rates. Almost 77% of leasable land, 90% of warehouses, 87% of offices 
 and 84% of onsite residential accommodation were occupied as of 31 December 
 2012. 
 
 Dependent on Dubai: JAFZ's business tends to be less volatile and sensitive to 
 asset bubbles than the broader Dubai office market. JAFZ's performance is 
 correlated to the general level of activity in Dubai, which is itself dependent 
 on the health of the regional and global economies as well as regional political 
 stability. Fitch is concerned by the large and increasing supply of rental 
 properties in the free zone sector. 
 
 Improving Liquidity and Debt structure: Fitch upgraded JAFZ's Long-Term IDR to 
 'B+' from 'B' in June 2012 with a Stable Outlook. The upgrade reflected the 
 successful completion of the sukuk offering and bank refinancing, which 
 addressed the refinancing of a sukuk due in November 2012. The agency notes the 
 positive impact the sale of Gazeley will have on JAFZ's capital structure, 
 liquidity and debt serviceability, which was anticipated and part of the 
 financing agreement. However, it was expected and was considered in JAFZ's 
 current rating, giving the current rating level more headroom. . Whereas typical 
 property investment companies reduce leverage by selling assets, JAFZ must 
 generate free cash flow to repay debt, as it does not own its real estate 
 assets, but was granted a usufruct right and concession by the Jebel Ali Free 
 Zone Authority which matures in 2106.
 
 High leverage is a Rating Constraints: The rating is constrained - although 
 improving - by the company's high leverage debt/EBITDA and moderate EBITDAR net 
 interest coverage. With Fitch projected debt/EBTIDA above 4.0x and 
 EBITDA/interest expense remaining below 2.5x during the projected period. 
 
 RATING SENSITIVITIES
 
 Deleveraging Ability: Ability to undertake investment and asset disposal plans 
 leading to significant deleveraging could be positive for the ratings. 
 
 Worsening Market Conditions: Worsening market conditions that negatively 
 affected cash generation ability and deleveraging plans could be negative for 
 the ratings.
 
 Contact: 
 
 Principal Analyst 
 
 Cigdem Cerit 
 
 Analyst 
 
 +902122791011 
 
 Supervisory Analyst 
 
 Bashar Al Natoor 
 
 Director 
 
 +971 44241242 
 
 Al Thuraya Tower 1 
 
 Office 1805 
 
 Dubai Media City 
 
 Committee Chair 
 
 Frederic Gits 
 
 Managing Director 
 
 +33 1 4429 9184 
 
 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: 
 peter.fitzpatrick@fitchratings.com.
 
 Additional information is available at www.fitchratings.com.
 
 Applicable Criteria 'Corporate Rating Methodology' dated 08 August 2012 and 
 'Rating Sukuk' dated 16 August 2012 are available at www.fitchratings.com.
 
 Applicable Criteria and Related Research: 
 
 Corporate Rating Methodology
 
 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
 
 Rating Sukuk
 
 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686349
 
 Additional Disclosure 
 
 Solicitation Status 
 
 http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793844
 
 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 
 PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: 
 HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING 
 DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S 
 PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND 
 METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF 
 CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE 
 AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF 
 CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE 
 SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS 
 SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED 
 ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH 
 WEBSITE.
 
 

(Repeat for additional subscribers)

June 18 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Jebel Ali Free Zone FZE's (JAFZ) Long-term Issuer Default Rating (IDR) at 'B+', with a Stable Outlook. Fitch has also affirmed JAFZ Sukuk (2019) Limited's senior secured rating of 'B+'/'RR4'.

On 11th June 2013, Brookfield Asset Management announced the acquisition of EZW Gazaley LTD from Economic Zones World, part of Dubai World DBWLD.UL . Under the provisions of JAFZ's AED4.4bn (USD1.2bn) Islamic facility, a guarantee was provided by EZW and linked to the completion of a full or partial disposal of Gazeley, which would lead to a mandatory prepayment but limited to greater of USD300m or two thirds of net cash proceeds. EZW will be making an initial pre-payment of AED1bn on 19th June 2013. This pre-payment is in line with the guarantee given by EZW under Islamic Facility Financing and it represents 90% of the guaranteed amount of USD300m.

The agency notes the positive impact the sale of Gazaley will have on JAFZ's capital structure, liquidity and debt serviceability. However, it was expected and was considered in JAFZ's current rating, giving the current rating level more headroom.

KEY RATING DRIVERS

Significant Contribution to Economy: The rating reflects the fact that JAFZ's activities are important to Dubai's economy, accounting for approximately 20% of Dubai's GDP, and the fact that they represent a key driver for the development of trade and transport. However all of JAFZ's operations are based in Dubai which entails a high concentration risk.

Stable Performance: JAFZ's rentals and revenues from the administration of real estate have held up relatively well in the past three years, despite Dubai's challenging real estate market conditions. JAFZ has also maintained satisfactory occupancy rates. Almost 77% of leasable land, 90% of warehouses, 87% of offices and 84% of onsite residential accommodation were occupied as of 31 December 2012.

Dependent on Dubai: JAFZ's business tends to be less volatile and sensitive to asset bubbles than the broader Dubai office market. JAFZ's performance is correlated to the general level of activity in Dubai, which is itself dependent on the health of the regional and global economies as well as regional political stability. Fitch is concerned by the large and increasing supply of rental properties in the free zone sector.

Improving Liquidity and Debt structure: Fitch upgraded JAFZ's Long-Term IDR to 'B+' from 'B' in June 2012 with a Stable Outlook. The upgrade reflected the successful completion of the sukuk offering and bank refinancing, which addressed the refinancing of a sukuk due in November 2012. The agency notes the positive impact the sale of Gazeley will have on JAFZ's capital structure, liquidity and debt serviceability, which was anticipated and part of the financing agreement. However, it was expected and was considered in JAFZ's current rating, giving the current rating level more headroom. . Whereas typical property investment companies reduce leverage by selling assets, JAFZ must generate free cash flow to repay debt, as it does not own its real estate assets, but was granted a usufruct right and concession by the Jebel Ali Free Zone Authority which matures in 2106.

High leverage is a Rating Constraints: The rating is constrained - although improving - by the company's high leverage debt/EBITDA and moderate EBITDAR net interest coverage. With Fitch projected debt/EBTIDA above 4.0x and EBITDA/interest expense remaining below 2.5x during the projected period.

RATING SENSITIVITIES

Deleveraging Ability: Ability to undertake investment and asset disposal plans leading to significant deleveraging could be positive for the ratings. Worsening Market Conditions: Worsening market conditions that negatively affected cash generation ability and deleveraging plans could be negative for the ratings.

((Bangalore Ratings Team, Hotline: +91 80 6677 2513, Bhanu.priya@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: Bhanu.Priya.reuters.com@reuters.net))

Keywords: Fitch Affirms Jebel Ali Free Zone FZE at 'B+'; Out



source: reuters.com
Print Mail Twitter LinkedIn Facebook Google+