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Global Credit Research - 03 Mar 2011
USD300 million of rated debt instruments affected
DIFC - Dubai, March 03, 2011 -- Moody's Investors Service has today downgraded to Baa2 from Baa1 the local
and foreign currency long-term issuer ratings for Qatar Real Estate
Investment Company P.Q.S.C. (known as QREIC
or Alaqaria) and the rating for the USD300 million Trust Certificates
due 2012 (sukuk) issued by Qatar Alaqaria Sukuk Company. The outlook
was changed to stable. Today's rating action concludes the
review for possible downgrade.
The downgrade of the ratings follows Moody's reassessment of the
company's standalone credit fundamentals, as indicated by
its baseline credit assessment (BCA) of 11 (equivalent to Ba1 on the global
rating scale). The BCA takes into account (i) the more complex
ownership structure following the closure of the transaction with Barwa,
and (ii) financial metrics more commensurate with Ba-characteristics
for property investment companies after taking into account an expectation
that Alaqaria's development pipeline will again begin to expand
in the future, especially for the second phase of the Mesaieed housing
project. The BCA nevertheless also factors in the high quality
nature of its cash inflows resulting from the long-term contractual
rental income from very solid off-takers such as Qatar Petroleum
(rated Aa2), its quasi-monopolistic position for residential
housing in key industrial developments as well as the track record the
company has established over time.
Although the government's stake in Alaqaria has increased from 27%
to 45% (or 60% if additional stakes of other government-related
entities are taken into account), the stake is now held through
Barwa Real Estate Company, which acquired 100% of Alaqaria
in May 2010 and is in Moody's opinion a weaker entity given the
highly levered financial profile in addition to the extraordinary support
Barwa continues to rely upon from its main shareholder, Qatari Diar.
The current ownership structure therefore moves Alaqaria further away
from the government as a support provider by introducing complexity in
the ownership structure. Moody's recognises that this is
mitigated to some extent by the fact that Barwa currently does not control
the board and the representation that Alaqaria will continue to operate
as an independent company. Nevertheless, there is technically
the risk that Alaqaria's cash flows could be upstreamed to Barwa
in the future.
Moody's views Alaqaria as a government-related issuer (GRI)
and has left unchanged the assumptions of strong government support.
The support is bolstered by -- albeit indirect -- government
ownership of 45% through Barwa and an additional 15% through
other government-owned entities, the board membership of
government representatives as well as the role as an ancillary service
provider to key government projects in the country's hydrocarbon
The stable outlook is underpinned by the strong cash flow visibility provided
by the lease agreements and expectations that higher cash flow will lead
to deleveraging and that the company will continue to maintain solid liquidity
that will meet short to medium term financing needs. In addition,
Moody's expects Alaqaria to deliver on its financial projections.
To preserve the Baa2 ratings, Moody's would expect Alaqaria
to maintain fixed charge coverage of around 2.0x and net debt to
EBITDA below 7.0x.
Positive pressure on the ratings could occur were fixed charge coverage
to exceed 2.5x and net debt to EBITDA to be below 6.0x on
a sustainable basis. Conversely, downward pressure on the
ratings could emerge should (i) Alaqaria experience a shift in strategy
or pursue major commercial projects increasing materially the overall
risk profile of its property investment portfolio; or (ii) financial
metrics sustainably deteriorate to ranges outside the guidance outlined
above for the current rating category. As the final ratings are
linked to Moody's strong support assumption, a deterioration
in the BCA or Moody's assessment of the probability of extraordinary
support would have negative implications for the rating.
The last rating action on Alaqaria was implemented on 13 January 2010,
when Moody's downgraded Alaqaria's rating by two notches to Baa1 from
A2 and maintained the rating on review for possible further downgrade
following the announcement of the company's acquisition by Barwa.
The principal methodologies used in this rating were Government-Related
Issuers: Methodology Update published in July 2010, and Moody's
Approach for REITs and Other Commercial Property Firms published in July
Headquartered in Doha/Qatar, Qatar Real Estate Investment Company
provides housing and related facilities in industrial cities under long-term
contracts to Qatar's growing hydrocarbon sector. Accordingly,
its earnings are predominantly generated from long-term rental
contracts with government and quasi-government tenants.
The company also has a small commercial real estate business. QREIC
is 100% directly owned by Barwa Real Estate Company QSC and 45%
indirectly owned by Qatari Diar.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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DIFC - Dubai
Asst Vice President - Analyst
Corporate Finance Group
Moody's Middle East Limited
Telephone: 00971 4237 9536
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Middle East Limited
Moody's downgrades Alaqaria's ratings to Baa2 with a stable outlook (Qatar)
Gate Precinct 3, Level 3
P.O. Box 506845
DIFC - Dubai
Telephone: 00971 4237 9536
No Related Data.
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