"The group's ratings are underpinned by the its strategic responsibility in undertaking various large-scale infrastructure and investment projects of the Dubai Emirate and its ownership of many of the Emirates' free zones aimed at attracting knowledge-based industries", says Philipp Lotter, a Senior Credit Officer at Moody's and lead analyst for Dubai Holding. "High implicit government support is therefore an important factor in the group's ratings",
Lotter adds.
DHCOG's A1 rating reflects the group's intrinsic financial strength and the credit enhancement that can be derived from the financial strength of the Emirate and the group's ultimate owner, His Highness Sheikh Mohammed Bin Rashid Al Maktoum, who is the Ruler of Dubai.
Moody's states that the group's ratings are supported by the beneficial characteristics of the Dubai property market and its particular business model. Government-owned property companies obtain free land grants from the government and are thus able to fund a substantial part of their large-scale developments from land sales and pre-payments. The hidden value from the land bank and the expectation of land-sale earnings for the coming years therefore provide institutional support to the group, despite the overall proportion from this business expected to decline as developments complete. At the same time, the Dubai property market is experiencing unprecedented growth, which is being supported by government initiatives to attract foreign investment.
Ratings also benefit from the fairly stable and recurring rental revenues the group receives from its free zones, which include Dubai Media City, Dubai Internet City and Dubai Knowledge Village, and have successfully attracted international companies to establish presence in Dubai, thereby supporting the government's ambition in establishing a diversified knowledge economy. Furthermore, the group's strong hospitality brand, Jumeirah, which benefits from Dubai's growing tourism sector, adds a further element of diversification and solid margins to the group's business portfolio.
At the same time, ratings are constrained by the cyclical nature of the property industry, and the group's high exposure to a single economy, as well as its ambitious expansion strategy. This includes a number of large-scale projects, including Dubailand and Al Bawadi, a massive tourism complex which will contain the largest hotel in the world, which will rely heavily on the sustained growth and stability of the region in general, and Dubai as a desirable tourist destination in particular.
DHCOG's parent company, Dubai Holding, also owns the group's financial investments and private equity business under Dubai Holding Investments Group. These subsidiaries conduct global investments with no recourse to the parent or DHCOG and Moody's therefore does not assume any support or cross-subsidies from DHCOG to the investment arm, other than DHCOG's stated 30% dividend policy to the parent, proceeds of which may, but need not be applied to the investment arm.
Moody's states that DHCOG's rating outlook is stable, reflecting the rating agency's view that, despite rising investments, the group will maintain a strong financial profile, given its ability to fund most of its domestic projects from land sales and pre-payments. Ratings also assume that the group's ownership structure and the support it can derive from its owner remain unchanged. Moody's has factored some financial flexibility into the rating.
Dubai Holding Commercial Operations Group LLC (DHCOG), based in Dubai / UAE, is a wholly owned subsidiary of Dubai Holding LLC (DH) and incorporates all the non-financial investment businesses of the group.
Dubai Holding was created in October 2004 to consolidate various large-scale infrastructure and investment projects of the Emirate of Dubai, and is 100% directly owned by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, who is the Ruler of Dubai, as well as Vice President and Prime Minister of the United Arab Emirates (UAE). DHCOG operates through five wholly owned subsidiaries, namely Jumeirah, Dubai Properties, Tecom, Tatweer and Sama Dubai.
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Posted by Anne-Birte Stensgaard, Senior News Editor
