Fitch Affirms Qatar Real Estate Investment Company At 'BBB+'
Published Thursday, 24 May 2012 14:25 | Written by Amwal Al Ghad
Fitch Ratings has affirmed Qatar Real Estate Investment Company Q.S.C.'s (Alaqaria) Long-term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB+', and Short-term IDR at 'F2'. The Outlook on the Long-term IDR is Stable.
Qatar Alaqaria Sukuk Company's (QREIC) USD300m Sukuk bonds (due 2012) senior unsecured rating has also been affirmed at 'BBB+'.
"The ratings reflect Alaqaria's strong business model, robust lessor profile and above-average lease duration for the region. Finance leases provide stable, long-term rental income, which are underpinned by off-take arrangements with Qatar Petroleum and government-related entities typically 10-15 years' duration, and operational leases agreements of between five and 25 years with Qatar Petroleum -related companies," says Bashar Al Natoor, Director in Fitch's EMEA Corporates team in Dubai. "These arrangements continue to provide Alaqaria with sound defensive qualities during the region's property downturn, as proven by the company's stable financial performance to date," Al Natoor added.
The ratings also reflect Alaqaria's low counterparty risk, as most of its projected income is due to come from strong credits, and the benefits from a guaranteed rate of return on its contracts with Qatar Petroleum (QP) or QP-related entities. Under Fitch's parent and subsidiary methodology, Alaqaria's 'BBB+' rating benefits from a two-notch uplift from its standalone rating of 'BBB-' to reflect the strategic and operational relationship with state-related entities as a leading developer of long-term rental housing projects for both the state and corporates in Qatar.
Ratings that factor in implicit state support will always be subject to the very real event risk of changes in political approach by the sovereign. Any change in the government implied support, commitment or ownership of Alaqaria could also have negative rating implications for Alaqaria.
Historically, Alaqaria's ratings have been constrained by being under-capitalised (equity base of QAR2.4bn as of FYE11), in view of the large forward order book (approximately QAR8.4bn uncommitted, only QAR466M committed) and the associated increase in future funding requirements. With no clarity on how this will be undertaken and financed, this factor continues to be a major concern. Nevertheless Fitch notes, that in 2012 Alaqaira decided to use the fair value method to value its investment properties, which will have a positive effect on company's LTV and gearing.
In 2012, along with the support coming from completed projects, Fitch expects gearing to decrease to %76 (159% FYE10), and the LTV to reach 54% (63% YE10). On the other hand, the interest cover (Fitch-adjusted EBITDA interest cover ratio BASED ON P&L) was down to in FYE11 to 2.0x from 3.5x at end-2010, Fitch does not expect this deterioration to be structural as the increase in cash interest is due to the settlement and re-financing of QAR1bn from QNB & QIIB Facility, which was based on a bullet interest payment at maturity. Fitch expects interest cover (Fitch-adjusted EBITDA interest cover ratio BASED ON P&L) to normalize around 3.5x for the coming three years.
Fitch also believes that Alaqaira improved current liquidity position is sufficient to cover its upcoming Sukuk payment in August 2012. Fitch believes the liquidity risk that could emerge would be mitigated by Alaqaria's continued access to local banks financing and government support if needed.
The ratings could be downgraded if there is a loss of preferential status with the state or with QP, an inability to maintain historical rates of return on new projects, a downturn which leads to significantly lower net interest cover or a substantial increase in leverage. The ratings could be upgraded if the company's ability to achieve higher returns from new contracts improves or if there is a substantial increase in the absolute level of long-term rental streams, any formal support from the state, Reuters reported.
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