Tuesday, Dec 15, 2009
The following is a press release from Moody's Investors Service:
Paris, December 15, 2009 -- Moody's Investors Service has today downgraded Tamweel Tamweel PJSC's (UAE) long-term issuer rating to Baa3 from Baa1, following the adjustment of its Baseline Credit Assessment (BCA) to 16 from 14. try{document.write(_banner_zone('zone9339')) }catch(e){}
Tamweel Tamweel 's short-term issuer rating was lowered to Prime-3 from Prime-2.
The outlook on these ratings is negative. The rating on Tamweel Tamweel 's senior unsecured debt -- namely its AED1.1 billion sukuk trust certificates due 2013 -- was also downgraded to Baa3 from Baa1, with a negative outlook.
Today's downgrade, based on the adjustment in Tamweel Tamweel 's BCA to 16 from 14, is driven by the following factors:
- The deterioration of Tamweel Tamweel 's standalone financial profile in the wake of materially higher funding costs heightened provision charges and frozen asset growth and the very limited capacity to absorb increasing charges with higher volumes, which has driven profits into negative territory for three consecutive quarters.
- The high dependence on concentrated wholesale funding, which amplifies Tamweel Tamweel 's liquidity risks and force indirect government support.
- The delays in the merger and support process from the authorities, placing Tamweel Tamweel in a difficult operating position which, in turn,weakens its franchise value.
According to a recent official statement, Tamweel Tamweel and its direct Dubai-based competitor Amlak Finance (not rated) are to be merged under the auspices of the Ministry of Finance Ministry of Finance of the United Arab Emirates (UAE) Federation.
Moody's understands that the combined entity, once legally merged, could be granted a full banking licence, which would provide it with the ability to raise more granular and stable retail funds. Despite such plans, for which very limited public information has been made available so far, Moody's sees limited upside potential embedded in Tamweel Tamweel 's ratings.
Despite the two rating actions taken this year, the outlook on Tamweel Tamweel 's ratings is negative. As a monoline focusing on mortgage lending, Tamweel Tamweel is not in the business of corporate lending and it has no direct exposure to Dubai World. However, Tamweel Tamweel 's operations are primarily based in Dubai. As such, it is expected to suffer from the spill-over effects of the Dubai World restructuring given the close correlation between the overall economic climate and the dynamics of the property sector in Dubai.
This link suggests that another wave of stress in the Emirate's real estate sector will likely contribute to weakening Tamweel Tamweel 's business opportunities, franchise value and recovery prospects. Moody's also notes that, although the merger will likely go forward, failure to do so would place material downward pressure on Tamweel Tamweel 's ratings.
In line with Moody's methodology for government-related issuers, its key rating inputs for Tamweel Tamweel are: (i) its Baseline Credit Assessment (BCA), which is currently 16 (on a scale of 1 to 21, where 1 represents the lowest credit risk) (ii) the UAE federal government's Aa2 rating (iii) high dependence and (iv) high support from the Federation.
Moody's previous rating action on Tamweel Tamweel was the downgrade of Tamweel Tamweel 's ratings to Baa1 from A3, following the downgrade of its BCA to 14 from 12, on 6 August 2009. At the time, all ratings were placed under review with direction uncertain.
Copyright (c) 2009 Dow Jones & Co.
(END) Dow Jones Newswires
15-12-09 1148GMT
